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DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
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Mr. Robert
Benmosche
President and Chief Executive Officer
American International Group, Inc.
70 Pine Street
27th Floor
New York, NY 10270
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Re:
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Proposed Compensation Payments
and
Structures for Senior Executive Officers and
Most Highly Compensated Employees
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Pursuant
to the Department of the Treasury’s Interim Final Rule on
TARP Standards for Compensation and Corporate Governance, the
Office of the Special Master has completed its review of your 2009
compensation submission on behalf of the senior executive officers
and most highly compensated employees of American International
Group, Inc. (“AIG”). Attached as Annex A
is a Determination Memorandum (accompanied by Exhibits
I and II ) providing the determinations of
the Special Master with respect to 2009 compensation for those
employees. 31 C.F.R. § 30.16(a)(3).
Pursuant
to the Interim Final Rule, the Special Master is required to
determine whether the compensation structure for each senior
executive officer and certain most highly compensated employees
“will or may result in payments inconsistent with the
purposes of section 111 of EESA or TARP, or [is] otherwise contrary
to the public interest.” Id. § 30.16(a)(3). The
Special Master has determined that, to satisfy this standard, 2009
compensation for AIG’s senior executive officers and most
highly compensated employees generally must comport with the
following important standards:
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Base salary paid in cash should not
exceed $500,000 per year, except in appropriate cases for good
cause shown. Such good cause will not exist in any case in which
the employee is to be paid a substantial cash amount pursuant to a
previously existing agreement between AIG and the employee.
Overall, cash compensation must be significantly reduced from cash
amounts paid in 2008. In AIG’s case, cash compensation for
these employees will decrease 91% from 2008 levels.
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Rather than cash, the majority of
each individual’s base salary will be paid in the form of
stock units reflecting the value of a “basket” of four
AIG insurance
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subsidiaries that the Company, the
Federal Reserve Bank of New York, and the Department of the
Treasury have identified as critical to the future of the company.
These units will immediately vest, in accordance with the Interim
Final Rule, but will only be redeemable in three equal, annual
installments beginning on the second anniversary of the date they
are earned, with each installment redeemable one year early if AIG
repays its TARP obligations. This structure encourages employees to
remain employed by AIG and to maximize the value of the businesses
most important to its long-term stability while avoiding incentives
for unnecessary risk-taking. Other terms and conditions of these
stock units, including any alterations to the structure of the
“basket” to maintain appropriate incentives for
employees, will be determined by the AIG, subject to the Special
Master’s approval.
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Total compensation for each
individual must be appropriate when compared with total
compensation provided to persons in similar positions or roles at
similar entities. Overall, total compensation must be significantly
reduced from the amounts paid in 2008. In AIG’s case, total
compensation for these employees will decrease 58% from 2008
levels.
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If—and only if—the
employee achieves objective performance metrics developed and
reviewed in consultation with the Office of the Special Master, the
employee may be eligible for long-term incentive awards. These
awards, however, must be payable in the form of restricted stock
that will be forfeited unless the employee stays with AIG for at
least three years following grant, and may only be redeemed in 25%
installments for each 25% of AIG’s TARP obligations that are
repaid. Such long-term incentive awards may not exceed one third of
total annual compensation.
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Employees of AIG Financial Products
will receive only cash base salaries through the balance of 2009.
Employees who pledged to return amounts paid pursuant to previously
existing retention awards must immediately repay the pledged
amount.
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Any
and all incentive compensation will be subject to recovery or
“clawback” if the payments are based on materially
inaccurate financial statements, any other materially inaccurate
performance metrics, or if the employee is terminated due to
misconduct that occurred during the period in which the incentive
was earned.
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Any
and all “other” compensation and perquisites will not
exceed $25,000 for each employee (absent exceptional circumstances
for good cause shown to the satisfaction of the Special
Master).
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No
severance benefit to which an employee becomes entitled in the
future may take into account a cash salary increase, or any payment
of stock salary, that the Special Master has approved for
2009.
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No
additional amounts in 2009 may be accrued under supplemental
executive retirement plans or credited by the company to other
“non-qualified deferred compensation” plans after the
date of the Determination Memorandum.
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The
Special Master has also determined that, in order for the approved
compensation structures to satisfy the standards of 31 C.F.R.
§ 30.16(a)(3), AIG must adopt policies applicable to these
executive officers and employees as follows:
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The
achievement of any performance objectives must be certified by the
Compensation and Management Resources Committee of AIG’s
Board of Directors, which is composed solely of independent
directors, as part of AIG’s securities filings. These
performance objectives must be reviewed and approved by the Office
of the Special Master.
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The
employees will be prohibited from engaging in any hedging,
derivative or other transactions that have an equivalent economic
effect that would undermine the long-term performance incentives
created by their compensation structures.
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AIG
may not provide a tax “gross up” of any kind to these
employees.
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At
least once every year, the Compensation and Management Resources
Committee must provide to the Department of the Treasury a
narrative description identifying each compensation plan for its
senior executive officers, and explaining how the plan does not
encourage the senior executive officers to take unnecessary and
excessive risks that threaten AIG’s value.
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These
requirements are described in further detail in the attached
Determination Memorandum.
The
Special Master’s review has been guided by a number of
considerations, including each of the principles articulated in the
Interim Final Rule. Id. § 30.16(b)(l). The following
principles were of particular importance to the Special Master in
his determinations with respect to AIG’s compensation
structures:
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Performance-based
compensation. The overwhelming majority of
approved compensation depends on AIG’s performance, and ties
the financial incentives of AIG employees to the overall
performance of the company. A majority of the salary paid to
employees under these structures will be paid in the form of stock
units reflecting the value of four subsidiaries critical to
AIG’s long-term stability; and, because the stock will only
be redeemable in equal, one-third installments beginning on the
second anniversary of the date the stock salary is earned (in each
case subject to acceleration by one year if AIG repays its TARP
obligations), the ultimate value realized by the employee will
depend on AIG’s performance over the long term. Guaranteed
amounts payable in cash, in contrast, are generally rejected.
