Compensation Czar: Contracts Mandate AIG Bonuses
ROBERT SIEGEL, host:
$100 million - that's the latest round of bonuses paid out to employees of the embattled insurance giant, and now ward of the government, AIG. Creating even more of a headache for the Obama administration, the money went to the company's financial products division, ground zero for AIG's collapse. To find out how it is that these bonuses just keep coming, we're joined now by President Obama's appointed pay Czar Kenneth Feinberg. Welcome to the program once again.
Mr. KENNETH FEINBERG (Special Master for TARP Executive Compensation): Hello.
SIEGEL: Lots of people have expressed outrage at these payouts. I think most Americans would agree that they're outrageous. You've said there are outrages. Why do they go on?
Mr. FEINBERG: These payments were contracts entered into between AIG and its employees long before the TARP statute was implemented. Now, AIG says these contracts are valid. The employees say these contracts are valid. The Federal Reserve says they're valid. So, this appears to be the last round of old contracts which the Treasury is obligated to acknowledge. And my goal has been to maximize the amount of money that can be saved by the federal government in honoring these contracts.
SIEGEL: But before going on to that, what do you say to people listening who recall that autoworkers had contracts with, what I'll call, Zombie car companies, which, when they were bailed out, the contracts had to be revisited and changed. How is that an insurance company that received far more money than those car companies did
Mr. FEINBERG: Excellent question. The auto companies, of course, filed for federal bankruptcy protection and in the course of the bankruptcy proceedings the contracts were negotiated and modified. Here we have an entity, obligated under the Constitution unfortunately to enforce those binding contracts.
SIEGEL: But do you think that Iowa Republican Senator Charles Grassley might have a point when he says the Obama administration has been outmaneuvered in this deal with AIG, that you didn't get anything vaguely approximating a bankruptcy for $180 billion worth of bailout.
Mr. FEINBERG: I've known Senator Grassley for over 30 years and I have a lot of respect for the man but we have not been outmaneuvered. If anything, we've taken a situation I have - taken a situation where $100 million is due and owing, contractually, and managed to convince both AIG and its officials that that money should be reduced by anywhere up to 25 percent. And AIG agrees with its officials to repay the taxpayer every dime of the 45 million that was orally pledged last year would be repaid.
SIEGEL: In 2009, how well did AIG's financial products unit actually do?
Mr. FEINBERG: I think that there the financial products division has done well in drawing down its remaining book of business. Ultimately, it's my understanding you'd have to ask AIG - that they're trying to wind down this unit all together.
SIEGEL: So, in effect, the issue of retaining talent isn't even germane here if they're drawing down their businesses
Mr. FEINBERG: Well
SIEGEL: it's a going-out-of-business sale you're saying.
Mr. FEINBERG: Well, it's very germane in terms of the time that these contracts were entered into. Now my understanding is the people that are there now are not the people who were involved in the debacle but are people there who remained, and are trying to, draw down the company's liabilities and increase its assets. So, it may not be something that the American people are pleased with. I'm not pleased with it. But understand that these are contracts that were entered into a few years ago when the climate and the economy were different and when AIG was trying as best it could to attract talent.
SIEGEL: Well Kenneth Feinberg, thanks once again for talking with us about this.
Mr. FEINBERG: And I thank you very much.
SIEGEL: Kenneth Feinberg is special master for TARP executive compensation at the U.S. Treasury - in short, he is known as the pay czar
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