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An AIG executive since 2000, the new CFO will be overseeing repayment of the bailout funds, and work with the board on new compensation policies.
Stephen Taub, CFO.com | US
October 17, 2008
American International Group named David L. Herzog executive vice president and chief financial officer on Thursday. Steven J. Bensinger, who had served since May as vice chairman-financial services and acting CFO, has left AIG to pursue other opportunities.
Herzog has served as AIG's senior vice president and comptroller since June 2005. He will be responsible for financial operations across all AIG business units, reporting to chairman and CEO Edward Liddy. Herzog will also assume a central role in overseeing AIG's plan to address its capital structure and pay down the $85 billion bailout from the Federal Reserve Bank of New York, the company says. In addition, he will work closely with AIG's chief administrative officer in an enterprisewide review of expenses and practices.
Herzog joined American General Corp. in 2000, and following the AIG acquisition of American General in 2001, was named chief operating officer for the combined domestic life-insurance companies. He was elected AIG vice president, life insurance in 2003 and in 2004, and appointed CFO of AIG's Worldwide Life Insurance operations.
Herzog takes the reins of the financial operation amid new controversy at the insurance giant. This month AIG agreed not to honor a $10 million severance agreement with Bensinger as part of a much wider pact with New York Attorney General Andrew Cuomo.
Cuomo had called for AIG to take several significant actions regarding compensation issues and what he described as "exorbitant expenses" related to severance pay, junkets, and perks. "We're very grateful for the guidance of Attorney General Cuomo," says Liddy. "We know that the Attorney General shares our commitment to rebuilding AIG's business and paying back the U.S. taxpayer, and we will address the Attorney General's concerns expeditiously."
The agreement comes on the heels of reports that AIG executives and employees took part in lavish junkets within days of the federal government's bailout of the struggling company. The company reportedly spent $440,000 on a meeting at a California resort last month and shelled out another $85,000 for a hunting trip.
Under its agreement with Cuomo, AIG also agreed to cancel more than 160 conferences and events, some exceeding more than $750,000 per event, for a total savings of more than $8 million.
Events being cancelled include: the "Best Operator" conference scheduled in Las Vegas that would have cost $750,000; a risk-management conference slated for October at the Ritz Carlton's Half Moon Bay resort in California, with a $500,000 price tag; a sales conference at Sea Island scheduled for November that would have cost $350,000; and a $190,000 meeting in Scottsdale, Arizona, scheduled for January 2009.
"These actions are not intended to jeopardize the hard-earned compensation of the vast majority of AIG's employees, including retention and severance arrangements, who are essential to rebuilding AIG and the economy of New York," said Cuomo in a joint statement with AIG.
AIG also agreed to provide Cuomo with an accounting of all compensation paid to its senior executives, and has agreed to assist the Attorney General's office in recovering any illegal expenditures. This includes all forms of compensation paid to former CEO Martin Sullivan and the former head of the financial products unit, Joseph Cassano. The insurer also agreed to establish a special governance committee within AIG, which will institute new expense-management controls. Also, AIG will be issuing a new expense policy guidebook.
"These controls and protections will be designed at the board level to prevent any future unwarranted expenditures, such as salaries, bonuses, stock options, severance payments, gratuities, benefits, junkets and perks," according to the statement. The new controls will include direct supervision by AIG chief administrative officer Richard Booth.
On Wednesday Cuomo fired off a letter to AIG's board accusing the company of making "unwarranted and outrageous expenditures" even as the company "slipped towards insolvency." He singled out the pay package awarded to its CEO in March, which included a cash bonus of more than $5 million and a golden parachute worth $15 million. Sullivan was the CEO at that time.
Cuomo also noted that in February 2008, an unnamed, top-ranking executive who was largely responsible for AIG's collapse was terminated, but still permitted by the board to keep $34 million in bonuses. Cuomo also asserted that this individual apparently continued to receive $1 million a month from the company until recently.
"Moreover, even after the taxpayer-funded bailout of AIG, the company paid hundreds of thousands of dollars for luxurious retreats for its executives, including an overseas hunting party and a golf outing," added Cuomo, calling these payments "fraudulent conveyances."