Government compensation czar Kenneth Feinberg may not be able to rein in salaries as much as he wants, thanks to threats by five high-ranking executives at AIG to quit if they are told they have to take a significant pay cut. On Dec. 1, the five executives, including general counsel Anastasia Kelly and heads of some of AIG's (AIG) largest divisions, handed in their provisional resignations.
In addition to Kelly, who some say was the ringleader, the other executives threatening to resign included Rodney Martin, who heads one of AIG's international life-insurance businesses which is expected to be sold off; William Dooley, who heads the financial services division; Nicholas Walsh, vice chairman and head of AIG's international property-insurance and casualty-insurance businesses; and John Doyle, who heads the U.S property-casualty business. According to a report Monday in the The Wall Street Journal, Walsh and Doyle have already changed their minds and rescinded their resignations.
In October, Feinberg reduced 2009 compensation for AIG's top 13 employees by 57%, including limiting most base salaries to $500,000. Those 13 were the ones who remained of AIG's 25 highest-paid employees. In frustration over the planned pay cuts, AIG CEO Robert Benmosche at first threatened to resign, but then decided to stay. Feinberg is now working on pay structures for the next 75 highest-paid executives, some of whom will be bumped up to the the more restrictive compensation package of the top 25. The five who threatened to quit are in the group that could be bumped up.
The Journal reports that Feinberg is considering less restrictive compensation for this group of 75, as well as for the top 100 earners in 2010. In some cases, he may allow AIG to pay more than $500,000 if the company can show "good cause" for going higher. In fact, according to press reports, the Treasury Department and Federal Reserve have urged Feinberg to ease up on the cuts. I guess the government is getting cold feet about bringing Wall Street salaries into line.
Salaries aren't the only issue at stake for these five executives. They also want to preserve their ability to collect severance payments. According to the severance plan, which was put in place before the government bailed out AIG, some executives are entitled to severance benefits if they resign for "good reason" -- and one of those defined good reasons is being forced to take a significant cut in annual base salary or target bonus. Only about two dozen individuals have this protection, and the five who threatened to quit want to do so before they lose it. Those severance packages must be huge to encourage anyone to quit in this job market.
Feinberg is expected to issue his salary determinations in the next two weeks. By the time he does, I wonder how many of these five will have changed their minds and backpedaled on their threats to quit.
Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies and Trading for Dummies.
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