Beleaguered insurance giant AIG has agreed to cancel bonuses for its seven top executives for 2008 and to freeze 2009 pay at current levels for the next tier of top executives -- about 60 in all, the firm's CEO today promised in a letter to New York Attorney General Andrew Cuomo.
"AIG is mindful that it must act prudently and, as such, must impose curbs on executive compensation," CEO Edward Liddy wrote. "To meet these objectives, AIG's top seven executives (Leadership Group) will receive no annual bonuses for 2008." Liddy reduced his own pay to $1.00, according to a press release also issued by the company, and would receive no severance package should he leave the company.
"We believe AIG's step is a positive step," Cuomo said on a media conference call following the release of the letter. "I enocurage other Wall Street firms to wake up to the new reality on Wall Street and follow AIG's steps quickly."
Liddy's letter was in response to Cuomo's strongly worded Nov. 18 letter to AIG in which he said, "AIG has already received more than $150 billion in rescue financing and therefore should be completely transparent with taxpayers as to what the company's compensation plans are." The pressure on AIG is one component of a prescriptive anti-bonus crusade by Cuomo, in which has used the clout of the office as much as its legal mandate, in order to attempt to affect change in the ethics of the market place.
"AIG's demise has seriously harmed investors all over the country," Cuomo's letter also stated. "On top of that, taxpayers have now sunk billions into the company to keep it afloat. It thus seems hard to imagine that AIG could pay significant bonuses. Today he enouraged other firms to follow AIG's actions to curb compensation. "Lets have a race to the top, lets have a new era of corporate responsibility and accountability."
"AIG is extremely grateful for the support it has received from American taxpayers," Liddy said in his reply today. "We recognize the obligation we have to use that support to help AIG recover, contribute to the economy and repay taxpayers."
In addition to cancelling bonuses for the top seven executives, Liddy said the firm would freeze 2009 pay at current levels for the firm's 60 Senior Partners (including those seven). It would also restrict bonuses for those executives for both 2008 and 2009.
The press release issued by AIG noted that the firm would develop "a funding structure to ensure that no taxpayer dollars are used for annual bonus or future cash performance awards for AIG's "Senior Partners," the top 60 members of management." That release and the letter certainly went some way to relieving tensions between the AG's office and the firm, which has been perceived as recalcitrant in its response to multiple requests for financial information and restraint in corporate spending.
The first Cuomo letter to AIG was sent in mid-October when, despite the bailout, the firm continued to treat its senior executives to posh retreats, maintained a sky box with a half-million dollar view at Madison Square Garden, according to an exclusive report by ABCNews.com's The Blotter, and racked up hundreds of thousands of dollars in expenses that Cuomo said were "unwarranted and extravagant."
Following that letter, the firm cancelled 160 corporate retreats, seminars and other events with prices as high as $750,000 per venue. One past event was a partridge hunt that cost $90,000. AIG and the Attorney General issued a joint statement memorializing the agreement which also included the cancellation of a $10,000,000 compensation package to the firm's chief financial officer.
Subsequently, the Attorney General sent AIG a second letter on Oct. 22 acknowledging that the firm agreed that it would make no bonus or deferred compensation disbursements from a fund of $600 million set aside for the executives of a financial subsidiary whose actions had contributed to the firm's collapse.
"I find it hard to conceive of a situation where you could justify a performance bonus for management that virtually bankrupted the company," Cuomo said in a conference call with reporters at the time.
Today AIG announced a number of additional restrictions on compensation. Those included:
A funding structure to ensure that no taxpayer dollars are used for annual bonus or future cash performance awards for AIG's "Senior Partners," the top 60 members of management.
Paula Rosput Reynolds, Vice Chairman and Chief Restructuring Officer, who joined AIG in October, will receive no salary or bonus whatsoever in 2008.
In 2009 and beyond, other than Reynolds base salary, any other compensation she receives will be tied directly to the progress of the restructuring efforts.
AIG's Senior Partners will not earn long-term performance awards in 2008. Furthermore, they will not receive salary increases in 2009, and their 2008 and 2009 annual bonuses will be limited. In addition to Mr. Liddy foregoing any severance payments, there will be restrictions on severance payments to members of this management group, which exceed TARP severance restrictions.