American International Group Inc. said it is terminating voluntary deferred compensation programs to eliminate an incentive for employees to leave the company in order to obtain deferred pay.

AIG said 14 voluntary deferred compensation programs involving 5,600 employees and independent agents and representatives are affected by the decision.

The company explained that approximately $500 million in earned but deferred pay will be distributed in the first quarter of 2009, which is pay that individuals earned but volunteered to defer receiving until a later date.

In each case, an employee could leave AIG for any reason and be entitled to this deferred pay. The cash-strapped company– which has been forced to accept government ownership in return for a federal bailout loan–has been fighting to keep staff in place as it struggles to stay afloat.

“AIG has decided to terminate and pay out the deferred pay plans to remove the incentive for employees to leave in order to obtain their deferred pay,” said Andrew Kaslow, senior vice president of human resources.

“Many AIG employees have seen their life savings wiped out in the financial crisis,” Mr. Kaslow said. “Employees are now concerned about obtaining the pay they have earned but deferred so they can pay for retirement, college tuition or other expenses.”

Under the majority of AIG's deferred pay plans, participants can only access deferred pay when they retire or leave the company. AIG said it is concerned that employees will leave AIG so they can obtain their deferred pay.

“This is a concern at a time when AIG is working to maintain the value of its businesses, whether those businesses are to be sold to repay AIG's [$150 billion] Federal Reserve loan or to be continued as part of a restructured AIG,” said Mr. Kaslow.

Special Reports /

AIG Moves To End Incentive For Employee Departures

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