Reporting from Washington — Bailed-out American International Group Inc. said Tuesday it had begun paying about $100 million in early bonuses to employees in the controversial division that nearly bankrupted what was once the world's largest insurance company.
The early payments are part of a deal in which those workers voluntarily agreed to take about $20 million less than what they otherwise would be owed next month.
The arrangement is an effort by AIG to avoid a repeat of the controversy that erupted in March when lawmakers learned of about $165 million in retention bonuses slated for employees of the company's Financial Products division.
It was that division that sold the risky insurance on mortgage-backed securities and other investments that put the company on the brink of collapse in September 2008.
The federal government stepped in with a bailout, eventually committing as much as $182.5 billion in exchange for an 80% ownership stake in AIG. Federal officials said at the time that the rescue was necessary to prevent a failure that could have caused a worldwide economic catastrophe.
The disclosure of the huge bonuses to the Financial Products employees last year fed a wave of public anger and disgust, prompting politicians to look for ways to eliminate or at least minimize the payouts.
In the bonus plan this year, AIG said about 97% of active employees in the division agreed to reduce their 2010 bonus payments, due in March, to help achieve the company's "giveback target." The company owes about $198 million in bonus payments, according to government officials.
"We have decided to begin these reduced payments to these active employees as well as those non-active employees who agreed to reductions," AIG said. "The reductions from these two groups stand at about $20 million, and we believe this allows us to largely put this matter behind us."
About 200 active and former employees will receive the early payments, which were available only to those who agreed to a cut.
The company said that some former employees volunteered to reduce their payments by an additional $4.5 million, but for reasons the company did not specify those offers were not accepted.
Many employees promised to return some or all of their bonuses last year after the uproar, which included legislation that passed the House that would have taxed the bonuses at 90%.
But of the $45 million in promised repayments, only $19 million had been returned as of Aug. 31, according to the special inspector general for the Troubled Asset Relief Program, which with the Federal Reserve provided the funds for the company's rescue. AIG promised to work with those employees "to round out the remaining amount of our giveback target over the next few months."
A Treasury Department spokesman said officials were "encouraged that AIG employees are making good on the repayment pledges they made last spring."
The payments stem from employment contracts signed in 2007 that fall outside the jurisdiction of Kenneth Feinberg, the government's special master for compensation at companies receiving bailout money.
Treasury Secretary Timothy F. Geithner told a Senate committee Tuesday that Feinberg was working on the matter. But that didn't satisfy Sen. Charles E. Grassley (R-Iowa), who said the details of whatever deals are struck with AIG employees on bonuses should be provided to Congress.
"AIG has taxpayers over a barrel. The Obama administration has been outmaneuvered," Grassley said later after reports of the bonus payments. "And the closed-door negotiations just add to the skepticism that the taxpayers will ever get the upper hand."
In a Jan. 15 letter to Grassley, Feinberg said he had "engaged in extensive discussions with AIG officials" about the bonuses since being appointed in June.
Although the bonus agreements were "grandfathered," Feinberg said he had insisted that the salaries of those employees be reduced by the bonus amounts and that employees who had promised to repay the money do so.