Ms. Kelly will collect about $3.04 million in severance payments from AIG in biweekly installments until December 2011, the company detailed in its annual report last week. Her exit package totals more than $3.9 million, including pay the 60-year-old had accrued when she left the government-controlled insurer at the end of 2009, according to people familiar with the matter.
An amendment to AIG's executive-severance plan that kicks in this month would enable the company to reduce its severance payments to executives if they get paying jobs elsewhere. Ms. Kelly resigned before the change takes effect, so the new terms won't apply to her, according to people familiar with the matter.
Ms. Kelly didn't respond to a request for comment. She joined AIG in 2006 and resigned after her annual cash salary was reduced to $500,000 in mid-December from about $900,000 as a result of determinations by U.S. pay czar Kenneth Feinberg, who has authority to limit pay for the top employees of firms that have received significant government aid. Before Mr. Feinberg's action, four senior executives joined Ms. Kelly in notifying AIG that they would have "good reason" to resign and collect severance if their pay was cut. All but Ms. Kelly later rescinded those notices and have stayed at the firm.
In 2009, Ms. Kelly, who was named a vice chairman of AIG, was due to earn a bonus of as much as $2.2 million, she told Fortune magazine last month.
DLA Piper said Ms. Kelly has been named counsel and is expected to tap her experience in corporate-governance issues and crisis management to help clients. Last month, AIG hired Thomas Russo, the former top in-house lawyer at Lehman Brothers Holdings Inc., as its general counsel.
Under the terms of AIG's executive-severance plan, which was in place before the September 2008 bailout of the insurer, Ms. Kelly was able to resign for "good reason" because of her pay reduction and receive 24 months of severance, calculated from her salary and past bonuses.
Ms. Kelly, meanwhile, turned down a $1.71 million stock salary award from AIG upon her departure, telling AIG's CEO and chairman she felt it was more appropriate for executives still at the company to receive those awards, according to a Dec. 30 letter included with the annual report.
AIG's severance payments to Ms. Kelly and another executive have drawn scrutiny from Sen. Charles Grassley of Iowa, ranking Republican on the Senate Finance Committee. He has asked Mr. Feinberg's office for details about how the payments were determined and the justification for them.