Members of Connecticut’s General Assembly Banks Committee convened to question Stephen L. Blake, head of human resources at New York-based American International Group Inc.
The committee, helmed by Democratic state Sen. Bob Duff and Democratic state Rep. Ryan Barry, quizzed Blake on the embattled insurer’s employee retention plan, specifically on how the Wilton, Connecticut-based financial products unit arranged its bonus programs and the company’s reasoning in paying out some $218 million in bonuses.
“The dog-and-pony show is now the three-ring circus,” Republican state Rep. John Harkins said of AIG’s bonus fracas.
“At any point in time, did anyone in human resources or public relations say that [providing the bonuses] might not be a good idea—what would the public think?” he asked.
“The individuals at [the] financial products [unit] have worked hard, and I think our focus is to pay back the taxpayer as fast as we can in an orderly wind-down,” Blake replied.
He said that “approximately 14” members of AIG’s senior management have chosen to return 25 percent of their bonuses, and he noted that Edward Liddy, the company’s chief executive, had asked those employees whose bonuses were higher than $100,000 to give back half their incentive pay.
AIG is also trying to pull back its 2009 payout by 30 percent, and further restructuring of the business during its winding down might require further restructuring of the retention-pay program, Blake said.
Patrick W. Shea, a partner with Los Angeles-based Paul Hastings Janofsky & Walker and counsel to AIG, argued that the insurer has a contractual requirement to pay the bonuses or face the risk of lawsuits by employees for double damages and attorneys’ fees.
“If you promise a bonus to stay, work and perform services, then that fits in the statutory definition [of the Connecticut Wage Act], which says that that’s compensation for labor and services rendered,” he said.
The act, if violated, would require AIG to pay double the damages and legal fees to the executives for improperly withholding the wages due, he asserted.
Further, the federal Troubled Asset Relief Program protects pre-existing contracts, Shea said.
Last week, Federal Reserve Chairman Ben Bernanke cited the wage law as a reason why the central bank couldn’t sue to block the bonuses.
Although the architects of the financial products unit’s losses are no longer with the company, the retention money was paid to keep workers on board to unwind the unit’s $1.6 trillion portfolio, Blake said.
“It’s quite common in businesses that you’re trying to get out of, that you put in some type of retention pay to retain employees in the run-off phase,” he said.
Of the executives who are helping disassemble the portfolio, Blake said that “they know they won’t have a job at the end of the day.”