Ted Turnasella, a West Islip compensation expert, says that unraveling executive pay practices is like trying to put "your finger on a ball of mercury." But he and other experts point to an Internal Revenue Service rule enacted in the early 1990s that shifted emphasis from base salary to bonuses and pay for performance.

In 1993, Section 162(m) of the Omnibus Budget Reconciliation Act mandated that companies could deduct up to $1 million in base pay for each of their five highest-paid executives, as well as deduct performance-based pay such as stock options. Any base salary above $1 million would not carry the tax advantage. To stay competitive, many companies capped base pay at $1 million but greatly expanded bonus opportunities, said Don Linder, executive compensation practice leader for WorldatWork, a Scottsdale, Ariz.-based professional association for benefits and compensation.

From 1998 to 2008, base salary for chief executives dropped from 26 percent of total compensation to 20 percent, while long-term incentives/stocks rose from 47 percent to 57 percent, said David Wise, senior consultant with Philadelphia-based Hay Group, a management consulting firm.

The emphasis on bonuses has always been the culture of Wall Street, said Peter Oppermann, partner in the Manhattan office of Mercer, a benefits consulting firm. For employees at many levels, a significant portion of their pay is "at risk," he said, meaning that the bonus diminishes if the company does poorly.

The $165 million in retention bonuses AIG gave out last week "falls outside the standard annual pay package," said Alexander Cwirko-Godycki, research manager at Equilar Inc., an executive compensation research firm in Redwood City, Calif.

He said that in the past year and a half, he's seen increasing examples of companies impacted by difficult market conditions giving such retention bonuses as a way to keep employees from jumping ship.

The 162(m) rule also prompted what Linder calls "the law of unintended consequences." Instead of being a ceiling, that $1 million in salary became a floor as executives earning less than that sought to be brought up to that bar, he said.

The Securities and Exchange Commission enacted a rule in 2007 requiring companies to put a price tag on stock options and reflect that on profit and loss statements, said Paul R. Dorf, managing director of Compensation Resources Inc. in Upper Saddle River, N.J.

Companies then decreased emphasis on stock options, but made up the difference with restricted shares that become vested over time, Turnasella said.