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Show Me the Money

Who decides what a trader is worth: His bosses? The government? The public? Inside the tug-of-war over pay at AIG, where compensation has become a proxy for a whole lot more.

Shortly after 11:00 on the morning of November 4, Robert Benmosche, the 65-year-old Brooklyn-born CEO of the American International Group, sat across an oval conference table from Kenneth R. Feinberg, the special master for TARP executive compensation of the U.S. Treasury. Benmosche was flanked by AIG’s board of directors, which had requested that Feinberg come to the mahogany-paneled boardroom on the eighteenth floor of AIG’s Pine Street headquarters to explain himself. Light sandwiches and soda were served from a buffet in the hallway.

The mood was distinctly somber. Two weeks before, Feinberg had ruled that a dozen of AIG’s 25 highest-paid executives would have their 2009 income slashed by 91 percent and that salaries could not exceed $500,000 without “good cause.” About half of the executives on this list came from AIG Financial Products, the vilified trading division that had written the disastrous credit-default swaps that brought the civilized world to the brink and forced taxpayers to extend $182 billion (and counting) in financial support for the firm. Benmosche was deeply angry over Feinberg’s decision to limit his executives’ pay. But his traders were even angrier. Though the government had saved their company from imploding last September, they saw themselves as victims, scapegoats—and they were ready to fight back, departing en masse on March 16, 2010, the day after the contracts are due to be paid, if their demands weren’t met.

Benmosche was acutely aware of these feelings. Since he took the job in August, he had been in tense negotiations with Feinberg over the terms of a deal. Since March, AIG has been confronting efforts by the government to cut the “retention payments” that had sparked public furor over the Wall Street bailout. Benmosche saw the current impasse not only as bad for business but also as an affront to his stature as a CEO. It was personal. “He feels like he had assurances from Feinberg that he could pay his people competitively,” one board member told me recently. “Now Bob is feeling totally fucked.”

Benmosche—his name rhymes with touché—is a large man, six feet four, with a flat nose and a shock of metallic-silver hair. He has tan, weathered skin, the result of a long career of vacations in Croatia at his stone villa perched among vineyards on a rocky bluff on the Dalmatian Coast and to his oceanfront home in Boca Raton. Benmosche had been Treasury’s pick for the job over former Wachovia CEO Robert Steel. James Millstein, the Treasury official in charge of restructuring, is said to have told Steel, the former Goldman Sachs vice-chairman who spent nearly 30 years at the firm, that he would be too controversial given the political dimension of running AIG—and the widely held perception that when it saved AIG, the government cut Goldman a sweetheart deal.

Benmosche, who’d retired as MetLife’s chairman and CEO in 2006, only agreed to take the job after the board convinced him that Treasury wouldn’t interfere with his management. Benmosche has a code. In business—life, really—money determines worth. “With Bob, it’s always about money,” a former senior AIG executive says. Benmosche’s predecessor Ed Liddy, an earnest former Allstate CEO, had answered then–Treasury Secretary Hank Paulson’s call in September 2008 to run AIG and offered to work for $1 per year, a patriotic move, but one that Benmosche must have thought suggested weakness. To come out of retirement and take the AIG job, he had demanded a $10.5 million pay package and personal use of AIG’s jet. (He got the money; the AIG board balked at turning over the jet.) “I am very easy when it comes to doing business, but I’m just not cheap,” Benmosche said in Houston this August, shortly after he agreed to his deal. “So if you want me, you can have me, but you’ve got to pay. The money is about what I am worth, and what my job is worth to be your leader.”

Although they wouldn’t put it so bluntly, the board of directors largely shared Benmosche’s view of compensation—and his outrage. The board members include men and women who had sat atop icons of American capitalism: Dennis Dammerman, former chairman of GE Capital Services; Arthur Martinez, former chairman and CEO of Sears, Roebuck & Co.; Robert S. Miller, former CEO of auto parts giant Delphi; Suzanne Nora Johnson, former vice-chairman of Goldman Sachs; Douglas M. Steenland, former CEO of Northwest Airlines; and AIG’s chairman, former American Express CEO Harvey Golub.

Over the next hour, the board members told Feinberg that his salary caps would tip AIG into crisis. The talent would walk out the door. Already, thirteen executives on Feinberg’s top-25 list had left since February. The board hated everything about Treasury Secretary Tim Geithner’s meddlesome involvement in AIG’s affairs. It was deeply humiliating, but it was also, in their minds, bad business. “You will have the implosion of this company if this keeps going,” one director later said. Golub, the chairman, was particularly angry at Feinberg’s decision to limit corporate perks—country-club memberships, private jets, sales retreats—to $25,000. At a board meeting several weeks earlier, Golub was exasperated that the directors spent 90 minutes reviewing a ten-page memo on the company’s expense policy. Could employees host Christmas parties this year? It was, he thought, a ridiculous waste of time. “We think that’s just petty and silly,” Golub told Feinberg.