exv10w1






Exhibit 10.1




					
	
	 	DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220


	 	 
	 
	 	 	 	 






December 21, 2009



Mr. Robert Benmosche

President and Chief Executive Officer

American International Group, Inc.

70 Pine Street

27th Floor

New York, NY 10270





			
	     Re:	 	Reconsideration Request and Supplemental Determination Regarding 2009

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 “Rule”), on October 22, 2009, the Special Master issued
an initial determination (the “Initial Determination”) with respect to compensation payments for
the senior executive officers and next 20 most highly compensated employees (“Top 25 Employees”) of
American International Group, Inc. (“AIG”). 31 C.F.R. § 30.16(a)(3)(i). Under the Rule, AIG is
permitted, within 30 days of the issuance of the Initial Determination, to request that the Special
Master reconsider that determination, provided that the request specified relevant new information
not previously considered by the Special Master. See id. § 30.16(c)(1).



     On November 20, 2009, AIG submitted a written request for reconsideration (the
“Reconsideration Request”) of the Initial Ruling with respect to one Top 25 Employee. AIG’s prior
submissions to the Office of the Special Master indicated that the Top 25 Employee would terminate
employment with AIG during 2009, and the Initial Determination with respect to the Top 25 Employee
reflected those submissions. The Reconsideration Request indicated, however, that the Top 25
Employee will remain in the employ of AIG. In light of that information, which was not previously
considered by the Special Master, AIG requested that the Special Master reconsider the compensation
payments approved in the Initial Determination for the Top 25 Employee.



     Under the Rule, the Special Master must, upon receipt of a written request for
reconsideration, provide a final determination setting forth the facts and analysis that formed the
basis for the determination. Id. This letter sets forth the final determination of the Special
Master in light of AIG’s Reconsideration Request. In addition, this letter addresses certain other
matters, including, as set forth below, certain technical corrections to the Initial Determination
and to the Special Master’s December 11, 2009 determination with respect to compensation structures
for certain employees (“Covered Employees 26–100) not subject to the Initial Determination (the
“Second Determination”).



 









 





1. Reconsideration Request




     AIG’s previous submissions to the Office of the Special Master indicated that a specified Top
25 Employee (the “Specified Employee”) intended to depart AIG prior to the end of 2009. Based on
that information, the Special Master’s Initial Determination approved compensation for the
Specified Employee limited to a base salary of $450,000, payable through the Specified Employee’s
departure date, and no further compensation for the remainder of 2009.



     AIG’s Reconsideration Request states that, rather than depart AIG prior to the end of 2009,
the Specified Employee will remain in the employ of AIG. AIG has indicated that the employee is
critical to AIG’s long-term performance and stability, and that his continued employment by AIG
will significantly aid AIG’s ability to repay the taxpayer. In light of those facts, AIG’s
Reconsideration Request seeks approval of two additional types of compensation for the Specified
Employee for 2009: (1) a nunc pro tunc grant of stock salary, with a grant-date value of $3,258,333,
and (2) an annual long-term incentive award, in an amount up to $1,000,000 depending on the
Specified Employee’s achievement of objective performance metrics, to be granted in the form of
“long-term restricted stock” as defined in the Rule (the “Proposed Structure”).



     The Rule requires that the Special Master determine for each Top 25 Employee whether the
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
[S]ection 111 of EESA or TARP, or [is] otherwise contrary to the public interest.” 31 C.F.R. §
30.16(a)(3) (the “Public Interest Standard”). The Rule requires that the Special Master consider
six principles when making these compensation determinations. Id. § 30.16(b)(1).



     The Special Master has reviewed the Reconsideration Request in detail by application of the
principles set forth in the Rule. In particular, the Special Master’s review has been guided by the
principle that compensation structures should be “performance-based over a relevant performance
period.” Id. § 30.16(b)(l)(iv). The Initial Determination authorized no stock salary or annual
long-term incentive award for the Specified Employee because AIG’s submissions indicated that the
Specified Employee would depart AIG. Under those circumstances, no performance-based pay was
necessary to align the interests of the Specified Employee with those of AIG and taxpayers.
However, in light of the fact that the Specified Employee will remain in the employ of AIG, it is
appropriate to provide the Specified Employee with long-term incentives to ensure that the employee
contributes to AIG’s long-term success and, ultimately, AIG’s ability to repay taxpayers.



     Accordingly, the Special Master has determined that, in addition to the compensation approved
for the Specified Employee in the Initial Determination, the Proposed Structure will not, by virtue
of its structural design or the amounts potentially payable thereunder, result in payments
inconsistent with the Public Interest Standard. In all other respects, the compensation structure
for the Specified Employee must comply



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with the terms of the Initial Determination, including requirements related to the
transferability of salary stock and the grant of long-term incentives.



     In addition, the Specified Employee shall remain subject to the requirement that “other”
compensation and perquisites not exceed $25,000, except where a satisfactory independent
justification is provided in formal submissions to the Office of the Special Master. To date, no
satisfactory justification with respect to the Specified Employee has been provided to the Office
of the Special Master. Accordingly, to the extent that the “other” compensation and perquisites in
excess of $25,000 described in AIG’s submissions have been provided to the Specified Employee
during 2009, in order to be consistent with the Public Interest Standard the compensation structure
must provide for the reduction of amounts payable to the Specified Employee by any such excess, and
such reduction may be subject to further review by the Office of the Special Master.



