Exhibit 10(103)

 

[g10802kq01i001.jpg]

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220

 

 

August 3, 2010

 

Jeffrey J. Hurd, Esq.

Senior Vice President —

Human Resources and Communications

American International Group, Inc.

70 Pine Street

New York, New York 10270

 

Re:                             Supplemental Determination Regarding

2010 Compensation Payments and Structures for

Most Highly Compensated Employees

 

Dear Mr. Hurd:

 

This letter addresses requests submitted by you on behalf of American
International Group, Inc. (“AIG”), for approval by the Special Master for TARP
Executive Compensation (the “Special Master”) regarding (i) compensation
potentially payable to a “Top 25” executive, and (ii) compensation structures of
employees in the “Covered Employees 26–100” group. This letter also provides a
clarification regarding compensation structures approved for the “Covered
Employees 26–100” group.

 

Under the Department of the Treasury’s Interim Final Rule on TARP Standards for
Compensation and Corporate Governance (the “Rule”), the Special Master must
approve the compensation structures and amounts payable to “Top 25” executives
of “exceptional assistance recipients” such as AIG. 31 C.F.R. § 30.16(a)(3)(i).
The Special Master must also approve the compensation structures—but not
individual amounts payable—to executive officers who are in an exceptional
assistance recipient’s “Covered Employees 26–100” group. Id. § 30.16(a)(3)(ii).

 

1.  Top 25 and Covered Employees 26—100 Omissions

 

Pursuant to the Rule, on March 23, 2010, the Special Master issued an initial
determination (the “Top 25 Determination”), which concluded that certain
compensation structures and amounts payable to AIG’s Top 25 executives would not
result in payments that are “inconsistent with the purposes of section 111 of
EESA or TARP, or [are] otherwise contrary to the public interest.” Id. §
30.16(b)(1) (the “Public Interest Standard”). On April 16, 2010, the Special
Master issued another initial determination (the “26–100 Determination”), which
concluded that certain compensation structures for AIG’s Covered Employees
26–100 group are consistent with the Public Interest Standard.

 

--------------------------------------------------------------------------------

 

Subsequent to the issuance of the determinations described above, AIG notified
the Office of the Special Master that revised calculations revealed the
misidentification of one member in each of the 2010 groups. As a result of this
misidentification, no compensation structure or payments were proposed for an
omitted Top 25 executive and no compensation structure was proposed for an
omitted employee in the Covered Employees 26–100 group. On August 2, 2010, AIG
submitted proposals for the omitted executives—its representatives having
previously discussed the substance of the proposal with the Office of the
Special Master—and requested a determination that any payments under the
proposals would be consistent with the Public Interest Standard.

 

The proposed pay package for the omitted Top 25 executive conforms to the
compensation structures that the Special Master approved in the Top 25
Determination. The amounts potentially payable to the Top 25 executive under the
proposal have also been reviewed by the Office of the Special Master to assess
whether such amounts are consistent with amounts payable to persons in similar
positions or roles at similar entities that are similarly situated. See id. §
30.16(b)(1)(v). In light of this review, the Special Master has concluded that
these amounts “appropriately, reflect [the executive’s] prospective
contributions...to the value of the exceptional assistance recipient.” Id. §
30.16(b)(1)(vi). Accordingly, the Special Master has determined that the
compensation structure proposed for this executive, as described in Exhibit I,
is consistent with the Public Interest Standard.

 

The proposed compensation structure for the omitted employee from the Covered
Employees 26–100 group is consistent with the requirements of the 26–100
Determination. Accordingly, the Special Master has determined that AIG’s
proposed 2010 compensation structure for this executive is consistent with the
Public Interest Standard.

 

2.  New Executive Officer

 

Subsequent to the issuance of the 26–100 Determination, AIG also informed the
Office of the Special Master that it had identified a potential candidate for an
AIG executive officer position, serving as the Executive Chairman of American
International Assurance Company Limited (the “AIA Executive”). On July 17, 2010,
AIG submitted a proposed compensation structure and requested a determination
that the proposed structure is consistent with the Public Interest Standard.
Under the proposal, which is consistent with the requirements of the 26–100
Determination and compensation structures previously approved by the Special
Master for incoming AIG executive officers, the AIA Executive would be eligible
to receive cash salary, cash and stock incentives, and other benefits (including
eligibility under AIG’s Executive Severance Plan) on the same terms and
conditions as current executives of AIG in the Covered Employees 26-100 group.
Accordingly, the Special Master has determined that AIG’s proposed 2010
compensation structure for the AIA Executive is consistent with the Public
Interest Standard.

