Unreasonable Rules Will Hinder AIG’s Business

MERICAN INTERNATIONAL GROUP’S reported objection to government-imposed pay cuts for its highest-paid executives may signal a turning point for the embattled company.

As we report on page 1, President and Chief Executive Officer Robert Benmosche reportedly threatened to quit over what he viewed as unreasonable demands that would make it harder to retain AIG’s leaders. Mr. Benmosche issued a statement last week indicating he will stay, but he has a valid argument.

AIG has lost several high-profile executives from its insurance operations since the company’s near-failure and subsequent Treasury Department rescue in September 2008. If AIG is going to pay back U.S. taxpayers, it must be allowed to run its business without unreasonable government-imposed caps.

Competitors’ assertions that AIG has used federal monies to underprice insurance business have not been proven, and a congressional inquiry earlier this year found no evidence that AIG received a competitive advantage over other insurance companies.

If AIG is going to succeed in the future, its best opportunity is to retain talented executives who helped make the company successful. For its part, Chartis Inc.—AIG’s rebranded property/casualty operations—contended that pay cuts would not trigger an exodus of its employees.

The bailout of AIG came with conditions, of course, but the government ought to consider carefully whether its pay-cut plans would hamstring AIG’s ability to regain its fiscal health.

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