No matter what your complaint is with President Obama, you have to admit that he has stood fast against making empty gestures to assuage the American public’s anger with the bailouts and the fact that a lot of taxpayer money has gone to line the pockets of big (failing) company executives.

“I’ve always believed that our system of free enterprise works best when it rewards hard work,” President Obama said in remarks at a White House event honoring veterans. “But it does offend our values when executives of big financial firms — firms that are struggling — pay themselves huge bonuses even as they continue to rely on taxpayer assistance to stay afloat.” (CNNMoney)

Oh that’s great, I’m sure taking away a few billion in bonuses will fix things right up. Great job Mr. Feinberg (he is our ‘pay czar’ you know).

But some compensation experts have warned that actions taken by the Obama administration could have a disastrous series of unintended consequences, including the loss of top employees to companies that are not hindered by government restrictions.

Oh well, God forbid these companies lose the top employees who were the cause of the financial disaster in the first place. We certainly want to have the best of the worst for top American companies like AIG.

The commitments amount to more than $30 million of the $165 million in bonuses awarded earlier this month by the troubled insurer.

Cuomo said he still hopes that more AIG employees will return their bonuses. He expects his office will be able to recoup about $80 million of the money the insurer paid out — roughly the amount of bonuses paid to American employees.

AIG Chief Executive Edward Liddy told Congress last week that some of the employees were willing to give the money back. AIG has come under heavy criticism because the bonuses were given to employees after the company received $170 billion in government bailout money. Cuomo had sought the names of the employees who received bonuses from Liddy through a subpoena.

“I applaud the employees who are returning the bonuses,” Cuomo said during a conference call with reporters. “I think they are being responsive to the American people.”

Cuomo said 9 of the 10 people receiving the largest awards have agreed to return their bonus. Additionally, 15 of the top 20 bonus recipients have consented to returning their money. Cuomo said some have refused to return the money, while others are still considering it.

“We are deeply gratified that a vast majority of Financial Products’ senior leadership have expressed a willingness to forsake their recent retention payments,” wrote spokeswoman Christina Pretto in a statement e-mailed to The Associated Press. She added that the company is continuing to review the responses of the other employees.

Cuomo said he doesn’t plan to release the names of the employees who have agreed to return the bonuses, and said there is no implied threat that if an employee doesn’t consent to returning the bonus that their name will be released.

He said his office is continuing to assess the security of the employees.

About 400 employees and future employees in AIG’s financial products division received bonuses. Documents provided by AIG to the Treasury Department said the awards ranged from $1,000 to nearly $6.5 million. Seven employees were to receive more than $3 million. Last week Cuomo said AIG paid bonuses of $1 million or more to 73 employees, including 11 who no longer work there.

Separately, Connecticut’s consumer protection division has subpoenaed AIG, demanding that the contracts and names of employees who received the bonuses be provided by March 27. Gov. M. Jodi Rell has said she wants the division to determine whether the bonuses can be voided under the Connecticut Unfair Trade Practices Act.

AIG’s financial products division is headquartered in Wilton, Connecticut.

Connecticut Attorney General Richard Blumenthal says his office also demanded the bonus recipients’ names and the amounts.

Last week, the House passed a plan to slap a punitive, 90 percent tax on bonuses paid to AIG employees whose family income surpasses $250,000. Not all of the AIG employees earned more than the income threshold specified by the House bill.

But President Obama has signaled opposition to the House’s tax bill on constitutional grounds.
The Senate is soon expected to take up its own plan on the tax.

(Updates with comments from senators and Liddy meeting lawmakers Tuesday.)

WASHINGTON -(Dow Jones)- Senate Democrats Tuesday were preparing legislation that would levy up to a 91% excise tax on the bonuses paid to executives at American International Group Inc. (AIG) that have stirred outrage.

In a letter sent to Edward Liddy, AIG’s chairman and chief executive, 10 Democratic senators urged him to renegotiate the $165 million paid out in bonuses to executives at the company’s troubled financial products division.

If not, the letter said, lawmakers wouldn’t hesitate to recoup the bonuses through legislation.

“We stand ready to take the difficult, but necessary step of working to enact legislation that would allow the government to recoup these bonus payments, perhaps by imposing a steep tax – as high as 91 percent – that will have the effect of recovering nearly all of the bonuses that have been paid out since AIG turned to taxpayers for help,” the letter said.

Liddy was installed as head of AIG after the federal government stepped in last year to rescue the ailing insurer.

Senate Majority Leader Harry Reid, D-Nev., reiterated the threat of legislation later Tuesday, saying that if the bonuses aren’t returned, “we’ll have the opportunity in the next few days to pass legislation which I think will pass overwhelmingly.” Reid said the legislation will be introduced within the next 24 hours.

Several Senate Republicans, including Sens. Charles Grassley of Iowa and Olympia Snowe of Maine, are in discussions with Senate Finance Chairman Max Baucus, D-Mont., on potential legislation.

Grassley said that while he hasn’t lent his support to any specific legislative approach at this point, “I want to see that we do everything we can constitutionally to claw back that money.”

Since last autumn, taxpayers have pumped more than $170 billion into AIG to keep the beleaguered company afloat. This past weekend, the company disclosed that around $90 billion of that money had been paid out to third parties it had outstanding contracts with, including large U.S. and international banks.