Id. § 30.16(b)(1)(iv).
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Taxpayer return.
The compensation
structures approved by the Special Master reflect the need for AIG
to remain a competitive enterprise and, ultimately, to be able to
repay TARP obligations. The Special Master has determined that
these approved compensation structures are competitive when
compared with those provided to persons in similar positions or
roles at similar entities. Id. §
30.16(b)(l)(ii).
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Appropriate allocation.
The total compensation
payable to AIG employees is weighted heavily towards long-term
structures that are tied to AIG’s performance and are easily
understood by shareholders. As a general principle, guaranteed
income is rejected. Fixed compensation payable to AIG employees
should consist only of cash salaries at sufficient levels to
attract and retain employees and provide them a reasonable level of
liquidity.
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Pursuant
to the Interim Final Rule, AIG may, within 30 days of the date
hereof, request in writing that the Special Master reconsider the
determinations set forth in Annex A. If AIG does not
request reconsideration within 30 days, these initial
determinations will be treated as final determinations. Id.
§ 30.16(c)(l).
Very truly
yours,
/s/ Kenneth R. Feinberg
Kenneth R. Feinberg
Office of the Special Master
TARP Executive Compensation
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cc:
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Anastasia D. Kelly, Esquire
Marc R. Trevino, Esquire
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4
ANNEX A
DETERMINATION MEMORANDUM
The
Emergency Economic Stabilization Act of 2008, as amended by the
American Recovery and Reinvestment Act of 2009
(“EESA”), requires the Secretary of the Treasury to
establish standards related to executive compensation and corporate
governance for financial institutions receiving financial
assistance under the Troubled Asset Relief Program
(“TARP”). Through the Department of the
Treasury’s Interim Final Rule on TARP Standards for
Compensation and Corporate Governance (the “Rule”), the
Secretary delegated to the Office of the Special Master for TARP
Executive Compensation (the “Office of the Special
Master” or, the “Office”) responsibility for
reviewing compensation structures of certain employees at financial
institutions that received exceptional financial assistance under
the TARP (“Exceptional Assistance Recipients”). 31
C.F.R. § 30.16(a); id. § 30.16(a)(3). For these
employees, the Special Master must determine whether the
compensation structure will or may result in payments
“inconsistent with the purposes of section 111 of EESA or
TARP, or [is] otherwise contrary to the public interest.”
Id.
American
International Group, Inc. (“AIG,” or the
“Company”), one of seven Exceptional Assistance
Recipients, has submitted to the Special Master proposed
compensation structures for review pursuant to
Section 30.16(a)(3) of the Rule. These compensation structures
apply to three employees that the Company has identified as senior
executive officers (the “Senior Executive Officers,” or
“SEOs”) for purposes of the Rule, and nine employees
the Company has identified as among the most highly compensated
employees of the Company for purposes of the Rule (the “Most
Highly Compensated Employees,” and, together with the SEOs,
the “Covered Employees”).
The
Special Master has completed the review of the Company’s
proposed compensation structures pursuant to the principles set
forth in the Rule. This Determination Memorandum sets forth the
determinations of the Special Master, pursuant to
Section 30.16(a)(3) of the Rule, with respect to the Covered
Employees.
On
June 15, 2009, the Department of the Treasury
(“Treasury”) promulgated the Rule, creating the Office
of the Special Master and delineating its responsibilities.
Immediately following that date, the Special Master, and Treasury
employees working in the Office of the Special Master, conducted
extensive discussions with AIG officials and Company counsel.
During these discussions, the Office of the Special Master informed
AIG about the nature of the Office’s work and the authority
of the Special Master under the Rule. These discussions continued
for a period of months, during which the Special Master and AIG
explored potential compensation structures for the Covered
Employees.
A1
The
Rule requires that each Exceptional Assistance Recipient submit
proposed compensation structures for each Senior Executive Officer
and Most Highly Compensated Employee no later than August 14,
2009. 31 C.F.R. § 30.16(a)(3). On July 20, 2009, the
Special Master requested from each Exceptional Assistance
Recipient, including AIG, certain data and documentary information
necessary to facilitate the Special Master’s review of the
Company’s compensation structures. The request required AIG
to submit data describing its proposed compensation structures, and
the payments that would result from the structures, concerning each
Covered Employee.
In
addition, the Rule authorizes the Special Master to request
information from an Exceptional Assistance Recipient “under
such procedures as the Special Master may determine.”
Id. § 30.16(d). AIG was required to submit competitive
market data indicating how the amounts payable under AIG’s
proposed compensation structures relate to the amounts paid to
persons in similar positions or roles at similar entities. AIG was
also required to submit a range of documentation, including
information related to proposed performance metrics, internal
policies designed to curb excessive risk, and certain previously
existing compensation plans and agreements.
AIG
submitted this information to the Office of the Special Master on
August 14, 2009. Following a preliminary review of the
submission, and the submission of certain additional information,
on August 31, 2009, the Special Master determined that
AIG’s submission was substantially complete for purposes of
the Rule. Id. § 30.16(a)(3). The Office of the Special
Master then commenced a formal review of AIG’s proposed
compensation structures for the Covered Employees. The Rule
provides that the Special Master is required to issue a
compensation determination within 60 days of a sub
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