EXHIBIT I
COVERED EMPLOYEES

2009 Compensation

Company Name: American International Group, Inc.

Stock Salary
(Performance based: | Long-Term Restricted Stock Total Direct
The stock vests at grant | (Performance based: Awarded | Compensation
and is redeemable in based on achievement of (Cash salary paid to
three equal, annual objective performance goals, | date plus two months at
Cash Salary | installments beginning on | Vests after 3 years of service. | new run rate + stock
(Rate going | the 2nd anniversary of | Transferability dependent on salary + long-term
Employee ID forward.) grant.) TARP repayment.) restricted stock,)*
! $3,000,000 $4,000,000 $3,500,000 $10,500,000
Ho $350,000 $100,000 $225,000 $675,000
137 $125,000 $0 $0 $125,000
145 $177,799 $0 so $177,799
150 $425,000 $0 $0 $425,000
157 $125,000 $0 $0 $125,000
163 $350,000 $3,104,167 $833,333 $4,558,333
182 $144,000 $0 $0 $144,000
188 $100,000 $0 30 $100,000
206 $450,000 $4,691,667 $2,000,000 $7,600,000
209 $425,000 so $0 $425,000
255 $0. so $450,000
267 $3,566,666 $1,750,000 $6,108,333

Comparison of 2009 compensation to Prior Years: 2007 & 2008 Compensation

2008 Cash decreased by $34.4M or 90.8%
Total Direct Compensation decreased by $28.4M or 57.8%

2007 Cash decreased by $29.0M or 89.2%
Total Direct Compensation decreased by $26.3M or 55.7%

Note: |}: 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 C.F.R. § 30.10(e¥2)
Note: 2: The total number of Covered Employees may be less than 25 because of terminations, departures and retirements

after January 1, 2009.

m restricted stock to be awarded to Employee |. the Chief

Note: 3: ‘The terms and conditions of the stock salary and fons
Executive Officer. differ from those described in these Exhibits, See swpru Determination Memorandum note |
Note + For employees of AIG Financial Products, “Total Direct Compensation” reflects only the go-forward rate effective

as of November |. 2009,

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c. Annual Long-Term Incentive Awards

The Special Master also reviewed AIG’s proposals 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.” /d. AIG’s proposals did not include any amounts
payable to employees in this group on the basis of 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 an annual long-term
incentive award payable only upon the achievement of specified, objective performance
criteria developed and reviewed in consultation with the Office of the Special Master.

The Special Master also evaluated AIG’s proposals in light of recently adopted
international standards providing that incentive compensation should generally be
payable over a period of three years, as well as the principle in the Rule providing that
performance-based compensation should be payable “over a relevant performance
period,” id. Accordingly, the Special Master has concluded that, to meet the Public
Interest Standard, restricted stock granted in connection with these awards should not
vest unless the employee remains employed until the third anniversary of grant. Finally,
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. These awards are described in further
detail in Exhibits I and IT.

d. “Other” Compensation and Perquisites

AIG has proposed substantial payments of “other” compensation, as well as
perquisites, to the Covered Employees. (AIG’s submission included proposed payments
of “other” compensation exceeding $1,500,000 and perquisites exceeding $900,000 to
certain employees.) The Special Master has concluded that, absent special justification,
employees—not the Company—generally should be responsible for paying personal
expenses, and that significant portions of compensation structures should not be allocated
to such perquisites and “other” compensation. See id. §30.16(b)(1)(iii).

The Rule requires that each Exceptional Assistance Recipient annually disclose to
Treasury any perquisites where the total value for any Senior Executive Officer or Most
Highly Compensated Employee exceeds $25,000. An express justification for offering
these benefits must also be disclosed. Accordingly, as described in Exhibits I and IT, the
compensation structures the Special Master has determined to be consistent with the
Public Interest Standard provide no more than $25,000 in “other” compensation and
perquisites to each of these employees. 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. To the extent that payments
exceeding this limitation have already been made to a Covered Employee in 2009, those
amounts should be promptly returned to the Company.

