US pay tsar gets tough over AIG packages - Insurer fears exodus of talent in crackdown

US pay tsar gets tough over AIG packages - Insurer fears exodus of talent in crackdown
By Francesco Guerrera in New York and Tom Braithwaite in Washington
Copyright The Financial Times Limited 2009
Published: October 11 2009 22:09 | Last updated: October 11 2009 22:09
http://www.ft.com/cms/s/0/51b26b2a-b68e-11de-8a28-00144feab49a.html


The Obama administration’s pay tsar has indicated he will take a tough stance on executive pay at AIG, the state-controlled insurance group that sparked outrage over its bonus payments earlier this year.

Kenneth Feinberg, the “special master” for pay at companies that have received government support, has raised concerns inside and outside AIG by putting pressure on the company to alter some pay plans.

People close to the situation said regulators had expressed fears that a crackdown on AIG could impel executives to leave, further harming the company’s prospects and the chances of taxpayers’ money being repaid.

“It’s counterproductive,” one AIG insider said. “To have their pay curtailed below market levels is going to prompt some of them to leave.”

AIG sparked a storm over executive compensation when it emerged in March that the insurance group planned to pay $165m in bonuses even after receiving $180bn in government funding following the bad bets in derivatives that almost sank the company last year.

But Mr Feinberg decided this month that the proposed pay package for Robert Benmosche, AIG’s new chief executive, including $7m annual salary, should stand as it was in line with directors’ pay at other companies and included a large portion of stock.

Coupled with public comments about his approach to vetting compensation at the bailed-out companies, the approval of Mr Benmosche’s package was seen as a signal that remuneration might not be challenged elsewhere.

However, AIG is still in tough negotiations about remuneration of lower-level executives, with Mr Feinberg adopting a hard line, questioning both the amounts and structure of pay packages. He is due to deliver a final ruling as early as this week.

AIG declined to comment on its talks with Mr Feinberg. The Federal Reserve and the Treasury, which have used taxpayers’ money in exchange for an 80 per cent holding in the group, also declined to comment.

But people close to the situation said AIG, which recently named a new chief executive and a new chairman, needed its best people to have any hope of freeing itself of government control.

Separately, Mr Feinberg played a part in last week’s sale of Phibro, Citigroup’s commodity trading division, after he strongly objected to the pay package of trader Andrew Hall.

Separately, AIG is about to sell its Taiwanese life assurance unit with an announcement possible this week, according to people familiar with the matter. The sale of Nan Shan is expected to bring in more than $2bn, representing AIG’s largest divestment since it began shedding assets last year.