The Director Compensation Project: American International Group, Inc.

This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation.  We are for the most part including companies from 2011’s Fortune 500 and using information found in their 2011 proxy statements.

Nasdaq and the NYSE have similar rules with respect to director independence.  NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors.  A director does not qualify as “independent” if he or she has a “material relationship with the company.”  NYSE Rule 303A.02(a).  In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years.  NYSE Rule 303A.06 imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3). 

Independent directors are compensated for their service on the board.  The amount of compensation can be seen from examining the director compensation table from the American International Group, Inc. (NYSE: AIG) 2011 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards	All Other Compensation ($)	Total ($)
W. Don Cornwell	101,538	49,990	0	0	151,528
John H. Fitzpatrick	101,538	49,990	0	0	151,528
Laurette T. Koellner	179,000	49,990	0	0	219,990
Donald H. Layton	160,000	49,990	0	0	209,990
Christopher S. Lynch	180,000	49,990	0	0	229,990
Arthur C. Martinez	170,577	49,990	0	0	220,567
George L. Miles, Jr.	170,577	49,990	250	0	220,567
Henry S. Miller	160,000	49,990	0	0	209,990
Robert S. Miller	650,000	49,990	0	0	699,990
Suzanne Nora Johnson	160,000	49,990	0	0	209,990
Morris W. Offit	170,000	49,990	250	0	219,990
Ronald A. Rittenmeyer	161,731	49,990	0	0	211,721
Douglas M. Steenland	360,000	49,990	0	0	409,990

Director Compensation. Non-management directors were compensated with an annual retainer of $150,000 plus $50,000 in deferred stock units (“DSUs”).  Each DSU entitled directors to one share of common stock upon departure from the board.  Directors also received dividend payments in the form of DSUs.  Directors were granted an extra $5,000 for sitting on a committee and an extra $15,000 for chairing a committee, except for the chair of the Audit Committee, who received an extra $25,000.  Robert Miller received an additional $500,000 as Chairman of the Board and ex officio member of all standing committees.  Robert Benmosche, AIG’s Chief Executive Officer, did not receive any compensation for his position on the board.  AIG held fifteen board meetings during 2011.  All directors attended at least 75% of the meetings of the board and of the committees for which they served.  All directors attended the 2011 annual shareholders’ meeting. 

Director Tenure. Mr. Miles is the longest tenured director, having held his position since 2005.  Messrs. Cornwell and Fitzpatrick are the newest members, having just been elected in 2011.  Many of the directors hold positions on other boards, including Ms. Koellner, who sits on the board of Sara Lee Corporation.  Mr. Martinez sits on the boards of PepsiCo; Liz Claiborne, Inc.; IAC/InterActiveCorp; International Flavors and Fragrances, Inc.; and HSN, Inc. 

Executive Compensation. AIG’s CEO, Mr. Benmosche, received $13,984,181 in total compensation for 2011.  Due to limitations placed on AIG for accepting federal TARP money in 2008, Mr. Benmosche received only $3,000,000 in cash and did not receive a bonus.  TARP standards require compensation plans that discourage excessive risk taking and promote long-term value instead of short-term results.  Nearly $11,000,000 of the CEO’s compensation was in restricted stock units (“RSU”) that will not vest for at least two years.  Furthermore, after the RSUs vest, they are only payable in 25% increments up to the level AIG has repaid its TARP obligations.  Jay Wintrob, the Executive Vice President of Domestic Life and Retirement Services, made $7,336,879, which included a cash payment of $495,000.  Messrs. Benmosche and Wintrob each received $22,318 and $10,985 worth of company car services, respectively.