Despite being bailed out with more than $170 billion from the Treasury and Federal Reserve, the American International Group is preparing to pay about $100 million in bonuses to executives in the same business unit that brought the company to the brink of collapse last year.
An official in the Obama administration said Saturday that Treasury Secretary Timothy F. Geithner had called A.I.G.'s government-appointed chairman, Edward M. Liddy, on Wednesday and asked that the company renegotiate the bonuses.
Administration officials said they had managed to reduce some of the bonuses but had allowed most of them to go forward after the company's chief executive said A.I.G. was contractually obligated to pay them.
In a letter to Mr. Geithner, Mr. Liddy wrote: "Needless to say, in the current circumstances, I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them."
The bonuses will be paid to executives at American International Group's Financial Products division, the unit that wrote trillions of dollars' worth of credit-default swaps that protected investors from defaults on bonds backed by subprime mortgages.
An A.I.G. spokeswoman said the company had no comment beyond the text of the letter.
In his letter to the Treasury, Mr. Liddy said A.I.G. hoped to reduce its retention bonuses for 2009 by 30 percent. He said the top 25 executives at the Financial Products division had also agreed to reduce their salary for the rest of 2009 to $1.
But Mr. Liddy defended the need to continue paying bonuses if A.I.G. was going to unwind the rest of its disastrous mortgage-related business at the lowest possible cost to taxpayers.
"We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury," he wrote Mr. Geithner. The government owns nearly 80 percent of the company.
The bonuses were first reported by The Washington Post.
Of all the financial institutions that have been propped up by taxpayer dollars, none has received more money than A.I.G. and none has infuriated lawmakers more with practices that policy makers have called reckless.
Mr. Liddy, whom Federal Reserve and Treasury officials recruited after A.I.G. faltered last September and received its first round of bailout money, said the bonuses and "retention pay" had been agreed to in early 2008 and were for the most part legally required.
The company told the Treasury that there were two categories of bonus payments, with the first to be given to senior executives. The administration official said Mr. Geithner had told A.I.G. to revise them to protect taxpayer dollars and tie future payments to performance.
The second group of bonuses cover some 2008 retention payments from contracts entered into before government involvement in A.I.G. that the company says it is legally obligated to fulfill. The official said Treasury concluded that those contracts could not be broken.
Indeed, in his letter to Mr. Geithner, Mr. Liddy wrote that he had shown the details of the $450 million bonus pool to outside lawyers and been told that A.I.G. had no choice but to follow through with the payment schedule.
A.I.G. did cut other bonuses, he explained in the letter, but those were part of the compensation for people who dealt in other parts of the company and had no direct involvement with the derivatives.
Ever since it was to be bailed out by the government last fall, A.I.G. has been defending itself against accusations that it was richly compensating people who caused what might be the biggest financial crisis in American history.
A.I.G.'s main business is insurance, but it had a unit called A.I.G. Financial Products that sold hundreds of billions of dollars' worth of derivatives — the notorious credit-default swaps that nearly toppled the entire company last fall.
In his letter to the Treasury, Mr. Liddy said that A.I.G. was required to pay about $165 million in bonuses on or before March 15. The company had already paid $55 million in December, but the rest was about to come due.
The bonus plan covers 400 employees, and the bonuses range from as little as $1,000 to as much as $6.5 million. About seven executives at the financial products unit were entitled to receive more than $3 million in bonuses.
Under a deal reached this week, A.I.G. agreed that the top 50 executives in the financial products division would get half of the $9.6 million they were supposed to get by March 15. The second of their bonuses would be paid out in two installments in July in September. To get those payments, Treasury officials said, A.I.G. would have to show that it had made progress toward its goal of selling off business units and repaying the government.
A.I.G. had set up a special bonus pool for the financial products unit early in 2008, before the company's near collapse, when problems stemming from the mortgage crisis were becoming clear and there were concerns that some of the best-informed derivatives specialists might leave. It locked in a total amount, $450 million, for the financial products unit and prepared to pay it in a series of installments, to encourage people to stay.
Only part of the payments had been made by last fall, when A.I.G. nearly collapsed. Another installment is due this month — to people who, it is now clear, were at the very heart of A.I.G.'s worldwide conflagration. The financial products unit is now being painstakingly wound down.
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