American International Group Chairman and Chief Executive Officer Edward Liddy strongly defended his company's decision to pay retention bonuses to key employees, saying that keeping top people on board is critical if AIG is to repay tens of billions in U.S. government loans.

Mr. Liddy's Dec. 23 statement, in an interview on CNBC's "Squawk Box," came in response to a complaint from Rep. Elijah Cummings, D-Md., that AIG was "stonewalling" congressional requests for data on its controversial bonus program.

In an earlier letter in response to the charges from Rep. Cummings and other critics, Mr. Liddy charged that the attacks had become "personal" and served no purpose. "We've disclosed every bonus we've provided, either in a press release or in a [government filing], and we're doing everything in a very transparent way."

He said retaining employees is necessary for AIG to sell assets and survive. "If we don't do that, we will not be able to pay back the federal government," he warned.

Mr. Liddy's defense of retention bonuses came the day after three environmental experts jumped ship at AIG to join a new environmental unit at Navigators Group.

Rep. Cummings has been continually critical of AIG's bonus and retention program as a misuse of federal loans. The latest criticism was lodged after Mr. Liddy was unable to provide detailed data to Rep. Cummings in time for a meeting scheduled on Dec. 18. "I got a letter on [Dec. 16] asking for more information. We simply couldn't provide the information in time...," said Mr. Liddy.

When the meeting was postponed, Rep. Cummings accused the company of "stonewalling" and denounced AIG and others for "stall tactics."

"We're trying to be just as transparent as we can," countered Mr. Liddy.

In a Dec. 17 letter, Mr. Liddy was even more blunt. "Earlier today, and then again this afternoon, I had the opportunity to review your television appearances," he said in his letter to Rep. Cummings. "And, while all of us who hold senior positions of responsibility are accustomed to fair debate in the court of public opinion, I am deeply concerned that our collective effort to save AIG and make the facts known have degenerated into a personal attack on me."

In the letter, Mr. Liddy--a former Allstate CEO who was placed at AIG after its first federal bailout loan--told Rep. Cummings: "I have honorably served in numerous public positions over my more than 35 years in business, and am particularly proud of the integrity and transparency that I have abided by throughout my career."

He added, "I am passionate about the course we are on at AIG--and find it hard to comprehend how such personal attacks can do anything other than distract everyone from the critical task at hand."

Mr. Liddy said retention bonuses are necessary to keep valuable people in their positions, because without them the companies AIG plans to sell to repay the federal loans would be worthless.

"If you don't use retention bonuses, those people are some of the best in the insurance industry," he said. "They will go elsewhere and we won't have anything to sell or we won't get the kind of value that we need."

He said the company is being inundated with requests for information from Congress, and that it is very difficult to keep up with all of them. Mr. Liddy said AIG officials plan to sit down with Rep. Cummings soon after the first of the year to discuss his concerns.

One of the hosts of "Squawk Box," Joe Kernen, said federal intervention is not allowing Mr. Liddy to run the company as he sees fit, and that the lesson to be learned is not to allow the government to intervene in running private business.

Mr. Liddy said that is why it is important for AIG to quickly pay back the federal loan, noting that moves the company has made to satisfy critics of its standard management programs--such as cancelling seminars at posh resorts for top agents--will only undermine its marketing position.

"Over time, that will hurt you," Mr. Liddy said. "An independent agent can sell your product or someone else's."

He said there might come a time when executives will have to stand up to Congress to defend AIG's marketing decisions, but for right now, he concluded, "the better part of valor, I think, would be to sell our good assets at good values and pay down that debt so we can get back to running our business the way we want to run it."

Meanwhile, emphasizing the difficulty of keeping key people while AIG is in flux, Adrien Robinson and his team left AIG to join Navigators Environmental, a new business unit that will focus on underwriting specialized environmental insurance products globally.

Mr. Robinson, who has more than 14 years of experience in the environmental industry, was named vice president and environmental practice leader. Mr. Robinson had been an underwriter and underwriting manager in the Chicago, St. Louis and Cleveland offices for AIG Environmental.

Joining him are Gregory Heidemann and Patrick Crotty, both with the title of assistant vice president and environmental underwriter. Mr. Heidemann was an environmental engineering consultant and underwriter for AIG Environmental in Chicago, while Mr. Crotty, a graduate of the AIG Professional Associate Insurance Program, was an underwriter there.

(With additional reporting by Caroline McDonald.)

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AIG's Chief Exec Defends Need For Retention Bonuses

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