Exhibit
10.2


 


	
  

  	
   

  
	
  DEPARTMENT  OF THE TREASURY

  
	
  WASHINGTON, D.C. 20220

  
	
   

  
	
   

  



 


April 16, 2010


 


Mr. Robert Benmosche


President and Chief Executive Officer


American International Group, Inc.


70 Pine Street


New York, NY 10270


 


Re:                             Proposed Compensation Structures for Certain Executive
Officers and Most Highly Compensated Employees (“Covered Employees 26 –100”)


 


Dear
Mr. Benmosche:


 


Pursuant to the Department of the Treasury’s Interim Final Rule on
TARP Standards for Compensation and Corporate Governance (the “Rule”), the
Office of the Special Master has completed its review of your 2010 compensation
submission on behalf of employees who are either executive officers of American
International Group, Inc. (“AIG”) or one of AIG’s 100 most highly
compensated employees, excluding those employees subject to Section 30.10
of the Rule (“Covered Employees 26 – 100”). The Special Master’s
compensation reviews for Covered Employees 26 – 100 differ from the reviews of
AIG’s “Top 25” employees, which addressed individual “amounts payable” to those
employees, 31 C.F.R. § 30.16(a)(3)(i). For Covered Employees 26 – 100, the Rule does
not require individual payment determinations; instead, the Special Master must
determine only whether the proposed compensation structures “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” (as applied to
Covered Employees 26 – 100 of AIG, the “Public Interest Standard”). Id. § 30.16(a)(3)(ii).


 


On December 11, 2009, the Special Master issued determinations
(the “2009 Determinations”) designed to ensure that 2009 compensation
structures for AIG’s 2009 Covered Employees 26 – 100 met the Public Interest
Standard. The 2009 Determinations were informed by a number of considerations,
including each of the principles articulated in the Rule. Id. § 30.16(b)(1). In particular, the
determinations emphasized allocating significant portions of compensation to
long-term structures tied to AIG’s overall value, using structures that are
performance-based and easily understood by shareholders, and protecting the
Company’s ability to remain a competitive enterprise and ultimately to repay
the its taxpayer assistance.


 


The Special Master has concluded that, for the reasons provided in the
2009 Determinations, the principles and requirements of those determinations
should generally continue to apply in 2010. Accordingly, the Special Master has
determined that the compensation structures described in Annex A,  which
reaffirm the compensation structures approved in 2009, are consistent with the
Public Interest Standard. AIG’s proposed compensation structures, with minor
modifications, are consistent with the Special Master’s prescriptions, which
require that:


 


·                  Compensation may be provided in three primary
components: cash salary, stock salary, and incentive compensation. The amounts
and conditions of the components for each Covered Employee will be determined
by AIG’s compensation committee.


 

















 


·                  Compensation must be performance-based.
Fixed compensation should consist only of cash salaries and stock salaries at
levels sufficient to attract and retain employees and provide them a reasonable
level of liquidity. Cash salaries should not exceed $500,000 per year, except
in exceptional cases for good cause shown, as certified by the Company’s
independent compensation committee.


 


·                  Compensation must emphasize
long-term results. At least 50% of any incentive payment to a Covered Employee
must be delivered in long-term stock. In most cases, half of total pay —
whatever the overall mix of components for that individual — must not be transferable
for at least three years.


 


·                  Stock compensation must
constitute a significant portion of each Covered Employee’s compensation
structure. For employees who earn more than $500,000 in total cash, that
portion must be 55% at the minimum.


 


·                  Incentives may be paid
if—and only if—the payments are appropriate in light of AIG’s overall
circumstances and a particular Covered Employee achieves objective performance
metrics. Incentive payments must be subject to “clawback” if the performance
assessment resulting in the compensation is later discovered to be inaccurate.


 


·                  Incentive payments must be
payable over time and delivered in a mix of cash and stock, and the total value
of all incentive compensation payments cannot exceed a specified percentage of
the company’s eligible earnings, to be determined by the compensation
committee.


 


·                  The restrictions described
in the Special Master’s previous determinations pertaining to perquisites,
severance benefits, hedging transactions, tax “gross-ups” and supplemental
executive retirement plans shall continue to apply to Covered Employees 26 – 100.


 


The Special Master’s determinations are limited to the compensation
structures described in Annex A,  and shall not be relied upon with respect
to any other employee. The determinations have relied upon, and are qualified
in their entirety by, the accuracy of the materials submitted by AIG to the
Office of the Special Master, and the absence of any material misstatement or
omission in such materials. 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 the Company does not request
reconsideration within 30 days, these initial determinations will be treated as
final determinations. Id. §
30.16(c)(1).


