AIG investors hope new CEO's plans and big salaries pay off

New York

AMERICAN International Group Inc'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 Maurice "Hank" Greenberg, the man who built the company into a behemoth and left under a cloud in 2005.

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

Shareholders are banking that these costly personnel moves will pay off, after watching AIG stock underperform rivals and the broader market for nearly a decade.

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

Mr Sykes and others said that 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 2017, Mr Duperreault received US$12 million in cash for shares he forfeited from Hamilton Insurance Group Ltd, an insurance company he co-founded and led in his native Bermuda. On top of that, he 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.

Excluding the sign-on award, Mr Duperreault's annual package is similar in size and structure to what CEOs of major rivals Prudential Financial Inc and MetLife Inc received for 2016.

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

Corporate governance observers said they were most concerned about the structure of Mr Duperreault's longer-term stock option awards. To cash in the maximum number of his stock options, he must raise AIG's stock price by US$30, or about 50 per cent of its current value, within the next seven years and it must stay at that level for 20 consecutive trading days. The earliest he could exercise all his options, if the share price hits certain levels, would be three years.

That could encourage aggressive risk-taking for short-term profits that ultimately harm the company, some observers said.

Mr Duperreault is the first AIG CEO in a decade to focus on growth and investment rather than divestitures and cost-cutting in the wake of the 2007-2009 financial crisis. Investors are hoping this is the right approach, given AIG's sluggish share price growth since the crisis.

AIG's stock closed at US$60.78 on Friday, down 7 per cent this year, compared to a 9 per cent rise in the S&P 500 index. The stock must hit US$90.99 for Mr Duperreault to exercise the maximum number of his stock options over the next seven years, a challenge Wall Street is ready to see him take on. REUTERS