American International Group Inc is holding back $21 million from retention bonuses due by Monday to current and former employees of its Financial Products unit, a source familiar with the matter said.

AIG is paying out $46 million to about 70 people, most of whom are former employees of the unit that was behind its near-collapse in September 2008, the source said on Sunday.

The cuts may help AIG exceed a $45 million giveback target that was set after a public outcry over payouts to the unit's employees, the source said, declining to be identified because these payments are not public.

AIG, which is nearly 80 percent owned by the U.S. government after a $182.3 billion taxpayer-funded bailout, had already recovered about $40 million of the giveback target that was set after it paid out $165 million last year to employees.

The insurer was due to pay out another $195 million by March 15. But many AIG Financial Products employees, including almost all current staff eligible for these payments, agreed last month to take a further $20 million cut in return for an early payment.

The payments being made now are for the remaining employees who were eligible for the payout.

Late last month AIG sent letters to former employees seeking information about their earnings after leaving the company so that it could reduce the payout by that amount.

AIG has been under intense pressure to meet the target, including from Kenneth Feinberg, the Treasury Department's special master for compensation hired to help sort out pay at firms that received government bailouts.

AIG declined to comment.

(Editing by Muralikumar Anantharaman)

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