 


 


	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  /s/ Kenneth R. Feinberg

  
	
   

  	
  Kenneth
  R. Feinberg

  
	
   

  	
  Office
  of the Special Master

  for TARP Executive Compensation

  
	
  Attachments

  	
   

  
	
  cc:

  	
  Jeffrey
  Hurd, Esq.

  	
   

  
	
   

  	
  Marc
  R. Trevino, Esq.

  	
   

  



 


2

















 


ANNEX A


APPROVED 2010
COMPENSATION STRUCTURES


 


This Annex sets forth terms and conditions for the 2010 compensation
structures for AIG’s 2010 Covered Employees 26 –
100. (For the avoidance of doubt, if the compensation structure for
a Covered Employee fits within the $500,000 “safe harbor” exemption set forth
in Section 30.16(a)(3)(ii) of the Rule, the Special Master’s approval
is not required for that employee’s compensation structure.) Capitalized terms
used in this Annex have the meaning given to them in the preceding letter. To
the extent that AIG’s proposed structures do not meet the principles and
requirements of this Annex, AIG must make such modifications as are necessary
to comply with such principles and requirements.


 


1.              Primary Components of Compensation


 


·                Cash salary. Covered Employees should not
receive cash salaries payments in excess of $500,000, other than in exceptional
circumstances for good cause shown. Any such exceptions must be individually
certified to the Office of the Special Master by AIG’s compensation committee,
which is comprised solely of independent directors.


 


·                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 or units based on the fair
market value on the date of grant. Whether a grant or payment that is labeled
stock salary is salary or a bonus for purposes of the Rule is determined
based on all the facts and circumstances.


 


·                Incentive compensation. Under any
incentive compensation structure, payments to a Covered Employee must be
conditioned upon achievement of objective performance criteria (other than
continued service), with such achievement to be assessed and certified by the
compensation committee. Performance criteria must be developed by the
compensation committee and may be reviewed by the Office of the Special Master.
The aggregate amount of incentives paid to Covered Employees for performance
achieved only in 2010 may not exceed a specified percentage of AIG’s eligible
earnings. The amount and calculation of such eligible earnings will be
determined by the compensation committee and may be reviewed by the Office of
the Special Master.


 


2.              Allocation Rules


 


·                Application of allocation rules.
The allocation rules apply to each Covered Employee’s 2010 “primary
compensation structure,” which is equal to the sum of the amounts potentially
payable to a Covered Employee (1) in 2010 cash salary, (2) in 2010
stock salary, or (3) under 2010 incentive plans. For purposes of these
determinations, 2010 incentive plans are plans for which incentives are earned (a) solely
with respect to 2010, and (b) under a multi-year incentive plan
established in 2010. Compliance with the allocation rules is to be
assessed based on a Covered Employee’s primary compensation structure as
designed and established in 2010, assuming both target level of achievement
under each incentive plan and maximum level of achievement under each incentive
plan.


 


·                Equity allocation.  For a Covered
Employee whose 2010 primary compensation structure includes more than $500,000
of cash compensation, at least 55% of his or her 2010 primary compensation
structure must be allocated to stock compensation. AIG may allocate less than
55% of a Covered Employee’s 2010 primary compensation structure to stock
compensation if the cash allocation of the employee’s primary compensation
structure does not exceed $500,000, provided that for such employee the
allocation in the employee’s 2010 primary compensation


 


A1

















 


structure to stock compensation must constitute a
significant portion of the primary compensation structure.


 


·                Long-term allocation.  At least 50% of
each Covered Employee’s 2010 primary compensation structure must be allocated
to primary components of compensation that will not be paid or become
transferable prior to the third anniversary of grant. For a Covered Employee
whose 2010 primary compensation structure does not include more than $500,000
of cash compensation, the long-term allocation rule excludes cash salary.


