AIG Links Executive Pay to Company Debt

Copyright 2010 A.M. Best Company, Inc.All Rights Reserved BestWire

June 25, 2010 Friday 11:55 AM EST

406 words

AIG Links Executive Pay to Company Debt

Meg Green

NEW YORK

In an unusual move, American International Group Inc. said it would pay some of its top executives in "units" tied to the company's debt in lieu of traditional stock incentives.

In a filing with the U.S. Securities and Exchange Commission, AIG said it plans to "attract, motivate and retain" AIG employees through the award of what it calls "long-term performance units," which represent a mix of AIG's hybrid securities and common stock.

"AIG is committed to compensation practices that allow the company to attract and retain capable and experienced professionals and motivate them to achieve strong business results in both the short- and long-term," Mark Herr, an AIG spokesman, said in an e-mail. "The LTPU grants allow us to achieve these goals."

The value of each unit will be 80% AIG's 8.175% Series A-6 Junior Subordinated Debentures and 20% common stock.

Kenneth Feinberg, the Troubled Asset Relief Program's special master for executive pay, signed off on the plan, which applies to its 25 highest paid executives, the company said in the filing. The units are "based on a basket of AIG common stock and debt securities designed to serve as a proxy for AIG's long-term value," the company said in the filing.

"I have never heard of tying executive compensation to debt," said Peter S. Cohan, the author of "Capital Rising: How Global Capital Flows are Changing Business Systems All Over the World," and president of Peter S. Cohan & Associates, a Marlborough, Mass.-based management consulting and venture capital firm.

The closest thing to this that Cohan said he's seen is Credit Suisse paying its executives in loans and commercial mortgage-backed debt. "I likened this to a firm eating its own dog food," Cohan said in an e-mail.

"I think the hope [is] that the debt market will be less volatile than the market for AIG's stock. If so, this pay structure should give AIG people a more stable compensation, which should help with retaining those people," Cohan said.

AIG, which is about 80% owned by the federal government, is still subject to strict compensation controls while it pays off the massive debt incurred in its 2008 bailout (BestWire, April 13, 2010).

Shares of AIG (NYSE: AIG) were selling at $35.70 on the morning of June 25, down 2.91% from the previous session.

Most AIG insurers have current Best's Financial Strength Ratings of A (Excellent).

(By Meg Green, senior associate editor, BestWeek: [email protected])

June 25, 2010

Copyright © 2010 LexisNexis, a division of Reed Elsevier Inc. All Rights Reserved.
Terms and Conditions Privacy Policy