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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 financial 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” or, the “Office’”) responsibility for
reviewing compensation structures of certain employees at financial institutions that
received exceptional financial assistance under the 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 [is]
otherwise contrary to the public interest.” /d.

American International Group, Inc. (“AIG,” or the “Company”), one of seven
Exceptional Assistance Recipients, has submitted to the Special Master proposed
compensation structures for review pursuant to Section 30.16(a)(3) of the Rule. These
compensation structures apply to three employees that the Company has identified as
senior executive officers (the “Senior Executive Officers,” or “SEOs”) for purposes of
the Rule, and nine 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”).

The Special Master has completed the review of the Company’s proposed
compensation structures pursuant to the principles set forth in the Rule. This
Determination Memorandum sets forth the determinations of the Special Master,
pursuant to Section 30.16(a)(3) of the Rule, with respect to the Covered Employees.

Il. 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.
Immediately following that date, the Special Master, and Treasury employees working in
the Office of the Special Master, conducted extensive discussions with AIG officials and
Company counsel. During these discussions, the Office of the Special Master informed
AIG about the nature of the Office’s work and the authority of the Special Master under
the Rule. These discussions continued for a period of months, during which the Special
Master and AIG explored potential compensation structures for the Covered Employees.

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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.

e Cash base salary. Cash base salaries reflect the go-forward rate for the employee
effective as of November 1, 2009. Compensation paid in the form of cash base
salary prior to that date in accordance with the terms of employment as of June
14, 2009 shall be permitted unless otherwise noted. 31 C.F.R. § 30.16(a)(3)(iii).

¢ Stock salary. As described in Part [V, stock salary will be granted in the form of
stock units reflecting the value of a “basket” of four AIG insurance subsidiaries:
American International Assurance Co. Ltd., American Life Insurance Co.,
Chartis, and AIG Domestic Life & Retirement Services Group. The value of each
subsidiary, and therefore of the units, will be determined on the basis of an
adjusted book value measure that will exclude extraordinary events. The units
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 grant, with each installment redeemable one year early if AIG
repays its TARP obligations. Other terms and conditions of the “basket” units,
including any alterations to the structure of the “basket” to maintain appropriate
incentives for employees, will be determined by AIG subject to the approval of
the Office of the Special Master.

Rates of stock salary grants reflect full-year values. Because this is a new
compensation element, the amounts are payable on a nunc pro tunc basis effective
January 1, 2009. 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 or units based on the fair market value of a share on the date of award.

e Long-term restricted stock. Long-term restricted stock may be granted upon the
achievement of specified, objective performance criteria that have been developed
and reviewed in consultation with the Office of the Special Master and certified
by the Compensation and Management Resources Committee of AIG’s Board of
Directors. Any such stock may vest only if the employee remains employed by
the Company on the third anniversary of grant (or, if earlier, upon death or
disability). The stock shall be transferable only in 25% increments for each 25%
of TARP obligations repaid by the Company.

¢ 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.

E2


AIG, its Board of Directors, or the committee has engaged a compensation
consultant during the past three years. If so, the compensation committee must
detail the types of services provided by the compensation consultant or any
affiliate, including any “benchmarking” or comparisons employed to identify
certain percentile levels of compensation. Id. § 30.11(c).

(3) Disclosure of Perquisites. As noted in Part 1V, AIG must 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. AIG must provide 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). Jd. § 30.11(b).

(4) Clawback. AIG must 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.

(5) Say-on-Pay. AIG must permit a separate shareholder vote to approve the
compensation of executives, as required to be disclosed pursuant to the federal
securities laws (including the compensation discussion and analysis, the
compensation tables, and any related material). /d. § 30.13. AIG conducted its
first such vote in July 2009.

(6) Policy Addressing Excessive or Luxury Expenditures. AIG was required to adopt
an excessive or luxury expenditures policy, provide that policy to 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 the company website. /d. § 30.12.

(7) Prohibition on Tax Gross-Ups. 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).

(8) CEO and CFO Certification. A1G’s chief executive officer and chief financial
officer must provide to the Securities and Exchange Commission 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. /d. § 30.15 Appx. A.

