AIG CEO Sees 29% Cut in 2015 Short-term Incentive Pay
April 5, 2016 by David Pilla
NEW YORK – American International Group Inc. said its chief executive officer saw his short-term incentive pay shrink by 29% based on the insurer’s performance in 2015.
AIG said in a proxy statement for its May 11 annual meeting, filed with the U.S. Securities and Exchange Commission that early in 2016, President and CEO Peter Hancock and the group’s other top executives received “an earned award” equal to 78% of their target amount for short-terms incentives, which for Hancock was $2.5 million as opposed to $3.5 million he received a year earlier in that portion of his total package, a 29% decrease.
Excluding that cut in short-term incentives, Hancock’s target compensation for 2015 was $13 million.
AIG spokesperson Jon Diat declined to comment further.
In the proxy statement, AIG said its executive compensation plan is “designed to provide an appropriate balance of fixed and variable pay, drive achievement of AIG’s short- and long-term business strategies and align each executive’s economic interests with the long-term interests of AIG and our shareholders.”
AIG said 12% of Hancock’s 2015 compensation plan consists of base pay, totaling $1.2 million. The rest of his 2015 compensation is a “balanced structure with an emphasis on performance incentives and deferred payouts.”
Short-term cash incentives make up 25% of his target compensation for 2015, or $3.5 million. Long-term equity incentives make up 63%, or $8.2 million. The biggest difference in Hancock’s actual pay versus target is in the short-term incentives, where he actually earned $2.5 million compared with a $3.2 million target for 2015.
The insurer said for Hancock and all members of the executive team, the largest component of pay is based on company-wide performance over a three-year period and paid over a five-year period. The statement said at least 75% of each executive’s total target compensation is “at risk” and based on performance, with both short- and long-term incentives subject to deferral.
AIG said to determine short-term incentive awards for the executive leadership team, company performance score is multiplied by two “to appropriately reflect objective company performance (whether positive or negative) and results in a payout range of 0 to 150%.”
In February, AIG agreed to expand its board of directors to include two activist investors, along with a planned resolution of prior-year losses and other property/casualty issues as the group sought to streamline its operations (Best’s News Service, Feb. 12, 2016). “Our fourth-quarter results were impacted by our actions to strengthen reserves and lower returns on alternative investments,” said Hancock in a conference call at the time. He noted AIG recently completed reviews of its exposures to long-tail property/casualty lines and “responded quickly to new information.”
Underwriting units of American International Group Inc. currently have Best’s Financial Strength Ratings of A (Excellent).
Shares of American International Group Inc. (NYSE: AIG) were trading at $54.28 on the afternoon of March 30, up 1.67% from the previous close.
(By David Pilla, news editor, BestWeek: David.Pilla@ambest.com)
