Thus, redemption of an AIGFP Covered Employee’s stock salary on the first anniversary of
grant would result in compensation that is not “performance-based over a relevant performance
period.” Id. § 30.16(b)(1)(iv). Accordingly, the stock salary that the Special Master has
determined to be consistent with the Public Interest Standard for AIGFP Covered Employees has
the same structure, as described in Exhibits I and IT, as the stock salary provided to Covered
Employees at the Company’s corporate and operating units: it may only be redeemable in three
equal, annual installments beginning on the second anniversary of grant, with each installment
redeemable one year earlier if AIG repays its federal obligations.

3. Departed Employees

Three employees who would have been Covered Employees had they remained
employed are no longer employed by the Company. With respect to those employees, the
Special Master has determined that the payment of stock salaries and cash salaries at the rates in
effect on January 1, 2010, through the date of the termination of employment, and payment of up
to $25,000 in perquisites and “other” compensation are consistent with the Public Interest
Standard. No other payments to these employees of any kind would be consistent with the
Public Interest Standard. Any exceptions to this limitation will require that the Company
provide to the Office of the Special Master an independent justification for the payment that is
satisfactory to the Special Master.*

V. CORPORATE GOVERNANCE

As noted in Part III above, the Rule requires the Special Master to consider the extent to
which compensation structures are “performance-based over a relevant performance period,” 31
C.F.R. § 30.16(b)(1)(iv). In light of the importance of this principle, the Special Master required
as part of the 2009 Determinations that AIG take certain corporate governance steps to ensure
that the compensation structures for the Covered Employees, and the amounts payable or

potentially payable under those structures, are consistent with the Public Interest Standard.

The Special Master has determined that these same corporate governance requirements,
which are detailed in Section V of the 2009 Determinations, must continue to apply in 2010.
Among other requirements, AIG must:

e Ensure that employees are prohibited from engaging in any derivative or similar
transaction with respect to AIG stock that would undermine the long-term performance
incentives created by the compensation structures set forth in Exhibits I and IT.

¢ Maintain a compensation committee comprised exclusively of independent directors,
which must discuss, evaluate, and review with AIG’s senior risk officers any risks that
could threaten the value of AIG. /d. § 30.4; id. § 30.5.

* AIG has informed the Office of the Special Master that one of the departed employees was stationed overseas.
With respect to that employee, the Special Master has determined that payments in connection with his repatriation,
limited to those expressly contemplated by the letter agreement confirming his overseas assignment, are consistent
with the Public Interest Standard.

All


are otherwise contrary to the public interest.” 31 C.F.R. § 30.16(a)(3). The 2009 Determinations
applied only to those individuals identified by the Company as subject to the Special Master’s
mandatory jurisdiction to review and approve compensation structures and payments, see id., for
2009 and only with respect to compensation for services provided to AIG for 2009.

On December 14, 2009, the Special Master requested from each remaining Exceptional
Assistance Recipient, including AIG, certain data and documentary information necessary to
facilitate the Special Master’s review of the Company’s 2010 compensation structures. The
request required AIG to submit data describing its proposed compensation structures, and the
payments that would result from the proposals, concerning each Covered Employee.

In addition, the Rule authorizes the Special Master to request information from an
Exceptional Assistance Recipient “under such procedures as the Special Master may determine.”
Id. § 30.16(d). AIG was required to submit competitive market data indicating how the amounts
payable under AIG’s proposed compensation structures relate to the amounts paid to persons in
similar positions or roles at similar entities. AIG was also required to submit a range of
documentation, including information related to proposed performance metrics, internal policies
designed to curb excessive risk, and certain previously existing compensation plans and
agreements.

AIG submitted this information to the Office of the Special Master on January 15, 2010.
Following a preliminary review of the submission, on February 2, 2010, the Special Master
determined that AIG’s submission was substantially complete for purposes of the Rule. Jd.

§ 30.16(a)(3)(i). The Office of the Special Master then commenced a formal review of AIG’s
proposed compensation structures for the Covered Employees. The Rule provides that the
Special Master is required to issue a compensation determination within 60 days of receipt of a
substantially complete submission. Jd.

The Office of the Special Master’s review of the Company’s proposals was aided by
analysis from a number of internal and external sources, including:

e Treasury personnel detailed to the Office of the Special Master, including executive
compensation specialists with significant experience in reviewing, analyzing, designing
and administering executive compensation plans, and attorneys with experience in
matters related to executive compensation;

¢ Competitive market data provided by the Company in connection with its submission to
the Office of the Special Master;

e External information on comparable compensation structures extracted from the U.S.
Mercer Benchmark Database-Executive; and

¢ External information on comparable compensation structures extracted from Equilar’s
ExecutiveInsight database (which includes information drawn from publicly filed proxy
statements) and Equilar’s Top 25 Survey Summary Report (which includes information
from a survey on the pay of highly compensated employees).

The Special Master considered these sources, in light of the statutory and regulatory

standards described in Part III below, when evaluating the Company’s proposed compensation
structures for the Covered Employees for 2010.

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EXHIBIT I
TERMS AND CONDITIONS OF PAYMENTS AND STRUCTURES
CONSISTENT WITH THE PUBLIC INTEREST STANDARD

The following general terms and conditions shall govern the compensation structures described in

Exhibit I. The Special Master’s determination that those structures are consistent with the Public Interest
Standard is qualified in its entirety by the Company’s adherence to these terms and conditions.

Salary payments. Cash and stock base salaries reflect the annual rate for the employee and are effective as of January 1,
2010, and in the case of stock salary are payable on a nunc pro tunc basis from that date. To the extent the Special Master’s
determinations for 2010 reduce an employee’s previous cash or stock salary rate, payments in excess of that rate prior to the
date hereof must be offset by reductions to prospective 2010 cash salary payments or to any stock salary payable with
respect to 2010.