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b. Stock Salary

AIG proposed that employees in this group receive substantial compensation in
the form of vested AIG common stock delivered on the Company’s payroll schedule.
AIG proposed that 50% of the stock be transferable immediately by the employee. AIG
proposed to deliver stock salary in amounts ranging from $250,000 to $4,600,000 to
employees in this group.

c. Annual Long-Term Incentive Awards

AIG did not propose that employees in this group be granted any
compensation subject to the achievement of performance measures. Specifically, AIG’s
Proposed Structures did not include grants of long-term incentive awards granted in
compliance with the requirements of the Rule.

d. “Other’” Compensation and Perquisites

AIG’s submission included payments of “other” compensation as well as
perquisites to the Covered Employees. The proposed payments varied in value.

e. Supplemental Executive Retirement Plans and Non-Qualified Deferred
Compensation

AIG also proposed that certain Covered Employees receive compensation in the
form of accruals under a “non-qualified deferred compensation” plan.

f. Severance Plans

AIG’s submission to the Office of the Special Master also indicated that, in some
cases, the Proposed Structures would result in increases in amounts payable to these
employees pursuant to severance arrangements.

2. Covered Employees at AIG Financial Products

AIG has also proposed compensation structures for five Covered Employees
employed by AIG Financial Products, a subsidiary of the Company. AIG’s proposed
compensation structure for each of these five employees included significant increases in
cash base salary, accompanied by a promise, secured by a segregated pool of cash, to pay
the employees substantial amounts based on their performance. In summary, AIG’s
proposed compensation structures for these employees included the following principal
elements:

¢ Cash base salaries, delivered on a nunc pro tunc basis effective January 1, 2009,
ranging from $285,000 to $950,000.

e Payments from the segregated cash pool ranging from $1,115,000 to $2,612,182.

AO


¢ Consultation with Lucian A. Bebchuk, a world-renowned expert in executive
compensation and the William J. Friedman and Alicia Townsend Friedman
Professor of Law, Economics, and Finance and Director of the Program on
Corporate Governance at Harvard Law School; and

¢ Consultation with Kevin J. Murphy, a world-renowned expert in executive
compensation and the Kenneth L. Trefftzs Chair in Finance in the department of
finance and business economics at the University of Southern California’s
Marshall School of Business.

The Special Master considered these views, 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 2009.

IIL. 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 [is] 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”).
Regulations promulgated pursuant to the Rule require 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. /d. § 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. Jd. § 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,

A3


The Rule requires that each Exceptional Assistance Recipient submit proposed
compensation structures for each Senior Executive Officer and Most Highly
Compensated Employee no later than August 14, 2009. 31 C.F.R. § 30.16(a)(3). On July
20, 2009, the Special Master requested from each Exceptional Assistance Recipient,
including AIG, certain data and documentary information necessary to facilitate the
Special Master’s review of the Company’s compensation structures. The request
required AIG to submit data describing its proposed compensation structures, and the
payments that would result from the structures, 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.” Jd. § 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 August 14,
2009, Following a preliminary review of the submission, and the submission of certain
additional information, on August 31, 2009, the Special Master determined that AIG’s
submission was substantially complete for purposes of the Rule. /d. § 30.16(a)(3). 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 a
substantially complete submission. /d.

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:

« 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,

¢ External information on comparable compensation structures extracted from
Equilar’s Executivelnsight 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);


VI. CONCLUSION

The Special Master has reviewed the Proposed Structures for the Covered
Employees for 2009 in light of the principles set forth at 31 C.F.R. § 30.16(b). On the
basis of that review, the Special Master has determined that the Proposed Structures
submitted by AIG require modification in order to meet the Public Interest Standard.

The Special Master has separately reviewed the compensation structures set forth
in Exhibits I and I 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 structures, will not result in payments that are
inconsistent with the purposes of section 111 of EESA or the 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. 31 C.F.R. § 30.16(c)(1).

The foregoing determinations are limited to the compensation structures 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) 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.

AIS


IV. COMPENSATION STRUCTURES AND PAYMENTS

A. AIG Proposals

AIG has provided the Office of the Special Master with detailed information
concerning its proposed 2009 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 (or its applicable subsidiary) 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.

