Supplemental Determination re. Highly Compensated Employees – AIG
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DEPARTMENT OF THE TREASURY |
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August 3, 2010
Jeffrey J. Hurd, Esq.
Senior Vice President :
Human Resources and Communications
American International Group, Inc.
70 Pine Street
New York, New York 10270
Re: Supplemental Determination
Regarding
2010 Compensation Payments and Structures for
Most Highly Compensated Employees
Dear Mr. Hurd:
This letter addresses requests submitted by you on behalf of American
International Group, Inc. (“AIG”), for approval by the Special Master for TARP
Executive Compensation (the “Special Master”) regarding (i) compensation
potentially payable to a “Top 25” executive, and (ii) compensation structures of
employees in the “Covered Employees 26:100” group. This letter also provides a
clarification regarding compensation structures approved for the “Covered
Employees 26:100” group.
Under the Department of the Treasury153s Interim Final Rule on TARP Standards
for Compensation and Corporate Governance (the “Rule”), the Special Master must
approve the compensation structures and amounts payable to “Top 25” executives
of “exceptional assistance recipients” such as AIG. 31 C.F.R. § 30.16(a)(3)(i).
The Special Master must also approve the compensation structures:but not
individual amounts payable:to executive officers who are in an exceptional
assistance recipient153s “Covered Employees 26:100” group. Id. §
30.16(a)(3)(ii).
1. Top 25 and Covered Employees 26:100 Omissions
Pursuant to the Rule, on March 23, 2010, the Special Master issued an initial
determination (the “Top 25 Determination”), which concluded that certain
compensation structures and amounts payable to AIG153s Top 25 executives would not
result in payments that are “inconsistent with the purposes of section 111 of
EESA or TARP, or [are] otherwise contrary to the public interest.” Id.
§ 30.16(b)(1) (the “Public Interest Standard”). On April 16, 2010, the
Special Master issued another initial determination (the “26:100
Determination”), which concluded that certain compensation structures for AIG153s
Covered Employees 26:100 group are consistent with the Public Interest Standard.
Subsequent to the issuance of the determinations described above, AIG
notified the Office of the Special Master that revised calculations revealed the
misidentification of one member in each of the 2010 groups. As a result of this
misidentification, no compensation structure or payments were proposed for an
omitted Top 25 executive and no compensation structure was proposed for an
omitted employee in the Covered Employees 26:100 group. On August 2, 2010, AIG
submitted proposals for the omitted executives:its representatives having
previously discussed the substance of the proposal with the Office of the
Special Master:and requested a determination that any payments under the
proposals would be consistent with the Public Interest Standard.
The proposed pay package for the omitted Top 25 executive conforms to the
compensation structures that the Special Master approved in the Top 25
Determination. The amounts potentially payable to the Top 25 executive under the
proposal have also been reviewed by the Office of the Special Master to assess
whether such amounts are consistent with amounts payable to persons in similar
positions or roles at similar entities that are similarly situated. See id.
§ 30.16(b)(1)(v). In light of this review, the Special Master has concluded
that these amounts “appropriately, reflect [the executive153s] prospective
contributions…to the value of the exceptional assistance recipient.” Id.
§ 30.16(b)(1)(vi). Accordingly, the Special Master has determined that the
compensation structure proposed for this executive, as described in
Exhibit I, is consistent with the Public Interest
Standard.
The proposed compensation structure for the omitted employee from the Covered
Employees 26:100 group is consistent with the requirements of the 26:100
Determination. Accordingly, the Special Master has determined that AIG153s
proposed 2010 compensation structure for this executive is consistent with the
Public Interest Standard.
2. New Executive Officer
Subsequent to the issuance of the 26:100 Determination, AIG also informed the
Office of the Special Master that it had identified a potential candidate for an
AIG executive officer position, serving as the Executive Chairman of American
International Assurance Company Limited (the “AIA Executive”). On July 17, 2010,
AIG submitted a proposed compensation structure and requested a determination
that the proposed structure is consistent with the Public Interest Standard.
Under the proposal, which is consistent with the requirements of the 26:100
Determination and compensation structures previously approved by the Special
Master for incoming AIG executive officers, the AIA Executive would be eligible
to receive cash salary, cash and stock incentives, and other benefits (including
eligibility under AIG153s Executive Severance Plan) on the same terms and
conditions as current executives of AIG in the Covered Employees 26-100 group.
