Feinberg Said to Lift $500,000 Cap for AIG Executives

Kenneth Feinberg, the U.S. paymaster for rescued companies, will exempt some executives at American International Group Inc. (AIG) from a $500,000 salary cap after at least five employees threatened to quit because of the limits, people familiar with the matter said.

Feinberg may issue a ruling as early as next week on pay limits for 75 of the bailed-out insurer's executives, the people said. Last week, five executives said they were prepared to resign if their compensation was significantly cut, according to the people, who declined to be named because the talks are ongoing. Two have since retracted the threat, the people said.

"It's the equivalent of saying, 'We're going home and we're taking our toys with us," Frank Glassner, CEO of Veritas Executive Compensation Consultants LLC, said yesterday in an interview. By paying more in salary, AIG is "increasing what may be considered guaranteed pay."

Feinberg, the Obama administration's special master for executive compensation, said in October that base salaries at AIG wouldn't exceed $500,000 a year except in cases where there was "good cause" to pay more. Treasury Department and Federal Reserve officials have urged him to strike a balance between curbing excessive pay and retaining key employees. AIG was rescued with a bailout valued at $182.3 billion.

In October, Feinberg announced he reduced 2009 cash salaries for New York-based AIG's 13 top-earning executives by 91 percent, and used more stock for their total compensation. He controls pay for the 25 highest-paid employees at AIG and advises on the compensation structure for the next 75 workers. About half of the first group of 25 departed since the insurer's September 2008 bailout.

Law Firm HiredAnastasia Kelly, general counsel for AIG, hired Washington- based law firm Dickstein Shapiro LLP to represent executives concerned about their salary and ability to collect severance payments, according to one of the people. Severance for executives may equal as much as two years of salary and bonuses, AIG said in a June filing. Michelle Rodgers, a spokeswoman for the law firm, didn't return calls for comment.

A person close to Feinberg said the exceptions allowing for salaries greater than $500,000 were unrelated to the five executives' threats to leave.

The executives are Kelly; Rodney Martin, who heads a non- U.S. life unit; William Dooley, a senior vice president in charge of the financial-products division; Nicholas Walsh, head of the non-U.S. property casualty operations, and John Doyle, who is in charge of the U.S. property casualty unit, the people said. The Wall Street Journal reported the executives' threat yesterday, and said that Walsh and Doyle rescinded the notices.

Advising ExecutivesKelly "only advised the other executives of what they needed to do to protect their rights after another executive raised the matter," said Mark Herr, an AIG spokesman.

The compensation ruling could mean that some AIG executives among the 75 may earn bigger salaries than those in a group that Feinberg ruled on six weeks ago, who were previously the highest-paid employees. The $500,000 limit has so far applied to everyone at AIG except Chief Executive Officer Robert Benmosche, who has a $7 million salary. AIG is selling units to repay its bailout loans.

Feinberg has shown flexibility in dealing with AIG executives who are considered important to the company's success. In October, he approved the payment of a combined $2.6 million in retention bonuses to Chief Financial Officer David Herzog and Kristian Moor, a property-casualty chief.

Feinberg said he determined the bonuses to Herzog and Moor wouldn't be cut because they were "deemed to be particularly critical to AIG's long-term financial success." He said he weighed the awards in determining cuts to their salaries.

More than 50 managers including Vice Chairman Matthew Winter and property-casualty executive Kevin Kelley left AIG to join rivals since the bailout. Benmosche threatened to resign last month, saying limits on compensation hurt the insurer's ability to retain staff. He reassured employees in a Nov. 11 memo that he was committed to leading AIG.

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