American International Group Inc. (AIG), the insurer that bristled at U.S. pay curbs, is nearing an end to Treasury Department compensation limits as Chief Executive Officer Robert Benmosche winds down a taxpayer bailout.
The U.S. stake fell to about 16 percent from 53 percent in the largest sale of the insurer’s stock, the Treasury said today. The department said it will raise $20.7 billion in the sale after underwriters bought additional shares, with AIG repurchasing $5 billion. Treasury can restrict pay for top managers until the U.S. sells its final AIG share, said Matt Anderson, a department spokesman.
Pay restrictions limit AIG’s ability to “attract talent and retain and motivate our highest performing employees,” New York-based AIG said in its annual report. Kenneth Feinberg, who oversaw pay at seven bailout recipients for Treasury, told the special inspector general for the Troubled Asset Relief Program that “80 percent of his headaches came from AIG” in 2009, according to a report from the watchdog in January.
“As AIG repays its TARP support and removes itself from the government dole, we should expect them to return to private- sector normalcy in all corporate policy choices, including executive compensation,” Andrew Karolyi, a professor of finance at Cornell University, wrote in an e-mail. “They want it to become competitive again, the Treasury absolutely craves it, and the investing public is ready for it.”
Jim Ankner, an AIG spokesman, declined to comment.
AIG has finished buying back shares for now and may pay a dividend, Benmosche said in an interview on CNBC. He said Treasury may sell additional AIG shares into the open market, rather than via offerings.
“We expect that once the Treasury is sold out, hopefully by mid-year next year, we’re then in a position to be able to pay a dividend,” Benmosche said on CNBC. “I believe, strategically, we should have a dividend on that stock.”
Benmosche, 68, received about $14 million in total compensation last year, including a $3 million salary and $10.9 million in stock awards, according to a regulatory filing. Jay Fishman, the CEO of Travelers Cos., the only insurer in the Dow Jones Industrial Average, received $16.5 million. John Strangfeld, CEO of Prudential Financial Inc., the no. 2 U.S. life insurer, got $23.7 million.
‘Sets the Tone’
“If you want me, you can have me, but you’ve got to pay. And you have to pay a lot, not because I need the money,” Benmosche told AIG employees in 2009. “But the money is about what I am worth, and what my job is worth to be your leader. And that sets the tone for all of you in this room.”
The U.S. compensation limits made “little business sense,” Harvey Golub said in a 2010 letter when he was AIG chairman.
“In some cases, we are prevented from providing market competitive compensation to retain some of our own most experienced and best executives,” Golub wrote in the letter to shareholders. “This hurts the business and makes it harder to repay the taxpayers.”
AIG has said the Federal Reserve will become its regulator after the Treasury’s stake falls below 50 percent. Benmosche said the insurer welcome U.S. oversight.
“We want our clients, for sure, to know that we’re regulated, and when we make promises, somebody is watching over our shoulder to make sure we don’t do what we did before and cause these problems.”
He said AIG will probably close or sell its bank to limit the effects of the Volcker rule, which would limit proprietary trading and investing in private equity or hedge funds. Last month, he said AIG was considering whether to shut the lender.
“The Volcker rule as a rule doesn’t really work for insurance companies as it works for banks,” he said today.
Wall Street firms’ soaring pay over the last three decades incentivized traders to disregard risk and limited regulators’ ability to lure talent to police banks, the Financial Crisis Inquiry Commission wrote in a 545-page book published last year. Feinberg said pay limits didn’t put AIG at a competitive disadvantage.
“I don’t think they were hurt at all,” Feinberg said in a phone interview today. “Witness the fact that they’re thriving and repaying the taxpayer.”
Benmosche is seeking an initial public offering of AIG’s aircraft-leasing unit and is working to sell AIG’s remaining stake in Hong Kong-based insurer AIA Group Ltd. (1299)
The U.S. has recovered its full $182.3 billion commitment to AIG under the bailout after Treasury’s latest sale with a profit. The profit includes results from the Federal Reserve portion of the rescue, such as a credit line and the purchase of mortgage-linked securities.
Treasury has exceeded its break-even cost of about $28.73 in each of five share sales, with the stock priced at $32.50 in the latest offering. There is a 60-day lockup until the next offering is permitted.
Fitch Ratings increased its issuer default rating on AIG one level to BBB+, citing “significant progress in deleveraging the organization.” AIG gained 15 cents to $33.45 today. The shares have advanced about 44 percent this year.
AIG, once the world’s largest insurer, was bailed out in 2008 amid a worldwide credit crunch. The rescue was among measures the U.S. government and central bank undertook to thwart the deepest financial crisis since the Great Depression. As much as $12.8 trillion was spent, lent or committed to bolster financial firms and automakers.
Along with AIG, Ally Financial Inc. and General Motors Co. are still part-owned by the U.S. and subject to pay curbs. Citigroup Inc. (C) and Bank of America Corp. (BAC) are among companies no longer subject to the restrictions after paying back bailout funds.
“It’s clear that the government won’t lose money on AIG, whereas that was viewed as a certainty just two years ago,” Gary Townsend, head of Hill-Townsend Capital LLC, wrote in an e- mail. “TARP was our government operating at its best. The subsequent involvement in the minutia of companies’ compensation practices was government regulation at its worst.”