But Timothy Geithner, the treasury secretary, has asked AIG to scale back future bonus payments where legally possible, an administration official said on Saturday.

The official, who spoke on condition of anonymity because of the sensitivity of the issue, said that Geithner had called Edward Liddy, the AIG chairman, on Wednesday to demand that Liddy renegotiate AIG's current bonus structure.

Geithner termed the current bonus structure unacceptable in view of the billions of dollars of taxpayer support the company is receiving, this official said.

Contractual obligations

In a letter to Geithner dated Saturday, Liddy said that outside lawyers had informed the company that AIG had contractual obligations to make the bonus payments and could face legal action if it did not do so.

Liddy said in his letter that "quite frankly, AIG's hands are tied", although he said that in light of the company's current situation he found it "distasteful and difficult" to recommend going forward with the payments.

Liddy said the company had entered into the bonus agreements in early 2008 before AIG got into severe financial straits and was forced to obtain a government bailout last fall.

The large bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.

'Retention pay'

A white paper prepared by the company says that AIG is contractually obligated to pay a total of about $165 million of previously awarded "retention pay" to employees in this unit by March 15.

The document says that another $55 million in retention pay has already been distributed to about 400 AIG Financial Products employees.

The company says in the paper it will work to reduce the amounts paid for 2009 and believes it can trim those payments by at least 30 percent.

Bonus programmes at financial companies have come under harsh scrutiny after the government began loaning them billions of dollars to keep the institutions afloat.

AIG is the largest recipient of government support in the current financial crisis.

Restructuring vow

AIG also pledged to Geithner that it would also restructure $9.6 million in bonuses scheduled to go a group that covers the top 50 executives.

Liddy and six other executives have agreed to forgo bonuses.

The group of high-level executives getting bonuses will receive half of the $9.6 million now, with the average payment around $112,000.

This group will get another 25 per cent on July 14 and the final 25 per cent on September 15.

But these payments will be contingent on the AIG board determining that the company is meeting the goals the government has set for dealing with the company's financial troubles.