{"id":40310,"date":"2015-09-17T11:25:58","date_gmt":"2015-09-17T16:25:58","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/contracts\/uncategorized\/proposed-compensation-structure-aig.html"},"modified":"2015-09-17T11:25:58","modified_gmt":"2015-09-17T16:25:58","slug":"proposed-compensation-structure-aig","status":"publish","type":"corporate_contracts","link":"https:\/\/corporate.findlaw.com\/contracts\/compensation\/proposed-compensation-structure-aig.html","title":{"rendered":"Proposed Compensation Structure – AIG"},"content":{"rendered":"\n\n\n\n\n\n
\n

DEPARTMENT OF THE TREASURY<\/strong><\/p>\n<\/td>\n<\/tr>\n

\n

WASHINGTON, D.C. 20220<\/p>\n<\/td>\n<\/tr>\n

\n<\/td>\n<\/tr>\n
\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

\n

April 16, 2010<\/p>\n

\n

Mr. Robert Benmosche<\/p>\n

President and Chief Executive Officer<\/p>\n

American International Group, Inc.<\/p>\n

70 Pine Street<\/p>\n

New York, NY 10270<\/p>\n<\/p>\n

Re:<\/em><\/strong> Proposed Compensation Structures
\nfor Certain Executive Officers and Most Highly Compensated Employees (“Covered
\nEmployees 26 :100”)<\/em><\/strong><\/p>\n<\/p>\n

Dear Mr. Benmosche:<\/p>\n<\/p>\n

Pursuant to the Department of the Treasury153s Interim Final Rule on TARP
\nStandards for Compensation and Corporate Governance (the “Rule”), the Office of
\nthe Special Master has completed its review of your 2010 compensation submission
\non behalf of employees who are either executive officers of American
\nInternational Group, Inc. (“AIG”) or one of AIG153s 100 most highly compensated
\nemployees, excluding those employees subject to Section 30.10 of the
\nRule (“Covered Employees 26 : 100”). The Special Master153s compensation reviews
\nfor Covered Employees 26 : 100 differ from the reviews of AIG153s “Top 25”
\nemployees, which addressed individual “amounts payable” to those employees, 31
\nC.F.R. \u00a7 30.16(a)(3)(i). For Covered Employees 26 : 100, the Rule does not
\nrequire individual payment determinations; instead, the Special Master must
\ndetermine only whether the proposed compensation structures “will or may result
\nin payments that are inconsistent with the purposes of Section 111 of EESA or
\nTARP, or are otherwise contrary to the public interest” (as applied to Covered
\nEmployees 26 : 100 of AIG, the “Public Interest Standard”). Id. <\/em> \u00a7
\n30.16(a)(3)(ii).<\/p>\n<\/p>\n

On December 11, 2009, the Special Master issued determinations (the “2009
\nDeterminations”) designed to ensure that 2009 compensation structures for AIG153s
\n2009 Covered Employees 26 : 100 met the Public Interest Standard. The 2009
\nDeterminations were informed by a number of considerations, including each of
\nthe principles articulated in the Rule. Id. <\/em> \u00a7 30.16(b)(1). In
\nparticular, the determinations emphasized allocating significant portions of
\ncompensation to long-term structures tied to AIG153s overall value, using
\nstructures that are performance-based and easily understood by shareholders, and
\nprotecting the Company153s ability to remain a competitive enterprise and
\nultimately to repay the its taxpayer assistance.<\/p>\n<\/p>\n

The Special Master has concluded that, for the reasons provided in the 2009
\nDeterminations, the principles and requirements of those determinations should
\ngenerally continue to apply in 2010. Accordingly, the Special Master has
\ndetermined that the compensation structures described in Annex
\nA,<\/em><\/strong> which reaffirm the compensation structures approved in 2009,
\nare consistent with the Public Interest Standard. AIG153s proposed compensation
\nstructures, with minor modifications, are consistent with the Special Master153s
\nprescriptions, which require that:<\/p>\n<\/p>\n

