AIG Asks Recipients To Give Back Part Of Bonus

House lawmakers grilled AIG Chief Executive Edward Liddy on Wednesday about the $165 million in bonuses paid out to executives at the firm. AIG is a major bailout beneficiary, and the bonuses have provoked outrage from congressional members as well as the public. Liddy says he has asked some of the employees to return part of the bonus.

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RENEE MONTAGNE, host:

Back in Washington, Congress has heard and become part of the outcry over the bonus payments by AIG, and today it plans to act. The House of Representatives is expected to vote on a hastily drafted bill that would slap a 90 percent tax on big bonuses paid out by companies like AIG that got federal bailouts.

Yesterday, a House panel spent five hours grilling AIG's chief executive. He explained that the bonuses were to retain, to keep people on the payroll who could help AIG wind down its toxic operations and pay back taxpayers. NPR's David Welna has the story.

DAVID WELNA: The $165 million in bonuses AIG paid the employees of its most troubled division is less than one one-thousandth of the bailout money AIG's received since September. But as Georgia Democrat David Scott pointed out at yesterday's House Financial Services panel hearing, those payouts have infuriated both Democrats and Republicans.

Representative DAVID SCOTT (Democrat, Georgia): It's sort of like a stone in America's shoe - a stone that makes it difficult for us to walk this journey, let alone run it where we've got to go - and the American people are demanding that we get this stone out of this shoe.

WELNA: But getting that stone out may not be easy. AIG's CEO, Edward Liddy, appeared before the House panel as a man pulled out of retirement six months ago to lead a firm falling in a death spiral for a salary of one dollar a year. Liddy inherited and honored the contracts for the employee bonuses, but he also sought, yesterday, to make amends.

Mr. EDWARD LIDDY (CEO, AIG): We've heard the American people loudly and clearly these past few days. The payment of large bonuses to people in the very unit that caused so much of AIG's financial trouble does not sit well with the American taxpayer in any way, shape or form, and for a good reason.

Accordingly, this morning I've asked the employees of AIG Financial Products to step up and do the right thing. Specifically, I've asked those who received retention payments in excess of $100,000, or more, to return at least half of those payments.

WELNA: Some AIG employees, Liddy said, have already returned their entire bonus. Financial Services Committee Chairman Barney Frank told him he wanted the names of all those who'd received bonuses.

Representative BARNEY FRANK (Democrat, Massachusetts, Chairman, Financial Services Committee): I do ask that you submit those names without restriction and if you feel unable to do that, then I will ask the committee to subpoena them.

Mr. LIDDY: Congressman, if you'll let me explain, I very much want to comply with your request. I would hope it doesn't take a subpoena. If it does, then we will obviously comply with the law. I'm just really concerned about the safety of our people. So, let me just read two things to you.

All the executives and their families should be executed with piano wire around their necks - my greatest hope. If the government can't do this properly, we the people will take it in our own hands and see that justice is done. I'm looking for all the CEO's names, kids, where they live, etc.

WELNA: Frank promised he'd consult with security officials before bringing the subpoena up for a vote. Other panel members told Liddy 50 percent restitution was not enough. Still, others pressed him on whether AIG would seek more bailout money, having just gotten another $30 billion.

Mr. LIDDY: I do not anticipate asking the federal government for more money. I'd like it very much if we didn't have to draw on the $30 billion. And I'd like to give you a guarantee that that's exactly what will happen. I can't do that because my crystal ball is not that good and I do not know what's going to happen with the value of assets.

WELNA: Liddy said AIG currently owes about $80 billion to the government. His plan for making taxpayers whole begins with reducing the troubled Financial Products division's $1.6 trillion coverage of risky derivatives.

Mr. LIDDY: Because it's the big exposure that we have. If we are successful in doing that, when we are successful in doing that, then we can in fact sell all the good insurance businesses, take those proceeds and pay back the federal government. That's what we're desperately trying to do.

WELNA: Liddy may not want to come back to Congress for more money because lawmakers, such as Democrat Walter Minnick of Idaho say he's not going to get it.

Representative WALTER MINNICK (Democrat, Idaho): We should not now, throw good money after bad. Instead, we should now withdraw taxpayer support and let AIG go bankrupt.

WELNA: But Liddy also has his defenders. Spencer Bachus is the Financial Services panel's top Republican.

Representative SPENCER BACHUS (Republican, Alabama): The people who set the policies that brought AIG to the brink of total collapse are gone. We need to give this new management team the time it needs to get the job done.

WELNA: And that job, Bachus said, could still take another two or three years.

David Welna, NPR News, the Capitol.

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AIG Chief Asks Execs To Return Half Of Bonuses

Edward Liddy, chief executive officer of American International Group. i i

hide captionEdward Liddy, chief executive officer of American International Group, is sworn in prior to testifying before a House subcommittee Wednesday.

