AIG Increases Compensation for Most Top Managers Who Remained

Written by Hugh Son and Robert Schmidt, Bloomberg

 

March 24 (Bloomberg) -- American International Group Inc., the bailed-out insurer, was allowed by U.S. paymaster Kenneth Feinberg to increase 2010 compensation for most top executives in a group that had their pay slashed last year.

 

Six of eight managers who had their 2009 awards set by Feinberg, the Obama administration's special master on executive pay, had their overall packages expanded this year, according to a Treasury Department report released yesterday. Chief Executive Officer Robert Benmosche has said that AIG must offer competitive pay to keep employees needed to repay its rescue.

 

Feinberg, who controls pay for AIG's 25 highest-paid employees, last year slashed overall compensation for that group by about 58 percent and instituted a $500,000 base salary cap for most workers. Most executives who were among the top 25 when AIG was bailed out in 2008 have left the company, and those new to the group had their 2010 awards lowered, on average.

 

"AIG, under the strong leadership of Mr. Benmosche, the new CEO, has worked closely with our office," Feinberg said yesterday at a press briefing. "He deserves specific mention and praise."

 

Exceptions to the $500,000 cap were made for those deemed critical to AIG's success, including Benmosche, whose compensation was unchanged from last year's $7 million salary and $3.5 million in long-term incentives. Five other AIG executives had base cash salaries of $500,000 or more in 2010, according to the Treasury document. AIG is majority-owned by the U.S. after a rescue that has swelled to $182.3 billion.

 

Stock Award

 

Among the employees who were awarded larger packages was an executive, labeled only by an identification number, who will collect $3.6 million this year, mostly in stock salary, compared with total pay of $125,000 for 2009. For a group of 12 corporate and operating-unit executives new to the top-paid list, overall compensation decreased by 25 percent from 2009.

 

Feinberg has required that companies substitute cash with stock to tie managers' performance more closely to the firms' long-term success. While cash pay for AIG's top-paid employees fell by 63 percent, total compensation including cash and stock rose by 2 percent. The shares will be paid over three years.

 

"The shift is really away from cash to stock, but we forget the lessons of companies like Lehman Brothers, whose employees had plenty of skin in the game," Frank Glassner, chief executive officer of Veritas Executive Compensation Consultants LLC, said in an interview. "They gambled with their own money and lost." Lehman Brothers Holdings Inc. filed for bankruptcy protection in 2008.

 

Bailout Recipients

 

AIG, which had proposed boosting cash salaries for the holdovers from 2009, has 30 days to ask Feinberg to reconsider his determination, according to the Treasury document.

 

Total pay in 2010 will fall by about 15 percent for 119 executives at AIG, General Motors Co., GMAC Inc., Chrysler Group LLC and Chrysler Financial Corp., Feinberg said yesterday at the press briefing. His rulings showed 69 of them will get $1 million or more, including long-term restricted stock.

 

AIG Chairman Harvey Golub wrote last month in a letter to shareholders that some of Feinberg's rulings hurt the company. AIG's board is focused on working with the Federal Reserve Bank of New York and Treasury Department and "dealing with" pay guidelines, Golub wrote.

 

"While we can pay the vast majority of people competitively, on occasion, these restrictions and his decisions have yielded outcomes that make little business sense," Golub, 70, said of Feinberg. "In some cases we are prevented from providing market-competitive compensation to retain some of our most experienced and best executives. This hurts the business and makes it harder to repay the taxpayers."

 

Executive Departures

 

More than 60 managers have left AIG since its 2008 rescue. Under Feinberg's orders, cash salary was reduced by 91 percent last year for 12 of AIG's top executives. Benmosche, 65, said in a Nov. 11 memo to employees that he was committed to leading AIG after reports that he'd threatened to resign because pay limits hurt the insurer's ability to retain staff.

 

General counsel Anastasia Kelly stepped down in December after a dispute with Feinberg over pay. Her $900,000 base salary would have been slashed to $500,000 and she may have jeopardized a severance payment if she stayed, Kelly said in a Fortune magazine interview published in February.

 

"For someone to say, 'I think you're doing a great job, Stasia, but the American people hate you and therefore we think you should make no more than $500,000 a year' -- there's no logic to that," Kelly told the magazine. "It wasn't something I could live with."

 

Public Backlash

 

AIG said in February that it was overhauling its incentive system to improve the tie between pay and performance. A backlash against AIG's bonuses for employees in the derivatives unit blamed for the firm's near-collapse peaked in March 2009 with President Barack Obama criticizing the awards.

 

Feinberg, 64, who formerly oversaw the September 11th Victim Compensation Fund, is responsible for setting pay at firms including Chrysler Group, GMAC and AIG that were among the top recipients of bailout funds.

 

AIG released Golub's letter after reporting that its 2009 loss narrowed to $10.9 billion from $99.3 billion a year earlier.