Stock compensation generally. For purposes of the Determination Memorandum, “stock” compensation includes common
stock and stock units (or, for stock salary only, the securities referenced by the “basket” described below). Notwithstanding
any transferability restrictions applicable to any stock compensation described in the Determination Memorandum, (1) an
amount of stock sufficient to cover an employee’s tax withholding obligations may become immediately transferable to the
extent necessary to satisfy the employee’s obligations, and (2) to the extent permitted by the Rule, stock may become
immediately transferable upon an employee’s death or separation from service resulting from disability, as defined in the
Company’s broad-based long-term disability plan.

Stock salary. Stock salary must be determined as a dollar amount through the date salary is earned, be accrued at the same
time or times as the salary would otherwise be paid in cash, and vest immediately upon grant, with the number of shares
based on the fair market value on the date of award. Stock granted as stock salary may only be redeemed in three equal,
annual installments as described in the Determination Memorandum. Whether a nunc pro tunc grant or payment that is
labeled stock salary is considered salary or a bonus for purposes of the Rule is determined based on all the facts and
circumstances. As described in Part 1V, stock salary may be granted in the form of stock units reflecting the value of a
“basket” of AIG common stock and other securities. The terms and conditions of these “basket” units will be determined
by AIG subject to the approval of the Office of the Special Master.

Long-term restricted stock. Long-term restricted stock may only be granted upon the achievement of objective
performance criteria developed and reviewed in consultation with the Office of the Special Master. The compensation
committee must certify (1) the achievement of such criteria, and (2) that the grant of incentives is appropriate in light of
AIG’s overall circumstances at the time. Such stock must be forfeited unless conditioned upon the employee’s continued
employment through the third anniversary of grant, unless a termination of employment results from death or disability;
provided, however, that all or a portion of such stock (or similar stock granted with respect to 2009 service) may, for good
cause certified by the Company’s compensation committee, continue to vest if the employee retires on or after the second
anniversary of the grant date. The term “retirement” must meet an objective standard established in consultation with the
Office of the Special Master.

Other compensation and perquisites. No more than $25,000 in total other compensation and perquisites may be provided
to any Covered Employee, absent exceptional circumstances for good cause shown, as defined by pertinent SEC
regulations.

Supplemental executive retirement plans and non-qualified deferred compensation plans. No amounts may be accrued
under supplemental executive retirement plans, and no Company contributions may be made to other “non-qualified
deferred compensation” plans, as defined by pertinent SEC regulations, for 2010. For the avoidance of doubt, neither the
foregoing limitation nor the corresponding limitation in the 2009 Determinations (1) applies to employee-funded elective
deferral arrangements, or (2) precludes continuing recognition of age and service credit for Company employees for the
purposes of vesting in previously accrued benefits under any plans referred to in this paragraph.

Qualified Plans. For the avoidance of doubt, the Special Master has determined that participation by the Covered
Employees in broad-based, tax-qualified retirement and health and welfare plans is consistent with the Public Interest
Standard, and amounts payable under such plans are not counted against the $25,000 limit on other compensation and
perquisites,

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id. § 30.16(b)(1)(iv). Based in part upon this principle, the 2009 Determinations concluded that,
other than in exceptional cases for good cause shown, a Covered Employee’s cash salary should
not exceed $500,000.

In addition, the Special Master may take into account compensation structures, such as
legally binding rights under valid employment contracts, that are not subject to review by the
Special Master. /d. § 30.16(a)(3). Of the employees in this group, eight are asserted to be
entitled to substantial cash payments in 2010 pursuant to previously existing “retention” awards.
As noted in the 2009 Determinations, similar “retention” awards at other Exceptional Assistance
Recipients were amended to provide compensation in a manner consistent with the Public
Interest Standard; however, discussions with AIG officials have not resulted in agreements to
restructure these arrangements. Instead, for each Covered Employee with a cash “retention”
award payable in 2010, the Special Master has considered the “retention” award when assessing
the cash salary AIG proposed for that employee.

Accordingly, the Special Master has determined that the proposed cash salaries would not
be consistent with the Public Interest Standard because they generally exceeded $500,000 and do
not appropriately consider the amounts payable in 2010 to Covered Employees under previously
existing cash “retention” awards. The cash salaries that the Special Master has determined to be
consistent with the Public Interest Standard for these employees are described in
Exhibits I and I.

b. Stock Salary

The Special Master reviewed the amount of stock salary AIG proposed to pay these
Covered Employees in light of the principles that compensation structures should generally be
comparable to “compensation structures and amounts for persons in similar positions or roles at
similar entities,” id. § 30.16(b)(1)(v), and that a “compensation structure, and amount
payable...should reflect the current or prospective contributions of an employee to the value of
the [Company],” id. § 30.16(b)(1)(vi). The Special Master found that the amounts of stock
salary proposed by AIG were excessive in comparison to payments provided to persons in
similar positions or roles at similar entities, and that such payments would be inconsistent with
the Public Interest Standard. The stock salaries that the Special Master has determined are
consistent with the Public Interest Standard for such employees for 2010 are set forth in
Exhibit I.

In addition, the Special Master reviewed AIG’s proposed stock salary in light of the
principle that AIG must be able to maintain and attract the necessary employees to remain
competitive in the marketplace. See id. § 30.16(b)(1)Gi). Based in part upon this principle, in
the 2009 Determinations the Special Master approved a stock salary structure reflecting the value
of a “basket” of four AIG insurance subsidiaries. Following the 2009 Determinations, the
Special Master also approved the use of common stock for 2009 stock salary.

