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Even before American International Group (AIG) came under the glare of regulators, Maurice R. "Hank" Greenberg had elicited boos from governance circles. The iconic leader had crafted a board of directors stuffed with insiders, and he and his top managers controlled private companies that had business dealings with AIG.



One of those entities, Starr International (SICO) (SICO), annually dished out tens of millions in deferred pay to senior executives -- with no say from the board's compensation committee. That came in addition to lucrative salary and cash bonuses. Investors tolerated Greenberg's iron-fisted control and handsome personal rewards because the former chairman and CEO consistently delivered stellar numbers.



"ACCOUNTING ERRORS." Now that AIG says accounting errors inflated those numbers -- potentially by billions of dollars since 2000 -- the question is whether AIG deserves some of that money back. Under the Sarbanes-Oxley Act, it may have a strong case. In fact, Section 304 states that the CEO and CFO shall reimburse a company for any bonus or other incentive-based or equity-based compensation, as well as stock-option profits, received during the 12-month period following results that must be restated "as a result of misconduct."



People close to AIG say the board will explore getting reimbursed under Section 304 once it has more clarity on the full scope of the restatements, which should happen by May's end. On Apr. 30, AIG disclosed that it may have to reduce its net worth by $2.7 billion as a result of "accounting errors" that could also trim a large amount off past earnings.



But reclaiming compensation from Greenberg and ousted Chief Financial Officer Howard I. Smith will be no easy task. First, investigators need to prove that the men deliberately goosed the numbers. Nobody has yet tested the boundaries of what qualifies as misconduct. Is it mere negligence -- or intentional fraud?



TANGLED WEB. If the restatement results from a technical reinterpretation or shift in judgment -- as Greenberg's attorney David Boies asserted in a May 1 statement -- it will be more difficult for AIG to get any reimbursement. Greenberg, though his lawyer, has consistently denied any wrongdoing. Smith's lawyer, Andrew Lawler, couldn't be reached for comment.



Moreover, AIG's complicated bonus and compensation structure may need unwinding before anyone can arrive upon the owed amount, says Charles M. Elson, a professor of corporate governance at the University of Delaware. Elson argues that while a chunk of the bonuses to senior managers comes from privately controlled SICO, the money could classify as ripe for refunding because it relates to the public company's performance. In fact, regulators and shareholder activists have asserted that the entities are in essence a part of AIG itself.



Possibilities exist for recovering what some now see as ill-gotten gains. The board could sue senior management, as Chicago-based Hollinger International's (HLR) board has. A suit could widen the scope of liability to include anyone involved in accounting transactions or other behavior that results in restatements. Regulators can also level heavy fines against the offenders, though that might not do much to help shareholders or AIG.



PRICE MANIPULATION? Greenberg himself has been well-compensated in recent years for his remarkable consistency of results. In addition to $1 million in base pay, he received a bonus of $6.5 million and 750,000 stock options in 2003 -- the last year reported. Going back to 2000, he also got almost $25 million in deferred payments from SICO, $10 million in bonuses, 950,000 stock options, and $3 million in base pay. Smith's total package is harder to decipher, as his wasn't among those disclosed in the proxy every year.



But AIG could end up as an important test of Sarbanes-Oxley's effectiveness. For all the knocks that the law has taken in terms of raising corporate costs and creating extra work, it does provide some recourse in the event of bad behavior in the corporate suite. Greenberg is coming under increasing fire, with investigators now looking at whether he tried to manipulate AIG's stock price earlier this year in addition to potentially having a hand in some of the dubious accounting moves.



At the very least, investors are right to question whether those past bonuses are deserved. Says Gregory P. Taxin, CEO of Glass Lewis & Co., an independent San Francisco research firm: "It seems obvious that an executive who received performance-based compensation ought to return it if that performance was misstated through [his] own fault."



For now, regulators and the board are busy trying to figure out the full scale of the mess. Once they hash that out, Sarbanes-Oxley could give them additional tools for retribution.