The hefty bonus earmarks come after a strong first two quarters, in spite of laggardly performance across the financial sector. Analysts predict that Goldman will record profit of over $2 billion in Q2 2009, following a Q1 profit figure of $1.8 billion.

Dividing the $11.4 billion equally among Goldman employees would give each $770,000, about what was doled out during the market boom.

The plans to go ahead with hefty bonuses will certainly draw criticism from a public that won’t be likely to forget the $700 billion bailout, or the shows of repentance by Wall Street representatives. Some worry that Goldman’s example will reverberate through the financial industry, bringing firms back to the excessive payouts (and risk taking) of the pre-recession years.

“I find this disconcerting,” said Harvard’s Lucian Bebchuk. “My main concern is that it seems to be a return to some of the flawed short-term compensation structures that played an important role in the run-up to the financial crisis.”

Prior to Feinberg’s appointment, AIG had pledged to try to reduce overall payments for this year’s performance by 30 percent to a few hundred employees at the financial products unit. The company also delayed a smaller set of payments to 40 high-ranking AIG officials that is set to begin paying next week for 2008 performances.

The company hopes to reach an agreement with Feinberg, allowing their employees to keep enough of the promised bonuses to serve as an effective incentive, but also reduces payments enough to make them palatable to a skeptical public.

The administration had been looking to curtail what it views as excessive compensation, and at one point, proposed a salary cap for top executives.

In a statement, the Treasury said: “Companies will need to convince Feinberg that they have struck the right balance to discourage excessive risk taking and reward performance for their top executives. That process is just beginning now, and Feinberg has begun consulting with those firms about their compensation plans.”

AIG sold its auto insurance business to rival Zurich Financial Services for $1.9 billion, AIG’s largest sale to date. The deal was announced in April.

AIG has also agreed to sell its Columbia-based consumer finance unit to Ecuador’s Banco Pichicha, the terms of which were not disclosed.

The global insurance group received nearly $175 billion in government assistance, compromising an 80 percent stake in the company.

Currently, the amount of government aid AIG has received totals at $173 billion, which is nearly 80 percent of the company. The government has been closely monitoring the financial firm’s repayment process, which Chairman and CEO Edward Liddy has estimated could take three to five years, or longer if the economy worsens. On Thursday the firm announced a deal to give the Federal Reserve Bank of New York stakes in two of AIG’s foreign life-insurance units valued at $25 billion.

Three trustees who oversee the government’s involvement in AIG will be at Tuesday’s meeting, and their six handpicked director candidates will be elected to the 11-member board, giving them a majority. The new board must also pick an independent chairman and find a new CEO to replace Liddy, who has made it public that he wants to leave.

The statement comes on the heels of reports that Citigroup was increasing many of its employees’ base salaries to offset government restrictions on bonuses.

The Treasury said the administration plans to achieve a balance in the bonus system that would reward top executives’ good performance while discouraging excessive risk taking.

The two units, American Life Insurance (ALICO) and American International Assurance (AIA Group) will be spun off into special purpose vehicles which will eventually undergo initial public offerings.

The New York Fed will get a $16 billion stake in ALICO and a $9 billion stake in AIA Group.

In addition to the $40 billion loan AIG received from the New York Fed, the insurer also took $40 billion in Troubled Asset Relief Program funding, as well as an unrelated $85 billion loan.

AIG has also said it will spin off a third unit, AIU Holdings, in further efforts to reduce its government debt.

The planned pay increase, however, will not specifically benefit managers and other high-level employees, but is meant as a widespread retaining tool. “Retaining and attracting the best talent is very important to the success of Citi and all its stakeholders,” said the bank.

Figures are as-yet unreported, but people close to the matter said base salaries could rise by as much as 50 percent. Officials from Citi say that the increase base salaries will not result in higher overall payments, as bonuses and other perks would be cut to compensate.

Goldman, which recorded a Q1 2009 net income total of $1.8 billion, has benefited from a lack of competition in the once-thriving banking sector, as well as revenues generated from lucrative currency trading. July will see the release of the firm’s second-quarter profits, which are expected to be impressive.

Goldman has told staff that they will receive record bonus hikes should the firm continue its run of profit. Company CEO Lloyd Blankfein said in a letter tot lawmakers last week that Goldman must “ensure that compensation reflects the true performance of the firm and motivates proper behavior.”

Staff numbers at Goldman total approximately 28,000; over 900 employees were paid bonuses of $1 million or more last year, in spite of the recession.

The former CEO of the bailed-out Royal Bank of Scotland Group (RBS), Sir Fred Goodwin, has agreed to forgo about half his pension, which led to public outrage earlier this year, reports The Wall Street Journal.

Goodwin was awarded a annual pension of £703,000, which included credit for ten additional years of work. His normal pension would have been £579,000. Under the new agreement, his pension is approximately £342,500 per year.

Goodwin’s original pension created such ire in Britain that he has avoided being seen publicly, especially after his Edinburgh home was vandalized. Many see him as the cause of RBS’s near-collapse as well as a symbol for the banker excess and greed that led to the financial crisis. Currently, the U.K. government owns 70 percent of RBS.

Chairman Bill Ford spoke yesterday to reporters at the National Summit business meeting in Detroit. “We don’t know what the implications are going to be, but one thing is for sure, I like our position,” said Ford.

Unlike rivals GM and Chrysler, Ford took no bailout money earlier in the year, citing its relatively stable debt position.

The piece, written by Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers, explains five crucial problems with the existing economic situation that the new reforms hope to mend.

“We have taken extraordinary measures to help put America on a path to recovery,” write the administration officials. “But it is not enough to simply repair the damage. The economic pain felt by ordinary Americans is a daily reminder that, even as we labor toward recovery, we must begin today to build the foundation for a stronger and safer system.”

Geithner and Summers go on to explain the five key problems that exist in the current financial regulatory structure:

1. Regulation focuses too much on individual firms, and not enough on the interconnected financial system as a whole.
2. Asset-backed securities have become too widespread, and not enough regulated.
3. There isn’t sufficient consumer/investor protection.
4. The federal government lacks the necessary tools to manage crises; a new resolution mechanism will be implemented.
5. Global regulation isn’t adequately supervised and will be increased.

The Obama administration is expected to announce its reforms on Wednesday.