Since the 2009 Determinations, AIG has entered into agreement to dispose of some of the
subsidiaries covered by the previously approved “basket.” Accordingly, for 2010 stock salary,
AIG proposed an alternative “basket” with a structure designed to serve as proxy for the long-
term value of the Company. The “basket” would reflect the value of common stock and so-
called “hybrid” securities that, unlike Treasury’s preferred stock, are traded regularly, and
therefore can be valued in a consistent and transparent manner using market pricing. In light of

A7


(6) Employee contribution to TARP recipient value. The compensation structure and amount
payable should reflect the current or prospective contributions of an employee to the
value of the Exceptional Assistance Recipient, taking into account multiple factors such
as revenue production, specific expertise, compliance with company policy and
regulation (including risk management), and corporate leadership, as well as the role the
employee may have had with respect to any change in the financial health or competitive
position of the recipient. Jd. § 30.16(b)(1)(vi).

The Rule provides that the Special Master shall have discretion to determine the
appropriate weight or relevance of a particular principle depending on the facts and
circumstances surrounding the compensation structure or payment for a particular employee. /d.
§ 30.16(b). To the extent two or more principles may appear inconsistent in a particular
situation, the Rule requires that the Special Master exercise his discretion in determining the
relative weight to be accorded to each principle. /d.

The Rule provides that the Special Master may, in the course of applying these principles,
take into account other compensation structures and other compensation earned, accrued, or paid,
including compensation and compensation structures that are not subject to the restrictions of
section 111 of EESA. For example, the Special Master may consider payments obligated to be
made by the Company pursuant to certain legally binding rights under valid written employment
contracts entered into prior to enactment of the statute and the accompanying Rule. /d.

§ 30.16(a)(3).

TV. COMPENSATION STRUCTURES AND PAYMENTS

A. AIG Proposals

AIG has provided the Office of the Special Master with detailed information concerning
its proposed 2010 compensation structures for the Covered Employees, including amounts
proposed to be paid under the compensation structure for each Covered Employee (the
“Proposed Structures”).

AIG supported its proposal with detailed assessments of each Covered Employee’s tenure
and responsibilities at the Company and historical compensation structure. The submission also
included market data that, according to the Company, indicated that the amounts potentially
payable to each employee were comparable to the compensation payable to persons in similar
positions or roles at a “peer group” of entities selected by the Company. Of the 13 employees
listed as Covered Employees for 2009, 8 remain on the list of Covered Employees for 2010, and
14 employees are new entrants to the group.

1, AIG Corporate and Operating Units

Each of the five Senior Executive Officers and 11 of the Most Highly Compensated
Employees serve in either AIG’s corporate offices or as a senior executive of an AIG subsidiary
other than AIG Financial Products (“AIGFP”). The Proposed Structures for employees in this
group generally included cash salaries of $500,000 or more, and stock salary and long-term
restricted stock with terms and conditions consistent with the 2009 Determinations.

A4


III. STATUTORY AND REGULATORY STANDARDS

The Rule requires that the Special Master determine for each of the Covered Employees
whether AIG’s proposed compensation structure, including amounts payable or potentially
payable under the compensation structure, “will or may result in payments that are inconsistent
with the purposes of section 111 of EESA or TARP, or are otherwise contrary to the public
interest.” 31 C.F.R. § 30.16(a)(3) (as applied to Covered Employees of Exceptional Assistance
Recipients, the “Public Interest Standard”). The Rule requires that the Special Master consider
six principles when making these compensation determinations:

(1) Risk. The compensation structure should avoid incentives that encourage employees to
take unnecessary or excessive risks that could threaten the value of the Exceptional
Assistance Recipient, including incentives that reward employees for short-term or
temporary increases in value or performance; or similar measures that may undercut the
long-term value of the Exceptional Assistance Recipient. Compensation packages should
be aligned with sound risk management. Id. § 30.16(b)(1)(i).

(2) Taxpayer return. The compensation structure and amount payable should reflect the
need for the Exceptional Assistance Recipient to remain a competitive enterprise, to
retain and recruit talented employees who will contribute to the recipient’s future success,
so that the Company will ultimately be able to repay its TARP obligations. /d.

§ 30.16(b)(1)(ii).

(3) Appropriate allocation. The compensation structure should appropriately allocate the
components of compensation such as salary and short-term and long-term performance
incentives, as well as the extent to which compensation is provided in cash, equity, or
other types of compensation such as executive pensions, or other benefits, or perquisites,
based on the specific role of the employee and other relevant circumstances, including the
nature and amount of current compensation, deferred compensation, or other
compensation and benefits previously paid or awarded. Jd. § 30.16(b)(1)(iii).

(4) Performance-based compensation. An appropriate portion of the compensation should
be performance-based over a relevant performance period. Performance-based
compensation should be determined through tailored metrics that encompass individual
performance and/or the performance of the Exceptional Assistance Recipient or a
relevant business unit taking into consideration specific business objectives.

Performance metrics may relate to employee compliance with relevant corporate policies.
In addition, the likelihood of meeting the performance metrics should not be so great that
the arrangement fails to provide an adequate incentive for the employee to perform, and
performance metrics should be measurable, enforceable, and actually enforced if not met.
Id. § 30.16(b)(1)(iv).

(5) Comparable structures and payments. The compensation structure, and amounts payable
where applicable, should be consistent with, and not excessive taking into account,
compensation structures and amounts for persons in similar positions or roles at similar
entities that are similarly situated, including, as applicable, entities competing in the same
markets and similarly situated entities that are financially distressed or that are
contemplating or undergoing reorganization. Id. § 30.16(b)(1)(v).

A3


2. AIG Financial Products

Six of the Most Highly Compensated Employees for 2010 are executives of AIGFP. The
Proposed Structures for employees in this group consisted of cash salaries of $500,000 and stock
salaries ranging from $1,000,000 to $3,000,000. Unlike the proposed stock salary for corporate
and operating unit employees, the stock salary proposed for AIGFP Covered Employees would
be redeemable on the first anniversary of grant. No long-term restricted stock was proposed for
these Covered Employees, in light of the Company’s intention to wind down AIGFP’s
operations.

