Treasury officials proposed limiting annual bonuses for all employees of American International Group in November, as they were negotiating the government’s first investment in the troubled firm, according to a document obtained by FOX Business.
In a Nov. 5 e-mail to a Treasury and Federal Reserve officials, an outside attorney working on the transaction wrote, “We indicated that UST (United States Treasury) … wants to put in place a limitation on annual bonuses that assure that (AIG) executives/employees will not be enriched out of TARP funds.”
But the e-mail indicates AIG officials pushed back on the proposal. In a section of the e-mail discussing proposed limits on severance packages for AIG employees, the attorney wrote, “They were slack jawed at the idea of imposing the restriction throughout the entire population, especially worldwide.” AIG proposed that Treasury apply such limits “to a class of partners and senior partners (700).”
At another spot in the e-mail, the attorney said about AIG executives, “They will think about ways to deal with the ‘no enrichment’ point. In this connection they again raised the size of the applicable group and kept coming back to ‘700’ as a meaningful, and possibly workable, group for limitations.”
The e-mail also indicates that in their deliberations, government officials were concerned about the effect of compensation on recruiting and retaining AIG employees.
“We also indicated that all parties understand that the restrictions must be designed so that the business can be operated in a reasonable way, including in terms of recruitment and retention of employees,” the attorney wrote in the e-mail.
A key argument in AIG’s defense of its bonus practices has been that bonuses are needed to recruit and retain key employees.
A Treasury official in the department’s general counsel office, Stephen Albrecht, wrote in response to the attorney’s e-mail, “See below. Looks like AIG has some creative thinking to do, but we’ll need to decide to what extent we’re willing to bend.”
Government officials eventually decided to restrict compensation at AIG to just the top 75 company executives. The Treasury agreed to invest $40 billion into AIG.
Congress is considering legislation to limit bonuses at AIG after the company and Treasury disclosed it paid $165 million in 2008 bonuses last week to 400 employees at the AIG’s financial products unit, the division that nearly put the company into bankruptcy last year because it sold insurance coverage on risky securities held by other financial firms.
The Treasury and Fed have committed more than $170 billion to AIG as it seeks to restructure and sell assets. The latest version of the bailout includes a Treasury commitment to invest another $30 billion in the company. AIG has not tapped the funds yet. Treasury officials say they are negotiating tougher limits on bonuses as a condition for dispensing it.