Continuing bonuses paid to employees at Fannie Mae and Freddie Mac are offensive since taxpayers are helping keep the mortgage-finance companies afloat, a leading Senate Republican said on Friday.

It's an insult that the bonuses were made with an infusion of cash from taxpayers, Charles Grassley of the Senate Finance Committee said in a statement. The elite in Washington and New York need to realize that bonuses for poor performance and at taxpayer expense do a lot of damage to public confidence.

The Iowa lawmaker has been a strong critic of executive bonuses paid out by finance companies that have lately had to rely on government aid.

During a public uproar last month about bonuses paid out at failed insurance giant American International Group Inc. , Grassley said executives should follow the Japanese example and resign or go commit suicide.

AIG was under fire for paying out $165 million of bonuses despite a series of taxpayer bailouts for the company totaling $180 billion. Fannie Mae and Freddie Mac have also had to rely on a huge helping of government aid since they were nationalized in September.

Still, while several AIG executives received multimillion-dollar bonuses, the extra pay at Fannie Mae and Freddie Mac is being spread much more evenly across the companies.

James Lockhart, the companies' regulator, wrote that the pay plan includes many hard-working lower-level employees which are important to the mission of providing stability, liquidity and affordability to the housing market.

Lockhart, the director of the Federal Housing Finance Agency, wrote Grassley last week that bonuses were a key component of pay for more than 7,500 employees at the two companies.

When other lawmakers have questioned the payments, Lockhart has defended them as an important defense against employee attrition.

Herb Allison, the government-appointed overseer for Fannie Mae, has also vowed to try and preserve the employees' compensation.

I understand your deep feeling that repudiation of the terms of the retention plan ... would be a breach of faith, Allison wrote in a memo to staff last month.

The blistering public anger over the AIG bonuses has subsided a bit in the last two weeks after lawmakers vented voter outrage at congressional hearings and drafted legislation to tax the payouts.

Congress will be in recess for the next two weeks, so the political pressure to cancel executive bonuses might further subside.

(Reporting by Patrick Rucker)