1. AIG Corporate and Operating Units

AIG has proposed compensation structures for each of three Senior Executive
Officers, as well as for four Most Highly Compensated Employees, each of whom serves
as an executive in AIG’s corporate offices or as a senior executive at an AIG subsidiary.!

AIG’s proposed compensation structures for each of the seven executives in this
group generally emphasized increases in cash base salary and substantial base salary paid
in the form of vested AIG stock and did not include any compensation payable on the
basis of individual performance.

a. Cash Salary and Cash “Retention” Awards

AIG generally proposed to increase cash base salaries for employees in this
group. AIG’s submission asserted that these base salaries could be justified by reference
to the compensation of persons in similar positions or roles at similar entities.

AIG also proposed to pay “retention” awards to three of these employees, in
amounts ranging from $1,500,000 to $2,400,000, that AIG argued were due under
agreements providing for legally binding rights under valid written employment
contracts, see 31 C.F.R. § 30.10(e)(2), and thus were not subject to the review of the
Special Master.

‘On August 16, 2008, AIG entered into a Letter Agreement with Robert H. Benmosche pursuant to which
Mr. Benmosche was appointed Chief Executive Of of AIG. The Special Master separately reviewed
the Letter Agreement and determined that the compensation structure under the Letter Agreement was
consistent with the Public Interest Standard. See Office of the Special Master, Letter to Compensation and
Management Resources Committee, American International Group, Oct. 2, 2009, available at

http://www. financialstability.gov/docs/RobertBenmoscheDeterminationLetter.pdf. Accordingly, Mr.
Benmosche’s compensation package is not addressed in this Determination Memorandum.

AS


DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220

October 22, 2009

Mr. Robert Benmosche

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

27th Floor

New York, NY 10270

Re: — Proposed Compensation Payments and
Structures for Senior Executive Officers and
Most Highly Compensated Employees

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 2009 compensation submission on behalf of the senior
executive officers and most highly compensated employees of American International
Group, Inc. (“AIG”). Attached as Annex A is a Determination Memorandum
(accompanied by Exhibits I and ID) providing the determinations of the Special Master
with respect to 2009 compensation for those employees. 31 C.F.R. § 30.16(a)(3).

Pursuant to the Interim Final Rule, the Special Master is required to determine
whether the compensation structure for each senior executive officer and certain most
highly compensated employees “will or may result in payments inconsistent with the
purposes of section 111 of EESA or TARP, or [is] otherwise contrary to the public
interest.” Jd. § 30.16(a)(3).. The Special Master has determined that, to satisfy this
standard, 2009 compensation for AIG’s senior executive officers and most highly
compensated employees generally must comport with the following important standards:

¢ Base salary paid in cash should not exceed $500,000 per year, except in
appropriate cases for good cause shown. Such good cause will not exist in any
case in which the employee is to be paid a substantial cash amount pursuant to a
previously existing agreement between AIG and the employee. Overall, cash
compensation must be significantly reduced from cash amounts paid in 2008. In
AIG's case, cash compensation for these employees will decrease 91% from 2008
levels.

« Rather than cash, the majority of each individual’s base salary will be paid in the
form of stock units reflecting the value of a “basket” of four AIG insurance


salaries constitute significant proportions of total compensation, although cash salaries
are not performance-based. The Special Master has concluded that performance-based
compensation should constitute the primary portion of these employees total
compensation packages, and therefore that AIG’s proposed salaries are inconsistent with
the Public Interest Standard because the proposed cash amounts would have constituted
too significant a proportion of the employee’s total pay.

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. Id. § 30.16(a)(3). AIG proposed cash salaries for three
employees that, AIG asserted, were also entitled to substantial cash payments in 2009
pursuant to previously existing “retention” awards. Although the Office of the Special
Master negotiated for the restructuring of similar arrangements at other Exceptional
Assistance Recipients, discussions with AIG officials did not lead to an agreed upon
restructuring of these “retention” awards. After consulting with officials at the Federal
Reserve Bank of New York and officials at Treasury, and considering their opinions, the
Special Master has concluded that, due to the unique circumstances currently found to
exist at AIG, and the need to retain the services of these three employees who are deemed
to be particularly critical to AIG’s long-term financial success, restructuring these
“retention” contracts would not be consistent with the Public Interest Standard. Instead,
the Special Master has considered these retention awards when determining an
appropriate reduction in proposed 2009 cash salaries for these employees.

