Incoming American International Group (AIG) President and Chief Executive Robert H. Benmosche will get an annual salary of $7 million plus long-term incentive awards of up to $3.5 million per year.

The package, announced Monday, has received "approval in principle" from Kenneth Feinberg, the Treasury Department's special master for executive compensation for institutions that received bailouts. Benmosche was appointed to the position a week ago.

Last week The Wall Street Journal, citing a person close to Benmosche, reported the lack of a formal pay package as Benmosche took the helm of AIG left him "ready to walk if this doesn't get resolved, and resolved quickly."

Benmosche's predecessor Edward Liddy wasn't able to negotiate a salary beyond his $1 annual paycheck he got when he took the role at the request of the U.S. Treasury Dept. in September. Liddy, the former chairman and chief executive of Allstate Corp. (ALL), stepped down on Aug. 7. He called his short tenure at AIG one of the most difficult experiences of his life.

Benmosche, 65 years old, was chairman and CEO of MetLife Inc. (MET) from 1998 until 2006, and has extensive holdings of MetLife stock and stock options.

AIG said it couldn't replace the value of Benmosche's MetLife holdings because under the Troubled Asset Relief Program such payments aren't permitted. In an SEC filing Monday, AIG said paying Benmosche for those holdings wouldn't be in the interests of AIG shareholders.

It suggested Benmosche wasn't willing to sell the holdings, and will be allowed to keep them: "Given current market conditions, Mr. Benmosche also would likely be unable to sell or to realize appropriate value for certain of his interests, which include out-of-the-money options," according to the filing.

AIG's board of directors found a fix for the potential conflict of having its chief executive invested in a potential rival: The board will take steps to make sure Benmosche "is not inappropriately involved in any transaction between AIG and MetLife or any significant business decision involving MetLife," the filing said.

The Wall Street Journal has reported that MetLife has been involved in discussions over AIG's foreign life insurance business.

Benmosche's salary will consist of $3 million in cash and $4 million in fully vested AIG stock will give him a significant equity stake, which will "align his interests with those of AIG," the filing said.

AIG shares closed Monday down 95 cents, or 3.9%, at $23.42.

-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com