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Less than half of targeted AIG bonuses returned

When word spread earlier this year that American International Group had paid more than $165 million in retention bonuses at the division that had precipitated the company's downfall, outrage erupted, with employees getting death threats and President Barack Obama urging that every legal avenue be pursued to block the payments.

New York Attorney General Andrew M. Cuomo threatened to publicize the recipients' names, prompting executives at AIG Financial Products to hastily agree to return about $45 million in bonuses by the end of the year. The government has committed up to $180 billion to rescue AIG.

But as the final days of 2009 tick away, most of that money remains unpaid. About $19 million has been given back, according to a report by the special inspector general for the government's bailout program.

Some employees who offered to return their bonuses have instead left the company, taking their cash with them. Others remain at AIG Financial Products but are holding their money until they see what Kenneth R. Feinberg, the Obama administration's "compensation czar," decides about whether they should get the future bonus payments they have also been promised.

Feinberg, AIG and government officials have been involved in ongoing negotiations over the status of past and future bonuses at the insurance giant.

Dozens of employees have hired lawyers, bracing for a fight if AIG or government officials try to block the payments.

Cuomo has said little publicly in recent months about the AIG bonuses. Earlier this week, his office had no comment when asked about the payments.

Now, the government, AIG and the employees are on a collision course. Everyone is keenly aware that another round of retention payments at AIG Financial Products is due soon, threatening to draw public attention to the issue once again. AIG is scheduled to pay out an additional $198 million to employees in March.

A resolution to the controversy has been bedeviled by a growing lack of trust between AIG employees and the government.

People familiar with recent discussions between Feinberg and executives at AIG, including face-to-face talks with chief executive Robert H. Benmosche, said Feinberg has insisted that employees return the money before he signs off on any deal involving 2010 compensation.

"Feinberg is adamant those pledges be honored," said one of the people. "It's non-negotiable."

AIG declined to provide official comment.

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