AIG Plans Retention Pay for Staff Facing Dismissa

American International Group Inc., the insurer under fire for handing out bonuses after its $173 billion government bailout, budgeted $57 million in “retention” pay for employees who will be dismissed.

AIG disclosed the payments, part of a larger $1 billion program meant to retain staff, in a March 2 filing. The insurer was chastised yesterday by PresidentBarack Obama for awarding $165 million to staff of the derivatives unit blamed for the firm’s near collapse, and New York Attorney General Andrew Cuomo said he’ll subpoena AIG to get details on those payments.

“Spending a billion dollars on retention payments while the company is on its deathbed is ludicrous, particularly when some of those payments are going to employees the company plans to terminate,” said Representative Elijah Cummings, a Maryland Democrat on the House Oversight and Government Reform Committee.

The disclosure on expenses for “employees expected to be terminated” may signal AIG is planning staff cuts after leaving total employment unchanged at 116,000 last year, according to regulatory filings. The U.S. saved the firm from bankruptcy in September, and the company posted the biggest quarterly loss in U.S. history in the three months ended Dec. 31.

“As part of restructuring the company, we will ultimately eliminate jobs that are, at the moment, critical to maintaining ongoing operations and winding down certain businesses,” said Christina Pretto, an AIG spokeswoman. “To have one of these positions obviously implies an uncertain future, and creates an incentive to leave the company. To retain such mission-critical people, we are making retention payments to them.”

The March 2 filing didn’t say how many employees will get portions of the $57 million.

Auto Unit, Lender

The world’s biggest financial companies have cut more than 280,000 jobs since the middle of 2007, according to data compiled by Bloomberg. The total includes about 1,000 cuts at AIG, which trimmed staff at its U.S. auto unit and consumer lender. The regulatory filing that lists 116,000 jobs companywide doesn’t specify which units added or cut staff, and Pretto declined to comment on the total number of workers.

AIG, which got an initial two-year loan for $85 billion in September, created retention programs designed to keep some staff in place through the end of 2009, according to regulatory filings. Under a revised package valued at $173 billion announced this month, the insurer has five years to repay loans by divesting businesses, raising the possibility AIG will have to make more of the payments.

‘Double Down’

“To retain the same individuals for a period further in time, we might be paying out sums of money that are ‘double down’ on a bet that the company will be turned around,” said Frank Glassner, managing partner of Veritas Executive Compensation Consultants LLC.

The company planned to award about 4,600 of its managers and employees a total of about $1 billion, Bloomberg News reported in January, citing two people familiar with the situation. In addition to $450 million for employees in the financial products unit that sold credit-default swaps, AIG was to give about $470 million to staff of three other subsidiaries and $148 million to top executives, according to the people and company filings.

Of the $450 million for the financial products unit, the $165 million in retention pay was for 2008 and due to be paid by March 15, $55 million was paid in December and an additional $230 million was originally earmarked for 2009 retention payments. Chief Executive Officer Edward Liddy has said he wants to reduce the 2009 payments by at least 30 percent.

AIG gave bonuses of $1 million or more to 73 people at the unit, including a top recipient who got $6.4 million, Cuomo said today in a letter to Representative Barney Frank, chairman of the House Financial Services Committee.

Frank said today he is “troubled” that AIG wants to pay extra to keep employees at the unit.

“That leads me to question the judgment,” he said in Washington.