– Compensation may be provided in three primary components:
\ncash salary, stock salary, and incentive compensation. The amounts and
\nconditions of the components for each Covered Employee will be determined by
\nAIG153s compensation committee.<\/p>\n<\/p>\n

\n

<\/p>\n

– Compensation must be performance-based. Fixed compensation
\nshould consist only of cash salaries and stock salaries at levels sufficient to
\nattract and retain employees and provide them a reasonable level of liquidity.
\nCash salaries should not exceed $500,000 per year, except in exceptional cases
\nfor good cause shown, as certified by the Company153s independent compensation
\ncommittee.<\/p>\n<\/p>\n

– Compensation must emphasize long-term results. At least
\n50% of any incentive payment to a Covered Employee must be delivered in
\nlong-term stock. In most cases, half of total pay : whatever the overall mix of
\ncomponents for that individual : must not be transferable for at least three
\nyears.<\/p>\n<\/p>\n

– Stock compensation must constitute a significant portion
\nof each Covered Employee153s compensation structure. For employees who earn more
\nthan $500,000 in total cash, that portion must be 55% at the minimum.<\/p>\n<\/p>\n

– Incentives may be paid if:and only if:the payments are
\nappropriate in light of AIG153s overall circumstances and a particular Covered
\nEmployee achieves objective performance metrics. Incentive payments must be
\nsubject to “clawback” if the performance assessment resulting in the
\ncompensation is later discovered to be inaccurate.<\/p>\n<\/p>\n

– Incentive payments must be payable over time and delivered
\nin a mix of cash and stock, and the total value of all incentive compensation
\npayments cannot exceed a specified percentage of the company153s eligible
\nearnings, to be determined by the compensation committee.<\/p>\n<\/p>\n

– The restrictions described in the Special Master153s
\nprevious determinations pertaining to perquisites, severance benefits, hedging
\ntransactions, tax “gross-ups” and supplemental executive retirement plans shall
\ncontinue to apply to Covered Employees 26 : 100.<\/p>\n<\/p>\n

The Special Master153s determinations are limited to the compensation
\nstructures described in Annex A,<\/em><\/strong> and shall not be
\nrelied upon with respect to any other employee. The determinations have relied
\nupon, and are qualified in their entirety by, the accuracy of the materials
\nsubmitted by AIG to the Office of the Special Master, and the absence of any
\nmaterial misstatement or omission in such materials. Pursuant to the Interim
\nFinal Rule, AIG may, within 30 days of the date hereof, request in writing that
\nthe Special Master reconsider the determinations set forth in Annex
\nA.<\/em><\/strong> If the Company does not request reconsideration within 30 days,
\nthese initial determinations will be treated as final determinations. Id.
\n<\/em> \u00a7 30.16(c)(1).<\/p>\n<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n
\n<\/td>\n\n

Very truly yours,<\/p>\n<\/td>\n<\/tr>\n

\n<\/td>\n\n<\/td>\n<\/tr>\n
\n<\/td>\n\n

\/s\/ Kenneth R. Feinberg<\/p>\n<\/td>\n<\/tr>\n

\n<\/td>\n\n

Kenneth R. Feinberg<\/p>\n<\/td>\n<\/tr>\n

\n<\/td>\n\n

Office of the Special Master
\nfor TARP Executive Compensation<\/p>\n<\/td>\n<\/tr>\n

