A.I.G. to Suspend Millions in Executive Payouts
By JONATHAN D. GLATER
Published: October 22, 2008
The beleaguered insurer American International Group has agreed to suspend payments to executives from a $600 million bonus fund as well as $19 million in payments to its former chief executive, the New York attorney general announced on Wednesday.
The moves are the latest steps in an effort by the attorney general, Andrew M. Cuomo, to prevent bonuses and other compensation to former executives at A.I.G., which in recent weeks has received tens of billions of dollars in loans from the Federal Reserve.
“There should not even be any contemplation of bonuses for executive performance because I find it hard to conceive of a situation that you could justify a performance bonus for management that virtually bankrupted the company,” Mr. Cuomo said on a conference call with reporters on Wednesday afternoon.
Regulators and lawmakers have pointed to A.I.G. as an example of excessive greed in corporate America. Although the Treasury Department is imposing limits on compensation to the most highly paid executives at companies that receive government aid, the limits do not address compensation paid in the past or under pre-existing employment contracts.
In A.I.G.’s case, according to Mr. Cuomo’s office, it is unlikely that the limits in the bailout legislation would apply because the company has received money in the form of loans from the Fed, not from transactions with the Treasury Department.
According to a letter Mr. Cuomo sent to A.I.G.’s current chief executive, Edward M. Liddy, the company has agreed to freeze $19 million in remaining payments to Martin J. Sullivan, the company’s former chief executive who was ousted in June. Mr. Cuomo said he did not know how much Mr. Sullivan might have already been paid under his employment contract.
The company also agreed not to make any payments from a $600 million deferred compensation and bonus fund for executives of A.I.G.’s financial products unit, which undertook many of the complex financial transactions that pushed the company to the brink of collapse. Mr. Cuomo said that Joseph Cassano, who headed that unit, stood to receive $70 million from the fund.
“We have received the letter, and the letter is consistent with our discussions with the attorney general and with actions we have taken,” said Joe Norton, a spokesman for A.I.G.
Mr. Cuomo has already called on A.I.G. to help recover payments made to former executives at the company. During the call with reporters, Mr. Cuomo suggested that his actions offered a template for dealing with executive compensation at companies now receiving taxpayer money through the bailout approved by Congress this month.
“Once a company accepts tax dollars, there are different rules,” Mr. Cuomo said. “These are taxpayers who did not voluntarily make an investment in these companies. In many ways it was a forced investment.”
The suspension of payments appears to be the product of negotiation between Mr. Cuomo’s office and A.I.G., but last week the attorney general raised the prospect of using New York law to recover past payments to executives whether the company cooperated or not.
A.I.G.’s spending drew national attention this month after two former executives testified before Congress about pay practices and outsize spending that continued even after the company received an $85 billion bridge loan from the Federal Reserve.
One particular point of contention was a weeklong retreat that a subsidiary, AIG General, held for sales agents. The $442,000 in expenses included $150,000 for food and $23,000 in spa charges. A.I.G., which received an additional $37.8 billion loan from the Fed, later canceled 160 conferences and other events that would have cost more than $8 million.
[PS: I think I like Mr. Cuomo.]
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