Image: Huffington Post
When bailed-out AIG paid monstrous bonuses to its Financial Products employees last year (the people whose derivatives deals almost ruined the company), people got mad. This year, AIG is doing it again. Thanks to two-year-old contracts, it will pay Financial Products employees about $100 million in bonuses today. The Washington Post explains how AIG is actually trying to climb out of a PR mess with the bonuses:
This week’s retention payments go to those employees at the company’s Financial Products division who agreed recently to accept 10 to 20 percent less money than AIG had initially promised them two years ago. In return, they are to receive their payments more than a month ahead of schedule.
As the housing bubble was collapsing and the company’s trading in financial derivatives called credit-default swaps was starting to cost the company billions of dollars, AIG officials instituted the guaranteed retention payments to keep employees during the coming period of financial instability. Financial Products employees were promised more than $400 million in retention pay, with lump sums due in March 2009 and March 2010.
Government and AIG officials agreed last year that the bonuses at Financial Products, however unsavory they might seem after the company’s multiple federal bailouts, were legally binding. That explanation did not sit well with millions of Americans who were out of work and whose tax dollars had gone to prop up the faltering insurance giant.
While many in the public and on Capitol Hill have been angered by outsize paydays at financial firms, the AIG retention bonuses have been especially rankling because the company has received a federal rescue package of about $180 billion in loans, stock investments and other commitments from the Federal Reserve and the Treasury Department.
Once the AIG employees are paid what they were promised in their contracts, AIG bonuses won’t be a scandal anymore. At least that’s what the company assumes.
Last spring, AIG employees also informed the company that they’d return $45 million in compensation by the end of 2009. To date, $20 million has been repaid, according to the Washington Post.
So, AIG gets bailed out by the government. It promises its employees handsome compensation. It tells its employees to pay back some of their money, which they do, kind of. Then it honors a two-year-old compensation contract, paying those employees those same handsome bonuses. It hopes everything is over.
This still smells bad. It will for a while to come.