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AIGFP Staff Accepts Cuts on Retention Bonuses

Source: WSJ

Posted on 29 Jan 2010

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Most employees currently at the financial-products unit of American International Group Inc. (AIG) have indicated they will accept cuts in a batch of March retention awards if the bonuses are paid out as early as next week, people familiar with the matter said.

AIG sought the arrangements to help meet requests from U.S. pay czar Kenneth Feinberg that the government-controlled insurer reduce its promised $195 million in March 2010 bonuses to AIG Financial Products employees and recoup $26 million of what it paid out last year.

The company is trying to defuse a potential showdown over the bonus payments at the unit, which was behind the problematic trades that brought the company to the brink of failure in September 2008 and is now in the midst of winding down its businesses.

AIG last week asked current employees of AIGFP if they would accept a 10% reduction in previously promised retention bonuses that are to be paid out by March 15; it indicated that those who agreed would get the discounted payouts by Feb 5.

Employees were given until this past Tuesday to make a decision.

More than 95% of employees told the company they would accept, according to people familiar with the matter. A few volunteered to take a reduction bigger than 10%, the people said.

The reductions for current employees would total roughly half of the $26 million AIG is attempting to recoup, they added. The company is hoping to get the rest from former AIGFP employees who are still entitled to payouts in March.

"The thinking was that employees would work together as a group to find a way" to resolve the bonus issue, said one person familiar with the matter. The person added that the agreements to take lower bonuses are "completely voluntary," and while some employees haven't repaid money they said they would return, others are helping to make up the difference.

Last year, public and congressional outrage erupted over $168 million in retention payments made in March 2009. The outcry led to demands that the money be repaid. By last August, employees indicated they would return a total of $45 million, of which $19 million had been collected, a government audit noted in October. That left $26 million to go, and AIG is trying to reduce the March 2010 payments by more than that amount, using some of the money it saves to cover the 2009 amounts that have to be recouped.

Some of the bonuses AIG is obligated to pay by March 2010 are slated for AIGFP employees who left the company after parts of the business were wound down or sold. AIG asked former employees if they would accept a 20% reduction in the bonuses to get early payouts.

The company hasn't come up with a tally on how many former employees will accept bonus reductions. Some ex-employees in other countries have been hard to reach, according to a person familiar with the matter.

Over the past 16 months, the number of staffers at AIGFP has gone down to 237 from 428, as the company has unwound large amounts of derivatives trades and closed offices in Tokyo and Hong Kong. The firm still has outstanding derivatives with a notional value of $940 billion, and needs to unwind most of the trades in an orderly manner over at least the next year.

The March 2010 awards represent the last batch of retention bonuses that the company committed to pay under contracts written two years ago. Mr. Feinberg is reviewing new 2010 pay packages for a group of AIG's most highly paid executives, including some at AIGFP.