Posted on 07 Dec 2009
Five high-ranking executives at American International Group Inc. (AIG) said last week they were prepared to quit if their compensation is cut significantly by the insurer's government overseers, according to people familiar with the matter.
The threat is the latest in the running fracas between AIG and the government's compensation czar, Kenneth Feinberg, who is charged with setting pay limits for top executives at companies receiving the most federal bailout money.
The AIG executives who notified the company they were prepared to resign include its general counsel, Anastasia Kelly, and the heads of some of its largest insurance businesses. Over the weekend, two of them changed their minds.
The executives are worried that their 2009 pay will be clipped, and that they will be subject to even tougher restrictions in 2010, including a prohibition against collecting so-called golden-parachute severance payments that they are currently eligible for.
AIG's recently hired chief executive, Robert Benmosche, threatened to quit last month amid frustrations over limitations on pay for top AIG executives. He argued that if the government wants AIG to prosper and pay back its debts, it needs to hire and keep top talent. He subsequently agreed to stay.
It doesn't appear that Mr. Benmosche had anything to do with last week's threatened departures, people familiar with the matter say.
AIG is 80% owned by the U.S. government, which has committed $182 billion in financial support to the firm. As one of the biggest recipients of government aid, AIG is subject to Mr. Feinberg's pay decisions.
In October, Mr. Feinberg reduced 2009 compensation for AIG's top 13 employees by 57%, including limiting most base salaries to no more than $500,000. Those 13 executives were the ones who remained of the 25 top 2009 earners at AIG, whose pay Mr. Feinberg was ordered to review. The others left before the pay review began. Mr. Feinberg is currently working on pay structures for the next 75 highest-paid AIG employees. The five senior staff members who said they may leave fall into that category.
Mr. Feinberg is considering less restrictive compensation for those 75, as well as for the top 100 earners in 2010, according to people familiar with the matter. Mr. Feinberg and AIG are discussing a plan under which the firm could pay individuals more than $500,000 as long as it can show "good cause" for going higher.
Some Treasury Department and Federal Reserve officials have urged Mr. Feinberg to ease up on the cuts.
The five senior AIG executives indicated on Dec. 1, in written notices, that they're prepared to leave by year-end, say the people familiar with the matter. They are trying to preserve their ability to collect severance payments, these people say.
Ms. Kelly, AIG's general counsel, has been at the insurer since 2006 and was appointed vice chairman in January under former CEO Edward Liddy. Several people familiar with the matter say Ms. Kelly asked other employees to join her in indicating they were prepared to resign. Four executives agreed, and Ms. Kelly retained outside counsel to advise the group on their legal options, says one person familiar with what happened.
A spokesman for Ms. Kelly says she didn't "instigate or encourage" the other four, but "only advised the other executives of what they needed to do to protect their rights" under AIG's executive-severance plan, and helped them arrange for outside counsel.
The other four executives are Rodney Martin, who heads one of AIG's international life-insurance businesses that is slated for an initial public offering or sale; William Dooley, who has been overseeing the financial-services division; Nicholas Walsh, vice chairman and head of AIG's international property-and-casualty-insurance businesses; and John Doyle, who heads the U.S. property-casualty business.
Mr. Dooley's division includes AIG Financial Products, whose credit-derivative trades were the biggest reason for AIG's 2008 financial problems. The other four executives weren't involved in the problems that sank the company.
Over the weekend, Messrs. Walsh and Doyle rescinded their Dec. 1 notices, a person familiar with the matter said. Messrs. Martin, Dooley, Walsh and Doyle either declined to comment or didn't respond to requests for comment.
According to terms of the severance plan, which was put in place before the government bailed out AIG, certain executives are entitled to severance benefits if they resign for "good reason," which includes significant cuts in their annual base salary or target bonus.
The provision applies to roughly two dozen individuals, says one person familiar with it. The five who said they might quit "gave notice that they believe they have 'good reason' to resign" under the provision, and they are "taking administrative action to protect their rights because of all the uncertainty" around pay matters, this person says.
With the resignations of nearly half of AIG's top 25 earners in 2009, some of the next 75 highest earners will be bumped into the top 25 next year. That would subject them to tougher restrictions and make them ineligible for severance benefits. Earlier this year, Congress imposed restrictions on firms receiving large amounts of federal aid, including prohibiting "golden parachute" payments to some top executives.
Mr. Feinberg is expected to issue his determinations for AIG within the next two weeks. Government officials say Mr. Feinberg, who oversees pay at seven firms receiving large amounts of government aid, is in a tough spot. He's charged with both curbing pay and preserving the ability of the firms to retain key personnel.