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E-MailAmerican International Group (AIG) and I have reached an agreement under which the company will amend its bylaws to require that CEO compensation be ratified by a majority of independent directors.
Last December I submitted a shareholder proposal to amend AIG’s bylaws. Under the proposed amendment, CEO compensation would not only have to be approved by the company’s compensation committee but also by three-quarters of the company’s independent directors.
In discussions I subsequently held with AIG, AIG informed me that it will adopt a guideline requiring that CEO compensation be approved by a majority of the company’s independent directors, and AIG’s board indeed adopted last month revised governance guidelines containing this provision. Although AIG urged me to withdraw my proposal in light of its willingness to adopt the guideline, I felt that doing so would not be appropriate given that the guideline did not incorporate two key elements of the approach I favor: (1) adoption via a bylaw rather than merely a guideline; and (2) using a super-majority rather than a majority requirement for independent director approval. In subsequent discussions with AIG, we reached a compromise under which the company agreed to adopt element (1) but not (2).
In particular, AIG and I reached an agreement under which my proposal will be withdrawn and a specified bylaw will be proposed for approval by the AIG Board of Directors at its next regularly scheduled meeting, and would be effective immediately upon approval by the Board of Directors. Under the specified bylaw, which would be added as the new Section 2.11, the determination of CEO compensation will be subject to approval or ratification by a majority of the non-employee directors on AIG’s board.
I very much appreciate the time that AIG Chairman Robert Willumstad, AIG Governance Committee Chairman George Miles, and AIG’s General Counsel Eric Litzky devoted to discussing the subject with me, and AIG’s willingness to adopt this bylaw. More generally, I would like to commend AIG’s leadership for the significant attention that it has been giving to corporate governance matters and for the significant progress that the company has made on the corporate governance front in the last two years.
AIG is the third company to reach an agreement with me to adopt an arrangement concerning ratification of CEO compensation by the company’s independent directors as a whole. I earlier reached an agreement with Bristol-Myers as well as an agreement with Home Depot.
2 Comments
I just want to thank you for all the great information. I am a second year law student who is writing my A paper on excessive executive compensation. The effort you have put forth to update this blog, not to mention the real hands on work you are doing with these companies, is truly amazing. Mr. Bebchuck, you are awesome and know that I will be citing your work in my paper. Thank you again for providing such valuable information regarding this issue. Please keep it up!
Reference: the current published $165 million bonuses to be paid. It appears these bonuses are to be paid and directed to the division of AIG Inc alleged responsible for it’s financial demise.
You have proposed a sucessful bylaw revision for ceo compensation restructure. Why not the restructure of employee compensation contracts.
The US government represents 80% investment &
ownership in this company. Let us pursue corporate investment (ownership) and propose such an action.
We (us citizens) might also reconsider the business purpose, scope, and size of AIG. This should be especially examined when US banks are being compensated because of their insured contracts with AIG. Example: Citigroup, Wells Fargo, Bank of America etc. These and other domestic banks have also received US bailout funds. (not to mention foreign banking) Our country is in need of controled spending.
The financial hermoraging needs to be stopped.
Please submit a legal proposal via a corporate
process. Politics needs to be removed from the equation. Thank You