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October 13, 2009 at 08:00 PM
Treasury Department officials could have avoided the American International Group Inc. bonus controversy if they had carefully examined the company’s compensation system, investigators say.
The Office of the Special Inspector General for the Troubled Asset Relief Program published that conclusion along with a finding that, rather than exercising oversight over compensation, Treasury let the Federal Reserve handle the matter.
The problem with delegating the matter is that Treasury had “limited communications” with the Federal Reserve, SIGTRAP officials write.
SIGTARP has based the report on an investigation into the extent of knowledge and oversight by the Federal Reserve and Treasury officials concerning AIG bonus plans, including retention payments issued to AIG Financial Products unit staff members.
AIG Financial Products’ disastrous derivatives activities forced AIG to seek a multi-billion-dollar government bailout that included TARP aid.
“Considerable Congressional and public outcry resulted from AIG making $168 million in retention and award payments to a large group of its employees in March 2009,” SIGTARP officials write in their report.
In October 2008 after the government arranged to shore up AIG, Federal Reserve Bank of New York officials began looking at AIG companies’ decentralized compensation and bonus plans, the investigators write.
The arrangements had a total value of about $1.75 billion.
“Although [New York Fed officials] learned of the size of the impending payments and their timing among other things, it is unclear whether FRBNY officials knew that thousands of dollars in payments would go to non-essential AIGFP support employees, such as kitchen and mailroom employees,” officials write.
“Treasury invested $40 billion of taxpayer funds in AIG, designed AIG’s contractual executive compensation restrictions and helped manage the government’s majority stake in AIG for several months, all without having any detail information about the scope of AIG’s very substantial and very controversial executive compensation obligations,” officials write.
“Treasury’s failure to discover the scope and scale of AIG’s executive compensation obligations, in particular at AIGFP, potentially resulted in a missed opportunity to avoid the explosively controversial events and created considerable public and Congressional concern over the retention payments,” officials write.
The SIGTARP officials say that, while they see no indication that Treasury Secretary Timothy Geithner “had personal knowledge of the AIGFP bonuses until March 10, 2009, three days before they were paid, this too suggests a failure of communication.”
