Several former American International Group Inc employees might sue the insurer after it gave them less retention bonus money than they should have received, their lawyers said on Monday.

AIG is holding back $21 million from retention bonuses for current and former employees of its Financial Products unit. That unit nearly caused the insurer's collapse in September 2008.

The insurer is asking former employees who are eligible for the payout what they earned after leaving AIG so it can reduce the retention bonus payments by that amount, said Gary Phelan, a partner at law firm Outten & Golden, which represents eight current and former employees.

They have asked them a series of questions, explaining that this part of their due diligence, Phelan said. But those same questions have been asked and answered before already.

They've had several months to determine whether or not any payment should be offset, Phelan said. Unless there's a very quick payment made of the balance 25 percent, I think (a lawsuit) is inevitable.

Andrew Goodstadt, a partner at Thompson Wigdor & Gilly, which is representing about a dozen current and former employees, said they were also considering all options.

AIG declined to comment.

The company, which is nearly 80 percent owned by the U.S. government, is paying out $46 million to about 70 people, most of whom are former employees of the Financial Products unit.

The latest cuts in retention payments are part of its efforts to meet a $45 million giveback target that was set after the insurer paid out $165 million last year in bonuses to Financial Products employees.

The plans to pay the bonuses caused a public outcry because AIG was making the payments after the U.S. government used billions of dollars in taxpayer money to bail out the company.

The insurer was due to pay out another $195 million by Monday. But many Financial Products employees, including almost all staff eligible for the 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.

Excluding the cut on Monday, AIG has recovered about $40 million of the giveback target.

(Reporting by Paritosh Bansal. Editing by Robert MacMillan)

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