AIG To Pay $500 Million In First Quarter To Prevent Deferred Comp Departures

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 get back pay, and as a result will distribute approximately $500 million to such individuals in the first quarter of 2009.

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 these individuals earned but volunteered to defer receiving these funds 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 Federal Reserve loan or to be continued as part of a restructured AIG,” said Mr. Kaslow.

AIG said it plans to distribute close to $6 million to seven executives under the terms of the deferred compensation program. In a filing with the Securities and Exchange Commission, the company said that under its Senior Partners Plan there was an aggregate of $5.96 million in deferred pay, with six executives receiving $3.04 million of that pot.

At the top of the list is Jay S. Wintrob, executive vice president of retirement services, who will receive $1.9 million. Win J. Neuger, chief investment officer, will receive $607,953. David L. Herzog, the chief financial officer, will receive $371,422. The remaining four will receive a total of $161,860–ranging from more than $100,000 to $8,564.

AIG has been under pressure from New York Attorney General Andrew Cuomo to reveal compensation bonuses the company is issuing to employees. Mr. Cuomo gained authority to force the disclosures under state laws that allow for a review of compensation when a company is publicly financed.

CDS DISCLOSURE

Meanwhile, entities that engaged in controversial credit default swaps with AIG–open-ended liabilities cited as the prime cause of the company's financial crisis–could see transaction details made public, Federal Reserve Chairman Ben Bernanke told a congressional panel last week.

His comments came at a House Financial Services Committee hearing, when Rep. Carolyn Maloney, D-N.Y., asked about the possibility of finding out exactly who had engaged in credit default swap transactions with AIG.

“Since the government is now running AIG, we should have full disclosure,” she said. The company has received pledges of $150 billion in government support, and in return has received a 79.9 percent interest in the conglomerate.

Rep. Maloney asked Mr. Bernanke if he was able to “make public the counterparties” as well as the amounts involved in the CDS transactions.

Mr. Bernanke said he thought the Fed could provide the names and amounts involved, but he cautioned against trying to make further use out of that information.

When asked a follow-up question by Rep. Maloney about possibly determining which CDS transactions involved parties with actual exposure to troubled subprime mortgage-backed securities, and which were “gamblers,” trading on the CDS market without any actual securities to hedge, he said the point would be effectively moot.

“I don't think you really could differentiate,” he said. “Moreover, these are legal contracts.” If the government sought to avoid payment to “gamblers,” he explained, AIG would be in default on those contracts and would enter into a bankruptcy process where those creditors would be paid off in any case.

However, such a circumstance, he warned, would be counterproductive to the government's goal of limiting the damage of an AIG collapse, which served as the basis for intervention in the first place.