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.