AIG freezes ex-CEO payments
In agreement with New York's attorney general, troubled insurer agrees to halt $19 million payment to former CEO Martin Sullivan
NEW YORK (CNNMoney.com) -- Troubled insurer American International Group - recipient of a more than $100 billion U.S. government bailout - agreed Wednesday to freeze $19 million in payments to former chief executive Martin Sullivan.
Under the agreement with New York State Attorney General Andrew Cuomo, AIG also said it would block distributions from a $600 million deferred compensation and bonus pool intended for the company's financial products subsidiary. Joseph Cassano, the division's former head, has an approximately $69 million stake in the pool.
The London-based division sold complex instruments that plummeted in value, leading to the insurer's downfall.
The losses prompted the federal government to give the mammoth global company a $85 billion loan last month to prevent its immediate collapse. The New York Federal Reserve then extended an additional $37.8 billion in financing in early October to provide it cash for daily operations.
"It is my position that until the taxpayers are repaid, with interest, the more than $120 billion that has been used in the rescue financing of AIG, no funds should be paid out of these pools to any executives," Cuomo wrote in a letter to Edward Liddy, AIG's current chief executive.
Robert Willumstad, who took over AIG from Sullivan after he was ousted in June, voluntarily gave up $22 million in severance. Liddy replaced Willumstad when the government stepped in last month.
The state attorney general took issue with executive incentive payments, which he said gave management the incentive to maximize short-term gains at the expense of long-term growth.
"I find it hard to conceive of a situation where you could justify a performance bonus for management that virtually bankrupted the company," Cuomo said in a conference call with reporters.
The agreement comes a week after AIG promised to withhold a $10 million severance payment to its former chief financial officer. Cuomo, who is reviewing the company's executive compensation agreements, is demanding the company halt all "unreasonable expenditures."
Also, as part of last week's agreement with Cuomo's office, AIG promised to halt more than 160 conferences and sales junkets, worth a total of $8 million.
Executive compensation has returned to the spotlight as the government becomes increasingly involved in the private sector. Under the terms of the $700 billion bailout of the financial system signed into law this month, banks cannot compensate executives for taking excessive risk or give generous "golden parachute" packages to departing executives.
They must also have a clawback provision that allows them to recoup money paid to chief executives who commit fraud.
Cuomo's actions with AIG go one step further, but he stressed that the government will have to decide the terms of executive compensation packages as it starts taking stakes in banks nationwide.