Willumstad led American International Group for about three months, stepping down in September when the firm’s mortgage losses left it close to bankruptcy and in need of a government bailout that has now swelled to about $152 billion.

Willumstad earlier waived a $22.5 million severance payment that he would have been due, according to a document filed with the U.S. Securities and Exchange Commission.The former Citigroup executive had been awarded about one million restricted AIG shares as a sign-on bonus.

AIG said rescinding the stock awards had been agreed by both Willumstad and the company.

Willumstad, who was already AIG’s chairman, took over the CEO post from Martin Sullivan, who stepped down in June as losses on mortgage investments pushed AIG deep into the red.

Willumstad was himself replaced by Edward Liddy in mid-September when the government stepped in with a rescue of the global insurer.

In lieu of the U.S. Treasury’s plan to fund a $700 billion bailout plan, Democrats focus on including controls on executive pay that take advantage of the taxpayers’ aid.

According to RiskMetrics, as several firms, including Citigroup and JPMorgan, which are looking to buyout Washington Mutual, are taking a closer look at the employment contract that the troubled mortgage lender reached on September 7.

Alan H. Fishman has replaced Kerry Killinger as CEO and Fishman will also chair the board’s corporate development committee. Fishman’s contract, which runs though 2011, reflects that WaMu’s directors are willing to pay extensively if they believe the CEO can turn the bank around and lead it through these troubled financial times. According to an 8-K filing on September 11, Fishman’s annual salary is set at $1 million and his annual bonus equals $3.65 million, matching levels of pay Killinger received in 2007. Fishman’s long-term incentives will be determined by the board’s human resources committee and if Fishman stays with the company through 2009, he’s ensured at least $8 million.

If he leaves on his own accord, he will be forced to pay back part of the $7.5 million cash bonus. However, should he be terminated, he is locked into a “golden parachute,” which will allow him a lump-sum cash severance based on 2.5 times the sum of his salary and bonus. Any unvested time-based options would become exercisable and remain so for 12 months.

While the Feds have not taken over WaMu, AIG, which has been taken over by the Fed, allowed former CEO Martin Sullivan to resign with “good reason,” allowing him approximately $19 million in cash termination pay: $15 million severance payment and pro rata bonus of $4 million, according to RM.

A self-proclaimed capitalist, Minow writes there is nothing that “infuriates” her more than executives are paid substantial salaries without earning them. She links the problems associated with executives’ compensation as incorrectly favoring quantity over quality. “If the executives’ compensation is tied to the volume of business rather than the quality of business, we should expect deal makers to be more attentive to the number of transactions than the value they create,” she says.

Minow further compares the salaries of former CEOs Stanley O’Neal of Merrill Lynch and Martin Sullivan of AIG. O’Neal’s $91 million salary for 2006 was based on performance metrics paid out before the financial services company claimed $23 billion in write-downs.

Likewise, former AIG CEO Martin Sullivan received $68 million despite the company reporting losses for two consecutive quarters, totaling $13 billion.

Minow noted that fewer than 13 percent of public companies have claw-back policies requiring executives to return bonuses that are found to be based on inflated numbers. Executives, instead, “take the money and run.”

To ensure that executives are forced to earn their pay, Minow believes that shareholders should have a say in the matter. A “say on pay” vote on executive compensation should be standard for public companies in the U.S. She notes that the U.K. and several other countries have enacted various say-on-pay initiatives for shareholders.

American International Group will give outgoing CEO Martin J. Sullivan a severance packaged valued at $47 million. Sullivan’s resignation took effect July 1, according to a Reuters report.

Sullivan will receive severance of $15 million and a bonus of $4 million for the portion of the year he worked. He will also maintain outstanding equity and long-term cash awards valued at approximately $28 million, according to the regulatory filing.

Sullivan resigned after AIG wrote down $20 billion in losses on the market value of assets linked to subprime mortgages.

Sullivan was replaced by former Citigroup banker Robert Willumstad. Willumstad was already chairman and plans to complete a plan to revamp AIG by September 2008. AIG last month reported its worst results in 89 years.

Just when the frenzy over CEO pay seemed to be dying down, an outsized severance package for ousted AIG CEO Martin Sullivan is likely to put executive compensation back under the spotlight. The severance payout, estimated at $68 million, could reignite the debate over CEO compensation, which grew heated earlier this year when a few of Wall Street’s deposed CEOs walked away with hefty pay days. AIG suffered through several quarters of dismal performance with Sullivan at the helm.

On June 15, the insurance giant announced its plans to replace Sullivan with a director of the company who has been chairman since 2006, Robert Willumstad. The board’s move comes amid pressure from shareholders and investors after the company posted losses for two consecutive quarters totaling $13 billion.

According to The Corporate Library, the company’s most recent version of the Executive Severance Plan, effective March 11, 2008, and figures from the company’s most recent proxy statement, indicate that Sullivan’s payout would be approximately $68 million.

The new Executive Severance Plan was effective just as Sullivan’s three-year employment

agreement was set to expire on March 16, 2008.

Table 1 below shows the breakdown of what Sullivan is expected to receive, according to Corporate Library estimates.

Salary (1) $2,500,000

Average 3-year Annual Cash Bonuses (2) $26,652,475

Balance of NQDC Plan (3) $14,006,979

Stock Awards (4) $21,912,172

Pension Benefits (5) $3,252,289

Medical and Life Insurance (6) $32,316

(1) 30 months current salary of $1,000,000

(2) 30 months average 3-year bonus of $10,660,990

(3) Fiscal year end value of Non-Qualified Defined Contribution Plan

(4) Fiscal year end value of vested and unvested restricted stock

(5) Fiscal year end value of unvested awards under various retirement plans

(6) Estimated value of medical and life insurance benefits

This severance mirrors other recent resignations tied to subprime losses, such as that of Charles Prince of Citigroup, who received $40 million in severance after the company wrote down more than $24 billion; and Stanley O’Neal of Merrill Lynch, who received more than $160 million after the company wrote down more than $23 billion.

In the case of AIG, the Securities and Exchange Commission and U.S. Justice Department are currently investigating whether the company and its financial products division intentionally overstated the value of contracts linked to subprime mortgages.

This investigation comes at a time when shareholders have lost more than 18 percent of their investment value over the last three years, while the value of the CEO’s compensation over the same period totals more than $39.9 million.