AIG returns to glory days (well, senior pay packages do, anyway)

A decade after the financial crisis, AIG is once again handing out huge compensation packages to its top execs

AIG returns to glory days (well, senior pay packages do, anyway)

Professional Risks

By Ryan Smith

During the 2008 financial crisis, American International Group became something of a symbol of corporate excess; months after being bailed out by the government to the tune of $180 billion, the company announced it would pay $165 million in executive bonuses. A decade later, it looks like those big bonuses are back.

When AIG’s new CEO, Brian Duperreault, took the reins at the company in May, he received larger awards than any of the company’s CEOs since Maurice “Hank” Greenberg, who was forced to leave in the wake of a 2005 accounting scandal.

Duperreault received a $16 million annual pay package for 2017, along with $12 million in cash for shares he forfeited for Hamilton Insurance Group, a company he co-founded. He also got options to buy 1.5 million AIG shares if share prices hit specific targets in a given time frame, according to a Reuters report.

AIG also paid Hamilton $40 million to void a non-compete agreement Duperreault had with the company, and bought Hamilton’s US unit for $110 million.

Duperreault also made his own hires – including former Marsh & McLennan colleague Peter Zaffino – with their own hefty pay packages, Reuters reported.

There’s method to the weighty paychecks, though. AIG stock has underperformed the market and competitors for nearly a decade, according to Reuters. Shareholders hope that big money will lure top talent and push the company forward – starting with Duperreault.

“He comes with a visible long-term track record in terms of inspiring the operations and leading the personnel,” Gabelli & Co analyst Mac Sykes told Reuters. Gabelli & Co is an investment firm that owns about $58 million in AIG stock.

Sykes said that as long as AIG performs, his company doesn’t have an issue with the size of Duperreault’s pay package. But some pay consultants warn that big executive paydays can backfire – especially when tied to performance targets.

In Duperreault’s case, his stock-option awards could be an issue, Reuters reported. In order to cash in the maximum number of stock options, he would have to raise AIG’s stock price by $30 – about half its current value – within the next seven years, and keep it there for at least 20 consecutive trading days. That could encourage aggressive risk-taking that could harm the company in the long term, Reuters reported.

But Duperreault has a good track record, and some analysts said it was better to pay a CEO to work than pay one to leave.

“I’d rather see a package like this on the entry than a golden parachute on the exit,” Scharf Investments analyst Jeff Wilson told Reuters.

Related stories:
AIG seeks to unload $2 billion in death benefits
AIG may face losses over London Tower fire

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