Nov. 11 (Bloomberg) -- American International Group Inc. Chief Executive Officer Robert Benmosche told the company’s board that he is considering resigning from the job he’s held for three months, the Wall Street Journal reported, citing people familiar with the situation.

Benmosche told directors at a meeting last week that he was “done,” though he agreed to think it over after board members reacted with shock, the Journal reported.

The CEO is chafing under constraints imposed by AIG’s government overseers, in particular a recent compensation review by Kenneth Feinberg, the special master on pay in U.S. President Barack Obama’s administration, according to the people.

Benmosche, who started in August after his predecessor Edward Liddy quit in May, is seeking to halt the departure of customers and employees so he can build up units to sell in order to repay loans included in AIG’s $182.3 billion bailout. New York-based AIG is among firms Feinberg ordered to slash pay.

“If it’s true, it’s not a pretty story,” said Mitsushige Akino, who oversees about $645 million as chief investment officer at Tokyo-based Ichiyoshi Investment Management Co. “Either he’s leaving because the first round of problems have been settled to some extent, or there are too many problems to be dealt with. The U.S. government is still taking a very conservative stance on tackling the financial system problems.”

Last week, Benmosche and other AIG board members met with Feinberg in New York, the Journal said. During the three-hour meeting, board members discussed difficulties of complying with pay policies and retaining talent, the report said.

Pay Restrictions

Benmosche’s frustrations “hit a crescendo,” the Journal cited a person familiar with the matter as saying.

Christina Pretto, a spokeswoman for AIG in New York, declined to comment on the report.

The former MetLife Inc. CEO is AIG’s fifth chief executive officer since 2005. Benmosche, 65, said he turned down the AIG top position three times before accepting the post.

Cash salary was reduced by 91 percent for 12 of the New York-based insurer’s top executives under recommendations by Feinberg, according to documents issued last month. Feinberg has jurisdiction over the 25 highest-paid employees at AIG and six other firms that got U.S. bailout funds. Thirteen managers who would have been under Feinberg’s jurisdiction have left AIG.

More than 40 managers including restructuring chief Paula Reynolds, vice chairman Matthew Winter and property-casualty executive Kevin Kelley have left AIG since the insurer’s September 2008 bailout.

Feinberg ruled in October that cash salaries at the insurer couldn’t exceed $500,000 a year unless “good cause” was shown. Compensation would include stock units tied to four major AIG divisions that are paid out in three annual installments.

Million-Dollar Salary

That doesn’t affect Benmosche, whose salary is $3 million in cash, $4 million in shares, and as much as $3.5 million in long-term incentive awards. His predecessor Liddy worked for $1 a year.

Benmosche told employees in an Aug. 4 town hall-style meeting that securing compensation agreements with Feinberg was a top priority.

Feinberg doesn’t have jurisdiction over the “vast majority” of AIG employees and employee turnover has stabilized, Benmosche said in an Oct. 21 letter to employees.

As AIG CEO, Benmosche also has to balance the demands of Congress and the Treasury. Liddy said in May the job was “a rough juggling act” because “I have trustees and the Federal Reserve and the United States Treasury and the administration and Congress and 450 regulators.”

‘Not Cheap’

“I am very easy when it comes to doing business, but I’m just not cheap,” Benmosche said during an Aug. 11 meeting in Houston for life insurance workers, according to a record obtained by Bloomberg. “So if you want me, you can have me, but you’ve got to pay. The money is about what I am worth, and what my job is worth to be your leader.”

The AIG post is “the most intellectually stimulating job in America,” Liddy, 63, said in May when he recommended the company split the responsibilities of CEO and chairman. The board accepted his recommendation.

Liddy was appointed in September by the government after AIG agreed to turn over a majority stake in exchange for the bailout.

AIG CEOs

He came under fire from lawmakers in March and some called on him to quit because of AIG’s plan to give $165 million in retention pay to employees of the Financial Products unit, whose credit-default swap derivatives helped push the firm to the brink of bankruptcy.

The bonus plan was created before Liddy became CEO, and he persuaded some recipients to return part of the awards.

AIG was run for more than three decades by Maurice “Hank” Greenberg, who stepped down in 2005. Martin Sullivan held the top post for three years, followed by Robert Willumstad, who was CEO for about three months before Liddy was appointed.

AIG had third-quarter net income of $455 million, its second-straight profitable period. Property-casualty premiums slipped 13 percent, and the life insurance decline was 16 percent.

Moody’s Investors Service said Nov. 9 that AIG will be able to repay its Fed credit line and “much or all” of the Treasury’s investment if financial markets stabilize.

To contact the reporters on this story: Andreea Papuc in Hong Kong at apapuc1@bloomberg.net

Last Updated: November 11, 2009 07:01 EST