AIG (NYSE: AIG) landed in the news again today, as we learn that Chief Executive Robert Benmosche tried to calm fears today that he was about to jump ship, with an open letter to employees announcing he was “totally committed to leading A.I.G. through its challenges.”

Benmosche became the firm’s CEO just months ago, and did recently confirm that he was “frustrated” about how long it was taking to devise an executive compensation plan that was “fair”, but did not violate the restrictions that the government has imposed upon firms that have TARP funds outstanding. In an effort to improve oversight and transparency, the Treasury has imposed compensation restrictions on firms that have received ‘bailout’ funds. In October, Mr. Benmosche was told that the packages for A.I.G.’s top 25 executives did not meet the standards and would have to be reduced. Of the 25 highest-paid executives, only 13 now remain at A.I.G., according to Treasury documents.

The rumors of Mr. Benmosche’s departure have been circulating since he reportedly recently stated he was “done” while at an AIG board meeting. The board meeting followed a long and contentious session with the Treasury’s compensation czar Kenneth R. Feinberg. It was reported that the Treasury department has been reviewing A.I.G.’s compensation structure for its 100 highest-paid executives to make sure it does not promote excessive risk-taking or squander taxpayer money.

Mr. Benmosche’s compensation was approved by Mr. Feinberg, along with the compensation of the 25 highest paid employees individually. The next step is an overall structural agreement on how to pay the next 75 highest paid works.

While Benmosche’s remarks may have been an overreaction, his general theory holds true: restrictive compensation structures would limit any firm’s ability to compete. Employees have the ability to leave a firm, as other opportunities remain available at firms that do not have restrictions, and we run the risk of a ‘brain drain’ by losing intellectual capital to foreign firms.

Alternatively, employees may just seek familiarity, but with firms that the compensation czar does not oversee. The compensation changes have hastened the exodus of talent, with many former AIG execs leaving to work directly or indirectly for Maurice R. Greenberg, AIG’s former chief executive who is building other ventures that can offer conventional, performance-based pay.
Mr. Benmosche has argued that the departure of such people will make it harder for the company to turn a profit and pay back its rescue loans.

Where does the firm go from here? For AIG, finalizing this structure is an important hurdle to overcome, so they can get back to the business, and work to rebuild the brand.