As Congress and the Obama Administration consider legislation to limit bonuses at American International Group (AIG: 1.23, -0.36, -22.64%),
documents obtained by FOX Business show AIG bonuses and other
compensation were reviewed and changed by officials at the Treasury
Department and Federal Reserve in November, when the Treasury made its
first investment of taxpayer funds -- $40 billion -- in the company.
“Have your benefits team made any progress on the ‘soft’ issues, or heard anything from the fed [sic] on the bonus situation?”
a Treasury official wrote in an e-mail on Nov. 1 about the transaction.
Despite
their deliberations at the time, the Treasury and Fed officials, which
were part of the Bush Administration, eventually decided to restrict
compensation on just the top 75 company executives--and some of them
may still have received hefty bonuses.
The e-mails are included in thousands of Treasury documents obtained by FOX Business under a Freedom of Information Act
lawsuit filed by the network for details of the department’s work on the $700 billion Troubled Asset Relief Program, or TARP.
Many details from the documents were eliminated because Treasury argued they contained “privileged” information.
Many
of the Treasury e-mails sent in November discuss compensation at AIG,
particularly for top executives, including compensation for CEO Edward
Liddy, a former insurance-company executive who agreed to take the top
job at the company in September.
“Do you/Treasury want to be involved in helping design/discuss Ed Liddy’s comp package?” one e-mail said on Nov 25.
In
November, AIG announced that Liddy would receive an annual base salary
of $1 for 2008 and 2009. The rest of his compensation, the company
said, would consist of “equity grants.” He also would not receive
bonuses for 2008 and 2009, “although he may be eligible for a special
bonus for extraordinary performance payable in 2010,” AIG said. It also
said he would not be eligible for severance payments.
In its negotiations with
government officials in November, AIG submitted a “compensation
proposal” to them, the e-mails indicate. The emails also indicate
compensation provisions were changed several times. One e-mail, from a
law firm that worked on the transaction, stated, “Please find attached
our comments to the compensation-specific provisions…In a few
instances, we have added comments to explain the thinking behind
certain changes.”
In another e-mail, a person working on the transaction wrote, “We should get the term sheet to the company this morning.
Because the comp section is still in real flux, we will take the content out of the draft to AIG.” The person added that the
“cover e-mail” to the company “will contain the TARP…limitations plus additional restrictions we will get them in the very
near term.” The person also wrote, “Comp people -- please keep that moving and send around a new draft of that section with
an explanation for the recommendations.”
Under
terms of the revised bailout in November, the government applied
“stringent” limitations on compensation on AIGs top five senior
officers, as required under TARP legislation, according to a Treasury
document. But Treasury took an additional step in compensation
provisions, requiring limits on “golden parachute” severance packages
and a freeze on the size of the annual bonus pool for the next top 70
company executives as well.
However, in the details of the term sheet on the assistance, officials specified that the annual bonus pools to the next
70 senior managers – called “senior partners” – for 2008 and 2009 “shall not exceed the average of the annual bonus pool paid
to Senior Partners for 2006 and 2007.
According to company financial documents filed with the Securities and Exchange Commission, as of November 12 last year,
the balance in the senior partners plan was about $6 million. The term sheet also indicates senior partners were eligible
for AIG’s “historical quarterly bonus program” as well.
In their efforts to limit compensation at AIG, Treasury officials appeared concerned over accounting for it to a critical
Congress. In one exchange of e-mails between David Nason, an assistant Treasury secretary, and Jennifer Zuccarelli, a public
affairs officer, discussed televised testimony before Congress in December by Neel Kashkari, the Treasury official managing
TARP:
Nason: How’s it going?
Zuccarelli: Bad. Serious questions, too, not “chump” type questions.
They’re going to start to break Neel down soon, I’m getting worried
he’s going to start snapping.
Nason: This AIG stuff is tough to watch.
Zuccarelli: They killed him on exec comp. He didn’t know answer.
Congress is considering legislation to limit bonuses at AIG after the company and Treasury disclosed it paid $165 million
in 2008 bonuses last week to 400 employees at the AIG’s financial products unit, the division that nearly put the company
into bankruptcy last year because it sold insurance coverage on risky securities held by other financial firms.
The Treasury and Fed have committed more than $170 billion to AIG as it seeks to restructure and sell assets. The latest
version of the bailout includes a Treasury commitment to invest another $30 billion in the company. AIG has not tapped the
funds yet. Treasury officials say they are negotiating tougher limits on bonuses as a condition for dispensing it.