Summary
This Form 8-K filing by American International Group, Inc. (AIG) on September 26, 2005, details the adoption of the AIG 2005-2006 Deferred Compensation Profit Participation Plan. This plan is designed to incentivize and reward select key employees, particularly senior executive officers, based on the company's cumulative earnings per share performance over 2005 and 2006 compared to 2003 and 2004. Participants are awarded units, and if performance targets are met, they gain a contingent right to receive AIG shares.
Key Highlights
- 1Adoption of the AIG 2005-2006 Deferred Compensation Profit Participation Plan by the Board of Directors on September 21, 2005.
- 2The plan rewards select key employees, including all senior executive officers, with units that can convert into AIG shares.
- 3Payout is contingent on cumulative earnings per share for 2005-2006 exceeding that of 2003-2004.
- 4Senior executive officers designated as 'senior partners' (e.g., Martin J. Sullivan) are eligible for 16 AIG shares per unit granted if performance targets are met.
- 5An additional 20 percent increase in contingently allocated AIG shares is possible for 'senior partners' employed on January 1, 2013, and under age 65.
- 6Awards are generally payable starting in 2009, with significant portions deferred until retirement after age 65.
- 7The Compensation Committee retains discretion over payout form (shares or cash) and vesting in exceptional circumstances.
Frequently Asked Questions
The primary purpose of the plan is to incentivize and retain key employees, especially senior executive officers, by linking a portion of their compensation to AIG's future financial performance, specifically its cumulative earnings per share over the 2005-2006 period.
Payouts are contingent upon AIG's cumulative earnings per share for the years 2005 and 2006 exceeding the cumulative earnings per share for 2003 and 2004. If this performance hurdle is met, participants receive a contingent right to a specified number of AIG shares based on their granted units.
Awards are generally not immediately payable. For 'senior partners,' payouts are structured with 10% due on May 1, 2009, another 10% on May 1, 2010, 5% on January 1, 2015, and the remainder upon retirement after age 65. Vesting typically occurs upon reaching age 65 or completing at least 4 years of service, whichever is later, although early payout shares vest upon payment.
Yes, the Compensation Committee has significant discretion. They can determine whether awards are paid out in AIG common stock or cash, and they retain the right to vest shares even if an executive officer's employment ceases prior to the standard vesting conditions being met.