American International Group Inc. (
AIG) said on Friday that it is paying $12.1 million in retention awards to some of its top executives. The company took this decision after it got approval from U.S. pay czar Kenneth Feinberg, who is scrutinizing the pay practices of the seven companies including AIG that received the biggest federal aid.
Chief Financial Officer David Herzog received $1 million and Kristian Moor, Chief Executive of AIG's property-casualty division, received $1.6 million. Jay Wintrob, CEO of AIG's domestic life and retirement services also received a payment. The payments were promised in 2008 to retain key employees.
Previously, U.S. Treasury Department pressed AIG to reduce $198 million in scheduled retention payments after the government missed the opportunity to defend against controversial bonuses paid to AIG employees last year.?
However, AIG is currently trying to repay $85 billion it had borrowed from the government by selling off some of its assets.
The other six firms whose compensation plans are under scrutiny are
Citigroup (
C),
Bank of America (
BAC), Chrysler Financial, Chrysler Group LLC, General Motors and
GMAC Inc. (GJM).
In the course of the review of the aptness of the richest pay packages, the pay czar is planning to cut the annual cash salaries for many of the top executives whose firms accepted bailout funds.
As an alternative to paying large cash salaries, the pay czar is planning to shift a large portion of an employee's annual salary to stock that cannot be accessed for several years. The percentage of salary to be diverted to stock is not yet clear, but it could be above 50% in some cases.
The pay czar has already used his concept with Robert Benmosche, the new chief executive of AIG. Benmosche's salary was broken into two parts. Benmosche will annually receive $3 million cash salary and $4 million in AIG stock that cannot be accessed for five years.
AIG is the leading U.S.-based international insurance and financial services organization and among the largest writers of commercial, industrial, and life coverage in the U.S. The company's business and investment portfolio are more exposed to sub-prime than other P&C insurers, and earnings are more dependent on partnership income. We expect AIG to report additional unrealized market valuation losses and impairment charges in the upcoming quarters as the market turmoil is expected to persist for a while.
Though AIG has been able to head off collapse by enlisting government support, it continues to face significant threat to its business model, customer base and distribution network as a result of the ongoing financial crisis. We are also concerned about the company's significant exposure to residential and commercial mortgage-backed securities.
