At Request of Crowley and Kanjorski, AIG Reduces Employee Payout Plan by $93.3 Million
Today, Congressman Paul E. Kanjorski (D-PA), the Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, and Congressman Joseph Crowley (D-NY), a Member of the House Committee on Ways and Means, commended American International Group’s (AIG) announcement that it will defer spending $93 million in payouts to employees. As a result of the Congressmen’s inquiries, the company made this change to its previously announced plan to terminate several deferred compensation plans and accelerate the payout of $366 million to several thousand AIG employees and agents.
Congressmen Appalled at Efforts by Federal Reserve and Treasury to Effectively Oversee AIG
After AIG originally disclosed its intention to terminate these plans, Congressmen Kanjorski and Crowley complained about these payouts to AIG employees at the expense of American taxpayers. As a result, AIG examined and reworked its plan. Today’s announcement is encouraging evidence of AIG’s willingness to work openly and cooperatively when reminded of its indebtedness to American taxpayers. However, it also underscores a failure of the Federal Reserve and the Treasury Department to effectively monitor AIG which has now received commitments to obtain more than $150 billion from the federal government.
“The Federal Reserve and the Treasury have the responsibility to oversee AIG,” said Congressman Kanjorski. “Because such large amounts of taxpayer money are at stake in AIG and because AIG previously improperly used that money for frivolous junkets for its employees, Congressman Crowley and I felt compelled to look into the details of this plan. I am appalled by the lack of oversight by the Federal Reserve and the Treasury on this matter. I am also very concerned that they are not thoroughly examining companies, like AIG, that have received significant amounts of federal funding. Our overseers must step up to the job.
“I am very pleased AIG will revise their deferred compensation payout plan in response to the concerns raised by myself and Congressman Kanjorski, and I look forward to continuing to work with them as they further restructure and responsibly repay – with interest – the taxpayers,” said Congressman Joseph Crowley. “We are experiencing the worst economic crisis since the Great Depression, and significant steps must be taken to put our economy back on track. Taxpayer dollars used in this effort must, however, be used carefully and responsibly. While the Bush Administration has not adequately monitored how the federal recovery funding is being used, I have no doubt the President-elect Obama and the newly-sworn in Congress will expand oversight over AIG and the other recipients of federal TARP funding to ensure our tax dollars are used properly.”
In November, AIG announced that it would terminate fourteen deferred compensation plans and pay out those plans to help retain key employees. Deferred compensation plans allow an employee to receive a portion of his income at a later date than when it is actually earned. In AIG’s case, employees would receive these payments after they retired or left AIG. In order to discourage key employees from leaving AIG, it decided to terminate some deferred compensation plans and to pay out some $367 million during the first quarter of 2009. Though conceived by AIG executives, the Federal Reserve and the Treasury Department both reviewed this accelerated payout of $367 million in deferred compensation before the public announcement of a final plan. Unfortunately, the Federal Reserve and the Treasury Department did not thoroughly vet AIG’s plan.
Following AIG’s November announcement, Congressmen Kanjorski and Crowley contacted AIG to determine details of the accelerated payout of the deferred compensation plans, including the number and salaries of individuals who would benefit from these actions. By cooperating with the Congressmen’s request, AIG realized that more than $90 million of the payouts would have gone to former employees and agents, and therefore would have no impact on retaining key personnel. AIG volunteered to revise its payout plan so that it no longer applies to former employees and agents.
In responding to Congressmen Kanjorski and Crowley’s concerns about the payout plans, AIG also identified $3 million that would go to several of the top seventeen AIG executives who are subject to limits on compensation under the economic rescue package which was enacted on October 3. At the Congressmen’s urging, AIG agreed to revise its payout plan so that it does not apply to the top seventeen executives, resulting in a total of $93.3 million that will no longer be paid out at this time.
Starting this past fall, the federal government provided more than $150 billion in financial aid to AIG. Under AIG’s agreement with the federal government, it will reimburse taxpayers for the money it borrowed plus interest. It is in the taxpayers’ best interest that this money be repaid.
“While I commend AIG for cooperating with our inquiry, I still have many questions about the developments that led to a federal rescue of AIG, and the Federal Reserve’s and the Treasury’s ongoing oversight, or lack thereof, of that intervention,” said Congressman Kanjorski. “This case provides a prime example of how a minimal review of AIG can result in a better use of taxpayer money.”
Due to the lack of oversight from the Federal Reserve and the Treasury Department, this week Congressmen Kanjorski and Crowley will send a letter to Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson, Jr. asking that they explain what system of review and oversight has been established for AIG and why this oversight system approved $93.3 million in questionable “retention” payouts to senior AIG executives and former AIG employees and agents.