This week's retention payments will go only to employees at the company's Financial Products division who agreed recently to accept 10 to 20 percent less money than AIG had initially promised them years ago. In return, they are receiving their payments more than a month ahead of schedule.

The company is still scheduled to pay out tens of millions of dollars more in March, mostly to former employees who did not agree to the concessions.

AIG executives have been scrambling to hammer out a compromise before March 15, when the firm faces a deadline to pay nearly $200 million in bonuses to employees at Financial Products, the unit whose risky derivatives deals brought the insurer to the brink of collapse in 2008. Government and AIG officials have been eager to avoid a repeat of the public furor that erupted last March when an earlier round of payments -- worth $168 million -- went to the same set of employees.

People familiar with the negotiations said about 97 percent of current employees at Financial Products division agreed last week to forgo 10 percent of their upcoming bonus in return for early payment. Participation rates have remained far lower -- about 35 percent, two people said -- among former employees, who were asked to surrender 20 percent of their bonuses.

Gerry Pasciucco, who was hired after the bailout to run Financial Products and help dismantle it, sent an e-mail to employees earlier this week explaining that the company had decided to move forward with the reduced payments. "We expect payment to be received in your account no later than Wednesday, Feb. 3," it read in part.

"This lets us, as a business, pivot away from this issue," one Financial Products employee, who was not authorized to speak on the record, said of the deal. "Current employees stepped up. They want to continue to do their business. They obviously want to get beyond this."

Andrew Goodstadt, a New York lawyer who represents more than a dozen current and former Financial Products employees, said he hoped the deal would be a step toward normalcy. "My clients are looking forward to getting paid their contractual entitlements," he said, "and resolving this matter once and for all."

The new payments are in part an attempt by AIG to meet two demands from U.S. compensation czar Kenneth R. Feinberg. One is to scale back the size of the bonuses. By paying the employees less than they had been promised, the company is also seeking to compensate for $26 million that Financial Products employees had previously said they would return by the end of last year but did not.

At the height of the controversy last spring, employees at the firm signaled they would return a total of $45 million by the end of 2009. A government audit showed that only about $19 million was returned. Feinberg has insisted that the full amount be repaid, though the $20 million in recent concessions still falls short of that mark.

AIG has been consulting with Feinberg about its negotiations with employees over reducing their bonuses in return for early payment.

"We are greatly appreciative that virtually all -- some 97 percent -- of active FP employees have volunteered to reduce their upcoming 2010 payment to help achieve our giveback target," AIG spokesman Mark Herr said. "We have decided to begin these reduced payments to these active employees as well as those non-active employees who agreed to reductions. The reductions from these two groups stand at about $20 million, and we believe this allows us to largely put this matter behind us."

Herr added that some former employees had agreed to reduce their payments by an additional $4.5 million, but the company could not accept these concessions. "Nonetheless, 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," Herr said.

"People will be relieved that they can now remove this as a distraction, focus on the task at hand and go on with their lives," a Financial Products employee said. "People did it to put it behind them."

Few aspects of the financial crisis have angered lawmakers and ordinary Americans as much as AIG bonuses. The controversy has its roots in early 2008, months before the government's rescue of the giant insurer. As the housing bubble was collapsing and the company's trading in financial derivatives called credit-default swaps was starting to cost the company billions of dollars, AIG officials instituted the guaranteed retention payments to keep employees in place during the coming period of financial instability. Financial Products employees were promised more than $400 million in retention pay, with lump sums due in March 2009 and March 2010.

Government and AIG officials agreed last year that the bonuses at Financial Products, however unsavory they might seem after the company's multiple federal bailouts, were legally binding. That explanation did not sit well with millions of Americans who were out of work and whose taxpayer dollars had gone to propping up the faltering insurance giant.

When word of the payments erupted into a national news story last March, President Obama vowed to "pursue every single legal avenue to block" the bonuses. Lawmakers backed a bill that would have taxed the payments to Financial Products employees at 90 percent. The issue eventually died down -- publicly, at least -- but government and AIG officials recognized that the second round of payments due this March threatened to stoke public anger once again.

Financial Products has shrunk steadily during the past year, winding down the number of derivatives trades on its books and closing offices in Hong Kong and Tokyo. The firm also is down to about half of the more than 400 employees it had before AIG's bailout.