Corporate Governance

The Director Compensation Project: American International Group, Inc.

By Michael Silverman

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010's Fortune 500 and using information found in their 2010 proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting. 

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards.  Directors are not independent if they received over $120,000 in direct compensation, other than director's fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii).  This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes all compensation.  Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from American International Group, Inc. (NYSE:AIG) 2010 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Director Compensation. There were 27 meetings of the Board of Directors in 2009.  All of the directors attended at least 75 percent of the aggregate of all meetings of the board and committees on which they served. In 2009, each director received a retainer of $75,000 a year; the chairman of each committee received an additional retainer of $15,000, except the chair of the audit committee who received $25,000. For each committee member, the annual committee retainer was $5,000. Until April, 2009, each non-management director received meeting attendance fees of $1,500 per meeting. After reviewing the director compensation plan, AIG has approved a plan effective April 1, 2010 which increases the annual retainer to $150,000 and the addition of annual deferred stock units worth $50,000. Mr. Golub received an additional retainer of $500,000 prorated for the part of the year that he served as Chairman.

Director Tenure. The directors with longest tenure are Mr. Miles and Mr. Offit, having served on the board since 2005. There are several directors sitting on multiple boards. Mr. Martinez is currently a director of HSN, Inc., IAC/InterActiveCorp, International Flavors and Fragrances Inc., Liz Clairborne Inc., PepsiCo, Inc.. He is the former Chairman, President, and CEO of Sears, Roebuck, and Co., serving from 1995 to 2000. Mr. Miles is currently a director of HFF, Inc., Harley-Davidson, Inc., WESCO International, Inc., and EQT Corporation. Ms. Johnson is currently a director of Intuit Inc., Pfizer Inc., and Visa Inc.; she was formerly Vice Chairman of The Goldman Sachs Group. Mr. Steenland is currently a director of Delta Airlines, Inc., Digital River, Inc., and International Lease Finance Corporation (an AIG subsidiary). He was formerly CEO of Northwest Airlines Corporation.

CEO Compensation. Robert H. Benmosche, President and CEO of AIG, was paid a cash salary of $3 million, a stock salary worth $4 million, and incentives worth $3.5 million in 2009 for a total of $10.5 million. The next highest paid executive was Rodney O. Martin, Jr., chairman of International Life and Retirement services, who received a $900,000 cash salary, stock compensation worth $3.06 million, and incentives worth $3.3 million for a total of $7.26 million. AIG's compensation program is strictly controlled by law. These parameters are prescribed by statute as interpreted by the Special Master for TARP executive compensation. The compensation and pay structure must be approved by the Special Master. 

Full post as published by The Race to the Bottom on July 10, 2010 (boomark / email).