House Majority Leader Steny Hoyer, D-Md., said he was unsure how legislation could be drafted that would impose a tax against executives working for a particular firm.

He said one possibility would be to pass a law targeting bonuses paid out by any firm that had received taxpayer money through the Troubled Asset Relief Program.

A senior Democratic Senate aide acknowledged that writing a bill with a narrow scope would be difficult, and any effort would likely affect more than just AIG executives.

The aide said one idea being debated would be to impose the tax on firms that had received a certain amount of taxpayer money, or establish a threshold of public ownership at which point the excise tax would be applied.

Since the financial markets came to the brink of collapse last year, the taxpayer has assumed around an 80% ownership stake in AIG. The government has, in effect, taken over Fannie Mae (FNM) and Freddie Mac (FRE), and has also taken equity in a number of large banks.

The federal government’s stake in Citigroup Inc. (C) could reach as high as 36% if it required a further injection of taxpayer money, officials said recently..

Despite his doubts about imposing a tax aimed at reclaiming the bonuses, Hoyer said there’s no question in his mind the executives should give the money back, noting if “they had any common sense at all,” they would.

“If they were at all sensitive to what the American people had done to keep their company afloat … they would simply give this money back.”

House Minority Leader John Boehner, R-Ohio, reserved his anger for the Obama administration’s handling of the AIG situation.

At a press conference Tuesday morning, he questioned why officials agreed to give AIG an additional $30 billion only weeks ago, without ensuring there were sufficient controls in place to limit how the firm used the money.

“I think this is outrageous, and I think the American people are rightly outraged that their tax money is going to pay bonuses to the very people that got this company in trouble,” Boehner said.

The AIG bonuses will provide ample fodder for questions and criticism during Liddy’s scheduled appearance before a U.S. House subcommittee on Wednesday. Members of the House Financial Services panel’s capital markets subcommittee have harshly criticized the bonuses and the rescue of the firm, and are expected to press Liddy on the compensation during the hearing.

Liddy held a series of closed door meetings with lawmakers on Tuesday, ahead of the hearing, in part to discuss some of the lawmakers’ concerns.

-By Martin Vaughan and Corey Boles, Dow Jones Newswires; 202-862-9244; martin.vaughan@dowjones.com

Anger grows over AIG’s employee payouts, but it may not amount to much.

When word got out that AIG, the failed insurer that exists thanks only to $170 billion of taxpayer money, would be paying out $165 million to honor employee retention payouts, the response was swift, sharp and predictable.

President Barack Obama said the government would “pursue every legal avenue to block these bonuses and make the American taxpayers whole.” New York State Attorney General  Andrew Cuomo sent a letter Monday to AIG (nyse: AIG – news – people )’s (nyse: AIG – news – people ) management demanding to know if the employees getting the money were involved in the company’s bad bets, and demanded to see the precise terms of the contracts.

Whether it turns out to be political posturing remains an open question. AIG chief Edward Liddy told Treasury Secretary Tim Geithner the company’s “hands were tied” and “outside counsel has advised that these are legal, binding obligations of AIG, and there are serious legal, as well as business, consequences for not paying.” According to AIG, they were advised that not only are they obligated to pay by March 15, but if they try to ignore the contracts, the penalty is paying double. AIG says the Connecticut Wage Act, as well as employment laws in France, Japan, the U.K. and Hong Kong, could give employees legal recourse to quit and sue.

Some of the incentives are quite large–seven employees are set to receive $3 million or more, AIG says. Most are more modest; the smallest incentives are only $1,000. Going forward, AIG Financial Product’s top 25 executives have agreed to take $1 salaries for the rest of 2009. AIG says they are mostly unwinding their operation now, and their losses (and hence taxpayer losses) would be even greater if they lost the employees, some of whom have detailed knowledge of AIG’s most complex financial agreements. Paying these guys to stay, unfortunately, may prove more cost effective than paying the company’s lawyers to fight them.

More important, the bonus issue is distracting from a bigger mess: the $44 billion in taxpayer funds AIG paid out to make good on payments due other financial firms. That sum includes $7 billion to Barclays (nyse: BCS – news – people ), $6.4 billion to Deutsche Bank (nyse: DB – news – people ), $4.9 billion to BNP Paribas (other-otc: BNPQY.PK – news – people ), $3.3 billion to HSBC (nyse: HBC – news – people ), among others. Many of those payments went, without restriction, to the coffers of the same Wall Street banks who paid out $20 billion in bonuses in 2008.

Don’t expect a change anytime soon, though. In the White House’s daily press briefing, Press Secretary Robert Gibbs was asked continually about bonuses and not once about payments to foreign banks and hedge funds. A Treasury official told Forbes Monday afternoon that the government would add provisions to $30 billion in new bailout funding that would require repaying taxpayers for the bonuses, and said several repayment arrangements were being considered. Payouts for the other firms? No word on that so far.

Ironically, in the case of AIG, government involvement may have exacerbated all these problems. Under a traditional bankruptcy, all of AIG’s obligations would have been up for review, all payouts frozen by a court. Bankruptcy law is a well-established field with rules to proceed. Bailout law is still a gray area. “But for the government bailout, what would have happened to AIG?,” asks Roman Silberfeld, a managing director specializing in complex litigation at Robins, Kaplan, Miller & Ciresi. “It would have ended up in a bankruptcy court somewhere.”