AIG bonus row rekindled by $100m 'retention' plan

Employees of AIG's disaster-stricken derivatives business are drawing renewed political fire after reneging on promises to hand back a portion of last year's bonus, and amid news that they are just days away from receiving another $100m (£63m) in "retention payments".

The insurance firm, which is being propped up with $180bn of US taxpayer aid, says that it has recouped a total of $39m out of $45m originally promised when its bonus arrangements hit the headlines and caused a public outcry one year ago. Last year's bonus total for the 400 current and former employees was originally set at $168m, and this year's for $198m. About $100m was being distributed yesterday, ahead of schedule, and the final total remained murky.

Political reaction was sharp. Tim Geithner, the US Treasury Secretary, said the pre-bailout contracts used for these payments were "outrageous... They should have never been permitted."

The AIG derivatives business, which was known as the financial products group and which had its headquarters in London, was at the centre of the trading which brought down the firm, and almost brought down the financial system in 2008. Employees there had written hundreds of billions of dollars of insurance on mortgage-related bonds which AIG was unable to cover when those bonds lost their value.

Now under government control, the firm has been mired in controversies over pay, with furious infighting among staff, past and present. Many are holding out for the bonus payments to which they are contractually entitled, and executives fiercely resisted efforts by the Obama administration's pay tsar, Ken Feinberg, to limit future payments.

Mr Feinberg said he believed this would be the final controversy over pay at AIG. "It ends this March with the last of these retention payments. These are the old grandfathered payments," he told ABC television. "Another month or so, these old, guaranteed bonuses will be a thing of the past."

Late on Tuesday, AIG said it had found a replacement for its general counsel, Anastasia Kelly, who quit last year in protest at pay cuts. The company said it had hired Thomas Russo, who was one of the senior lawyers at Lehman Brothers when that firm collapsed two days before AIG in September 2008.

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