Accordingly, the Special Master has determined that AIG153s proposed 2010
compensation structure for the AIA Executive is consistent with the Public
Interest Standard.
AIG153s submission for the AIA Executive also proposes compensation structures
for 2011 and 2012, and contemplates that the AIA Executive may become a Top 25
executive for 2012. The proposed 2011 and 2012 compensation structures generally
conform with the compensation structures the Special Master has approved for
executives in the Covered Employees 26:100 group and Top 25 executives,
respectively. Accordingly, the Special Master has concluded in
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principle that the proposed 2011 and 2012 compensation structures and amounts
potentially payable under them would be consistent with the Public Interest
Standard. Notwithstanding the foregoing, however, the Special Master153s final
determination under the Rule regarding the AIA Executive153s compensation
structures and payments in any year after 2010 will not be made prior to the
regular review of AIG153s compensation proposals for that year, and will be based
on the totality of the facts and circumstances at that time.
3. Compensation Structure for a Covered Employee
On August 2, 2010, AIG also submitted a proposal regarding the compensation
structure of a certain employee in the Covered Employees 26:100 group (the
“Covered Employee”). At the time of the 26:100 Determination, it was anticipated
that the Covered Employee would fall within the Rule153s “safe harbor” provision,
which provides automatic approval for compensation structures resulting in
$500,000 or less in “annual compensation” (excluding long-term restricted
stock). See id. § 30.16(a)(3)(ii). According to AIG, it is now
anticipated that the Covered Employee153s “annual compensation” may exceed
$500,000, due to his performance under sales commission plans. Notwithstanding
the stock and long-term allocation requirements of the 26:100 Determination, AIG
has requested approval to continue paying the Covered Employee under these
programs (along with a minimal cash base salary ). AIG has noted the
long-established and predominant use of commission programs to compensate sales
employees in positions similar to the Covered Employee153s, and confirmed that
payments under the program would qualify as “commission compensation” under the
Rule.
The Special Master considered the proposal in light of the Rule153s exclusion
of reasonable “commission compensation” from the restrictions applicable to
bonus and incentive compensation, see id. § 30.1, and the principle
that compensation structures should be consistent with those provided to
“persons in similar positions or roles at similar entities…competing in the
same markets” as a covered employee. Accordingly, the Special Master has
determined that the payment of qualified “commission compensation” to the
Covered Employee under the programs (in addition to a minimal base salary) is
not inconsistent with the Public Interest Standard, provided that any other
compensation structure of the Covered Employee comply with the requirements of
the 26:100 Determination.
4. Guidance Regarding the 26:100 Determination
The 26:100 Determination requires that employees in the Covered Employees
26:100 group be paid no more than $25,000 in perquisites and “other”
compensation, absent exceptional circumstances for good cause shown. With
respect to an individual employee in the Covered Employees 26:100 group, a
relocation undertaken at the request of the company constitutes exceptional
circumstances, and such circumstances constitute good cause for the company to
pay such employee153s reasonable relocation expenses under a program that provides
such benefits on the same basis to similarly situated employees; provided,
however, that a tax gross-up is not a reasonable relocation expense.
The approvals in this letter apply only to the proposals in respect of the
executives addressed in sections 1, 2 and 3. Such conclusions are limited to the
authority vested in the Special Master by Section 30.16(a)(3) of the Rule, and
shall not constitute, or be construed to
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constitute, the judgment of the Office of the Special Master or the
Department of the Treasury with respect to the compliance of the proposed
compensation structure or any other compensation structure for the subject
employee with any other provision of the Rule. Moreover, the Special Master153s
evaluations and conclusions 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.
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Very truly yours, |
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/s/ Kenneth R. Feinberg |
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Kenneth R. Feinberg |
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Office of the Special Master |
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for TARP Executive Compensation |
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cc: Robert H. Benmosche |
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Marc Trevino, Esq. |
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EXHIBIT I
SUPPLEMENTAL DETERMINATION
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Top 25 Executive 2010 compensation structure: |
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Cash salary |
$400,000 (prospective annual rate) |
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Stock salary |
$800,000 (annual rate, payable on a nunc pro tunc basis effective |
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Long-term restricted stock |
$300,000 (2010 target amount; in addition, subject to the limitations of the |
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The terms and conditions of the Top 25 Determination regarding the
compensation structures and amounts potentially payable thereunder to the
non-AIGFP Covered Employees (as defined in the Top 25 Determination) shall apply
to the Top 25 Executive.
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