In addition, each of the AIGFP Covered Employees has received a cash “retention”
award in 2010 under an agreement asserted to provide a legally binding right under a valid
written employee contract, see id., that thus was not subject to the approval of the Special
Master.

B. Determinations of the Special Master

The Special Master has reviewed the Proposed Structures in detail by application of the
principles set forth in the Rule and described in Part III above. The Special Master’s review also
made use of the resources described in Part II. In light of this review, the Special Master has
determined that the principles established for 2009, which reflect the Public Interest Standard
and are set forth in the 2009 Determinations, must continue to govern compensation in 2010.

After reviewing the Proposed Structures, the Special Master has concluded that they are
in some respects consistent with the general principles established in the 2009 Determinations;
however, certain aspects of the Proposed Structures and amounts potentially payable under the
Proposed Structures require modification to ensure that they are consistent with the Public
Interest Standard.

The Special Master has determined, in light of the considerations that follow, that the
compensation structures described in Exhibits I and I to this Determination Memorandum will
not, by virtue of either their structural design or the amounts potentially payable under them,
result in payments inconsistent with the Public Interest Standard.

1, AIG Corporate and Operating Units

a. Cash Salary and Cash “Retention”? Awards

The Special Master reviewed AIG’s proposed cash salaries in light of the principle that
compensation structures should generally be comparable to “compensation structures and
amounts for persons in similar positions or roles at similar entities,” 31 C.F.R. § 30.16(b)(1)(v).
Based in part upon this principle, the Special Master concluded in 2009 that cash salaries
generally should not target a level above the 50th percentile as compared to persons in similar
positions or roles at similar entities, because such levels of cash salaries balance the need to
attract and retain talent with the need for compensation structures that reflect the circumstances
of Exceptional Assistance Recipients.

The Special Master also reviewed AIG’s proposed cash salaries in light of the principle
that compensation structures should be “performance-based over a relevant performance period,”

A6


DEPARTMENT OF THE TREASURY

WASHINGTON, D.C, 20220

March 23, 2010

Mr. Robert Benmosche

President and Chief Executive Officer
American International Group, Inc.
70 Pine Street

27" Floor

New York, NY, 10270

Re: Proposed Compensation Payments and Structures for Senior
Executive Officers and Most Highly Compensated Employees
(“Covered Employees 1-25”)

Dear Mr, Benmosche:

Pursuant to the Department of the Treasury’s Interim Final Rule on TARP Standards for
Compensation and Corporate Governance, the Office of the Special Master has completed its
review of your 2010 compensation submission on behalf of the senior executive officers and next
20 most highly compensated employees (“Covered Employees 1-25”) of American International
Group, Inc. (“AIG”). Attached as Annex A is a Determination Memorandum (accompanied by
Exhibits I and I) providing the determinations of the Special Master with respect to 2010
compensation for those employees. 31 C.F.R. § 30.16(a)(3)(i).

The Interim Final Rule requires the Special Master to determine whether the
compensation structure for each Covered Employee 1-25 “will or may result in payments that
are inconsistent with the purposes of section 111 of EESA or TARP, or are otherwise contrary to
the public interest.” Jd. On October 22, 2009, the Special Master issued a Determination
Memorandum containing principles designed to ensure that 2009 compensation for AIG’s
Covered Employees 1-25 satisfies this public interest standard.

The principles established for 2009 must continue to govern compensation at the five
remaining recipients of exceptional assistance in 2010. Generally, these principles require that:

¢ There can be no guarantee of any “bonus” or “retention” awards among the compensation
structures approved by the Special Master.

¢ Base salary paid in cash should not exceed $500,000 per year, except in appropriate cases
for good cause shown. The majority of each individual’s base salary will be paid in the
form of stock that will immediately vest, in accordance with the Interim Final Rule, but
will only be redeemable in three equal, annual installments beginning on the second
anniversary of the date stock salary is earned, with each installment redeemable one year
early if AIG repays its federal obligations.


to be paid if, and only if, objective performance metrics are achieved and the employee continues
to provide services to the company for three years following the date of grant.

The structure of AIG’s proposed annual long-term incentive awards is generally
consistent with the 2009 Determinations. Under the Proposed Structures, annual long-term
incentive awards for 2010 will be payable only upon the achievement of specified, objective
performance criteria to be provided to the Office of the Special Master and the employee
continues to provide services to the Company for three years following the date of grant. In
addition, as required by the Rule, these awards may only be redeemed in 25% installments for
each 25% of AIG’s TARP obligations that are repaid.

The Special Master also reviewed the target amounts of annual long-term incentive
awards AIG proposed for the Covered Employees in this group in light of the principle that an
“appropriate portion of the compensation should be performance-based,” id. § 30.16(b)(1)(iv),
and based on “performance metrics [that are] measurable, enforceable, and actually enforced if
not met.” Jd. The Proposed Structures failed to meet these principles because they generally
allocated no more than 10% of a Covered Employee’s compensation to long-term restricted
stock based on the achievement of performance measures. As described in Exhibits I and I, the
structures the Special Master has determined to be consistent with the Public Interest Standard
include more substantial allocations to annual long-term incentive awards payable only upon the
achievement of specified, objective performance criteria to be developed and reviewed in
consultation with the Office of the Special Master.

