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AIG Rules Out 2008 Management Bonus

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American International Group Inc. has set Edward Liddy’s salary at $1, eliminated 2008 annual bonuses for top company executives, and restricted the top executives’ 2009 pay increases.

The restrictions on bonuses and salary increases apply to the top 7 officers at AIG, New York, the company says.

Restrictions on 2009 salary increases also apply to the 50 next-highest-paid executives, AIG says.

AIG spending has been under scrutiny since September, when the Federal Reserve Bank of New York began providing financial support for AIG in exchange for a 79.9% stake in the company.

AIG says it is developing a funding structure to ensure that no taxpayer dollars are used for annual bonus or future cash performance awards for AIG’s “Senior Partners”–the top 60 members of the management team.

Liddy, AIG’s chairman, says AIG’s senior executives recognize AIG’s obligation to taxpayers.

“We are extremely grateful for the assistance we have received, and we know we have an obligation to use that assistance to help AIG recover, contribute to the economy and repay taxpayers,” Liddy says in a statement. “This action by the senior management team demonstrates not only that we understand our obligation to taxpayers and shareholders, but also that we are committed to the future success of this organization.”

Under the voluntary restrictions announced today:

- Liddy, who joined AIG on Sept. 18, after the government support was arranged, will receive an annual base salary of $1 for 2008 and 2009. His initial compensation will consist entirely of equity grants, “showing his confidence in AIG and its team,” the company says.

- Liddy will not receive an annual bonus in 2008 and 2009, but he may be eligible for a special bonus for extraordinary performance payable in 2010.

- Liddy will not be eligible for severance payments.

- Paula Rosput Reynolds, vice chairman and chief restructuring officer, who joined AIG in October, will receive no salary or bonus in 2008. In 2009 and beyond, other than her base salary, any other compensation she receives will be tied directly to the progress of the restructuring efforts.

- The other 5 members of AIG’s 7-officer top “Leadership Group” will not receive annual bonuses for 2008 or salary increases through 2009.

- AIG’s Senior Partners will not earn long-term performance awards in 2008. They will not receive salary increases in 2009, and their 2008 and 2009 annual bonuses will be limited.

In addition to Liddy doing without any severance payments, there will be restrictions on severance payments to members of the Senior Partners group that exceed government Troubled Asset Relief Program severance restrictions.

“We believe these actions demonstrate that we are focused on overcoming our financial challenges so AIG can return value to taxpayers and shareholders,” Liddy says.

New York Attorney General Andrew Cuomo has welcomed news of AIG’s decision to eliminate bonuses for top executives and notes that his office sent Liddy a letter discussing the topic of executive compensation.

“Taxpayers have been slammed with a one-two punch seeing their investments dwindle while simultaneously having to fund the Wall Street bailout with billions of their tax dollars,” Cuomo says in a statement. “It is only fair that top executives, who benefit the most when firms do well, should also bear the burden of the difficult economic consequences their firms now face. This gesture by AIG is appropriate and I encourage other firms to wake up to the new reality on Wall Street and follow AIG’s step quickly.”

* Information was added to the article by Allison Bell.