AIG said on Tuesday current and former employees of its Financial Products unit had so far agreed to accept cuts totaling about $20 million in retention payments, short of a $26 million target.

Separately, the insurer, which was bailed out with a $182.3 billion U.S. aid package, also named Thomas Russo, a former top Lehman Brothers Holdings Inc lawyer, as its general counsel along with other appointments.

Russo fills the general counsel position that became vacant on December 30, when Anastasia Kelly resigned in protest over pay curbs imposed at the firm by U.S. pay czar Kenneth Feinberg.

The cuts in retention payments to employees of the Financial Products unit come after pressure from Feinberg and a public outcry last March, when AIG paid $165 million to employees of the unit behind the insurer's near collapse.

Following the criticism, some employees of the unit said they would pay back $45 million from the retention payments they received in March 2009, but AIG got only $19 million back, putting it under pressure to recover the remaining money.

It asked the unit's current and former employees to make up for the difference by taking cuts from the $195 million in retention payments that are due this March.

AIG said it had decided to begin making the reduced retention payments to current and former employees who had agreed to the cuts. An earlier payout was part of the proposals the company had made to the employees.

Some 97 percent of current employees volunteered to take cuts in the payment due to them, AIG said.

The company said certain former employees had volunteered an additional $4.5 million in reductions, but for reasons unrelated to the program, it could not accept that offer.

We will continue to work with the non-active employees to round out the remaining amount of our giveback target over the next few months, AIG said. We believe this allows us to largely put this matter behind us.

APPOINTMENTS

In a separate statement, AIG said Russo, who joined law firm Patton Boggs LLP after Lehman's collapse amid the financial crisis in September 2008, was named executive vice president for legal, compliance, regulatory affairs and government affairs, and general counsel.

Russo was earlier chief legal officer of Lehman, which he joined in 1993.

I am excited to participate in a process at AIG to both repay the funds owed the U.S. taxpayers, and to continue to have a company in which all employees and stakeholders will be proud, Russo said in a statement.

AIG also named Paulette Mullings Bradnock as senior vice president and director of internal audit. Bradnock, who joined AIG in 2005, was earlier deputy director and chief of staff for the internal audit division.

Jeffrey Hurd, who was chief administrative officer, was named senior vice president, human resources and communications. Sandra Kapell was named vice president and global head of talent strategy and performance systems, reporting to Hurd.

Michael Cowan, a former Merrill Lynch executive, was named senior vice president and chief administrative officer, succeeding Hurd.

Christina Pretto was named senior vice president, communications, also reporting to Hurd. Pretto joined AIG last year as vice president, corporate media relations, from Citigroup Inc .

AIG stock closed up 1 cent at $23.97 on the New York Stock Exchange.

(Reporting by Paritosh Bansal; Editing by Gunna Dickson, Steve Orlofsky and Bernard Orr)

Aig Merrill Lynch