AIG 2011 Annual Report Download - page 357

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2010, AIG adopted the Long-Term Performance Units Plan (LTPU) and awarded Stock Salary in the form of
LTPUs. The units were fully vested on the date of grant and settlement terms are substantially the same as the
2009 Stock Salary awards. Each unit was measured based on the underlying value of a mix of AIG hybrid
securities and AIG Common Stock weighted 80 percent and 20 percent, respectively, and both components were
market observable. Pursuant to their terms, as a result of the Recapitalization with the Department of the
Treasury, the AIG hybrid securities portion of all outstanding LTPUs was converted into AIG Common Stock
based on the values of such securities and AIG Common Stock on April 14, 2011, the time of the conversion;
thereafter, the value of any unsettled 2010 Stock Salary award was based solely on AIG Common Stock. During
2011, AIG paid $29 million to settle the 2010 Stock Salary awards. AIG also recognized a reduction of $37 million
and a charge of $156 million in compensation expense in 2011 and 2010, respectively, related to this plan.
The terms of the 2011 Stock Salary awards for the Top 25 and the Top 26-100 are substantially the same as the
2009 Stock Salary awards, except that the awards to the Top 26-100 will be settled on the first anniversary of the
respective grants. AIG recognized compensation expense of $75 million for fully vested unsettled awards as of
December 31, 2011, which reflects fluctuations in the price of AIG Common Stock during 2011.
Restricted Stock Units
TARP RSUs
TARP RSUs awarded require the achievement of objective performance metrics as a condition to entitlement.
TARP RSUs granted to the Top 25 (other than AIG’s CEO) vest on the third anniversary of grant, while TARP
RSUs granted to the Top 26-100 vest on the second anniversary of grant and are subject to transferability
restrictions for an additional year after vesting. When vested and transferable, an award will be settled in
25 percent installments in proportion to AIG’s repayment of its TARP obligations.
Other RSUs
Fully-vested RSUs totaling 271,131 were issued in March 2011 to certain employees in the Top 26-100 based on
2010 performance. Similarly, 301,645 fully vested RSUs were issued in March 2010 for performance in 2009. The
RSUs for both awards will be cash-settled in March 2014 and 2013 for the 2010 and 2009 grants, respectively,
based on the value of AIG Common Stock on each settlement date. AIG recorded expense of $8 million and
$9 million in December 2010 and December 2009, respectively, when the awards were initially granted.
Long Term Incentive Plans
In 2009, AIG established the Long-Term Incentive Plan (LTIP) under which middle management employees
were offered the opportunity to receive additional compensation in the form of cash and SARs if certain
performance metrics are met. The SARs component was added to the 2009 LTIP with the adoption of AIG’s 2010
Long-Term Incentive Plan (2010 LTIP) in March 2010. The ultimate value of LTIP awards is contingent on the
achievement of performance measures aligned to the participant’s business unit over a two-year period and such
value could range from zero to twice the target amount. Subsequent to the performance period, the earned
awards are subject to an additional time-vesting period. This results in a graded vesting schedule for the cash
portion of up to two years, while the SARs portion cliff-vests two years after the performance period ends. The
strike price for the majority of SARs, which is based on AIG’s average share price over the 30-day period prior to
the March grant date, was $37.40 for SARs issued under the 2011 LTIP. On January 19, 2011, the previous strike
price of $31.91 for SARs issued under both the 2010 LTIP and the 2009 LTIP was adjusted to $26.97 pursuant to
anti-dilution provisions of the LTIP due to the issuance of warrants in connection with the Recapitalization (see
Note 1 for additional discussion). The cash portion of the awards expensed in 2011 and 2010 totaled
approximately $199 million and $258 million, respectively. AIG recognizes compensation expense over the
respective vesting periods for these plans.
AIG 2011 Form 10-K 343