Proposed Compensation Structure – AIG

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

April 16, 2010

Mr. Robert Benmosche

President and Chief Executive Officer

American International Group, Inc.

70 Pine Street

New York, NY 10270

Re: Proposed Compensation Structures
for Certain Executive Officers and Most Highly Compensated Employees (“Covered
Employees 26 :100”)

Dear Mr. Benmosche:

Pursuant to the Department of the Treasury153s Interim Final Rule on TARP
Standards for Compensation and Corporate Governance (the “Rule”), the Office of
the Special Master has completed its review of your 2010 compensation submission
on behalf of employees who are either executive officers of American
International Group, Inc. (“AIG”) or one of AIG153s 100 most highly compensated
employees, excluding those employees subject to Section 30.10 of the
Rule (“Covered Employees 26 : 100”). The Special Master153s compensation reviews
for Covered Employees 26 : 100 differ from the reviews of AIG153s “Top 25”
employees, which addressed individual “amounts payable” to those employees, 31
C.F.R. § 30.16(a)(3)(i). For Covered Employees 26 : 100, the Rule does not
require individual payment determinations; instead, the Special Master must
determine only whether the proposed compensation structures “will or may result
in payments that are inconsistent with the purposes of Section 111 of EESA or
TARP, or are otherwise contrary to the public interest” (as applied to Covered
Employees 26 : 100 of AIG, the “Public Interest Standard”). Id. §
30.16(a)(3)(ii).

On December 11, 2009, the Special Master issued determinations (the “2009
Determinations”) designed to ensure that 2009 compensation structures for AIG153s
2009 Covered Employees 26 : 100 met the Public Interest Standard. The 2009
Determinations were informed by a number of considerations, including each of
the principles articulated in the Rule. Id. § 30.16(b)(1). In
particular, the determinations emphasized allocating significant portions of
compensation to long-term structures tied to AIG153s overall value, using
structures that are performance-based and easily understood by shareholders, and
protecting the Company153s ability to remain a competitive enterprise and
ultimately to repay the its taxpayer assistance.

The Special Master has concluded that, for the reasons provided in the 2009
Determinations, the principles and requirements of those determinations should
generally continue to apply in 2010. Accordingly, the Special Master has
determined that the compensation structures described in Annex
A, which reaffirm the compensation structures approved in 2009,
are consistent with the Public Interest Standard. AIG153s proposed compensation
structures, with minor modifications, are consistent with the Special Master153s
prescriptions, which require that:

– Compensation may be provided in three primary components:
cash salary, stock salary, and incentive compensation. The amounts and
conditions of the components for each Covered Employee will be determined by
AIG153s compensation committee.

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– Compensation must be performance-based. Fixed compensation
should consist only of cash salaries and stock salaries at levels sufficient to
attract and retain employees and provide them a reasonable level of liquidity.
Cash salaries should not exceed $500,000 per year, except in exceptional cases
for good cause shown, as certified by the Company153s independent compensation
committee.

– Compensation must emphasize long-term results. At least
50% of any incentive payment to a Covered Employee must be delivered in
long-term stock. In most cases, half of total pay : whatever the overall mix of
components for that individual : must not be transferable for at least three
years.

– Stock compensation must constitute a significant portion
of each Covered Employee153s compensation structure. For employees who earn more
than $500,000 in total cash, that portion must be 55% at the minimum.

– Incentives may be paid if:and only if:the payments are
appropriate in light of AIG153s overall circumstances and a particular Covered
Employee achieves objective performance metrics. Incentive payments must be
subject to “clawback” if the performance assessment resulting in the
compensation is later discovered to be inaccurate.

– Incentive payments must be payable over time and delivered
in a mix of cash and stock, and the total value of all incentive compensation
payments cannot exceed a specified percentage of the company153s eligible
earnings, to be determined by the compensation committee.

– The restrictions described in the Special Master153s
previous determinations pertaining to perquisites, severance benefits, hedging
transactions, tax “gross-ups” and supplemental executive retirement plans shall
continue to apply to Covered Employees 26 : 100.

The Special Master153s determinations are limited to the compensation
structures described in Annex A, and shall not be
relied upon with respect to any other employee. The determinations have relied
upon, and are qualified in their entirety by, the accuracy of the materials
submitted by AIG to the Office of the Special Master, and the absence of any
material misstatement or omission in such materials. 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 the Company does not request reconsideration within 30 days,
these initial determinations will be treated as final determinations. Id.
§ 30.16(c)(1).

		Very truly yours,
		/s/ Kenneth R. Feinberg
		Kenneth R. Feinberg
		Office of the Special Master for TARP Executive Compensation
Attachments
cc:	Jeffrey Hurd, Esq.
	Marc R. Trevino, Esq.