 


3.              Additional Terms and Conditions


 


·                Payment of incentives.  No payment or
stock compensation grant under a 2010 incentive plan may be made prior to the
conclusion of the applicable performance period. Payment under each 2010
incentive plan must consist of at least 50% stock compensation; however, no
cash may be paid under an incentive plan to a Covered Employee unless either (1) 50%
of the target incentive amount under such plan has been first paid in the form
of stock compensation, or (2) at the time of such payment, the percentage
of compensation actually received in stock under such Covered Employee’s 2010
primary compensation structure equals or exceeds the percentage of stock
compensation required in such Covered Employee’s compensation structure.* The
stock compensation paid under a 2010 incentive plan may not be transferred or
otherwise redeemed prior to the third anniversary of grant, provided that any
performance period exceeding one year in an incentive plan may be counted
toward this three-year holding period. For a Covered Employee whose 2010
primary compensation structure includes more than $500,000 of cash
compensation, at least 50% of the amount payable in cash under each incentive
plan must be deferred at least one year after the date of the initial cash
payment under that plan.


 


·                Stock compensation generally.
For purposes of these determinations, “stock” compensation means the
securities referenced by the “basket” described in Part IV of the March 23,
2010, determinations for AIG’s “Top 25” executives, or, for purposes of “long-term
restricted stock” (as defined in the Rule) only, AIG common stock or common
stock units. No stock compensation paid to a Covered Employee may be redeemed
or become transferable prior to the first anniversary of the date on which such
stock compensation vests. Notwithstanding the requirements of the foregoing
sentence and the transferability restrictions otherwise applicable to any stock
compensation, (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.


 






*                 For example: E,
a Covered Employee, participates in an incentive program that meets the
structural requirements of this Annex, and has a target incentive payment of
$100. If E achieves the applicable performance criteria, E would be eligible
for a payment of $100, consisting of stock compensation of at least $50, and up
to $50 in cash. On the other hand, if E fails to fully meet the performance
criteria and as a result is eligible to receive $75 in incentive payments, the
amount of E’s incentive payable in cash will depend on whether E previously
received 2010 stock compensation, such as stock salary. If E had not received
other stock compensation, only $25 of the payment could be in cash because no
cash could be paid prior to the payment of 50% of the target payment — $50 in
this case — in stock compensation. If, however, E had received other stock
compensation, the amount of cash payable under the incentive plan could exceed
$25, but only to the extent the cash proportion of compensation actually paid
to E with respect to 2010 would not exceed the portion required to be allocated
to cash in E’s primary compensation structure.


 


A2

















 


·                Clawbacks and hedging.  Any incentive
payment must be subject to “clawback” if the payment or the amount thereof was
based on materially inaccurate financial statements (which term includes, but
is not limited to, statements of earnings, revenues, or gains) or any other
materially inaccurate performance metric criteria, or if the Covered Employee
is terminated due to misconduct that occurred during the period the incentive
was earned. In addition, the compensation structure for each Covered Employee
must prohibit the employee from engaging in any derivative or similar
transaction with respect to AIG that would undermine the long-term performance
incentives created by the compensation structures set forth in this Annex.


 


·                Employees entering the “Top 25”.
If AIG reasonably concludes that a Covered Employee may become one of
the “Top 25” employees in 2011, the compensation structure for that Covered
Employee will be subject to the following additional terms and conditions to
assure compliance with pertinent statutory and regulatory requirements. Any
payment under a 2010 incentive plan that would be payable to the Covered
Employee in cash in the first quarter of 2011 consistent with the terms of this
Annex may be paid on or before December 31, 2010. In addition,
notwithstanding the other requirements of this Annex, any incentive
compensation for performance in 2010 may be paid to the Covered Employee in the
form of AIG common stock (but not stock units) that vests on or before December 31,
2010, provided that the transferability of such stock shall be consistent with
the structural principles of this Annex. Finally, notwithstanding the other
requirements of this Annex, up to one-third of the Covered Employee’s “annual
compensation” for 2010 may be paid in the form of “long-term restricted stock,”
as those terms are defined in the Rule.


 


·                Severance.  No 2010
compensation structure may establish the right to a “golden parachute” payment
(as defined in the Rule) or permit an increase in the amount of such a payment
under an already-existing arrangement.


 


4.              Other components of compensation


 


·                Tax gross-ups.  AIG is
prohibited from providing (formally or informally) tax gross-ups to any of the
Covered Employees, in the same manner as the gross-up prohibition applies to “Top
25” employees under the Rule.


 


·                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. Payments to Covered
Employees under expatriate arrangements, not to exceed $350,000 per employee
(excluding “tax equalization agreements” as defined in the Rule), are excluded
from the limitation in the foregoing sentence.


 


·                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 any Covered Employee 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
contributed to or payable under such plans are not counted against the $25,000
limit on other compensation and perquisites.


 


A3