NEW YORK (Bloomberg) — American International Group Inc., following criticism by New York Attorney General Andrew Cuomo, won't honour a $10 million severance agreement with outgoing chief financial officer Steven Bensinger, Cuomo said.

Cuomo met with AIG's new chairman and chief executive officer Edward Liddy yesterday, the attorney general said. Liddy agreed to provide an accounting of all compensation paid to AIG's senior executives and assist in recovering any illegal expenditures, Cuomo said. The payments include those made to ex-CEO Martin Sullivan and Joseph Cassano, former head of the financial products unit for the New York-based insurer.

AIG, which received an $85 billion bailout by the US government last month, also agreed to immediately cancel all junkets and perks, according to the statement jointly issued with the company.

"You had senior management who were rewarded with multimillion bonuses for good performances. How can you pay someone for good performance when their performance was anything but?" Cuomo said in a conference call with reporters. "If unjust compensation was paid and the company was undercapitalised, we believe we have reasonable grounds to capture funds." Cuomo said he had not yet determined the employment contacts were illegal or, to the extent they were, how much he will seek in terms of recovery. AIG agreed not to make payments pursuant to Bensinger's employment agreement in light of Cuomo's review.

"We're reviewing everything and making an effort to identify activities that aren't critical and reviewing executive compensation," said AIG spokesman Nicholas Ashooh, declining to comment further on Bensinger.

The company will be cancelling more than 160 conferences and events, some costing more than $750,000 per event, which Cuomo's statement said will result in a saving of more than $8 million.

The company also will institute new expense management controls, Cuomo said, to prevent any other unwarranted expenditures.

David Herzog was promoted to replace Bensinger, the company announced yesterday.

The company has been castigated by officials since it hosted a $440,000 conference at a California resort last month after agreeing to the federal bailout to avoid bankruptcy.

Cuomo, in a letter yesterday to AIG's board of directors, demanded the company stop "extravagant" expenditures and recover millions of dollars in unreasonable payments, or face legal action.

Cuomo cited a $5 million bonus and $15 million "golden parachute" AIG awarded its chief executive officer in March. Sullivan was AIG's CEO at the time.

The attorney general also noted in his letter that an unnamed top-ranking executive, "who was largely responsible for AIG's collapse" and was fired in February, was allowed to keep $34 million in bonuses. Cuomo said the executive also apparently continued to receive a $1 million a month from the company until recently.

The executive he referred to, Cassano, was head of AIG's financial-products unit until his retirement was announced February 29. The business sold credit-default swaps, the contracts that plunged in value as the mortgage securities they guaranteed declined, causing more than $25 billion in write-downs at AIG.