AIG staff have handed back less than half of $45 million of controversial bonus payments that they promised to return earlier this year.

The Wall Street Journal (WSJ) said that workers at AIG’s Financial Products business (AIGFP) had given back $19 million to the troubled financial group but were reluctant to return the remaining $26 million until they learned how President Barack Obama’s new pay czar planned to cut their compensation.

The WSJ quoted a report to be released tomorrow by Neil Barofsky, the special inspector general who oversees the Government’s $700 billion bailout fund.

Mr Barofsky investigated the circumstances around the March payment of $165 million in retention bonuses to employees at AIGFP. The bonuses infuriated taxpayers and lawmakers because AIGFP was widely blamed for pushing the insurer close to collapse by selling insurance on high-risk derivatives, necessitating a $182 billion Government bailout last year.

Timothy Geithner, the Treasury Secretary, came under fire for failing to stop the bonus payments.

After being subjected to protests outside their homes, some AIGFP executives promised to hand back their bonuses. But Mr Barofsky found that just $19 million had been returned by the end of August.

AIG is one of seven bailed-out companies that must submit their compensation plans to Kenneth Feinberg, the Pay Czar, for approval.

The WSJ said that AIG executives were waiting to see how much Mr Feinberg planned treat a further $198 million in retention payments still to be made before deciding whether to hand back their payouts. Mr Feinberg is expected to reveal his decision in the coming weeks.

The inspector general said the Treasury was surprised by the size of the $165 billion payment in March because it had not sought “any detailed information about the scope of AIG's very substantial, and very controversial, executive compensation obligations”.

Mr Barofsky also gave additional details on the range of retention bonuses paid, from $700 for a file administrator to more than $4 million for one executive vice president.

About 62 per cent of AIGFP employees received bonuses of more than $100,000.

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