As I reported yesterday, Aon Corp. has extended the employment contract of its president and CEO Greg Case through April 2015.

No changes were made to Mr. Case's current annual base salary of $1.5 million, according to the 52-page filing with the Securities and Exchange Commission. However, the target bonus he is eligible to receive increased to 200% of his base salary from 150%, with the maximum increasing to 300% from 250% of his base salary.

While Aon may have increased Mr. Case's bonus opportunity, it has “significantly reduced” his severance payout should he be terminated in connection with a change in control of the brokerage.

The move is not surprising given the controversies surrounding executive compensation today especially within the financial services industry (just look at our front page story this week on AIG). Not only have new SEC rules been proposed for pay disclosures, but government and shareholder pressure also is causing many companies to re-evaluate how they compensate their executives.

In Mr. Case's case, Aon will no longer provide a “gross-up payment” to cover the excise taxes on any “change in control” payments made to him. It instead will cap his cash and non-equity award payments to the “safe harbor” amount under the Internal Revenue Code such that the payments are not deemed to be “excess parachute payments.” The safe harbor amount is the maximum amount an executive can receive without being subject to the excise tax.

According to SEC documents, to the extent any of Mr. Case's severance payments are subject to the excise tax, Aon will either eliminate all non-equity award payments or reduce the payments to an amount not subject to the tax. If none of the non-equity award payments is nonqualified deferred compensation, then other rules for the reduction apply.

As it stands now, if Mr. Case were terminated as a result of a change in control at Aon, his severance package would include: his remaining base salary for the year; a bonus equal to the average bonus received in the three prior years; any accrued vacation pay; and a lump sum equal to three times the sum of his highest annual base salary and of his target annual bonus for the fiscal year in which the termination date occurs.

The payments, of course, hinge on whether Mr. Case signs a two-year noncompete agreement prohibiting him from working with another firm that generates at least 55% of its revenues from insurance brokerage, reinsurance brokerage or employee benefits brokerage services.