 

AIG’s submission for the AIA Executive also proposes compensation structures for
2011 and 2012, and contemplates that the AIA Executive may become a Top 25
executive for 2012. The proposed 2011 and 2012 compensation structures generally
conform with the compensation structures the Special Master has approved for
executives in the Covered Employees 26–100 group and Top 25 executives,
respectively. Accordingly, the Special Master has concluded in

 

2

--------------------------------------------------------------------------------

 

principle that the proposed 2011 and 2012 compensation structures and amounts
potentially payable under them would be consistent with the Public Interest
Standard. Notwithstanding the foregoing, however, the Special Master’s final
determination under the Rule regarding the AIA Executive’s compensation
structures and payments in any year after 2010 will not be made prior to the
regular review of AIG’s compensation proposals for that year, and will be based
on the totality of the facts and circumstances at that time.

 

3.  Compensation Structure for a Covered Employee

 

On August 2, 2010, AIG also submitted a proposal regarding the compensation
structure of a certain employee in the Covered Employees 26–100 group (the
“Covered Employee”). At the time of the 26–100 Determination, it was anticipated
that the Covered Employee would fall within the Rule’s “safe harbor” provision,
which provides automatic approval for compensation structures resulting in
$500,000 or less in “annual compensation” (excluding long-term restricted
stock). See id. § 30.16(a)(3)(ii). According to AIG, it is now anticipated that
the Covered Employee’s “annual compensation” may exceed $500,000, due to his
performance under sales commission plans. Notwithstanding the stock and
long-term allocation requirements of the 26–100 Determination, AIG has requested
approval to continue paying the Covered Employee under these programs (along
with a minimal cash base salary ). AIG has noted the long-established and
predominant use of commission programs to compensate sales employees in
positions similar to the Covered Employee’s, and confirmed that payments under
the program would qualify as “commission compensation” under the Rule.

 

The Special Master considered the proposal in light of the Rule’s exclusion of
reasonable “commission compensation” from the restrictions applicable to bonus
and incentive compensation, see id. § 30.1, and the principle that compensation
structures should be consistent with those provided to “persons in similar
positions or roles at similar entities...competing in the same markets” as a
covered employee. Accordingly, the Special Master has determined that the
payment of qualified “commission compensation” to the Covered Employee under the
programs (in addition to a minimal base salary) is not inconsistent with the
Public Interest Standard, provided that any other compensation structure of the
Covered Employee comply with the requirements of the 26–100 Determination.

 

4.  Guidance Regarding the 26–100 Determination

 

The 26–100 Determination requires that employees in the Covered Employees 26–100
group be paid no more than $25,000 in perquisites and “other” compensation,
absent exceptional circumstances for good cause shown. With respect to an
individual employee in the Covered Employees 26–100 group, a relocation
undertaken at the request of the company constitutes exceptional circumstances,
and such circumstances constitute good cause for the company to pay such
employee’s reasonable relocation expenses under a program that provides such
benefits on the same basis to similarly situated employees; provided, however,
that a tax gross-up is not a reasonable relocation expense.

 

The approvals in this letter apply only to the proposals in respect of the
executives addressed in sections 1, 2 and 3. Such conclusions are limited to the
authority vested in the Special Master by Section 30.16(a)(3) of the Rule, and
shall not constitute, or be construed to

 

3

--------------------------------------------------------------------------------

 

constitute, the judgment of the Office of the Special Master or the Department
of the Treasury with respect to the compliance of the proposed compensation
structure or any other compensation structure for the subject employee with any
other provision of the Rule. Moreover, the Special Master’s evaluations and
conclusions have relied upon, and are qualified in their entirety by, the
accuracy of the materials submitted by AIG to the Office of the Special Master,
and the absence of any material misstatement or omission in such materials.

 

 

 

Very truly yours,

 

 

 

/s/ Kenneth R. Feinberg

 

Kenneth R. Feinberg

 

Office of the Special Master

 

for TARP Executive Compensation

 

 

cc: Robert H. Benmosche

 

Marc Trevino, Esq.

 

 

4

--------------------------------------------------------------------------------

 

EXHIBIT I
SUPPLEMENTAL DETERMINATION

 

Top 25 Executive 2010 compensation structure:

 

 

 

Cash salary

 

$400,000 (prospective annual rate)

 

 

 

Stock salary

 

$800,000 (annual rate, payable on a nunc pro tunc basis effective January 1,
2010).

 

 

 

Long-term restricted stock

 

$300,000 (2010 target amount; in addition, subject to the limitations of the
Rule, a long-term restricted stock grant of up to $850,000 may be granted with
respect to 2009 service in consideration of the cancellation of incentive
payments upon the identification of the executive as a member of the Top 25.)

 

The terms and conditions of the Top 25 Determination regarding the compensation
structures and amounts potentially payable thereunder to the non-AIGFP Covered
Employees (as defined in the Top 25 Determination) shall apply to the Top 25
Executive.

 

E1

--------------------------------------------------------------------------------