AIG Agrees To Freeze Millions In Pay To Former Execs

New York Attorney General Andrew Cuomo announced yesterday that American International Group has agreed to freeze a $600 million employee compensation and bonus pool, as well as payments to former chief executive Martin Sullivan.

Mr. Sullivan would have been paid approximately $19 million plus other benefits, according to a letter Mr. Cuomo sent to Edward Liddy, AIG's current chairman and chief executive officer.

Mr. Sullivan left his post in June after the company posted billions in losses and was replaced by Robert Willumstad. Mr. Willumstad AIG when the cash-strapped company arranged for an $85 billion Federal Reserve Bank loan in exchange for giving the government a 79.9 percent interest in the conglomerate. Subsequently the firm increased its borrowing.

The attorney general has been monitoring AIG spending since threatening to sue the company if it did not halt "outrageous" expenditures for lavish meetings and executive compensation.

AIG "has agreed and confirmed that no funds will be distributed out of the $600 million deferred compensation and bonus pools of AIG's Financial Products subsidiary," Mr. Cuomo said in the letter he released. The money would be withheld until the company repays the government..

His message to Mr. Liddy said it is his position "that until the taxpayers are repaid with interest the more than $120 billion that has been used in the rescue financing of AIG, no funds should be paid out of these pools to any executives."

The letter said further Mr. Cuomo understood that Joseph Casano, the former head of AIG's Financial Products subsidiary, has a $69 million share of the $600 million fund, while five other executives have a total share of $93 million.

"The Financial Products subsidiary was largely responsible for AIG's collapse and Casano has been terminated," noted Mr. Cuomo.

"We must ensure that executive pay package structures no longer create improper incentives for executives to over-leverage their companies and manipulate the books for their own short-term financial benefit," his letter proclaimed.

It also said in part that "given the overall circumstances and the damage incurred by the American taxpayer, their interests should be paramount. I applaud the different tone you are now setting at AIG, which augers well for the company going forward, and I hope it will set a new standard for corporate culture at similarly situated firms."

Last week AIG agreed to cancel 160 meetings that would have cost the company about $80 million.

Mr. Cuomo's latest agreement and criticism of AIG follows angry remarks by Rep. Paul Kanjorski who called on the Federal Reserve Board to better "police" AIG's spending and impose executive pay limits. Otherwise, Rep. Kanjorski said, "I will do it legislatively." According to one attorney the Fed has no power to regulate executive pay.

Rep. Kanjorski, D-Pa., is chairman of the Capital Markets Subcommittee of the House Financial Services Committee. He made his comments during a hearing on how financial services industry regulation should be revised to prevent the type of activity that resulted in the need for AIG to seek a bailout from the government.

After all, Mr. Kanjorski said during a hearing, "the Federal Reserve lending money to AIG is no different from the Treasury investing capital in a bank." The Fed is exercising direct oversight of AIG through government ownership of 79.9 percent of its shares under the bailout deal.