Treasury: Half of AIG's Top Execs From 2008 Now Gone; Rest To Be Paid 58% Less in Total Compensation

After the U.S. Department of the Treasury said the major recipients of federal bailout money would have their highest executives' pay cut dramatically, a memo shows that American International Group Inc.'s top executives will see a 91% slash in cash pay from 2008.

Though the broad outline of the compensation plan for the seven companies that received the most help from the Troubled Asset Relief Program drastically reduces pay for the 25 highest-paid executives of each, the plan's practical results are complicated. Many of those executives -- as measured by 2008 compensation figures -- have left the companies this year. That's especially true for AIG, which experienced an exodus of many of its top officials, leaving just about half of those 25 executives still around from 2008.

The basic terms of the plan -- submitted by the federally designated "special master" for compensation, Kenneth Feinberg -- say that these senior executives can't be paid more than $500,000 in base salary per year -- "except in appropriate cases for good cause shown," said the explanatory memo to AIG. "In AIG's case, cash compensation for these employees will decrease 91% from 2008 levels." Total compensation would be 58% lower than 2008 levels for the AIG executives, the memo said.

Also, it says that most of their pay must be in longer-term stock, which would have to be held more than two years. The stock "basket" will be made up from shares of four subsidiaries "critical to the future of the company": American International Assurance Co. Ltd., American Life Insurance Co., Chartis and AIG Domestic Life and Retirement Services Group.

The executives would potentially be eligible for incentive pay, but only for achieving performance goals approved by Feinberg's office and only paid in stock that can be clawed back if the employee doesn't stay another three years with AIG.

Additional requirements will include AIG permitting a separate shareholder vote to approve the compensation of executives. It conducted its first such vote in July, the memo said.

The rules for the executives of AIG Financial Products -- the division in which the credit default swap business sparked AIG's near collapse -- were even tighter. "The performance of AIG Financial Products has contributed significantly to the deterioration in AIG's financial health," Feinberg's plan contended, adding that the executives' pay should reflect that. Though the company had suggested it should pay the five highest-paid executives of the financial products division an average of $2.6 million in compensation, Feinberg responded that they should finish out 2009 with only their base salary levels from 2008 with "no further amount of any kind."

The compensation plan -- which is effective Nov. 1 -- also indicates that those executives who departed this year may not fully escape its effect. Feinberg "determined that cash salaries through the date of termination" would be sufficient. "No other payments to these employees of any kind would be consistent with the public-interest standard."

AIG had been required to submit a proposal on Aug. 14 for how it wanted to pay its most senior officers and the other highest-paid executives. But Feinberg rejected the company's ideas, saying they relied too much on cash payments and stock the executives could sell immediately. The memo called AIG's ideas "inconsistent with the public-interest standard." AIG's base-salary proposals were inappropriately above the 50th percentile for executives in similar positions at other companies, the report said.

AIG proposed stock salaries range from $250,000 to $4.6 million. Feinberg's response is reflected in the new table of 2009 compensation amounts for the 13 officials still at the company. It shows a range in stock payments from zero up to the highest of $3.5 million for Chief Executive Officer Robert Benmosche. The table shows five of the 13 executives are to receive less than $180,000 in total compensation for the year.

Other types of compensation weren't spared, either. Perquisites are limited to $25,000, "absent exceptional circumstances." Also, no further amounts can be accrued under supplementary retirement plans.

An AIG spokeswoman declined to comment on the pay plan.

Shares of AIG (NYSE: AIG) stock were trading at $38.90 at close on Oct. 23, down 6.24% from the previous close.

Most AIG insurance companies have current Best's Financial Strength Ratings of A (Excellent).