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ANNEX A

APPROVED 2010 COMPENSATION STRUCTURES

This Annex sets forth terms and conditions for the 2010 compensation
structures for AIG153s 2010 Covered Employees 26 : 100. (For the
avoidance of doubt, if the compensation structure for a Covered Employee fits
within the $500,000 “safe harbor” exemption set forth in
Section 30.16(a)(3)(ii) of the Rule, the Special Master153s approval is not
required for that employee153s compensation structure.) Capitalized terms used in
this Annex have the meaning given to them in the preceding letter. To the extent
that AIG153s proposed structures do not meet the principles and requirements of
this Annex, AIG must make such modifications as are necessary to comply with
such principles and requirements.

1. Primary Components of Compensation

– Cash salary. Covered Employees
should not receive cash salaries payments in excess of $500,000, other than in
exceptional circumstances for good cause shown. Any such exceptions must be
individually certified to the Office of the Special Master by AIG153s compensation
committee, which is comprised solely of independent directors.

– Stock salary. Stock salary must be
determined as a dollar amount through the date salary is earned, be accrued at
the same time or times as the salary would otherwise be paid in cash, and vest
immediately upon grant, with the number of shares or units based on the fair
market value on the date of grant. Whether a grant or payment that is labeled
stock salary is salary or a bonus for purposes of the Rule is determined based
on all the facts and circumstances.

– Incentive compensation. Under any
incentive compensation structure, payments to a Covered Employee must be
conditioned upon achievement of objective performance criteria (other than
continued service), with such achievement to be assessed and certified by the
compensation committee. Performance criteria must be developed by the
compensation committee and may be reviewed by the Office of the Special Master.
The aggregate amount of incentives paid to Covered Employees for performance
achieved only in 2010 may not exceed a specified percentage of AIG153s eligible
earnings. The amount and calculation of such eligible earnings will be
determined by the compensation committee and may be reviewed by the Office of
the Special Master.

2. Allocation Rules

– Application of
allocation
rules. The allocation rules apply to
each Covered Employee153s 2010 “primary compensation structure,” which is equal to
the sum of the amounts potentially payable to a Covered Employee (1) in 2010
cash salary, (2) in 2010 stock salary, or (3) under 2010 incentive plans. For
purposes of these determinations, 2010 incentive plans are plans for which
incentives are earned (a) solely with respect to 2010, and (b) under a
multi-year incentive plan established in 2010. Compliance with the allocation
rules is to be assessed based on a Covered Employee153s primary compensation
structure as designed and established in 2010, assuming both target level of
achievement under each incentive plan and maximum level of achievement under
each incentive plan.

– Equity allocation. For a Covered
Employee whose 2010 primary compensation structure includes more than $500,000
of cash compensation, at least 55% of his or her 2010 primary compensation
structure must be allocated to stock compensation. AIG may allocate less than
55% of a Covered Employee153s 2010 primary compensation structure to stock
compensation if the cash allocation of the employee153s primary compensation
structure does not exceed $500,000, provided that for such employee the
allocation in the employee153s 2010 primary compensation

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structure to stock compensation must constitute a significant portion of the
primary compensation structure.

– Long-term allocation. At least 50%
of each Covered Employee153s 2010 primary compensation structure must be allocated
to primary components of compensation that will not be paid or become
transferable prior to the third anniversary of grant. For a Covered Employee
whose 2010 primary compensation structure does not include more than $500,000 of
cash compensation, the long-term allocation rule excludes cash salary.

3. Additional Terms and Conditions

– Payment of incentives. No payment
or stock compensation grant under a 2010 incentive plan may be made prior to the
conclusion of the applicable performance period. Payment under each 2010
incentive plan must consist of at least 50% stock compensation; however, no cash
may be paid under an incentive plan to a Covered Employee unless either (1) 50%
of the target incentive amount under such plan has been first paid in the form
of stock compensation, or (2) at the time of such payment, the percentage of
compensation actually received in stock under such Covered Employee153s 2010
primary compensation structure equals or exceeds the percentage of stock
compensation required in such Covered Employee153s compensation structure.* The
stock compensation paid under a 2010 incentive plan may not be transferred or
otherwise redeemed prior to the third anniversary of grant, provided that any
performance period exceeding one year in an incentive plan may be counted toward
this three-year holding period. For a Covered Employee whose 2010 primary
compensation structure includes more than $500,000 of cash compensation, at
least 50% of the amount payable in cash under each incentive plan must be
deferred at least one year after the date of the initial cash payment under that
plan.