The Special Master has determined that cash salaries of less than $500,000 are
generally consistent with the Public Interest Standard. In particular, the cash salaries of
the three employees receiving payments pursuant to previously existing “retention”
awards must not exceed this amount. The cash salaries that the Special Master has
determined to be consistent with the Public Interest Standard for these employees are
described in further detail in Exhibits I and IT.

b. Stock Salary

First, the Special Master reviewed the amounts of compensation to be granted in
the form of stock salary 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,” id. § 30.16(b)(1)(v). In general, the Special Master
has concluded that AIG’s proposed amounts are consistent with the Public Interest
Standard. These amounts, adjusted to reflect each employee’s responsibilities and role
with respect to any change in the financial health or competitive position of AIG, id.

§ 30.16(b)(1)(v), are described in further detail in Exhibits I and I.

Second, the Special Master reviewed the structure of AIG's stock salary proposal
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).. The
Special Master has concluded that AIG’s proposal, which contemplates that 50% of stock
salary will be transferable immediately by the employee, does not provide sufficient
alignment with long-term value creation.

A8


¢ Total proposed 2009 compensation for five employees of $13,200,000.

In addition, in the course of discussions with the Office of the Special Master,
AIG acknowledged that certain employees of AIG Financial Products had pledged to
repay amounts paid in early 2009 in connection with certain bonuses. AIG had further
acknowledged that four of these five employees made such pledges and failed, as of the
date of AIG’s submission to the Office of the Special Master, to honor those pledges.
The remaining Covered Employee at AIG Financial Products did not pledge to return any
of the amounts received in early 2009.

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 II] above. In light of this
review and analysis, the Special Master has determined that both the structural design of
AIG’s proposals and the amounts potentially payable to Covered Employees under the
proposals would be inconsistent with the Public Interest Standard, and, therefore, require
modification.

The Special Master has determined, in light of the considerations that follow, that
the compensation structures described in Exhibits I and II 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 proposal with respect to cash salary and
“retention” awards 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,” id. § 30.16(b)(1)(v). AIG’s cash salary proposals for these
employees generally exceeded the 50th percentile of amounts paid to persons in similar
positions or roles at similar entities. The Special Master has concluded that, for Covered
Employees at Exceptional Assistance Recipients, cash salaries generally should target 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 talented
employees with the need for compensation structures that reflect the circumstances of
Exceptional Assistance Recipients. Accordingly, the Special Master has concluded that
AIG’s proposed cash salaries are inconsistent with the Public Interest Standard, because
the proposed amounts cannot be supported by reference to amounts payable to persons in
similar positions or roles at similar entities.

The Special Master also reviewed AIG’s proposed cash salaries in light of the

principle that an “appropriate portion of...compensation should be performance-based
over a relevant performance period.” /d. § 30.16(b)(1)(iv). AIG proposed that cash

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deferred compensation, or other compensation and benefits previously paid or
awarded. Id. § 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

ance 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. /d. §
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. /d. §

30. 16(b)(1)¢v).

(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. Id. § 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. Id. § 30.16(a)(3).

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Supplemental executive retirement plans and non-qualified deferred
compensation plans. Following the date of the Determination Memorandum, no
additional 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.

Qualified Plans. For the avoidance of doubt, the Special Master has determined
that participation by the Covered Employees in tax-qualified retirement, health
and welfare, and similar plans is consistent with the Public Interest Standard.


