AIG paid more than $40m in controversial retention bonuses to staff at its troubled financial unit in December, three months ahead of schedule, according to the resignation letter of an executive at the insurance group.

News of the decision to pay bonuses of $165m to staff at AIG sparked political outrage and protests in the US Congress, after the insurer was bailed out with $173bn of public money last year. Before the publication of the letter, momentum on draconian legislation to claw back bonuses had begun to slow.

Jake DeSantis, a manager in AIG's Financial Products unit, said AIG "accelerated by three months (the payment of) more than a quarter" of the $165m of retention bonuses due to the division's employees.

"That action signified to us your support and was hardly something that one would do if he truly found the contracts 'distasteful'," Mr DeSantis wrote to Edward Liddy, AIG's government-appointed chief executive, in a letter first published in The New York Times.

Mr Liddy earlier called the bonuses "distasteful" in an appearance in the House of Representatives.

The House voted for a 90 per cent tax on bonuses at AIG and other financial institutions that have taken government funds.

The leading members of the Senate finance committee have drawn up proposals for a 70 per cent tax.
AIG, which is 80 per cent controlled by the government, confirmed on Wednesday that a payment of about $50m was made in December to AIG-FP's employees but declined to comment on whether that was ahead of schedule.

Mr DeSantis, an 11-year AIG veteran whose last job was to head the business development unit for the commodities operations, added that in October AIG's management reassured employees "on three occasions" that it would honour their guaranteed bonuses.

Merrill Lynch sparked protests this year when the Financial Times revealed it had brought forward the payment of about $4bn in bonuses by a month in December, just days before its takeover by Bank of America was due to be completed.

However, with most of the AIG bonuses being paid back amid public and political outrage and the threat of legal action by Andrew Cuomo, the New York attorney-general, the momentum on the legislation had slowed.
Mr Cuomo this week said 15 of the top 20 recipients had agreed to return the bonuses and that he hoped to be able to recoup around $80m.

Max Baucus, the Democratic senator who heads the finance committee, said on Wednesday that his bill was "not off the table" but acknowledged that the pace of its progress had faltered.

President Barack Obama has looked to tread a fine line between expressing anger at the bonuses and avoiding demonising Wall Street.

Copyright The Financial Times Limited 2009