– Stock compensation generally. For
purposes of these determinations, “stock” compensation means the securities
referenced by the “basket” described in Part IV of the March 23, 2010,
determinations for AIG153s “Top 25” executives, or, for purposes of “long-term
restricted stock” (as defined in the Rule) only, AIG common stock or common
stock units. No stock compensation paid to a Covered Employee may be redeemed or
become transferable prior to the first anniversary of the date on which such
stock compensation vests. Notwithstanding the requirements of the foregoing
sentence and the transferability restrictions otherwise applicable to any stock
compensation, (1) an amount of stock sufficient to cover an employee153s tax
withholding obligations may become immediately transferable to the extent
necessary to satisfy the employee153s obligations, and (2) to the extent permitted
by the Rule, stock may become immediately transferable upon an employee153s death
or separation from service resulting from disability, as defined in the
Company153s broad-based long-term disability plan.

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* For example: E, a Covered Employee, participates in an
incentive program that meets the structural requirements of this Annex, and has
a target incentive payment of $100. If E achieves the applicable performance
criteria, E would be eligible for a payment of $100, consisting of stock
compensation of at least $50, and up to $50 in cash. On the other hand, if E
fails to fully meet the performance criteria and as a result is eligible to
receive $75 in incentive payments, the amount of E153s incentive payable in cash
will depend on whether E previously received 2010 stock compensation, such as
stock salary. If E had not received other stock compensation, only $25 of the
payment could be in cash because no cash could be paid prior to the payment of
50% of the target payment : $50 in this case : in stock compensation. If,
however, E had received other stock compensation, the amount of cash payable
under the incentive plan could exceed $25, but only to the extent the cash
proportion of compensation actually paid to E with respect to 2010 would not
exceed the portion required to be allocated to cash in E153s primary compensation
structure.

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– Clawbacks and hedging. Any
incentive payment must be subject to “clawback” if the payment or the amount
thereof was based on materially inaccurate financial statements (which term
includes, but is not limited to, statements of earnings, revenues, or gains) or
any other materially inaccurate performance metric criteria, or if the Covered
Employee is terminated due to misconduct that occurred during the period the
incentive was earned. In addition, the compensation structure for each Covered
Employee must prohibit the employee from engaging in any derivative or similar
transaction with respect to AIG that would undermine the long-term performance
incentives created by the compensation structures set forth in this Annex.

– Employees entering the “Top 25”.
If AIG reasonably concludes that a Covered Employee may become one of the “Top
25” employees in 2011, the compensation structure for that Covered Employee will
be subject to the following additional terms and conditions to assure compliance
with pertinent statutory and regulatory requirements. Any payment under a 2010
incentive plan that would be payable to the Covered Employee in cash in the
first quarter of 2011 consistent with the terms of this Annex may be paid on or
before December 31, 2010. In addition, notwithstanding the other requirements of
this Annex, any incentive compensation for performance in 2010 may be paid to
the Covered Employee in the form of AIG common stock (but not stock units) that
vests on or before December 31, 2010, provided that the transferability of such
stock shall be consistent with the structural principles of this Annex. Finally,
notwithstanding the other requirements of this Annex, up to one-third of the
Covered Employee153s “annual compensation” for 2010 may be paid in the form of
“long-term restricted stock,” as those terms are defined in the Rule.

– Severance. No 2010 compensation
structure may establish the right to a “golden parachute” payment (as defined in
the Rule) or permit an increase in the amount of such a payment under an
already-existing arrangement.

4. Other components of compensation

– Tax gross-ups. AIG is prohibited
from providing (formally or informally) tax gross-ups to any of the Covered
Employees, in the same manner as the gross-up prohibition applies to “Top 25”
employees under the Rule.

– Other compensation
and
perquisites. No more than $25,000 in
total other compensation and perquisites may be provided to any Covered
Employee, absent exceptional circumstances for good cause shown, as defined by
pertinent SEC regulations. Payments to Covered Employees under expatriate
arrangements, not to exceed $350,000 per employee (excluding “tax equalization
agreements” as defined in the Rule), are excluded from the limitation in the
foregoing sentence.

– Supplemental executive retirement plans and
non-qualified deferred compensation plans. No amounts may be
accrued under supplemental executive retirement plans, and no Company
contributions may be made to other “non-qualified deferred compensation” plans,
as defined by pertinent SEC regulations, for any Covered Employee for 2010. For
the avoidance of doubt, neither the foregoing limitation nor the corresponding
limitation in the 2009 Determinations (1) applies to employee-funded elective
deferral arrangements, or (2) precludes continuing recognition of age and
service credit for Company employees for the purposes of vesting in previously
accrued benefits under any plans referred to in this paragraph.

– Qualified plans. For the avoidance
of doubt, the Special Master has determined that participation by the Covered
Employees in broad-based, tax-qualified retirement and health and welfare plans
is consistent with the Public Interest Standard, and amounts contributed to or
payable under such plans are not counted against the $25,000 limit on other
compensation and perquisites.

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