\n

Attachments<\/p>\n<\/td>\n

\n<\/td>\n<\/tr>\n
\n

cc:<\/p>\n<\/td>\n

\n

Jeffrey Hurd, Esq.<\/p>\n<\/td>\n

\n<\/td>\n<\/tr>\n
\n<\/td>\n\n

Marc R. Trevino, Esq.<\/p>\n<\/td>\n

\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

\n

2<\/p>\n

\n

<\/p>\n

\n

ANNEX A<\/strong><\/p>\n

APPROVED 2010 COMPENSATION STRUCTURES<\/strong><\/p>\n

\n

This Annex sets forth terms and conditions for the 2010 compensation
\nstructures for AIG153s 2010 Covered Employees 26 : <\/em>100. (For the
\navoidance of doubt, if the compensation structure for a Covered Employee fits
\nwithin the $500,000 “safe harbor” exemption set forth in
\nSection 30.16(a)(3)(ii) of the Rule, the Special Master153s approval is not
\nrequired for that employee153s compensation structure.) Capitalized terms used in
\nthis Annex have the meaning given to them in the preceding letter. To the extent
\nthat AIG153s proposed structures do not meet the principles and requirements of
\nthis Annex, AIG must make such modifications as are necessary to comply with
\nsuch principles and requirements.<\/p>\n<\/p>\n

1.<\/strong> Primary Components of Compensation<\/strong><\/p>\n<\/p>\n

– Cash salary. <\/em><\/strong>Covered Employees
\nshould not receive cash salaries payments in excess of $500,000, other than in
\nexceptional circumstances for good cause shown. Any such exceptions must be
\nindividually certified to the Office of the Special Master by AIG153s compensation
\ncommittee, which is comprised solely of independent directors.<\/p>\n<\/p>\n

– Stock salary. <\/em><\/strong>Stock salary must be
\ndetermined as a dollar amount through the date salary is earned, be accrued at
\nthe same time or times as the salary would otherwise be paid in cash, and vest
\nimmediately upon grant, with the number of shares or units based on the fair
\nmarket value on the date of grant. Whether a grant or payment that is labeled
\nstock salary is salary or a bonus for purposes of the Rule is determined based
\non all the facts and circumstances.<\/p>\n<\/p>\n

– Incentive compensation. <\/em><\/strong>Under any
\nincentive compensation structure, payments to a Covered Employee must be
\nconditioned upon achievement of objective performance criteria (other than
\ncontinued service), with such achievement to be assessed and certified by the
\ncompensation committee. Performance criteria must be developed by the
\ncompensation committee and may be reviewed by the Office of the Special Master.
\nThe aggregate amount of incentives paid to Covered Employees for performance
\nachieved only in 2010 may not exceed a specified percentage of AIG153s eligible
\nearnings. The amount and calculation of such eligible earnings will be
\ndetermined by the compensation committee and may be reviewed by the Office of
\nthe Special Master.<\/p>\n<\/p>\n

2.<\/strong> Allocation Rules<\/strong><\/p>\n<\/p>\n

– Application <\/em><\/strong>of
\n<\/em><\/strong>allocation
\n<\/em><\/strong>rules.<\/em><\/strong> The allocation rules apply to
\neach Covered Employee153s 2010 “primary compensation structure,” which is equal to
\nthe sum of the amounts potentially payable to a Covered Employee (1) in 2010
\ncash salary, (2) in 2010 stock salary, or (3) under 2010 incentive plans. For
\npurposes of these determinations, 2010 incentive plans are plans for which
\nincentives are earned (a) solely with respect to 2010, and (b) under a
\nmulti-year incentive plan established in 2010. Compliance with the allocation
\nrules is to be assessed based on a Covered Employee153s primary compensation
\nstructure as designed and established in 2010, assuming both target level of
\nachievement under each incentive plan and maximum level of achievement under
\neach incentive plan.<\/p>\n<\/p>\n

– Equity allocation.<\/em><\/strong> For a Covered
\nEmployee whose 2010 primary compensation structure includes more than $500,000
\nof cash compensation, at least 55% of his or her 2010 primary compensation
\nstructure must be allocated to stock compensation. AIG may allocate less than
\n55% of a Covered Employee153s 2010 primary compensation structure to stock
\ncompensation if the cash allocation of the employee153s primary compensation
\nstructure does not exceed $500,000, provided that for such employee the
\nallocation in the employee153s 2010 primary compensation<\/p>\n

\n

A1<\/p>\n

\n

<\/p>\n

\n

structure to stock compensation must constitute a significant portion of the
\nprimary compensation structure.<\/p>\n<\/p>\n