Finally, the Company requested that different vesting terms apply in the case of
employees who provide two years of service after the grant of an incentive — the minimum
service period required by the Rule — but retire prior to providing three years of service, which
is the length of service required by the 2009 Determinations. The Special Master has concluded
that the Company’s succession planning and the timing of individual employees’ retirement
dates should not be unduly dependent on compensation structures in light of the principles that
compensation structures and the amounts payable thereunder should reflect “the current or
prospective contributions of an employee to the value of the TARP recipient” and “the need for
the TARP recipient to remain a competitive enterprise, to retain ... talented employees who will
contribute to the TARP recipient’s future success.” Jd. § 30.16(b)(1). Accordingly, for the
foregoing reasons and the reasons provided in the 2009 Determinations, the Special Master has
determined that the long-term incentive awards described in Exhibits I and I will not result in
payments that would be inconsistent with the Public Interest Standard.

d. “Other” Compensation and Perquisites

The 2009 Determinations generally require that perquisites and “other” compensation
provided to a Covered Employee be limited to $25,000 on an annual basis, and the Proposed
Structures are consistent with this requirement. For the reasons provided in the 2009
Determinations, and as described in Exhibit II, any exceptions to this limitation will require that
the Company provide to the Office of the Special Master an independent justification for the
payment that is satisfactory to the Special Master.

Ad


the principles that compensation structures “should avoid incentives to take unnecessary or
excessive risks,” id. § 30.16(b)(1)(i), and be allocated in a manner that aligns “the interest of the
employee with the interests of shareholders and taxpayers,” id. § 30.16(b)(1)(iii), the Special
Master has determined that the payment of stock salary designed to serve as a proxy for the long-
term value of the Company. The terms and conditions of the “basket” units will be determined
by AIG subject to the approval of the Office of the Special Master.’ The units are described in
further detail in Exhibits I and II.

Finally, the Special Master reviewed the structure of AIG’s proposal for stock salary in
light of the principle that compensation structures should align performance incentives with
long-term value creation rather than short-term profits. See id. § 30.16(b)(1)(i). In light of this
principle, the 2009 Determinations concluded that stock salary may only be redeemable in three
equal, annual installments beginning on the second anniversary of grant, with each installment
redeemable one year earlier in the event AIG repays its federal obligations. The Proposed
Structures were consistent with this requirement. AIG has informed the Office of the Special
Master that the Company completed a corporate transaction that resulted in the repayment of
approximately $568 million to the Federal Reserve Bank of New York. Accordingly, upon
certification of that repayment by AIG’s compensation committee, each redemption date of 2009
and 2010 stock salary may be accelerated by one year.”

c. Annual Long-Term Incentive Awards

The Special Master reviewed AIG’s proposed annual long-term incentive awards in light
of the principle that performance-based compensation should be payable “‘over a relevant
performance period,” id. Based in part upon this principle, the 2009 Determinations require
long-term incentives to be paid in the form of long-term restricted stock, and permit such awards

' The Covered Employees generally may not be paid a “bonus,” or receive payments pursuant to an “incentive
plan,” except in limited circumstances prescribed by the Rule. The provisions of the Rule addressing compensation
in the form of salary paid in property (such as stock) indicate that such payments will not constitute an “incentive
plan” for purposes of the Rule if the payments are made pursuant to “an arrangement under which an employee
receives a restricted stock unit that is analogous to TARP recipient stock,” 31 C.F.R. § 30.1. Under the Rule, “a unit
is analogous to stock if the unit is based upon stock of the TARP recipient...and the term ‘TARP recipient stock’
with respect to a particular employee recipient means the stock of a corporation. ..that is an ‘eligible issuer of service
recipient stock’” for purposes of certain federal taxation regulations, id. The Rule also provides that “[t]he Special
Master shall have responsibility for interpreting” the Rule. /d. § 30.16(a)(1). AIG’s proposed “basket” units
comprising common stock and debt securities are designed to approximate the long-term value of the Company, and
thus to align employees incentives with the taxpayer, while avoiding incentives for excessive risk taking.
Accordingly, under these limited, unique circumstances, and without determining whether the “basket” units
comprise “stock of a corporation...that is an ‘eligible issuer of service recipient stock’” under the Rule, the Special
Master has concluded that AIG’s proposed units constitute “restricted stock unit{s] that are analogous to TARP.
recipient stock” for purposes of the Rule. /d. § 30.1.

? The terms and conditions of stock salary and long-term restricted stock proposed for the Chief Executive Officer
are described in the August 16, 2009, Letter Agreement with Robert H. Benmosche pursuant to which Mr.
Benmosche was appointed Chief Executive Officer of AIG. The Special Master initially determined that the
compensation structure under the Letter Agreement was consistent with the Public Interest Standard on October 2,
2009. See Letter to Compensation and Management Resources Committee, American International Group, Oct. 2,
2009, available at hitp:/www.financialstability.gov/docs/RobertBenmoscheDeterminationLetter.pdf. For the
reasons provided therein, the Special Master has affirmed that compensation potentially payable to Mr. Benmosche
in 2010 under his Letter Agreement and as described in Exhibit J is consistent with the Public Interest Standard.

A8


a. Cash Salary and Cash “Retention” Awards

AIG proposed that employees new to the Covered Employee group generally continue to
receive cash salaries at the rates paid to them in 2009, with the proposed rates ranging from
$350,000 to $1,500,000. For 3 of the 4 corporate employees remaining in the Covered
Employee group from 2009, the Company proposed raising cash salaries. (The exception was
the Chief Executive Officer.) The proposed raises were substantial and would result in 100% to
140% increases over the cash salaries approved by the Special Master in 2009. AIG’s
submission argued that the proposed cash salaries could be justified by reference to the
compensation of persons in similar positions or roles at similar entities.

AIG has indicated that it intends to pay “retention” awards to 8 Covered Employees in
this group in 2010. The “retention” awards are paid under agreements asserted to provide legally
binding rights under valid written employee contracts, see 31 C.F.R. § 30.10(e)(2), that was thus
not subject to the review of the Special Master.

b. Stock Salary

AIG proposed stock salaries in amounts ranging from $200,000 to $7,740,000 for
corporate and operating unit employees who are new to the Covered Employee group. For 3 of
the 4 corporate employees remaining in the Covered Employee group from 2009, the Company
proposed raising stock salaries. The proposed raises would result in 65% to 87% increases over
the stock salaries approved by the Special Master in 2009. As required by the Rule, the stock
units proposed to be used for stock salary would be fully vested upon grant.

