American International Group Inc , the insurer that has received billions of dollars in federal aid, withheld $2.4 million in bonuses due to be paid to dozens of senior managers on July 15.

The AIG decision was disclosed by George Madison, the nominee to be U.S. Treasury general counsel, in answer to questions from Sen. Charles Grassley. Grassley disclosed Madison's answer in a public statement.

A source close to the matter said Madison's information was correct. The bonuses were not paid because AIG is still working with Washington compensation czar Kenneth Feinberg on a number of issues, the source said.

AIG declined to comment, and a Treasury spokesman did not immediately respond to questions on the matter.

Feinberg was appointed last month to oversee the compensation of top executives at seven firms that have received large federal bailouts, including AIG.

AIG is reviewing its compensation plans with Washington as it tries to avoid a repeat of the nationwide outrage last March when the company paid $165 million in retention bonuses to employees of a financial products unit. Roughly half of AIG's $99 billion in losses last year stemmed from derivatives written by that unit.

Bonus payments were due for about 40 senior AIG executives last week for their 2008 performance. In total, the group was awarded about $9 million, to be paid in installments in 2009, contingent on certain targets related to AIG's restructuring.

Once the world's largest insurer, AIG has received more than $80 billion in federal loans in successive bailouts since its near-collapse last September. In total, U.S. taxpayer aid of up to $180 billion has been extended to keep the company afloat.

AIG is in a tricky spot over bonuses, promised before the federal bailout. Paying bonuses risks raising the ire of taxpayers and lawmakers, but not paying them risks alienating employees who might then leave the company. AIG's chief executive has argued it is important to retain staff if the company is to successfully restructure and repay its federal loans.

AIG is in the midst of reducing liabilities at its financial products unit, and selling or spinning off some of its prized insurance operations in a bid to repay taxpayers.

In total, AIG last year agreed to pay more than $1 billion in retention payments and performance bonuses to employees.

(Reporting by Lilla Zuill; Additional reporting by David Lawder in Washington; editing by John Wallace)

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