– Long-term allocation.<\/em><\/strong> At least 50%
\nof each Covered Employee153s 2010 primary compensation structure must be allocated
\nto primary components of compensation that will not be paid or become
\ntransferable prior to the third anniversary of grant. For a Covered Employee
\nwhose 2010 primary compensation structure does not include more than $500,000 of
\ncash compensation, the long-term allocation rule excludes cash salary.<\/p>\n<\/p>\n

3.<\/strong> Additional Terms and Conditions<\/strong><\/p>\n<\/p>\n

– Payment of incentives.<\/em><\/strong> No payment
\nor stock compensation grant under a 2010 incentive plan may be made prior to the
\nconclusion of the applicable performance period. Payment under each 2010
\nincentive plan must consist of at least 50% stock compensation; however, no cash
\nmay be paid under an incentive plan to a Covered Employee unless either (1) 50%
\nof the target incentive amount under such plan has been first paid in the form
\nof stock compensation, or (2) at the time of such payment, the percentage of
\ncompensation actually received in stock under such Covered Employee153s 2010
\nprimary compensation structure equals or exceeds the percentage of stock
\ncompensation required in such Covered Employee153s compensation structure.* The
\nstock compensation paid under a 2010 incentive plan may not be transferred or
\notherwise redeemed prior to the third anniversary of grant, provided that any
\nperformance period exceeding one year in an incentive plan may be counted toward
\nthis three-year holding period. For a Covered Employee whose 2010 primary
\ncompensation structure includes more than $500,000 of cash compensation, at
\nleast 50% of the amount payable in cash under each incentive plan must be
\ndeferred at least one year after the date of the initial cash payment under that
\nplan.<\/p>\n<\/p>\n

– Stock compensation generally.<\/em><\/strong> For
\npurposes of these determinations, “stock” compensation means the securities
\nreferenced by the “basket” described in Part IV of the March 23, 2010,
\ndeterminations for AIG153s “Top 25” executives, or, for purposes of “long-term
\nrestricted stock” (as defined in the Rule) only, AIG common stock or common
\nstock units. No stock compensation paid to a Covered Employee may be redeemed or
\nbecome transferable prior to the first anniversary of the date on which such
\nstock compensation vests. Notwithstanding the requirements of the foregoing
\nsentence and the transferability restrictions otherwise applicable to any stock
\ncompensation, (1) an amount of stock sufficient to cover an employee153s tax
\nwithholding obligations may become immediately transferable to the extent
\nnecessary to satisfy the employee153s obligations, and (2) to the extent permitted
\nby the Rule, stock may become immediately transferable upon an employee153s death
\nor separation from service resulting from disability, as defined in the
\nCompany153s broad-based long-term disability plan.<\/p>\n<\/p>\n

\n

* For example: E, a Covered Employee, participates in an
\nincentive program that meets the structural requirements of this Annex, and has
\na target incentive payment of $100. If E achieves the applicable performance
\ncriteria, E would be eligible for a payment of $100, consisting of stock
\ncompensation of at least $50, and up to $50 in cash. On the other hand, if E
\nfails to fully meet the performance criteria and as a result is eligible to
\nreceive $75 in incentive payments, the amount of E153s incentive payable in cash
\nwill depend on whether E previously received 2010 stock compensation, such as
\nstock salary. If E had not received other stock compensation, only $25 of the
\npayment could be in cash because no cash could be paid prior to the payment of
\n50% of the target payment : $50 in this case : in stock compensation. If,
\nhowever, E had received other stock compensation, the amount of cash payable
\nunder the incentive plan could exceed $25, but only to the extent the cash
\nproportion of compensation actually paid to E with respect to 2010 would not
\nexceed the portion required to be allocated to cash in E153s primary compensation
\nstructure.<\/p>\n