© Taxpayer return. The compensation structures approved by the Special Master
reflect the need for AIG to remain a competitive enterprise and, ultimately, to be
able to repay TARP obligations. The Special Master has determined that these
approved compensation structures are competitive when compared with those
provided to persons in similar positions or roles at similar entities. /d.
§ 30.16(b)(1 (ii).

e Appropriate allocation. The total compensation payable to AIG employees is
weighted heavily towards long-term structures that are tied to AIG’s performance
and are easily understood by shareholders. As a general principle, guaranteed
income is rejected. Fixed compensation payable to AIG employees should consist
only of cash salaries at sufficient levels to attract and retain employees and
provide them a reasonable level of liquidity.

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
Annex A. If AIG does not request reconsideration within 30 days, these initial
determinations will be treated as final determinations. Jd. § 30.16(c)(1).

enneth R. Feinberg
Office of the Special Master
TARP Executive Compensation

Attachment

ce: Anastasia D. Kelly, Esquire
Marc R. Trevino, Esquire


e. Supplemental Executive Retirement Plans and Non-Qualified Deferred
Compensation

AIG proposed that certain Covered Employees receive compensation in the form
of accruals under a “non-qualified deferred compensation” plan. In such plans,
employers periodically credit employees with an entitlement to post-retirement payments.
Over time, these credits accumulate and employees may become entitled to substantial
cash guarantees payable on retirement—in addition to any payments provided under
retirement plans maintained for employees generally.

The Special Master has concluded that the primary portion of a Covered
Employee’s compensation package should be allocated to compensation structures that
are “performance-based over a relevant performance period.” /d. § 30.16(b)(1)(iv).
Payments under the Company’s “non-qualified deferred compensation” plans do not
depend upon “individual performance and/or the performance of the [Company] or a
relevant business unit,” id.; instead, such accruals are simply guaranteed cash payments
from the Company in the future. In addition, these payments can make it more difficult
for shareholders to readily ascertain the full amount of pay due a top employee upon
leaving the Company.

Covered Employees should fund their retirements using wealth accumulated
based on Company performance while they are employed, rather than being guaranteed
substantial retirement benefits by the Company regardless of Company performance
during and after their tenures. Accordingly, as described in Exhibits I and IT, the
compensation structures the Special Master has determined to be consistent with the
Public Interest Standard prohibit further 2009 accruals for Covered Employees under
supplemental retirement plans or Company credits to other “non-qualified deferred
compensation” plans following the date of this Determination Memorandum.

f. Severance Plans

The Special Master has concluded that an increase in the amounts payable under
these arrangements would be inconsistent with the principle that compensation should be
performance-based, id. § 30.16(b)(1)(iv), and that payments should be appropriately
allocated among the elements of compensation, id. § 30.16(b)(1)(iii). Accordingly, for
the compensation structures described in Exhibits I and IT to be consistent with the
Public Interest Standard, the Company must ensure that 2009 compensation structures for
these employees do not result in an increase in the amounts payable pursuant to these
arrangements.

2. Covered Employees at AIG Financial Products

The Office of the Special Master evaluated AIG’s proposed compensation
structures for these employees in light of the principle that compensation structures
should, where appropriate, reflect “the role [an] employee may have had with respect to
any change in the financial health or competitive position of the TARP recipient.” id.

§ 30.16(b)(1)(vi). The performance of AIG Financial Products has contributed

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A. Requirements Relating to Compensation Structures

In order to ensure that objective compensation performance criteria are
“measurable, enforceable, and actually enforced if not met,” id. § 30.16(b)(1)(iv), long-
term incentive awards may not be granted unless the AIG Compensation and
Management Resources Committee determines to grant such an award in light of the
employee’s performance as measured against objective performance criteria that the
Committee has developed and reviewed in consultation with the Office of the Special
Master. This evaluation must be disclosed to shareholders in, and certified by the
Committee as part of, AIG’s securities filings. In addition, the Committee must retain
discretion with respect to each employee, to reduce (but not to increase) the amount of
any incentive award on the basis of its overall evaluation of the employee’s or AIG’s
performance (notwithstanding full or partial satisfaction of the performance criteria).

In addition, as noted in Part IV, above, and described in Exhibits I and H, the
structures determined by the Special Master to be consistent with the Public Interest
Standard include grants of stock in AIG. It is critical that these compensation structures
achieve the Rule’s objective of “appropriate[ly] allocat[ing] the components of
compensation [including] long-term incentives, as well as the extent to which
compensation is provided in...equity,” id. § 30.16(b)(iii).

