AIG furious over White House-imposed cuts - Relationship with government paymasters close to breaking poin

AIG furious over White House-imposed cuts - Relationship with government paymasters close to breaking poin
By Francesco Guerrera in New York and Tom Braithwaite in Washington
Copyright The Financial Times Limited 2009
Published: November 11 2009 23:32 | Last updated: November 11 2009 23:32
http://www.ft.com/cms/s/0/6e827a12-cf19-11de-8a4b-00144feabdc0.html


The relationship between AIG and some of its US government paymasters has come close to breaking point after a heated exchange between the insurer’s board and the Obama administration “pay tsar” over compensation at the stricken company.

The long-simmering tensions between the new board of AIG, per cent-owned by the government, and Kenneth Feinberg, the administration’s special master on pay, came out into the open during a three-hour meeting in New York last week.

AIG’s directors, led by chief executive Robert Benmosche, told Mr Feinberg his recent decision to slash salaries for 12 of its top executives by more than 90 per cent was triggering high-level departures, upsetting employees’ morale and reducing the chances the company will repay federal aid, according to people close to the situation.

Mr Feinberg replied that AIG “did not get” the fact it has been bailed out with billions of dollars in taxpayers’ funds and had to show restraint on compensation.

At one point, one director told Mr Feinberg and Herb Allison, the Treasury’s assistant secretary for financial stability, that they should be running AIG because the board was not in a position to do so.

AIG’s row with Mr Feinberg, a senior Treasury official tasked with overseeing pay at bailed-out companies, highlights the problems created by the authorities’ decision to rescue some of the largest US institutions.

In a memo to employees on Wednesday, Mr Benmosche wrote: “I and the Board are indeed frustrated and we are in ongoing discussions with Treasury and the Special Master to resolve the uncertainty surrounding [the pay] issue.”

At a subsequent board meeting, Mr Benmosche, a former head of the insurer MetLife, is believed to have threatened to quit, just three months after taking the job.

He has since backed down from the threat, according to people familiar with the matter, but his comment underlines the frustration of AIG’s upper echelons at the government’s involvement in their affairs. In his memo yesterday, he affirmed he remained “totally committed to leading AIG through its challenges”.

AIG and the Treasury declined to comment.

Around a dozen top level executives and business managers have left AIG in the past few months.

AIG officials argue the effects of Mr Feinberg’s stance on pay are more widespread and affect the entire organisation at a time when it is trying to remain competitive and win customers despite the bad publicity.

“The compensation issue is unsettling the entire employee population,” an AIG insider said.

Some officials in the Treasury and Federal Reserve have sympathised privately with AIG and warned Mr Feinberg he risked forcing out too many employees.

Other officials have been more mindful of Mr Feinberg’s positive impact on the bonus furore – dampening public anger over pay and awarding a public relations victory to the Obama administration.