American International Group, the insurance giant that drew fire for executive “golden parachutes” and an ill-timed junket even as it receives a massive taxpayer bailout, has agreed to mend its ways.
AIG promised to recover executive payments and other compensation, cancel perks and institute reforms one day after New York Attorney General Andrew Cuomo threatened legal action over its controversial spending.
Asked whether his office was investigating other firms’ executive compensation, Cuomo said “Yes” but added, “I can’t say at this time” which companies. He spoke on a telephone conference call with reporters.
AIG will provide a full accounting of executive compensation and help recover payments that Cuomo contends violated state law, according to a joint statement from the attorney general’s office and AIG, issued after Cuomo met with AIG’s new chief executive, Edward Liddy, Thursday.
Those payments include “all forms of compensation paid to former CEO Martin Sullivan and the former head of the (AIG) Financial Products Unit, Joseph Cassano,” the statement said.
Cuomo had objected to “extravagant” payments to executives who ran the company into near-collapse, including a $5 million cash bonus and $15 million “golden parachute” to Sullivan earlier this year, as well as a $34 million bonus for Cassano, whose unit generated the bulk of AIG’s losses.
Moreover, AIG will not make payments to departing Chief Financial Officer Steven Bensinger pending the outcome of the state’s ongoing probe. Cuomo said Bensinger’s severance would have been in the $10 million range. AIG on Thursday said it named David Herzog as its new CFO.
AIG agreed to immediately cancel all junkets or perks not justified by “legitimate business needs.” As a result, AIG will cancel more than 160 conferences and events for total savings of more than $8 million.
AIG drew fire last month when news emerged it had picked up the tab for a $440,000 weeklong retreat at a luxurious California resort for top-performing insurance agents.
AIG, once one of the world’s most powerful financial services companies, nearly went broke last month because its business underwriting credit default swaps began hemorrhaging money.
U.S. officials rescued AIG by providing $85 billion in emergency loans — later increased to $123 billion.
The loans were intended to give AIG time to sell assets and repair its finances.
Cuomo told reporters that he did not promise AIG his office would not go to court but no formal court action had been taken. He emphasised that Thursday’s actions by the New York firm were cooperative.
“The contracts will be illegal if we find that it is unjust compensation paid to an employee, severance package, bonus, stock options of an undercapitalzed company,” Cuomo said.
“You had senior management who were rewarded with multimillion-dollar bonuses for good performance. How can you pay so much for good performance when their performance was anything but?”
(Additional reporting by Grant McCool; Editing by Gary Hill)
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