2. Technical Corrections




     The Initial Determination requires that stock salary granted to Top 25 Employees may only be
redeemed by the employee 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. The
determinations were intended to accelerate the sale of stock salary only if AIG repays its
obligations to taxpayers. AIG’s obligations, however, include both TARP obligations and obligations
to other federal institutions. Thus, the Second Determination requires that stock salary granted to
Covered Employees 26 – 100 may only be redeemed by the employee in three equal, annual installments
beginning on the second anniversary of grant, with each installment redeemable one year early if
AIG repays its federal obligations. Accordingly, Exhibit I sets forth corrections to the Initial
Determination that bring the requirements of the Initial Determination with respect to salary stock
into conformity with the requirements of the Second Determination.



     The Second Determination included the determinations of the Special Master with respect to
amounts payable to Covered Employees 26 – 100 pursuant to certain expatriate arrangements. These
arrangements are designed to make the employees whole for the costs of living overseas, at AIG’s
request, in order to perform their duties. Those determinations were intended also to address
payments pursuant to “tax equalization agreements,” as defined in the Rule; however, the Second
Determination did not expressly address those arrangements. Accordingly, Exhibit I sets forth
corrections to the Second Determination that clarify the determinations of the Special Master.



     In addition, upon further review of AIG’s submissions, it has come to the attention of the
Office of the Special Master that one Top 25 Employee is also subject to expatriate arrangements.
These arrangements were not expressly addressed in the Initial Determination. Accordingly, Exhibit
I sets forth corrections to the Initial Determination
that address payments pursuant to expatriate arrangements for that Top 25 Employee.



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3. Additional Determinations




     Following the Initial Determination, AIG requested approval to alter the terms of the “stock
salary” that may be granted to Top 25 Employees. The Initial Determination requires that any such
“stock salary” be granted in the form of stock units reflecting the value of a “basket”
of four particularly critical AIG insurance subsidiaries: American International Assurance Co.
Ltd., American Life Insurance Co., Chartis, and AIG Domestic Life & Retirement Services Group. AIG
has requested that such “stock salary,” in appropriate cases, now be granted in the form of vested
common stock (or stock units reflecting the value of common stock) of AIG rather than the “basket.”



     The Special Master has reviewed this request in light of the principles set forth in the Rule.
In particular, the Special Master’s review has been guided by the principle that compensation
structures should be “performance-based over a relevant performance period.” Id. § 30.16(b)(1)(iv).
Providing Top 25 Employees with stock salary in the form of common stock will provide those
employees with incentives to maximize the value of AIG and, therefore, its ability to repay the
taxpayer. Accordingly, the Special Master has determined that, for purposes of the Initial
Determination, “stock salary” may include vested common stock (or stock units reflecting the value
of common stock) of AIG, and that compensation structures for Top 25 Employees pursuant to the
foregoing will not, by virtue of their structural design or the amounts potentially payable
thereunder, result in payments inconsistent with the Public Interest Standard.



     The conclusions reached herein are limited to the authority vested in me 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 the Department of the Treasury with respect to the compliance
of the proposed compensation structure or any other compensation structure for the subject employee
with any other provision of the Rule. Moreover, my evaluation and conclusions have relied upon, and
are qualified in their entirety by, the accuracy of the materials submitted by AIG to the Office of
the Special Master, including without limitation the Reconsideration Request, and the absence of
any material misstatement or omission in such materials.



	 	 	 	 	 
	 	Very truly yours, 

 	 
	 	/s/
Kenneth R. Feinberg 
 	 
	 	Kenneth R. Feinberg 	 
	 	Office of the Special Master

for TARP Executive Compensation 	 
	 




			
	cc:	 	Anastasia D. Kelly, Esquire

Marc R. Trevino, Esquire









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EXHIBIT I

AIG 2009 COMPENSATION DETERMINATIONS

TECHNICAL CORRECTIONS





	1.	 	In Part IV.B.1.b. (on page A9) of the Initial Determination, the second sentence of the
second paragraph is restated in its entirety as follows:






	 	 	“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 federal obligations.”






	2.	 	In Part IV.B.3. (on page A9) of the Second Determination, footnote 4 is restated in its
entirety as follows:






	 	 	“AIG has identified Covered Employees subject to expatriate arrangements providing for the
payment of certain “other” compensation in excess of this limitation. These arrangements are
designed to make the employees whole for the costs of living overseas, at AIG’s request, in
order to perform their duties. The Special Master has reviewed these arrangements and has
concluded that such payments, not to exceed $350,000 per employee (except in exceptional cases
for good cause shown), are consistent with the Public Interest Standard, and that such payments
may be disregarded for purposes of determining whether a Covered Employee’s compensation
structure meets the requirements of the Public Interest Standard as set forth in this Part
IV.B. In addition, the Special Master has concluded that payments to these employees pursuant
to “tax equalization agreements,” as defined in the Rule, are consistent with the Public
Interest Standard, and may be disregarded for purposes of determining whether a Covered
Employee’s compensation structure meets the requirements of the Public Interest Standard as set
forth in this Part IV.B.”






	3.	 	In Part IV.B.l.d. (on page A10) of the Initial Determination, a footnote is added at the
end of the last sentence of that Part, reading as follows:






	 	 	“AIG has, however, identified one employee subject to an expatriate arrangement providing for
the payment of certain “other” compensation in excess of this limitation, These arrangements are
designed to make the employees whole for the costs of living overseas, at AIG’s request, in
order to perform their duties. The Special Master has reviewed these arrangements and has
concluded that such payments, not to exceed $350,000, in addition to payments to these employees
pursuant to “tax equalization agreements,” as defined in the Rule, are consistent with the
Public Interest Standard.”