Message to US taxpayers: “We will get our bonuses….and you will pay for it!”
Dec. 4 (Bloomberg) — American International Group Inc., whose bonuses and perks drew fire from lawmakers after the insurer accepted a federal bailout, will make special retention payments that more than double the salaries of some senior managers, according to a person familiar with the matter.
Some executives among 130 recipients will get more than $500,000, about 200 percent of their salaries, to stay through 2009, said the person, who declined to be named because the information hasn’t been publicly disclosed. An undetermined number of lower-paid employees will also get cash awards to dissuade them from quitting, the person said.
“It seems like more than what you’d need to pay to get people to stick around,” said David Schmidt, a senior consultant at executive pay firm James F. Reda & Associates. “Nobody’s hiring, so where are you going to go?”
Chief Executive Officer Edward Liddy is encouraging top employees at AIG subsidiaries to remain so the units retain their value while he seeks buyers. The New York-based company is selling businesses, including its U.S. life insurance and retirement services operations, to repay loans in a $152.5 billion government rescue of AIG, which had a record $37.6 billion in net losses so far this year.
“We have to hold on to the talented people running our businesses,” said AIG spokesman Nicholas Ashooh, adding that many managers have lost much of their life savings. The executives “have deep business relationships that are not easily duplicated,” he said today in an e-mail. “Our competitors have been trying to hire them for years.”
AIG disclosed the cash-award plan in a September filing without saying how much most of the recipients would get. The majority of the managers will get the first of two installments at the end of this month, said the person.
The awards may equal 100 percent to 300 percent of an executive’s annual salary, and as much as 100 percent for the next round of payments for lower-paid employees, the person said. The retention payments are several times larger than year- end bonuses, which most of the 130 executives will still get in March, the person said.
AIG said in the filing that the 130 payments included $3 million for retirement services chief Jay Wintrob. His award, more than four times his 2007 salary of $775,000, was the only amount disclosed by AIG. While most recipients will get 60 percent of the money this month and the rest in December 2009, AIG said, Wintrob elected to get his first payment in April.
Lawmakers have criticized the retention pay, saying AIG misled the public and that it’s unnecessary to give so much cash to retain employees when job demand is weak. U.S. finance companies have announced 220,506 job cuts this year through November, placement firm Challenger Grey & Christmas Inc. said in a Dec. 3 report.
Taxpayers “did not turn over their hard-earned wages to salvage the savings of an executive on Wall Street who is making hundreds of thousands of dollars a year,” said Representative Elijah Cummings, a Maryland Democrat on the House Committee on Oversight and Government Reform, in an e-mail.
New York Attorney General Andrew Cuomo, who last week praised AIG for scrapping bonuses for its top managers, declined to comment today, said spokesman Alex Detrick.
A spokesman for the New York Federal Reserve, which loaned the insurer more than $100 billion, declined to comment.
Liddy, 62, on Nov. 25 said AIG will freeze salaries and forgo 2008 bonuses for seven top leaders, and his own pay was set at $1 through 2009. The next day, the insurer disclosed that Wintrob will still get the $3 million.
AIG also said the next 50 highest-ranked employees wouldn’t get raises through next year, and that it would ensure that taxpayer funds aren’t used for bonuses and cash performance awards to the top 60 members of management. Their 2008 and 2009 bonuses would be “limited,” AIG said in its statement, without specifying the curbs. AIG said its curbs were stricter than federal rules for companies that accepted Treasury cash.
Financial firms that took money from the U.S. Treasury’s $700 billion rescue fund are under pressure to curb executive pay and perks. AIG followed Goldman Sachs Group Inc. in limiting compensation last month after getting commitments of U.S. capital. AIG’s pay curbs don’t forbid retention pay, which are different from bonuses, Ashooh has said. AIG had 116,000 employees at the end of 2007, according to Bloomberg data.
Cummings, who has called for Liddy’s resignation, said this week that AIG should provide names of those getting retention pay and explain why the awards are needed. Firms accepting taxpayer money shouldn’t enrich employees, he said.
AIG’s rescue package was expanded last month after the insurer was overwhelmed by bad bets on U.S. housing that caused four straight quarterly losses of about $43 billion. The insurer sold credit-default swaps, the contracts protecting against losses on mortgage bonds, that plunged in value as the assets they guaranteed declined.
To contact the reporter on this story: Hugh Son in New York at email@example.com
Last Updated: December 4, 2008 17:42 EST
By Hugh Son