AIG 2008 Annual Report Download - page 305

(iv) AIG 2007 Stock Incentive Plan, as amended (2007 Plan);
(v) SICO’s Deferred Compensation Profit Participation Plans (SICO Plans);
(vi) AIG’s 2005-2006 Deferred Compensation Profit Participation Plan (AIG DCPPP) — the AIG
DCPPP was adopted as a replacement for the SICO Plans for the 2005-2006 period. Share-based employee
compensation earned under the AIG DCPPP was granted as time-vested RSUs under the 2002 Plan; and
(vii) The AIG Partners Plan replaced the AIG DCPPP. Share-based employee compensation awarded
under the AIG Partners Plan was granted as performance-based RSUs under the 2002 Plan, except for the
December 2007 grant which was made under the 2007 Plan.
Although awards granted under all the plans described above remained outstanding at December 31, 2008,
future grants of options, RSUs and performance RSUs can be made only under the 2007 Plan. AIG currently settles
share option exercises and other share awards to participants by issuing shares it previously acquired and holds in its
treasury account, except for share awards made by SICO, which are settled by SICO.
In 2006 and for prior years, AIG’s non-employee directors received share-based compensation in the form of
options granted pursuant to the 1999 Plan and grants of AIG common stock with delivery deferred until retirement
from the Board pursuant to the AIG Director Stock Plan, which was approved by the shareholders at the 2004
Annual Meeting of Shareholders and which is now a subplan under the 2007 Plan. From and after May 16, 2007,
non-employee directors receive deferred stock units (DSUs) under the 2007 Plan with delivery deferred until
retirement from the Board.
Effective January 1, 2006, AIG adopted the fair value recognition provisions of FAS 123R for share-based
compensation awarded to employees and recorded the cumulative effect of adoption of $46 million as a cumulative
effect of change in accounting principles, net of tax.
Included in AIG’s consolidated statement of income for the years ended December 31, 2008, 2007 and 2006
was pre-tax share-based compensation expense of $389 million, $275 million, and $353 million, respectively.
1999 Stock Option Plan
The 1999 Plan was approved by the shareholders at the 2000 Annual Meeting of Shareholders, with certain
amendments approved at the 2003 Annual Meeting of Shareholders. The 1999 Plan superseded the 1991 Employee
Stock Option Plan (the 1991 Plan), although outstanding options granted under the 1991 Plan continue until
exercise or expiration. Options granted under the 1999 Plan generally vest over four years (25 percent vesting per
year) and expire 10 years from the date of grant. The 2007 Plan supersedes the 1999 Plan.
At December 31, 2008, 34,265,635 shares were reserved for issuance under the 1999 and 1991 Plans and there
are no shares reserved for future grants under the 1999 Plan.
Deferrals
At December 31, 2008, AIG was obligated to issue 12,341,489 shares in connection with previous exercises of
options with delivery deferred.
Valuation
AIG uses a binomial lattice model to calculate the fair value of stock option grants. A more detailed description
of the valuation methodology is provided below.
AIG 2008 Form 10-K 299
American International Group, Inc., and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)