AIG back to pre-bailout paydays for top execs

CEO Brian Duperreault vows to revive AIG's glory days of top talent, underwriting discipline and fat profit margins.
CEO Brian Duperreault vows to revive AIG's glory days of top talent, underwriting discipline and fat profit margins.

NEW YORK • American International Group's (AIG's) new chief executive Brian Duperreault has pledged to revive the insurer's glory days of top talent, underwriting discipline and fat profit margins. One thing he has already brought back: big pay packages.

As he rejoined AIG in May, the 70-year-old insurance industry veteran received bigger awards than any of his predecessors since Mr Maurice Greenberg, the man who built the company into a behemoth and left under a cloud in 2005.

Mr Duperreault hired as his deputy Mr Peter Zaffino, a former colleague at broker Marsh & McLennan, with a lucrative sign-on bonus, as well as a senior executive to head technology initiatives.

"He (Duperreault) comes with a visible long-term track record in terms of inspiring the operations and leading the personnel," said Mr Mac Sykes, analyst at investment firm Gabelli & Co, which owned about US$58 million (S$78.6 million) worth of AIG shares as of June 30. "It's what AIG needs at this point."

Mr Sykes and others said they have no issue with Mr Duperreault's handsome pay package, as long as he performs.

In addition to a US$16 million annual package for this year, Mr Duperreault received US$12 million in cash for shares he forfeited from Hamilton Insurance Group, an insurance company he co-founded and led in his native Bermuda.

He also got options to buy up to 1.5 million AIG shares, dependent on the share price hitting certain targets over the next seven years.

AIG also agreed to pay Hamilton US$40 million to get Mr Duperreault out of a non-compete agreement and bought the company's US unit for US$110 million.

But there can be risks to big pay packages if they do not properly incentivise executives, pay consultants said.

AIG learnt that the hard way when it nearly collapsed in 2008 from massive exposure to derivatives based on plunging property prices, and needed a US$182 billion bailout by the Federal Reserve and United States Treasury.

After that, AIG withheld awards from some executives for inappropriate risk-taking, and paid its new CEO a nominal US$1 salary in 2008.

The company kept a lid on CEO pay throughout the period it was supported by the US government, which ended in 2013.

Recruiters, consultants and industry sources said AIG had little choice but to spend a small fortune to get Mr Duperreault to leave a firm where he was comfortable and well paid, to take a difficult job that few wanted.

"How many people can step into that job?" asked Mr David Larcker, director of the Corporate Governance Research Initiative at Stanford Graduate School of Business. "It's a pretty small set."

REUTERS

A version of this article appeared in the print edition of The Straits Times on August 29, 2017, with the headline 'AIG back to pre-bailout paydays for top execs'. Print Edition | Subscribe