According to a report from the special inspector general overseeing the $700 billion financial bailout Kenneth Feinberg, the special master for executive compensation, “has informally advised AIG not to pay the full $198 million” employees expect to receive.

Feinberg is locked in negotiations with the seven companies that received the most expensive taxpayer bailouts. AIG's was by far the largest. The government committed more than $180 billion to wind down the New York-based insurance and financial services conglomerate. Treasury now owns about 80 per cent of AIG.

The bonuses will go to employees of AIG's financial products division. Their bad bets on complex financial derivatives helped sink the company. To secure its bailouts, AIG argued to Treasury that its failure would doom the broader financial system.

News about the bonuses in February sparked public and congressional backlash. At the time, Treasury officials said there was no legal way to break the contracts guaranteeing bonus payments, but Feinberg's move appears to undermine those claims.

The company has asked employees to return some of the money voluntarily.