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TARP Official Tells Congress Little Attention Was Paid to AIG Pay During Bailout

October 15, 2009
Related Topics: Miscellaneous Legal Issues, Compensation Design and Communication, Retention, Latest News
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Compensation plans at American International Group Inc.—including controversial retention bonuses—were given little consideration by the Treasury Department when the government bailed out the company last year, according to the special inspector general for the Troubled Asset Relief Program.

In testimony before the House Oversight and Government Reform Committee, Neil M. Barofsky told the committee that the Treasury Department had paid “scant attention” to AIG’s compensation structure—which involved 620 corporate and business unit programs—after the federal government rescued the company last fall, and instead relied on information given by the Federal Reserve Bank of New York, which was focused on AIG paying back government assistance.

In fact, Treasury Department officials didn’t even know the magnitude of the retention payments that would be paid to employees of AIG’s Financial Products unit, which was blamed for the company’s near collapse, until two weeks before the March payout.

Virtually everyone at the unit received retention awards, according to a report prepared by Barofsky, which noted that even a kitchen assistant was paid $7,700.

The distribution of the retention bonuses—of which about $168 million were paid in March with an additional $198 million to be paid next March—prompted an uproar among lawmakers, who demanded the funds be paid back. About $69 million already had been paid in late 2008.

Barofsky told the panel that the payments were not subject to compensation restrictions because they had been made possible by agreements in place before February 11.

He noted that Kenneth Feinberg—the special master charged with overseeing executive compensation at AIG and other major TARP recipients—has been attempting to recover $45 million in payments made to the most highly compensated executives, but AIG management has said reclaiming the entire amount would be difficult because many of the employees that originally received retention awards have left the company.

A little more than $19 million had been returned as of August 31, according to Barofsky’s report.

In his report, Barofsky noted that Feinberg “has informed AIG management that the total should be reduced,” but added that Feinberg’s office “has not indicated by how much this amount is to be reduced.”

“We’re certainly all hopeful AIG will follow his recommendations,” Barofsky told the panel.

Feinberg will appear before the House Oversight and Government Reform Committee in two weeks, Rep. Edolphus Towns, D-New York, the panel’s chairman, said Wednesday, October 14.


Filed by Mark A. Hofmann of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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