Chip Somodevilla/Getty Images
Edward Liddy, chief executive officer of American International Group.

Edward Liddy, chief executive officer of American International Group, is sworn in prior to testifying before a House subcommittee Wednesday.

Chip Somodevilla/Getty Images

Commentary

The head of American International Group told a congressional panel Wednesday that he asked his company's executives to give back part of the retention bonuses that have sparked widespread anger among taxpayers amid a government bailout of the ailing insurer.

"This morning, I have asked the employees of AIG financial products to step up and do the right thing," AIG Chairman and CEO Edward Liddy testified before a House Financial Services subcommittee.

"Specifically, I've asked those who received retention payments in excess of $100,000 or more to return at least half of those payments," he said. "Some have already stepped up and agreed to return 100 percent of those payments."

But Liddy defended $165 million in bonuses that were given out even as the company received billions in government bailout funds. He acknowledged that U.S. taxpayers' patience was "wearing thin" but said his hands were tied by competitive realities.

'Mistakes Were Made'

"It was distasteful to have to make these payments, but we concluded that the risk to the company and therefore the financial system and the economy were unacceptably high," he said, adding that if the bonuses were not paid, the company could lose vital talent that would precipitate a collapse.

"Americans are asking quite simply, 'Why pay these people anything at all?' " Liddy said. "Here's why: I am trying desperately to prevent an uncontrolled collapse of that business."

Liddy also told the subcommittee that "mistakes were made at AIG on a scale few could have ever imagined possible."

"We have been the beneficiary of the American people's forbearance and patience," he said. "And we are acutely aware not only that we must be good stewards of the public funds we have received, but that the patience of America's taxpayers is indeed wearing thin."

Congress, Public Seethe Over Payments

Following Liddy's opening remarks, Rep. Barney Frank (D-MA), chairman of the full House committee, announced that he intended to ask for the names of those who received bonuses.

"If Mr. Liddy declines to give us the names, then I will convene the committee to vote a subpoena for the names," Frank said. "We do intend to use our power to get the names."

Liddy declined to name names out of concern for the safety of his employees, citing threats of violence that had been received.

The bonus issue has exploded since the payments, including 73 of $1 million or more, were made public last week. Average Americans — many of them facing job losses and foreclosures amid the deepening recession — are wondering why their tax dollars should go to highly paid executives who ran their company to the verge of collapse.

The outrage comes at a time when Congress and the White House are still struggling to deal with the faltering economy. The Federal Reserve announced Wednesday that it will start buying long-term government bonds, its latest step to try to lift the country out of recession. The Fed's move to buy up to $300 billion in Treasury securities over the next six months could drive down long-term interest rates.

"Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending," the central bank said in a statement.

The Fed infused an initial $85 billion into AIG last September as the company teetered under the weight of its risky investment insurance business, largely collateralized with toxic subprime mortgages.

Speaking at the White House on Wednesday, President Obama said he had metwith his economic team to draft plans for a "resolution authority" similar to the FDIC that would exert more control over financial institutions.

Acknowledging that "people are rightly outraged by these particular bonuses," the president said that "they should be equally outraged by a culture that these bonuses are a symptom of."

Ultimately, he said, "the buck stops with me."

Seeking To Recover Bonus Money

On Tuesday, Senate Democrats wrote a letter to Liddy demanding that he rescind the bonuses.

In the House, two bills were introduced specifically targeting the AIG bonuses. The bills would slap hefty excise taxes on the payments in an effort to recover at least some of the money.

Frank said he hopes a Depression-era law that allowed $85 billion in Federal Reserve money to go to AIG can be rewritten by Congress to allow legislative oversight.

"I do believe that it is time for us to assert our ownership rights under this arrangement," he said before the subcommittee. "The bonuses are wholly unjustified, and they are an example of the problem with the financial incentives that compensation gives in general."

Treasury Secretary Timothy Geithner has been criticized for his oversight of AIG. The White House has defended Geithner, saying he first learned of the bonuses a week ago Tuesday and told administration officials about them Thursday. The bonus checks reportedly were mailed out the next day.

On Wednesday, the president defended Geithner, saying he was "making all the right moves" in playing a bad hand.

Deals Cut Early Last Year

According to documents provided by AIG to the Treasury Department, the awards ranged from $1,000 to nearly $6.5 million. Seven employees were to receive more than $3 million.

Liddy, who was tapped last year by then-Treasury Secretary Henry Paulson to head the ailing company, will not receive a bonus. In a letter to Geithner over the weekend, the CEO said the deals for the payments were cut early last year, well before he took over AIG.

Geithner told congressional leaders in a letter Tuesday that AIG would be required "to pay the Treasury from the operations of the company the amount of the retention awards just paid."

"In addition, we will deduct from the $30 billion in assistance an amount equal to the amount of those payments," he wrote.

Liddy testified Wednesday that AIG was "too complex, too unwieldy and too opaque ... to be well managed."

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