The Company must have in effect a policy that would prohibit an employee from
engaging in hedging, derivative or other transactions that have an economically similar
effect that would undermine the incentives created by the compensation structures set
forth in Exhibits I and IT. Such transactions would be contrary to the principles set forth
in the Rule.

B. Additional Requirements

In addition to the requirements set forth above, pursuant to the requirements of the
Rule, AIG is required to institute the following corporate governance reforms:

(1) Compensation Committee; Risk Review. AIG must maintain a compensation
committee comprised exclusively of independent directors. Every six months, the
committee must discuss, evaluate, and review with AIG’s senior risk officers any
risks that could threaten the value of AIG. In particular, the committee must meet
every six months to discuss, evaluate, and review the terms of each employee
compensation plan to identify and limit the features in (1) SEO compensation
plans that could lead SEOs to take unnecessary and excessive risks that threaten
the value of AIG; (2) the SEO or other employees’ compensation plans that could
encourage behavior focused on short-term results and not on long-term value
creation; and (3) the employee compensation plans that could encourage the
manipulation of AIG’s reported earnings to enhance the compensation of any of
the employees. /d. § 30.4; id. § 30.5.

(2) Disclosure with Respect to Compensation Consultants. The compensation
committee must disclose to Treasury an annual narrative description of whether

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© No additional amounts in 2009 may be accrued under supplemental executive
retirement plans or credited by the company to other “non-qualified deferred
compensation” plans after the date of the Determination Memorandum.

The Special Master has also determined that, in order for the approved
compensation structures to satisfy the standards of 31 C.F.R. § 30.16(a)(3), AIG must
adopt policies applicable to these executive officers and employees as follows:

© The achievement of any performance objectives must be certified by the
Compensation and Management Resources Committee of AIG’s Board of
Directors, which is composed solely of independent directors, as part of AIG’s
securities filings. 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, derivative or
other transactions that have an equivalent economic effect that would undermine
the long-term performance incentives created by their compensation structures.

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

e Atleast once every year, the Compensation and Management Resources
Committee must provide to the Department of the Treasury a narrative description
identifying each compensation plan for its senior executive officers, and
explaining how the plan does not encourage the senior executive officers to take
unnecessary and excessive risks that threaten AIG’s value.

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

The Special Master’s review has been guided by a number of considerations,
including each of the principles articulated in the Interim Final Rule. Jd. § 30.16(b)(1).
The following principles were of particular importance to the Special Master in his
determinations with respect to AIG’s compensation structures:

e = Performance-based compensation. The overwhelming majority of approved
compensation depends on AIG’s performance, and ties the financial incentives of
AIG employees to the overall performance of the company. A majority of the
salary paid to employees under these structures will be paid in the form of stock
units reflecting the value of four subsidiaries critical to AIG's long-term stability;
and, because the stock will only be redeemable in equal, one-third installments
beginning on the second anniversary of the date the stock salary is earned (in each
case subject to acceleration by one year if AIG repays its TARP obligations), the
ultimate value realized by the employee will depend on AIG’s performance over
the long term. Guaranteed amounts payable in cash, in contrast, are generally
rejected. Id. § 30.16(b)(1)(iy).


subsidiaries that the Company, the Federal Reserve Bank of New York, and the
Department of the Treasury have identified as critical to the future of the
company. These units 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 they are earned, with each installment
redeemable one year early if AIG repays its TARP obligations. This structure
encourages employees to remain employed by AIG and to maximize the value of
the businesses most important to its long-term stability while avoiding incentives
for unnecessary risk-taking. Other terms and conditions of these stock units,
including any alterations to the structure of the “basket” to maintain appropriate
incentives for employees, will be determined by the AIG, subject to the Special
Master’s approval.

Total compensation for each individual must be appropriate when compared with
total compensation provided to persons in similar positions or roles at similar
entities. Overall, total compensation must be significantly reduced from the
amounts paid in 2008. In AIG’s case, total compensation for these employees
will decrease 58% from 2008 levels.

