Posted on 15 Dec 2009
Top American International Group (AIG) employees continue to struggle financially, having taken big personal losses after the near collapse of the giant insurer last year, said its chief executive, Robert Benmosche.
AIG, in its current form, is also too large and needs to shrink, Mr. Benmosche said in an interview Monday. "I feel strongly that AIG is too big today--it is extremely complex to manage and we need to make sure it's more transparent, that it's smaller, and that we can make it on our own," he said, in his first public comments to the media in months.
The 65-year-old chief executive, who took the top job at AIG in August, has slowed down asset sales at the insurer but still sees such sales, and competitive employee compensation, as key to the insurer's goal of repaying the roughly $90 billion it owes taxpayers--a process he says will take years.
Mr. Benmosche said 10 individuals who report directly to him have lost a combined $168 million in prior years' pay since the U.S. bailout of AIG in September 2008. Another five employees at AIG's financial-products division, who are unwinding its derivative trades, have lost $88 million in prior pay.
The executives lost that money when their cash bonuses were cut and unvested stock salary and stock options they previously earned were rendered almost worthless after AIG's near failure. "Many people think there was no penalty for the executives at AIG when it did poorly and that they need longer-term compensation so they don't benefit from taking inordinate amounts of risk," Mr. Benmosche said.
"But if you look at where they've been this year, they've been pretty much wiped out. And we have to recognize that we're not 100% sure about what the value of AIG will be in the future," he added.
Mr. Benmosche said his biggest challenge in recent negotiations with U.S. pay czar Kenneth Feinberg was about "getting sufficient cash to these people, who are starting from scratch in many ways."
Last Friday, Mr. Feinberg announced 2009 pay for top employees at AIG and three other companies that have received large amounts of government aid. The pay czar limited salaries for roughly 75 individuals at each firm to $500,000 and said cash compensation should not exceed 45% of their total pay. He also determined that at least half of each employee's compensation must be held for three years, in stock or some other long-term instrument.
In AIG's case, Mr. Feinberg agreed to let the insurer make substantial cash "retention payments" it earlier promised to certain executives, without subjecting those employees to much tougher federal curbs on cash salaries. His decision followed weeks of discussions with Mr. Benmosche, AIG's board and officials from the Federal Reserve Bank of New York and Treasury, who had reasoned that AIG needed to keep certain individuals to improve its chances of repaying taxpayers. The insurer's board also had some leeway to approve pay above $500,000 for a small number of employees.
Both moves represented concessions from the pay czar, who in October slashed 2009 cash salaries for an initial group of 13 top AIG executives by 91%, and overall pay by 58%. On its end, AIG agreed to accept lower salaries for some executives in the latest round of pay determinations, Mr. Benmosche said.
"I believe that working with Ken Feinberg and his team, we've found a pretty good balance," Mr. Benmosche said. "Is it perfect? No. But it's a good deal when both parties walk away a little unhappy."
The next pay milestone for AIG will be in February, when Mr. Feinberg is expected to set 2010 compensation for AIG's top 100 executives. "I don't think we'll have as much difficulty next year as we had this year because we now have a good framework," Mr. Benmosche said.
Last week, Treasury indicated it expects to lose $30 billion of its $43.2 billion investment in AIG under the Troubled Asset Relief Program as at end September. Meanwhile Citigroup Inc. and Bank of America, also recipients of substantial U.S. aid, have moved to repay the billions they owe the government.
As the economy recovers and more companies repay U.S. aid and free themselves from federal pay curbs, Mr. Benmosche said AIG will have to contend with trying to keep key staffers who could be offered higher salaries by other financial firms. "It creates a potential problem for us. We have to be empathetic to taxpayers' concerns but at the end of the day, if I lose a lot of key executives, it weakens the company which in turn makes it more difficult to repay taxpayers."