Consistent with the 2009 Determinations, AIG proposed that stock salary granted to
Covered Employees in this group would only be redeemable in three equal, annual installments
beginning on the second anniversary of grant, with each installment redeemable one year earlier
if AIG repays its federal obligations.

c. Annual Long-Term Incentive Awards

AIG proposed that most Covered Employees would be eligible to receive annual long-
term incentive awards representing approximately 10% their total 2010 compensation, payable in
long-term restricted stock units that generally would vest only if the Covered Employee remains
employed by the Company on the third anniversary of the grant date. As required by the Rule,
these awards would be paid only in 25% installments for each 25% of AIG’s TARP obligations
that are repaid.

d. “Other” Compensation and Perquisites

AIG proposed payments of “other” compensation, as well as perquisites, to the Covered
Employees. These proposed payments varied in value.

e. Non-Qualified Deferred Compensation

AIG proposed that the Special Master revisit the requirement in the 2009 Determinations
that Covered Employees must not accrue additional amounts under “non-qualified deferred
compensation” plans for 2010 (with the exception of employee-funded elective deferrals).


ANNEX A
DETERMINATION MEMORANDUM

I. INTRODUCTION

The Emergency Economic Stabilization Act of 2008, as amended by the American
Recovery and Reinvestment Act of 2009 (“EESA”), requires the Secretary of the Treasury to
establish standards related to executive compensation and corporate governance for institutions
receiving financial assistance under the Troubled Asset Relief Program (“TARP”). Through the
Department of the Treasury’s Interim Final Rule on TARP Standards for Compensation and
Corporate Governance (the “Rule”), the Secretary delegated to the Office of the Special Master
for TARP Executive Compensation (the “Office of the Special Master”) responsibility for
reviewing compensation structures of certain employees at institutions that received exceptional
financial assistance under TARP (“Exceptional Assistance Recipients”). 31 C.F.R. § 30.16(a);
id. § 30.16(a)(3). For these employees, the Special Master must determine whether the
compensation structure will or may result in payments “inconsistent with the purposes of section
111 of EESA or TARP, or...otherwise contrary to the public interest.” /d. § 30.16(a)(3)(i).

American International Group, Inc. (“AIG” or the “Company”), one of five remaining
Exceptional Assistance Recipients, has submitted to the Special Master proposed 2010
compensation structures (the “Proposed Structures”) for review pursuant to Section
30.16(a)(3)(i) of the Rule. These compensation structures apply to five employees that the
Company has identified for 2010 as senior executive officers (the “Senior Executive Officers,”
or “SEOs”) for purposes of the Rule, and 17 employees the Company has identified as among
the most highly compensated employees of the Company for purposes of the Rule (the “Most
Highly Compensated Employees,” and, together with the SEOs, the “Covered Employees”).
Three employees who otherwise would have been included in the Most Highly Compensated
Employees departed the Company prior to the date of this memorandum.

The Special Master has completed the review of the Company’s Proposed Structures for
the Covered Employees pursuant to the principles set forth in the Rule. /d. § 30.16(b)(1). This
Determination Memorandum sets forth the determinations of the Special Master, pursuant to
Section 30.16(a)(3)(i) of the Rule, with respect to the Covered Employees.

I. BACKGROUND

On June 15, 2009, the Department of the Treasury (“Treasury”) promulgated the Rule,
creating the Office of the Special Master and delineating its responsibilities. The Rule requires
that each Exceptional Assistance Recipient submit proposed compensation structures for each
Senior Executive Officer and Most Highly Compensated Employee. 31 C.F.R. § 30.16(a)(3)(i).

On October 22, 2009, after reviewing submissions of proposed compensation structures
from AIG, the Special Master issued determinations regarding 2009 compensation structures,
and amounts potentially payable thereunder, for AIG’s senior executive officers and certain most
highly compensated employees (the “2009 Determinations”). The 2009 Determinations included
principles designed to ensure that 2009 compensation for the applicable employees would not
“result in payments that are inconsistent with the purposes of section 111 of EESA or TARP, or

Al


e Ensure that the compensation committee discloses to Treasury an annual narrative
description of whether AIG, its board of directors, or the committee has engaged a
compensation consultant during the past three years; and, if so, the types of services
provided by the compensation consultant or any affiliate, including any “benchmarking”
or comparisons employed to identify certain percentile levels of pay. /d. § 30.11(c).

¢ Provide to Treasury an annual disclosure of any perquisite whose total value for AIG’s
fiscal year exceeds $25,000 for each of the Covered Employees, as well as a narrative
description of the amount and nature of these perquisites, the recipient of these
perquisites and a justification for offering these perquisites (including a justification for
offering the perquisite, and not only for offering the perquisite with a value that exceeds
$25,000). Id. § 30.11(b).

e Ensure that any incentive award paid to a Covered Employee is subject to a clawback if
the award was based on materially inaccurate financial statements (which includes, but is
not limited to, statements of earnings, revenues, or gains) or any other materially
inaccurate performance metric criteria. AIG must exercise its clawback rights except to
the extent that it is unreasonable to do so. Id. § 30.8.

¢ AIG was required to adopt an excessive or luxury expenditures policy, provide that
policy to the Treasury, and post it on AIG’s website. If AIG’s board of directors makes
any material amendments to this policy, within ninety days of the adoption of the
amended policy, the board of directors must provide the amended policy to Treasury and
post the amended policy on its Internet website. /d. § 30.12.

¢ Except as explicitly permitted under the Rule, AIG is prohibited from providing
(formally or informally) tax gross-ups to any of the Covered Employees. Id. § 30.11(d).

e AIG's chief executive officer and chief financial officer must provide written
certification of the Company’s compliance with the various requirements of section 111
of EESA. The precise nature of the required certification is identified in the Rule.

Id. § 30.15 Appx. B.

