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December 11, 2009 at 07:00 PM
Kenneth Feinberg, the special master for Troubled Asset Relief Program executive compensation, has imposed strict salary and benefits package value caps on employees “26 through 100″ at American International Group Inc.
Feinberg, who set compensation levels for the top 25 executives at AIG, New York, (NYSE:AIG) and other “exceptional assistance recipient” companies in October, was supposed to set actual compensation levels for the top 25 executives at the companies and simply establish compensation structures for employees 26 through 100, according to U.S. Treasury Department officials.
Officials say Feinberg applied the following principles when establishing the compensation structures:
- Reforming compensation to protect long-term value creation and financial stability, in part by requiring that a majority of pay be held over 3 years.
- Restricting the use of short-term cash compensation, with most cash salaries capped at $500,000 per year, and at least 55% of the pay being made in the form of company stock.
- Forbidding incentive compensation without real achievement of objective goals, and making all incentive pay subject to “clawback” if results prove illusory.
- Ending pay practices that are not aligned with shareholder and taxpayer interests, such as “gold-plated executive severance and retirement pay.”
At AIG, cash salaries must be capped at $500,000, cash can account for only 45% of total compensation, half of compensation must be difficult to transfer for 3 years, and “each covered employee 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 the compensation structures,” Feinberg writes in a letter to AIG President Robert Benmosche.
AIG itself proposed that cash salary would account for about 40% of each affected employee’s total compensation, that the “Covered Employees” also would get short-term bonuses, and that AIG stock would represent the single largest component of total compensation.
“AIG also proposed that certain Covered Employees receive substantial cash amounts pursuant to previously existing retention contracts,” Treasury officials write in an appendix accompanying Feinberg’s letter. “AIG argued that these amounts were due under agreements providing for legally binding rights under valid written employment contracts…and thus were not subject to the review of the Special Master.”
Feinberg decided that AIG’s proposal was inconsistent with the public interest standard that he is supposed to apply.
