Get Ready For AIG-Gate II

AIG looks set to return to ground zero in the still-raging battle over how financial executives get paid.

The Wall Street Journal says that the heads of four major business units, plus the firm's general counsel, gave "written notices" last week that they're prepared to resign by year-end. Their action comes in response to a threat of government-ordered cuts in their compensation and more important, a likelihood that severance provisions in their contracts will be rescinded if they leave in 2010. However, two of the executives rescinded their notices over the weekend, the WSJ says.

The skirmish comes as White House paymaster Kenneth Feinberg continues to review of compensation for the highest earners at seven major bailout recipients - about to shrink to six as Bank of America repays its federal aid. With BofA out of the spotlight and Citigroup negotiating to get out, the focus is circling back back to AIG.

Can of Worms

The latest AIG pay controversy shines fresh light into the can of worms opened by government control over compensation. While external dictates on pay and severance would likely chase talent from any private-sector company, that's doubly so in finance, where high rewards have long been drawn legions of highly competitive people to put in extreme hours pursuing the brass ring.

It will be interesting to see how the threatened resignations from AIG and the government's response play out over the next couple of weeks. There have been indications of what could be called a backlash to the backlash against high Wall Street pay: "Some Treasury Department and Federal Reserve officials have urged Mr. Feinberg to ease up on the cuts," the WSJ says.

The AIG five are Anastasia Kelly, general counsel and reportedly the group's ringleader; Rodney Martin, head of American Life Insurance Co., an international life insurance subsidiary being readied for sale; William Dooley, head of the financial services division that includes AIG Financial Products; Nicholas Walsh, head of AIU Holdings, AIG's international property/casualty-insurance operation; and John Doyle, head of AIG Commercial Insurance, the U.S. property-casualty business. The two that reportedly changed their minds after giving notice are Walsh and Doyle.