AIG cuts CEO incentive award 29% after missing profit goals

[NEW YORK] American International Group Inc, the insurer being pressured by activist investors to split up, cut short-term incentive pay for Chief Executive Officer Peter Hancock by 29 per cent last year as he missed profit targets.

The CEO received US$2.5 million from the non-equity incentive plan as he failed to meet goals tied to return-on-equity and expense reductions, AIG said Tuesday in a regulatory filing. That compares with US$3.5 million in 2014.

"Mr Hancock and our other executives received an earned award equal to 78 per cent of their target amount," AIG said in the filing. "Payment of 50 per cent of this amount is deferred until 2017."

Mr Hancock has been reshaping management since taking over in September 2014, including a shakeup late last year amid pressure from billionaire investors Carl Icahn and John Paulson to shrink the insurer. Some of the firm's highest-paid executives have announced their departures, including longtime Chief Financial Officer David Herzog and John Doyle, who led commercial insurance operations.

AIG agreed in February to name Mr Paulson and a representative from Mr Icahn's firm to the insurer's board. Mr Icahn won another victory with the announcement in Tuesday's filing that credit- default swaps, a metric of creditworthiness, will no longer count toward setting Hancock's compensation. The activist had said that the link between swaps and pay reduced the CEO's incentive to consider breaking up the company.

Long-term incentive awards starting this year will probably be based 100 per cent on total shareholder return relative to peers, AIG said Tuesday. Still, "to protect against excessive risk-taking," there is a provision to account for creditworthiness in setting compensation if bond yields perform poorly compared with industry rivals, AIG said. Mr Hancock's total package rose 3.6 per cent to US$12.5 million as his stock awards climbed in his first full year as CEO.

Mr Herzog leaves with an exit package worth more than US$18 million, according to company filings. That is based on Tuesday's share price, assumes that AIG meets performance targets set by the board and includes equity awards that will be fully paid out by 2020. Mr Herzog has been appointed as a director at insurer Ambac Financial Group Inc.

Mr Doyle has a similar package. Insurance broker Marsh Inc has said Mr Doyle will join as president, starting next month.

Philip Fasano, who was hired by Mr Hancock, received an US$8.4 million package as his annual pay at AIG was disclosed for the first time in the newly created position of chief information officer. Of that sum, US$4.4 million was to compensate Mr Fasano for pay he gave up at his former employer, and a transition award, AIG said.

The insurer also said it paid US$20 million in cash and restricted stock to Doug Dachille when AIG acquired his First Principles Capital Management last year. Mr Dachille, a former colleague of Hancock at JP Morgan & Co, became chief investment officer when AIG acquired the firm. He had a stake of 43 per cent in First Principles, according to the document.

BLOOMBERG