Corporate Governance

The Director Compensation Project: AIG

By Gregg Emmel

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information found in their 2008 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 $100,000 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, 4200(a)(15), 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’s (AIG-NYSE) 2008 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Director Compensation. AIG’s board met nine times last year. All directors attended at least 75% of the aggregate of all Board meetings and Board committees on which they served. All thirteen non-employee directors received more than $100,000 in director’s fees paid in cash. Non-employee directors as a group averaged $302,174 in total compensation for their services. Approximately 53% of their total compensation came in the form of stock awards, which are considered director’s fees for purposes of complying with exchange rules.

Director Tenure. Only one-third of the non-employee directors standing for re-election have served on the board for more than five years. Martin S. Feldstein has the longest tenure, by eight years, having served for twenty years. Most of the directors also sit on other boards. George L. Miles, Jr. , a director since 2005, sits on the boards of Equitable Resources , Harley-Davidson , HFF , and WESCO International .

CEO Compensation. Martin J. Sullivan, who is CEO, President, and Director, received $14,330,736 in total compensation for 2007. Of Mr. Sullivan’s total compensation, $4,625,000 came in the form of cash. AIG did award Mr. Sullivan performance incentive compensation despite AIG’s lackluster results in 2007. Additionally, Mr. Sullivan received significant stock and options awards ($3,370,366) the value of which was dependent upon company performance. Nearly 5% of Mr. Sullivan’s compensation came in the form of "other compensation."

Full post as published by The Race to the Bottom on October 23, 2008 (boomark / email).