If—and only if—the employee achieves objective performance metrics developed
and reviewed in consultation with the Office of the Special Master, the employee
may be eligible for long-term incentive awards. These awards, however, must be
payable in the form of 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.
Such long-term incentive awards may not exceed one third of total annual
compensation.

Employees of AIG Financial Products will receive only cash base salaries through
the balance of 2009. Employees who pledged to return amounts paid pursuant to
previously existing retention awards must immediately repay the pledged amount.

Any and all incentive compensation 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.

Any and all “other” compensation and perquisites will not exceed $25,000 for
each employee (absent exceptional circumstances for good cause shown to the
satisfaction of the Special Master).

No severance benefit to which an employee becomes entitled in the future may
take into account a cash salary increase, or any payment of stock salary, that the
Special Master has approved for 2009.

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The Special Master also reviewed the structure of AIG’s stock salary proposal in
light of the principle that an appropriate portion of compensation should be
“performance-based over a relevant performance period,” id. § 30.16(b)(1)(iv). Stock
salary that is transferable immediately permits an employee to liquidate his or her
investment in the stock immediately rather than over a period designed to reflect
performance.

Accordingly, the compensation structures the Special Master has determined to be
consistent with the Public Interest Standard would not permit immediate transferability or
sale of stock salary. Instead, stock salary may only be redeemable in three equal, annual
installments beginning on the second anniversary of grant, with each installment
redeemable one year early if AIG repays its TARP obligations.

Finally, 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)(ii). During this review, the
Special Master consulted with officials at the Federal Reserve Bank of New York and
officials at Treasury and considered their views. Based on this input, the Special Master
has determined that the compensation structures consistent with the Public Interest
Standard shall include stock units reflecting the value of a “basket” of four AIG insurance
subsidiaries: American International Assurance Co. Ltd., American Life Insurance Co.,
Chartis, and AIG Domestic Life & Retirement Services Group. The value of each
subsidiary, and therefore of the units, is to be determined on the basis of an adjusted book
value measure that will exclude extraordinary events and give employees incentives to
focus their efforts on the earnings generated by these critical businesses. Other terms and
conditions of the “basket” units, including any alterations to the structure of the “basket”
to maintain appropriate incentives for employees, 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 IT.

> 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 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 are designed to reflect the value of businesses that comprise over 90% of AIG’s
overall value, and to give employees incentives, in AIG’s unique circumstances, to maximize the value of
those businesses and thus the value of the Company as a whole, 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 subsidiary “basket” units constitute
“restricted stock unit{s] that are analogous to TARP recipient stock” for purposes of the Rule. /d. § 30.1.

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significantly to the deterioration in AIG’s financial health. Accordingly, the Special
Master has determined that AIG’s proposed compensation structures for these employees
are inconsistent with the Public Interest Standard, because they do not adequately reflect
the role of AIG Financial Products in the change in the financial health and competitive
position of AIG.

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. Jd. § 30.16(a)(3). These employees received significant
bonus payments in early 2009 notwithstanding AIG Financial Products’ role in the events
necessitating taxpayer intervention. Accordingly, taking into account the payments made
to these employees in early 2009, as well as the other principles set forth in the Rule, the
Special Master has concluded that only the payment of these employees’ base salaries as
in effect on December 31, 2008, and no further amounts of any kind, is consistent with
the Public Interest Standard. These amounts are described in further detail in Exhibits I
and II.

The Office of the Special Master is engaged in ongoing discussions with the
Company with respect to these employees. These discussions have emphasized the
importance of the repayment of the entire pledged amount by each Covered Employee
who pledged to return bonus amounts paid in 2009. Until the Special Master’s
consideration of those matters is complete, no payments of compensation in 2009 to these
employees, other than continuation of the cash salaries in effect on December 31, 2008,
would be consistent with the Public Interest Standard.

3. Departed Employees

Thirteen employees that 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 cash salaries 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 II, 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)(iv). In light of the importance of this
principle, AIG must take certain additional corporate governance steps, including those
required by the Rule, 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.

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