AIG to Put Bonus Carrot in Front of Staff After U.S. Repaid
(Updates with Miller comment on separating chairman, CEO roles in penultimate paragraph. See DAVOS <GO> for more on the World Economic Forum.)
Jan. 25 (Bloomberg) -- American International Group Inc. managers may get more incentive pay after the insurer exited its U.S. bailout, ending government compensation limits, Chairman Steve Miller said.
“You need to put a carrot out in front of people to get them to perform at their very best,” Miller told Bloomberg Television’s Erik Schatzker at the World Economic Forum in Davos, Switzerland, today. “They’ve performed miracles without it, but we think they can do even better if we can put in the right tailored comp program.”
The Treasury Department imposed pay restrictions on top executives at firms that received U.S. rescues amid the 2008 financial crisis. AIG finished repaying its $182.3 billion bailout in December, freeing the New York-based insurer from curbs that it said harmed the ability to attract, retain and motivate its best employees.
“We finally had the last Treasury share of AIG sold in December,” Miller said. “All of a sudden we’re free to now manage our company like any other corporation.”
Miller, 71, said the compensation committee has met to design the bonus program, and targets may be set within two months.
AIG’s ability to shift compensation to an incentive-based bonus model will help boost the shares, Daniel Loeb’s Third Point LLC hedge fund said in an October letter to investors as the fund added to its stake.
Kenneth Feinberg, who oversaw pay at seven bailout recipients for Treasury, said in September that the pay limits didn’t put AIG at a competitive disadvantage.
AIG was faulted in 2009 for paying retention bonuses to employees including members of the Financial Products unit that oversaw derivative bets that nearly shuttered the firm. Staff at the derivatives unit got more than $400 million in incentive payments after the rescue.
AIG Chief Executive Officer Robert Benmosche, 68, received less than some peers in 2011. He got about $14 million in total compensation, including a $3 million salary and $10.9 million in stock awards, according to a regulatory filing. Jay Fishman, the CEO of Travelers Cos., the only insurer in the Dow Jones Industrial Average, received $16.5 million. John Strangfeld, CEO of Prudential Financial Inc., the No. 2 U.S. life insurer, got $23.7 million.
“If you want me, you can have me, but you’ve got to pay. And you have to pay a lot, not because I need the money,” Benmosche told AIG employees in 2009. “But the money is about what I am worth, and what my job is worth to be your leader. And that sets the tone for all of you in this room.”
Bonuses may shrink this year for some employees at U.S. lenders including JPMorgan Chase & Co. and Citigroup Inc. as shareholders press for better returns. Deutsche Bank AG may reduce 2012 bonuses for investment bankers in Europe by as much as 20 percent, while bankers in New York will see smaller declines, according to people familiar with the matter.
Wall Street firms’ soaring pay over the last three decades incentivized traders to disregard risk and limited regulators’ ability to lure talent to police banks, the Financial Crisis Inquiry Commission wrote in a 545-page book published in 2011.
U.S. compensation limits prevented AIG from paying enough to retain some of its top executives and made “little business sense”, Harvey Golub said in a 2010 letter when he was the insurer’s chairman. Miller became chairman that year and was appointed CEO last year of Hawker Beechcraft Inc., the business jet maker that counted Goldman Sachs Group Inc. among its investors.
Miller said he prefers that companies split the roles of chairman and CEO, rather than the arrangement at Goldman Sachs where Lloyd Blankfein has both duties.
“I think the right model is the separation of the job, because they are very different jobs,” he told Schatzker. “But more important is the fact that you have someone on the board to lead the independent members of the board. It can be a lead director, a presiding director or an independent chairman.”
Goldman Sachs last year named James Schiro as lead independent director, replacing John H. Bryan.
--With assistance from Elizabeth Bunn in New York. Editors: Dan Kraut, Dan Reichl