VI. CONCLUSION

The Special Master has reviewed the Proposed Structures for the Covered Employees for
2010 in light of the principles described in the 2009 Determinations, which in turn reflect the
Public Interest Standard. On the basis of that review, the Special Master has determined that the
Proposed Structures submitted by AIG are to some extent consistent with the 2009
Determinations but require certain modifications in order to meet the Public Interest Standard.

The Special Master has separately reviewed the compensation structures set forth in
Exhibits I and IT in light of the principles set forth at 31 C.F.R. § 30.16(b). Pursuant to the
authority vested in the Special Master by the Rule, and in accordance with Section 30.16(a)(3)
thereof, the Special Master hereby determines that the compensation structures set forth in
Exhibits I and IT, including the amounts payable or potentially payable under such compensation

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EXHIBITI

COVERED EMPLOYEES
2010 Compensation
Company Name: American International Group, Inc.
Stock Salary Long-Term Restricted Stock
(Performance based: The] (Performance based: Awarded
stock vests at grant and is based on achievement of Total Direct
redeemable in three equal,| objective performance goals. Compensation
annual installments Generally vests after 3 years of | (Cash salary + stock
beginning on the 2nd _|service. Transferability dependent} salary + long-term
Employee ID Cash Salary anniversary of grant.) on TARP repayment.) restricted stock.)

1 $3,000,000 $4,000,000} $3,500,000 $10,500,000)
133 $450,000 $4,062,500} $1,500,000 $6,012,500}
134 $700,000 $3,050,000) $1,250,000} $5,000,000
145 $177,799 $3,322,201 $0) $3,500,000
147 $241,933 $758,067| $0) $1,000,000)
157 $125,000 $3,468,750) $0; $3,593,750]
163 $495,000 $4,485,000) $1,020,000 $6,000,000
182 $450,000 $3,062,500) $0) $3,512,500}
186 $450,000 $1,437,500} $625,000) $2,512,500
188 $100,000 $3,500,000) $0) $3,600,000)
192 $700,000) $2,000,000) $0) $2,700,000}
196 $495,000} $3,731,250 $1,375,000 $5,601,250}
206 $700,000 $5,000,000} $1,900,000 $7,600,000
217 $1,500,000} $2,520,000} $1,980,000 $6,000,000
236 $475,000 $2,156,250] $875,000 $3,506,250)
237, $495,000 $3,656,250 $850,000 $5,001,250}
243 $500,000 $1,300,000} $0 $1,800,000}
261 $475,000 $4,568,750} $0) $5,043,750}
267 $495,000 $5,149,000 $1,156,000} $6,800,000}
534 $312,500 $0 $0} $312,500)
1056 $475,000 $2,967,932} $854,000 $4,296,932!
1057 $442,874 $2,117,126} $640,000) $3,200,000}

Comparison of 2010 Compensation to Prior Year Compensation
© Overall: Overall cash decreased $22.2M or 63% and total direct compensation increased $1.9M

or 2%.

© The 4 corporate and operating unit executives remaining in the Top 25 from 2009: Cash
salaries increased $0.5M or 12% and total direct compensation increased $3.3M or 12%.

e The 12 corporate and operating executives new to the Top 25 in 2010: Overall cash
compensation decreased $23M or 77% and total direct compensation decreased $17.2M or 25%
from 2009.

e The 6 Financial Products executives: Cash base salaries are frozen at fiscal year 2008 levels,
with one exception who remains below $500,000; 91% of total compensation is now delivered over 4
years and tied to company performance versus 0% in 2009.

Note I: Amounts reflected in this Exhibit do not include amounts the Company has asserted to be payable pursuant to legally binding rights
under valid employment contracts, see 31 CFR. § 30.10(e)(2)

Note 2: The terms of'stock salary and any long-term restricted stock delivered to Employee 1, the CEO, are provided in a letter agreement the
Special Master approved in a determination dated October 2, 2009. See supra Determination Memorandum note lL. Stock salary may not be
redeemed until the fifth anniversary of the date it is eamed. Long-term restricted stock generally will be forfeited ifthe CEO does not serve for
at least two years after the grant date, and cannot be redeemed until AlGrepays its TARP obligations

Note 3: The total number of Covered Emplovees may be less than 25 because of separations from service since January 1, 2010.

El



As described in the attached Determination Memorandum, AIG must also continue to
observe the following prescriptions described in the Special Master’s 2009 determinations:

¢ The achievement of any performance objectives must be certified by the compensation
committee of AIG’s Board of Directors, which is composed solely of independent
directors. These performance objectives must be reviewed and approved by the Office of
the Special Master.

e The employees will be prohibited from engaging in any hedging or derivative
transactions involving AIG stock that would undermine the long-term performance
incentives created by the compensation structures.

e AIG may not provide a tax “gross up” of any kind to these employees.

These requirements are described in detail in the attached Determination Memorandum.

Pursuant to the Interim Final Rule, AIG may, within 30 days of the date hereof, request in
writing that the Special Master reconsider the determinations set forth in the Determination
Memorandum. If the Company does not request reconsideration within 30 days, these initial
determinations will be treated as final determinations. Jd. § 30.16(c)(1).

Keyneth R. Feinberg
Office of the Special Master
for TARP Executive Compensation

Enclosures

ce: Jeffrey Hurd, Esq.
Marc R. Trevino, Esq.


Total compensation for each individual must be appropriate when compared with total
compensation provided to persons in similar positions or roles at similar entities, and
should generally target the 50th percentile of total compensation for such similarly
situated employees.

If — and only if — grants of incentives are appropriate in light of AIG’s circumstances at
the end of 2010 and a particular Covered Employee achieves objective performance
metrics developed and reviewed in consultation with the Office of the Special Master, the
employee may be eligible for a long-term incentive grant. These incentives must be
granted in restricted stock that will be forfeited unless the employee stays with AIG for at
least three years following grant, and may only be redeemed in 25% installments for each
25% of AIG’s TARP obligations that are repaid. Long-term incentive grants must not
exceed one third of a Covered Employee’s annual compensation.

