“By APARAJITA SAHA-BUBNA And SERENA NG American International GroupInc. held back $21 million in bonus payments Monday to former employees, according to a person familiar with the matter, a move that could set the stage for more battles over employment agreements that have enmeshed the insurer in controversy for a year. "I'm disappointed with AIG's decision to unlawfully withhold the earned compensation of the hard-working people at AIG," said Andrew Goodstadt, an attorney who represents about a dozen former and current employees at AIGFP, AIG's financial-products unit. This division was responsible for the soured trades that precipitated the U.S. government rescue of the company in 2008. In some cases, it appears that AIG held back 25% of the payments due the former workers, said Gary Phelan, an attorney who represents eight former AIGFP employees. "You don't pay an employee 75% of their wages unless you expect to litigate the issue," Mr. Phelan said. AIG "could be liable for twice the $21 million they gouged from these employees." Also Monday, AIG paid $46 million in retention payments to current and former employees of the financial-products unit. The payments were made mostly to former workers who left the company after parts of AIGFP were wound down or sold. Five current employees will divide about $6 million. View Full Image Reuters An AIG spokesman declined to comment. But in a five-page white paper submitted last March to the Treasury Department at a time of public and congressional outrage over roughly $165 million in retention payments AIG made in March 2009, the company said, "Outside counsel has advised that AIG is legally obligated to pay and, under applicable law, risks a doubling of the amount owed as a penalty." This time around, however, it appears AIG believes the terms of the contracts enable it to limit payouts under certain circumstances. Under the agreements, the company can reduce the retention payments by the amount of income former workers have earned after their departure from AIG. AIG executives hope that $46 million payout will represent the final round of retention payments, or bonuses, arising from contracts with unit employees agreed upon before the company's bailout. About $105 million was paid out last month as mostly current employees agreed to accept a smaller amount in exchange for an earlier payout. The goal of holding back the $21 million is two-fold. First, AIG needs to come up with $5 million more to satisfy pay czar Kenneth Feinberg's demand that the insurer recoup about $45 million of the bonuses paid in March 2009 following public outrage over the payouts. AIG employees, mostly current and some former, have agreed to return $40 million, in part by accepting lower 2010 payouts. More broadly, during that controversy, then-chief executive Edward Liddy committed to trying to reduce the overall retention bonuses the company had to pay to AIGFP employees. Mr. Feinberg has urged that goal be met. AIGFP by the Numbers Retention payments originally owed March 15, 2010: $236 millionAmount paid so far: $105 million Other savings achieved by AIG due to employee give backs, resignations, business sales and other factors: $64 million Amount remaining: $67 million Amount AIG estimates it's entitled to keep: $21 million Amount it will pay March 15th: $46 million Of the $46 million, $6 million will go to five current employees Both AIG and Mr. Feinberg have said the employment contracts are legally binding. It appears, however, that AIG believes the terms of the contracts enable it to limit payouts under certain circumstances. Under the agreements, the company can reduce the retention payments by the amount of income ex-workers have earned after their departure from AIG, the person familiar with the matter said. AIG sent out letters about two weeks ago to 60 to 70 former employees, asking them how much income they earned after leaving AIG in 2009. The company thinks it doesn't owe money to some of these employees "because of a variety of factors," said the person familiar with the matter. These "include but are not limited to these former employees earning money away from AIGFP during 2009 as well as other contractual deficiencies." The $21 million AIG thinks it is entitled to hold back would cover the $5 million it needs to reach $45 million, plus about $16 million more. The company may still have to pay a portion of the $21 million to ex-workers who demonstrate that they are owed payments by AIG, the person familiar with the matter said. Journal Communitydiscuss“ A bonus should be paid only after they repay my tax dollars - total disappointment in what is right. ” —Roger Evans Separately, Mr. Feinberg is reviewing new 2010 pay packages for a group of AIG's most highly paid executives, including some at AIGFP. Most of the individuals who created the unit's problematic mortgage trades have left the firm, and the remaining employees at AIGFP are working to close out or unwind thousands of derivatives tied to interest rates, bonds, currencies and commodities. As of March 9, AIGFP has reduced the notional amount of its outstanding trades to $800 billion from $1.9 trillion in September 2008, and the number of contracts to 14,800 from 44,000. Some AIG officials predict it will take at least the remainder of this year for AIGFP to unwind the bulk of its remaining positions and until then, it will need to retain some key individuals to oversee this process. A resolution of the March 2010 retention payments and the terms of new 2010 compensation deals could determine whether the remaining employees at AIGFP stay or depart this spring. Write to Aparajita Saha-Bubna at Aparajita.Saha-Bubna@dowjones.com Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com More In Business Email Printer Friendly Order Reprints Share: facebook Twitter Digg StumbleUpon Viadeo Orkut Yahoo! Buzz Fark Reddit LinkedIn del.icio.us MySpace ”
