AIG Would Have Paid the Bonuses Anyway

Ryan Grim had a nice scoop over the weekend: He uncovered a September 2008 letter from AIG's SEC filing in which Edward Liddy talks about the company's bonuses (or some portion of the bonuses). According to the Liddy letter, AIG committed to paying the bonuses even if the company experiences a "Change in Control":

I'm pleased to award you a Special Cash Retention award of $[•], payable in two installments of $[•] and $[•], on or about December 31, 2008 and December 31, 2009. Additional terms of the award are set forth at the end of this letter.

in the event the AIG entity that is your employer (the "Company") experiences a Change in Control (e.g., consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the sale or other disposition of all or substantially all of the Company's assets to an entity that is not an affiliate of the Company), AIG guarantees the payment of the 2008 Special Cash Retention award on the dates and under the conditions specified above.

I find two things about this letter interesting. One is that the letter is dated after the government takeover. But Liddy's argument has been that the controversial bonuses were approved before he was CEO. So does that mean these bonuses are something different? Here's Liddy in the Washington Post:

What also became clear is that once AIG's relationship with the government and taxpayers changed, our behavior as a company needed to change. [...] Make no mistake, had I been chief executive at the time, I would never have approved the retention contracts that were put in place more than a year ago. It was distasteful to have to make these payments. But we concluded that the risks to the company, and therefore the financial system and the economy, were unacceptably high.

Second, Liddy's letter is explicitly NOT guaranteeing the 2009 bonuses. Buy the company has previously made the argument that it is legally obligated to pay its previously awarded bonuses, of which this seems to be one. (From the AIG white paper on compensation: "Outside counsel has advised that AIG is legally obligated to pay and, under applicable law, risks a doubling of the amount owed as a penalty.") So what will happen to the bonuses that are supposed to be awarded in December of 2009? According to the SEC report, the company and the Department of Treasury are negotiating.