NEW YORK (Bloomberg) - American International Group Inc. (AIG) CEO Robert Benmosche will get a $7 million annual salary after his predecessor worked for $1 and said better pay is needed to retain a qualified leader.

Mr. Benmosche, who started on August 10 as CEO and president of New York-based AIG, will get $3 million in cash and $4 million in common stock, AIG said yesterday in a regulatory filing. Mr. Benmosche, 65, is also eligible for as much as $3.5 million a year in stock as part of a long-term incentive programme.

The former MetLife Inc. CEO has to retain customers and employees to preserve the value of AIG units that will be sold to repay loans included in the company's $182.5 billion US rescue. He replaced Edward Liddy, the ex-Allstate Corp. chief who was appointed in September 2008 after the insurer agreed to turn over a majority stake to the US to avoid collapse.

"Whoever comes in here for the next three to five years, they ought to be paid," Mr. Liddy, 63, said in a May interview. "My dollar a year was, as I said, an inherent recognition that I wouldn't be doing this forever."

Mr. Benmosche's agreement was approved "in principle" by Kenneth Feinberg, the Obama administration's so-called special master for pay at firms that took the most bailout funds, AIG said. Mr. Benmosche is not eligible for severance if he is terminated.

AIG said that the salary and stock are "strong incentives" for Mr. Benmosche to perform his duties in the best interests of the company. He ran MetLife, the largest US insurer, for eight years through 2006 and, according to yesterday's filing, has about 500,000 shares of the company's stock and 2.1 million options. MetLife shares were valued at $34.56 in New York Stock Exchange composite trading at 3.23 p.m.

"If Mr. Benmosche were to act in a manner other than in AIG's best interests, his financial interests would suffer, he could be fired and he might not receive any of that discretionary payment," AIG said in the filing.

MetLife is in talks with AIG to buy American Life Insurance Co., one of its biggest non-US life insurance units, people familiar with the matter said last month.

Mr. Benmosche will not participate in any negotiations with MetLife, AIG said in guidelines designed to prevent potential conflicts of interest. A committee of AIG's board will name an executive officer or senior manager as the chief transaction officer to handle such talks, the company said.

Mr. Benmosche oversaw MetLife's transition to a publicly traded business from a policyholder-owned firm. He got $1.1 million in salary, $6.25 million in bonus and about $8.8 million in long- term incentive pay in 2005, his last full year as CEO, according to a regulatory filing.

Mr. Benmosche was also on the board of Credit Suisse AG for seven years and decided to step down from that post, the Zurich- based bank said on August 10. AIG agreed to sell mortgage-backed certificates to Credit Suisse for as much as $975 million, the insurer's American General Finance unit said in a July regulatory filing.

AIG's board "made a very wise choice" in picking Benmosche, said Steven Seiden, president of New York-based executive recruitment firm Seiden Krieger Associates, who said that he works for insurers.

Feinberg and Christina Pretto, an AIG spokeswoman, did not immediately return calls seeking comment.

Mr. Liddy, who returned AIG to profitability in the second quarter of 2009 after more than $100 billion in net losses in the six prior periods, got total compensation valued at about $460,000 in 2008 to cover housing, travel, taxes and legal fees, according to a company filing. He came out of retirement to take the job for a $1 salary.

He oversaw the beginning of efforts to repay the government by selling assets. When Mr. Liddy failed to find buyers as quickly as expected, he persuaded the US to expand the bailout three times. The package includes a $60 billion credit line, an investment of as much as $70 billion, and $52.5 billion to buy mortgage-linked assets owned or backed by AIG.

Martin Sullivan, the last AIG CEO to work a full year, received compensation valued at $14.3 million for 2007, the insurer said in 2008. He was replaced by Robert Willumstad, who was forced out in September 2008.

Jay Fishman, CEO of Travelers Cos., the insurer that replaced AIG in the 30-company Dow Jones Industrial Average, got a package valued at $14.7 million for 2008, the company said in a filing.

That included salary of $1 million, stock awards worth $4.19 million and option awards valued at $3.46 million. He also got $5 million from an incentive plan.