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AIG Approves New Executive Performance-Based Award Plan

Posted on 12 May 2010

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A new executive performance-based award plan has been approved by insurer American International Group Inc. (AIG), which will give executives $380 million as part of an overhaul of pay practices.

According to sources, the payouts are earmarked for as many as 3,000 managers in a long-term incentive plan, for an average of more than $125,000 per recipient. Board members approved the 2010 program in March, New York-based AIG said in a filing last week. That is the same month employees got the final payments from a previous retention bonus program.

Chief Executive Officer Robert Benmosche, 65, has to retain valued employees while responding to lawmakers who said the insurer rewarded managers without regard to performance. AIG endured a backlash that peaked in March 2009 when derivatives traders blamed for the insurer’s losses received bonuses through a $1 billion program to retain staff after the 2008 rescue.

“They need to have some type of a performance bonus program, only because their business is driven by individuals going out and closing deals,” said Phillip Phan, professor at the Johns Hopkins Carey Business School in Baltimore. “Retention is not a trivial matter for AIG, they do have to worry about executives leaving en masse.”

The ultimate cost of the 2010 plan may vary depending on employee performance. Managers may earn as much as twice their target awards or as little as zero, depending on results over two years, AIG said. Part of the awards, a combination of cash and units linked to stock, are vested for as long as two years. Under the former retention program, recipients were guaranteed payments under most circumstances.