American International Group Inc.
Summary:
The company is not doing so well now, and management is under a great deal of pressure. Look for the pay to drop dramatically for the executives in 2008, that is, if they're still here! If they're not around, we can expect to see some unfortunately high separation costs.
Analysis:
AIG is one of the many companies within the Financial Services Industry being affected by the sub-prime mortgage disaster and the weak economy. The company's performance in 2007 was well below what was expected of them the year prior. Many of their losses have come in the form of investment portfolio losses and the mortgage insurance business. 2007 overall was a below average performing year, but it could have been worse. In fact, it has been worse thus far in 2008.
The stock price recently dropped to a low of $20 and the company reported huge losses and write-downs in the beginning of the year. The reaction from management has been to raise more capital by selling off stock and taking on more debt. The execs may have to start worrying about there jobs if things don't change soon. But until then, AIG might as well keep shelling out the bonuses right?
So… What Are They Paid?
With average performance comes average pay. Almost across the board we saw average pay being dealt out to the NEOs, as well as the CEO. The salaries given out were within an average range and the stock awards and option grants were low.
But the bonus program was a real surprise! Bonuses (including non-equity incentives) were very high. The CEO received over $9 million in bonuses, which is outrageous, especially considering the average performance of the company! The NEO average was also high, coming in at just over $4.5 million.
Another shocker was the cash severance amounts for the CEO and the NEOs. The CEO, for example, gets $30 million in the event he is terminated by AIG "without cause" or resigns for "good reason". If this is a result of a change in control in ownership, an additional "golden parachute" excise tax (otherwise known as a gross up payment) of $14.5 million or more would kick in.
Finally, we looked at the perquisites section. The perks for NEOs appeared to be well within reason, but the CEO's were pretty high. For example, he received an unusually high amount for a car allowance ($150,000). He also accrued over $320,000 in incremental costs for personal company aircraft use. Finally, he was given $160,000 for security purposes.
The bonuses and severance pay should be lower, no doubt. But the overall executive compensation program looks pretty good, especially after a few tweaks.
Compensation Details:
| CEO | NEO Avg. | |
|---|---|---|
| Base Salary | $1,000,000 | $759,540 |
| Bonus | $3,625,000 | $1,450,643 |
| Stock | $921,876 | $1,005,151 |
| Options | $2,448,490 | $1,767,540 |
| non-Equity Incentives | $5,607,439 | $3,239,230 |
Reference Links:
(1) Annual
Proxy Statement
(2) Annual
Report