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March 15, 2010 Monday 12:59 PM EST
SECTION: PERSONAL FINANCE; Banking
LENGTH: 285 words
HEADLINE: AIG hopes bonus saga entering final chapter
BYLINE: Alistair Barr, MarketWatch mailto:ABarr@marketwatch.com.
Alistair Barr is a reporter for MarketWatch in San Francisco.
SAN FRANCISCO (MarketWatch) — American International Group is withholding $21 million in payments to former employees Monday as the government-owned insurer enters what it hopes is the final chapter of a controversial bonus saga.
The decision to withhold the money is based on contracts that allow AIG (AIG) to reduce payments if former employees make money in new jobs. The payments are reduced by the amount of new income earned, according to a person familiar with the situation.
The withholdings also help AIG meet a demand by government pay czar Kenneth Feinberg that the company recoup roughly $45 million of retention bonuses it paid in March 2009. Those payments, which went to staff of the insurer’s troubled derivatives unit AIG Financial Products, caused a national furor over executive pay last year. .
AIG is also paying $46 million to current and former employees of AIGFP on Monday. These payments and the $21 million withholding are the final compensation issues governed by contracts that were written before AIG was bailed out by the U.S. government in September 2008.
AIG has been working on a new pay-for-performance compensation system and the government still has a say over how top executives at the insurer will be paid.
Still, AIG may struggle to bring this final chapter in the bonus saga to a swift end. The withholding of $21 million could be challenged by lawyers representing current and former employees. The Wall Street Journal reported that AIG may still have to pay a portion of the money to ex-workers who demonstrate that they are owed payments by AIG.
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