Washington  -

By JIM PUZZANGHERA
Los Angeles Times

WASHINGTON -- The embattled chief executive of American International Group told a congressional subcommittee Wednesday that he had asked employees who received more than $100,000 in retention bonuses to return at least half in response to public outrage over the payments.

"We've heard the American people loudly and clearly the past couple of days," Edward M. Liddy said. Some employees have volunteered to do so, or return all of the bonuses, he said.

Liddy was still fielding questions when House Democratic leaders announced plans for a vote today on legislation to tax away 90 percent of the extra pay for executives at AIG and many other bailed-out firms.

The legislation is designed to recoup most or all of the $165 million by exposing it to new taxes.

Rep. Charles Rangel, D-N.Y., chairman of the tax-writing House Ways and Means Committee, said the new 90 percent tax would apply to bonus money paid to employees making more than $250,000 at firms that have received more than $5 billion in federal bailout funds. Mortgage giants Fannie Mae and Freddie Mac are covered under the proposal.

Majority Leader Steny Hoyer, D-Md., said the bill would be voted on under rules requiring a two-thirds majority for passage. Democrats are in comfortable control of the House but do not control two-thirds of the seats.

Noting he came out of retirement in September to run AIG after the government provided the first portion of a bailout that has reached $182 billion, Liddy said he never would have agreed to the retention bonus plan put in place early last year.

He called the $165 million in bonuses "distasteful." But, given the need for the employees to continue working to restructure the company and get rid of about $1.6 trillion in derivatives to avoid its collapse, Liddy said he decided the payments needed to be made.

"We weigh every decision we make with one priority in mind: Will this action help our ability to pay monies back to the federal government, or hurt it?" Liddy said. "I know $165 million is a very large number. ... In the context of $1.6 trillion and the money already invested in us, we thought that was a good trade."

Liddy said he shares the public's anger over the bailout, which flared this week over revelations that the retention bonuses were going to employees of the same division that led to the company's downfall.

Liddy defended his role and defended the company's 116,000 employees who are making progress in restructuring the company so it can pay the taxpayers back.

"There's a tidal wave of rage throughout America right now, and it's building up," said Rep. Gary Ackerman, D-N.Y. "And that rage is because the taxpayer knows they are the ultimate sucker on the list of who pays for all of the greed that has been going on in the marketplace for years and years."

The hearing was held after Treasury Secretary Timothy F. Geithner said Tuesday that the company would be required to pay the $165 million from corporate operating funds as part of the final terms for a previously announced $30-billion line of credit from the government.

Geithner said the Treasury Department determined it could not block the bonuses, due this past Sunday, because of AIG's existing contracts. But President Barack Obama has ordered his administration to explore all legal means to recoup them.

Fed Chairman Ben Bernanke has been publicly critical of the bonuses, as have Obama, Geithner and congressional leaders from both parties.

The awareness of the impending bonuses by Treasury and the Federal reserve bothered legislators who were not briefed, including Rep. Mike Castle, R-Del.

"We heard from the new CEO of AIG today but were not given opportunity to hear the context of those conversations or if any agreements were made with government officials on the issue of employee bonus distribution," Castle said in a statement. "For access to this information, the committee should have also heard from Federal Reserve and Treasury Department officials today."

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said he would have the committee vote on a subpoena to get the names of all the AIG bonus recipients if Liddy does not release them. Liddy said he would "comply with the law" but was "concerned about the safety of our people."

He said he would give the names of the bonus recipients only on the basis of confidentiality.