NEW YORK: the new Chief Executive Brian Duperreault has pledged to revive the glory days of gift, underwriting discipline and profit margins of the insurer of American International Group Inc.
One thing he has brought back pay packages.
As he rejoined AIG in May, the 70-year-old insurance industry veteran obtained larger awards than any of his predecessors since Maurice “Hank” Greenberg, the guy who built the business into a behemoth and left under a cloud in 2005.
Duperreault hired a senior executive, in addition to Peter Zaffino, a former colleague in broker Marsh & McLennan Cos Inc, using a bonus that was lucrative.
Shareholders are banking after watching AIG stock underperform the wider market for almost a decade and rivals that these personnel moves will repay.
“He (Duperreault) includes an observable long-term history in terms of inspiring the operations and leading the personnel,” explained Mac Sykes, an analyst at investment company Gabelli & Co, which possessed roughly US$58 million worth of AIG shares at June 30. “It is what AIG wants at this point.”
Others and Sykes stated they have no issue with Duperreault cover bundleas he plays.
“We didn’t respond in a negative manner, especially since they are likely to generate a lot more money if they implement,” stated a portfolio manager whose fund owns a sizable AIG stake, but wasn’t authorized to talk about it openly.
Duperreault obtained US$ 12 million in cash for shares he contributed into his Bermuda and forfeited by Hamilton Insurance Group Ltd. On top of that he obtained options to buy up to 1.5 million AIG shares dependent on the share price hitting specific goals over the next seven years.
AIG also consented to pay Hamilton US$40 million for Duperreault out of a noncompete agreement and purchased the corporation’s U.S. device for US$110 million.
Regardless of the award that is sign-on, the yearly package of Duperreault is similar in size and structure to what CEOs of MetLife Inc and leading competitors Prudential Financial Inc obtained for 2016.
AIG spokeswoman Cindy Leggett-Flynn fell to comment on the payments necessary to bring him on board or Duperreault’s settlement.
However there can be risks to big pay packages if they do not properly incentivize executives, pay consultants said.
AIG discovered that the hard way as it almost dropped in 2008 because of enormous exposure to derivatives based on plunging land costs, and needed a US$182 billion taxpayer-funded bailout from the Federal Reserve along with U.S. Treasury.
After that, AIG withheld awards by some executives for risk-taking that was improper, and paid its CEO a nominal US$ 1 salary at 2008. The business maintained a lid on CEO pay during the period that it had been supported by the U.S. government, which ended in 2013.
For a demonstrating AIG CEO pay since 2004, click on http://tmsnrt.rs/2fSflV9
Corporate governance experts said that they were most concerned about the structure of the longer-term stock option awards of Duperreault.
To cash in the number of his stock options, he should increase AIG’s stock price by about 50 percent of its existing value, or US$ 30, within another seven years and it must stay at the amount for 20 consecutive trading days. The earliest he could exercise all his options, if the share price hits particular amounts, could be three years.
That could promote competitive risk-taking for short-term gains that ultimately hurt the business, some experts said.
The options of Duperreault could vest more quickly than it could take stated Adam Kolasinski.
“When I had been a board member, I would be very pleased to give a pay package even more generous than this one, given it generated good incentives,” explained Kolasinski. “I am afraid this one does not.”
Recruiters, consultants and business sources said AIG had little choice but to spend a small fortune for Duperreault to depart a company where he had been well paid and comfortable, to have a job that was tricky that couple wanted. His predecessor, Peter Hancock, left under pressure by activist investor Carl Icahn, who had been unhappy at also a share cost that was static along with dismal outcomes.
Revamping AIG will require all the leadership of Duperreault skills and insurance know-how. He spent in AIG in the beginning of his career before transforming ACE Ltd to a insurance powerhouse, before coming as CEO to AIG, revamping a troubled Marsh & McLennan and Hamilton.
“How lots of people are able to step into that job?” Requested director of the Corporate Governance Research Initiative, David Larcker . “It’s a fairly compact pair.”
Duperreault is the AIG CEO in a decade to concentrate on growth and investment as opposed to divestitures and cost-cutting in the wake of the crisis. Investors are hoping this is the right approach, given increase since the crisis to AIG’s slow share price.
AIG’s stock closed at US$60.78 on Friday, down seven percent this past season, when compared with a 9 percent rise in the S&P 500 indicator. The inventory must hit US$90.99 to get Duperreault to exercise the maximum number of their stock options over the next seven years, a question Wall Street is ready to see him continue.
“I would rather see a package like this about the entrance compared to the usual golden parachute on the departure,” said Jeff Wilson, an equity analyst in Scharf Investments LLC, which owned about US$186 million in AIG inventory as of June 30.
(Reporting from Suzanne Barlyn at New York; Additional reporting by Ross Kerber in Boston; Editing by Lauren Tara LaCapra and Bill Rigby)