AIG’s new management team last year proposed that its employees give up their “retention” bonuses, or at least reduce them. The response from the 370 or so employees set to rake in $450 million in bonuses through 2010?
Take a hike.
“We suggested that early on, but there are people who feel this money was due them,” a source close to the company told The Hill.
It apparently didn’t matter that taxpayers have provided $170 billion and counting to bail out AIG. “*Quants,” the people who put together the computer-programmed algorithms behind the complicated hedges and trades that brought down the company, pushed back hard against any notion they should sacrifice their bonuses, the source said.
If that doesn’t warm the hearts of taxpayers and lawmakers alike, maybe this will: Many of those receiving bonuses already have made enough money not to have to work again.
Not all of the workers in AIG’s financial products division were taking home million-dollar bonuses. But according to New York Attorney General Andrew Cuomo, the division’s top recipient got $6.4 million, while the top 10 bonuses totaled $42 million. Seventy-three people received bonuses of $1 million or more, according to Cuomo, who subpoenaed the company for information.
“It’s terrible; it’s disheartening,” the source said.
That’s the line AIG CEO Edward Liddy is expected to take with Congress on Wednesday during what is expected to be a grilling before a House Financial Services subcommittee.
Liddy, who contributed $2,300 to Sen. John McCain’s (R-Ariz.) presidential bid last year, took on an annual salary of $1 when he came to AIG on Sept. 17, 2008, amid the company’s collapse.
Unlike other corporate executives who have testified over the past year on government bailouts, Liddy did not travel to Washington this week on a private plane; he took the train.
Liddy will tell Congress what he already laid out in a letter over the weekend: that AIG is doling out the bonuses as a business decision. That argument is unlikely to win over many lawmakers, however.
AIG could have decided to keep the money, but determined it might then have had to pay $1 billion in damages in legal fees and lawsuits, more than double what it was contractually obligated to pay the division’s employees in bonuses. It also figured it would have lost the quants, something Liddy and others felt they couldn’t risk.
The beleaguered company believes AIG’s quants, who created the complicated credit swap defaults that got much of Wall Street into the financial crisis, are the only ones who can unwind them. If they leave, it could make today’s crisis worse.
“The risk is, you lose them, you pay close to $1 billion, and you [can’t] unwind the books,” the source said.
For the last three months, AIG worked with officials at the New York Federal Reserve Bank on how they might avoid paying the bonuses, the source said. In the end, AIG decided there was a greater risk to the company of not paying the bonuses.
“Nobody liked the decision. Nobody liked the result, including us,” the source said.
AIG’s previous management signed contracts providing $450 million in bonuses to the financial division. On Friday, $165 million went out the door, and another $230 billion is set to be paid in 2010.
The names of the AIG executives who received the bonuses have not been released.
The Financial Services subcommittee hearing on Wednesday had been scheduled previously, and AIG initially believed it would be about what happened at the company, and that Liddy would tackle questions such as when taxpayers will be paid back for the 2008 bailout.
With the news of the last week, the company expects a dramatically different line of questions.
Liddy will be on the second panel with Rodney Clark, who is managing director of insurance ratings at Standard & Poor’s. Officials from the Office of Thrift Supervision and the Government Accountability Office will testify on the first panel.
by Ian Swanson and Silla Brush
I say, Let Them Fail
*more on Quants