AIG could weather CEO departure

By Dan Wilchins and Steve Eder - Analysis

NEW YORK (Reuters) - American International Group Inc's tough talking chief executive has reportedly threatened to quit, but the giant insurer, which is showing signs of life after its brush with bankruptcy last year, could do fine without him.

Robert Benmosche threatened to quit AIG (AIG.N) in part because he complains he cannot pay employees enough, according to the Wall Street Journal.

AIG declined comment, but in a letter to employees Benmosche said he was working aggressively to "overcome this compensation barrier that stands in the way of restoring AIG's value."

He also said he was "totally committed" to seeing the company through its difficulties.

As a recipient of some $180 billion in government aid, AIG falls under the purview of Obama administration compensation czar Kenneth Feinberg and Benmosche has balked at Feinberg's proposed pay restrictions.

But if Benmosche, the well regarded former CEO of MetLife Inc (MET.N) makes good on his reported threats to leave AIG, it would hardly be a tragedy for the company, analysts said. He has been at the insurer for only about three months, which is not enough time for him to have become essential for its daily operations. And Wall Street is full of competent executives looking for work.

"The loss of one chief executive won't change too much for AIG," said Sean Egan, principal of ratings agency Egan-Jones Ratings Co in Haverford, Pennsylvania. "There are plenty of other people who can fill the role."

A CALCULATED RISK

What is at issue in Benmosche's conflicts with Feinberg is whether companies that rely on government support to stay in business can pay less than competitors that have shucked that support.

Feinberg has cut cash compensation for the 25 best-paid employees at companies that received multiple bailouts and is setting guidelines for pay for the next 75.

For AIG in particular, Feinberg has vowed to limit bonuses at the company's Financial Products unit, whose massive payouts earlier this year sparked huge outrage. AIG is on track to pay $198 million in bonuses to Financial Products employees in March 2010.

Making these cuts amounts to a gamble.

"He's thinking he can limit pay and that an insufficient number of people will leave for better opportunities to really harm the companies," said Robert Sedgwick, a partner in executive compensation and benefits at law firm Morrison Cohen in New York.

To some analysts, that is a reasonable bet. The pool of talent for hire is likely fairly deep now, as financial companies have announced about 400,000 layoffs since the credit crunch really accelerated in mid-2007, according to outplacement firm Challenger, Gray & Christmas. So even if people leave, others can replace them.

"There are a lot of qualified people out there who would love to work at AIG," said Bill Fitzpatrick, equity research analyst at Optique Capital Management in Milwaukee, Wisconsin.