NEW YORK — The furor over American International Group Inc.'s million-dollar payouts to employees who nearly toppled the insurance giant is turning a spotlight on what critics say is frequently an abuse in the way corporate executives are paid.
AIG is shelling out $450 million in so-called retention bonuses. Such payouts have been used for years to keep coveted employees from jumping ship during periods of corporate upheaval, typically caused by a merger or bankruptcy. Compensation experts say the bonuses can serve a legitimate purpose, especially if the workers getting them are likely to lose their jobs within months.
But as overall executive-pay levels have surged in recent years, executives increasingly have used retention payments to ladle out more money to themselves while walking out the door, critics say.
Executives "have been using these as a vehicle to scoop extra compensation for themselves for years," said David DeBoskey, an executive-pay expert at San Diego State University. "Retention bonuses have been used for nefarious purposes to enrich executives of organizations where their futures are uncertain. When your future becomes uncertain, you look for a quick hit and it comes in the form of a retention bonus."
Retention bonuses have been overshadowed in recent years by other forms of executive pay -- such as salaries, regular annual bonuses and stock options -- that generated far louder howls of protest.
But retention pay was thrust into the executive-compensation debate with the disclosure by AIG that it paid $165 million to employees of its financial products division.
The unit made disastrous bets on securities known as credit-default swaps that ultimately led to billions in losses and necessitated a government bailout costing $170 billion to keep a failure of the company from bringing down the global financial system.
The securities were essentially insurance contracts in which AIG guaranteed investment banks and hedge funds that it would cover losses on mortgage-related bonds, whose values plunged as the housing downturn set in.
Outrage over the bonuses intensified Tuesday as New York Atty. Gen. Andrew Cuomo revealed that 73 AIG workers got bonuses of $1 million or more, including 11 who have since left the company.
The biggest payout was $6.4 million, and the top 10 people took home $42 million, Cuomo wrote in a letter to Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee.