Any and all incentive compensation paid to these employees will be subject to recovery
or “clawback” if the payments are based on materially inaccurate financial statements,
any other materially inaccurate performance metrics, or if the employee is terminated due
to misconduct that occurred during the period in which the incentive was earned.

“Other” compensation and perquisites, and supplemental executive retirement plans,
must remain subject to the limitations described in the 2009 determinations.

AIG’s submissions followed these important principles to some extent, but modifications

are required to make certain that compensation for AIG’s Covered Employees 1-25 satisfies the
public interest standard. Accordingly, the compensation structures approved by the Special
Master vary in the following respects from AIG’s proposals:

The number of Covered Employees 1-25 earning more than $500,000 in cash salary will
be five, rather than 10, as proposed by AIG.

For AIG Financial Products executives who received cash “retention” awards in 2010,
cash salaries generally have been frozen at the levels set in the October 22, 2009,
determination, with a single exception capped at $450,000.

Overall compensation packages will be reduced to levels more appropriate in comparison
with total compensation provided to employees in similar positions or roles at similarly
situated companies.

A greater portion of overall compensation must be allocated to incentive compensation
that must be paid in long-term restricted stock and that may be granted only upon the
achievement of objective performance goals.

All stock salary must be redeemable only in three equal, annual installments, with each
installment redeemable one year earlier if AIG repays its federal obligations. AIG has
informed the Office of the Special Master that a repayment of federal obligations
occurred on March 19, 2010. Accordingly, upon certification of that repayment by AIG's
compensation committee, the redemption of each installment of stock salary may be
accelerated by one year.


e. Non-Qualified Deferred Compensation

For the reasons provided in the 2009 Determinations, Covered Employees will not accrue
in 2010 additional amounts under supplemental executive retirement plans and other “non-
qualified deferred compensation” plans, as described in Exhibit I.

f. Severance Plans

For the reasons provided in the 2009 Determinations, the Company must ensure that 2010
compensation structures for these employees do not result in an increase in the amounts payable
pursuant to these arrangements.

2. AIG Financial Products

In the 2009 Determinations, the Special Master emphasized the importance of the
ongoing discussions with the Company regarding the full satisfaction of the pledge by AIGFP
employees to return $45 million of the cash “retention” payments they received in 2009.
Because of the unresolved nature of those discussions, the Special Master determined that no
payments of additional 2009 compensation to the applicable employees, other than continuation
of cash salaries, would be consistent with the Public Interest Standard.

Each of the AIGFP Covered Employees received another substantial cash “retention”
payment in 2010. In light of these “retention” payments, which may be taken into account in
determining 2010 compensation structures, see id. § 30.16(a)(3)(i), the Special Master has
concluded that the proposed $500,000 cash base salaries for AIGFP employees would generally
not be consistent with the Public Interest Standard. Accordingly, the cash salaries for AIGFP
Covered Employees set forth on Exhibit I are frozen at the levels paid at the conclusion of fiscal
year 2008, per the 2009 Determinations, with one exception where a $450,000 salary has been
approved for an employee in light of his critical role.

Each of the AIGFP Covered Employees also pledged to participate in the $45 million
repayment described above. AIG has informed the Office of the Special Master that, as of the
date hereof, it has received, offset or withheld at least $45 million. The Special Master has
concluded that, conditioned upon certification by the chair of the Company’s compensation
committee that at least $45 million of “retention” payments has been received, offset or withheld
by the Company, the payment of additional, non-cash compensation to AIGFP Covered
Employees for service provided in 2010 will not be inconsistent with the Public Interest
Standard, so long as the compensation otherwise satisfies the principles set forth in the Rule and
described in Part III. Accordingly, the Special Master reviewed the amounts and structure of
stock compensation proposed for this group of employees in light of those principles.

AIG proposed that these Covered Employees be granted stock salary that would be
redeemable on the first anniversary of the grant date. AIG argued that the shorter redemption
period would be appropriate in light of the anticipated wind down of AIGFP. Stock salary,
however, is required by the Rule to be fully vested at grant, so the departure of an employee as
the result of reductions in force in connection with the wind-down will not result in forfeiture of
earned stock salary. In addition, the services provided by AIGFP Covered Employees in 2010
have the potential to continue affecting the value of AIG long after the employees’ departure.

Al0


structures, will not result in payments that are inconsistent with the purposes of section 111 of
EESA or TARP, and will not otherwise be contrary to the public interest.

Pursuant to the Interim Final Rule, AIG may, within 30 days of the date hereof, request in
writing that the Special Master reconsider the determinations set forth in this Determination
Memorandum. The request for reconsideration must specify a factual error or relevant new
information not previously considered, and must demonstrate that such error or lack of
information resulted in a material error in the initial determinations. If AIG does not request
reconsideration within 30 days, the determinations set forth herein will be treated as final
determinations. Jd. § 30.16(c)(1).

The foregoing determinations are limited to the compensation structures and employees
described in Exhibits I and IT, and shall not be relied upon with respect to any other employee.
The determinations are limited to the authority vested in the Special Master by Section
30.16(a)(3)(i) of the Rule, and shall not constitute, or be construed to constitute, the judgment of
the Office of the Special Master or Treasury with respect to the compliance of any compensation
structure with any other provision of the Rule. Moreover, this Determination Memorandum has
relied upon, and is qualified in its entirety by, the accuracy of the materials submitted by the
Company to the Office of the Special Master, and the absence of any material misstatement or
omission in such materials.

Finally, the foregoing determinations are limited to the compensation structures described

herein, and no further compensation of any kind payable to any Covered Employee without the
prior approval of the Special Master would be consistent with the Public Interest Standard.