\n

A2<\/p>\n

\n

<\/p>\n

– Clawbacks and hedging.<\/em><\/strong> Any
\nincentive payment must be subject to “clawback” if the payment or the amount
\nthereof was based on materially inaccurate financial statements (which term
\nincludes, but is not limited to, statements of earnings, revenues, or gains) or
\nany other materially inaccurate performance metric criteria, or if the Covered
\nEmployee is terminated due to misconduct that occurred during the period the
\nincentive was earned. In addition, the compensation structure for each Covered
\nEmployee must prohibit the employee from engaging in any derivative or similar
\ntransaction with respect to AIG that would undermine the long-term performance
\nincentives created by the compensation structures set forth in this Annex.<\/p>\n<\/p>\n

– Employees entering the “Top 25”.<\/em><\/strong>
\nIf AIG reasonably concludes that a Covered Employee may become one of the “Top
\n25” employees in 2011, the compensation structure for that Covered Employee will
\nbe subject to the following additional terms and conditions to assure compliance
\nwith pertinent statutory and regulatory requirements. Any payment under a 2010
\nincentive plan that would be payable to the Covered Employee in cash in the
\nfirst quarter of 2011 consistent with the terms of this Annex may be paid on or
\nbefore December 31, 2010. In addition, notwithstanding the other requirements of
\nthis Annex, any incentive compensation for performance in 2010 may be paid to
\nthe Covered Employee in the form of AIG common stock (but not stock units) that
\nvests on or before December 31, 2010, provided that the transferability of such
\nstock shall be consistent with the structural principles of this Annex. Finally,
\nnotwithstanding the other requirements of this Annex, up to one-third of the
\nCovered Employee153s “annual compensation” for 2010 may be paid in the form of
\n“long-term restricted stock,” as those terms are defined in the Rule.<\/p>\n<\/p>\n

– Severance.<\/em><\/strong> No 2010 compensation
\nstructure may establish the right to a “golden parachute” payment (as defined in
\nthe Rule) or permit an increase in the amount of such a payment under an
\nalready-existing arrangement.<\/p>\n<\/p>\n

4.<\/strong> Other components of compensation<\/strong><\/p>\n<\/p>\n

– Tax gross-ups.<\/em><\/strong> AIG is prohibited
\nfrom providing (formally or informally) tax gross-ups to any of the Covered
\nEmployees, in the same manner as the gross-up prohibition applies to “Top 25”
\nemployees under the Rule.<\/p>\n<\/p>\n

– Other compensation
\n<\/em><\/strong>and
\n<\/em><\/strong>perquisites.<\/em><\/strong> No more than $25,000 in
\ntotal other compensation and perquisites may be provided to any Covered
\nEmployee, absent exceptional circumstances for good cause shown, as defined by
\npertinent SEC regulations. Payments to Covered Employees under expatriate
\narrangements, not to exceed $350,000 per employee (excluding “tax equalization
\nagreements” as defined in the Rule), are excluded from the limitation in the
\nforegoing sentence.<\/p>\n<\/p>\n

– Supplemental executive retirement plans and
\nnon-qualified deferred compensation plans.<\/em><\/strong> No amounts may be
\naccrued under supplemental executive retirement plans, and no Company
\ncontributions may be made to other “non-qualified deferred compensation” plans,
\nas defined by pertinent SEC regulations, for any Covered Employee for 2010. For
\nthe avoidance of doubt, neither the foregoing limitation nor the corresponding
\nlimitation in the 2009 Determinations (1) applies to employee-funded elective
\ndeferral arrangements, or (2) precludes continuing recognition of age and
\nservice credit for Company employees for the purposes of vesting in previously
\naccrued benefits under any plans referred to in this paragraph.<\/p>\n<\/p>\n

– Qualified plans.<\/em><\/strong> For the avoidance
\nof doubt, the Special Master has determined that participation by the Covered
\nEmployees in broad-based, tax-qualified retirement and health and welfare plans
\nis consistent with the Public Interest Standard, and amounts contributed to or
\npayable under such plans are not counted against the $25,000 limit on other
\ncompensation and perquisites.<\/p>\n

\n

A3<\/p>\n

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