American International Group Inc. (NYSE:AIG) says it is losing a vice chairman as a result of government compensation restrictions but has won permission to improve the comp package of an executive who is staying.
Anastasia Kelly, vice chairman for legal, human resources, corporate affairs and corporate communications at AIG, New York, resigned from her post effective Dec. 30. She began working for AIG in 2006.
Kelly resigned for "good reason" under the terms of AIG's executive severance plan "based on the reduction in her base salary that was mandated by the Special Master for Executive Compensation for TARP Recipients," the company says in a statement, referring to the compensation restrictions that the federal government has imposed on the top 100 AIG employees.
The government is applying the restrictions to AIG and other companies that have received large amounts of financial assistance from the federal government.
Another executive, Suzanne Folsom, chief compliance and regulatory officer, "has left to pursue other opportunities," AIG says.
AIG did not identify TARP compensation restrictions as a reason for Folsom's departure.
Advocates of the restrictions argue that major private investors would have a say over a struggling company's compensation practices, and that making government bailouts unpleasant for executives may discourage executives at other companies from using implicit government backing as an excuse to assume excessive amounts of risk. Kenneth Feinberg, the special master, has ruled that TARP recipients should pay the majority of top executives' compensation in the form of "stock salary," to give them a stock in the companies' long-term health.
Critics contend that the restrictions represent a dangerous, unfair intrusion of government interference in the affairs of private companies.
AIG has started to look for successors to Folsom and Kelly. While the searches are under way, the individuals who have been reporting to Kelly will report to AIG President Robert Benmosche.
Feinberg says in a determination letter addressed to Benmosche that he will grant the request.
The specified employee is one of the "top 25 employees" at AIG.
Feinberg originally thought that the employee was leaving AIG. He determined in October that the departing executive could earn a base salary of just $450,000, payable through the employee's departure date, and the executive would receive no further compensation for 2009.
AIG wrote to Feinberg to say that the specified employee has decided to stay with AIG.
AIG told Feinberg that "the employee is critical to AIG's long-term performance and stability, and that his continued employment by AIG will significantly aid AIG's ability to repay the taxpayer," Feinberg writes. AIG asked Feinberg to pay the specified employee 2009 "stock salary" with a value of about $3.3 million, and to provide up to $1 million in the form of "an annual long-term incentive award." The incentive award would take the form of "long-term restricted stock."
Because the specified employee is staying, and not leaving, granting the reconsideration request is consistent with the goal that any changes in the TARP compensation limits should serve the public interest, Feinberg writes.
In the letter, Feinberg also writes that:
- AIG can pay "stock salary" to executives more quickly than initially allowed only after AIG pays off all obligations to taxpayers. Earlier, Feinberg had said AIG could accelerate stock salary payments after AIG repays its TARP obligations. The "technical correction" is necessary because AIG owes money to federal institutions through arrangements made outside of TARP, Feinberg says.
- AIG can pay up to $350,000 in extra support for top executives living overseas and up to $350,000 in tax equalization assistance for top executives living overseas. In some exceptional cases, AIG may be able to get permmission to provide more than $350,000 in expatriate support. "These arrangements are designed to make the employees whole for the costs of living overseas, at AIG's request, in order to perform their duties," Feinberg writes. "The Special Master has reviewed these arrangements and has concluded that such payments…are consistent with the Public Interest Standard,"
AIG says in a report filed with the U.S. Securities and Exchange Commission that it also has received permission from Feinberg to choose between paying stock salary to least two top executives — David Herzog, the company's controller, and Kristian Moor, the head of AIG's Chartis property-casualty unit spin-off — in the form of AIG stock rather than in the form of units representing the value of a basket of AIG subsidiaries. Earlier, AIG had been expecting to pay employees with basket value units rather than company stock.
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