NEW YORK—U.S. pay “czar” Kenneth R. Feinberg has approved American International Group Inc. President and Chief Executive Officer Robert H. Benmosche’s annual pay package of $10.5 million.

Mr. Feinberg, who is special master for executive compensation under the Troubled Asset Relief Program, said in an Oct. 2 letter that Mr. Benmosche’s pay package is consistent with TARP and the Emergency Economic Stabilization Act of 2008. Mr. Benmosche’s pay package must receive approval because AIG is a recipient of TARP funds.

An Aug. 16 “proposed letter agreement” sent to Mr. Benmosche by AIG said he will receive an initial annual cash salary of $3 million, $4 million in stock and up to $3.5 million in stock as a long-term incentive award. He is not entitled to any severance pay.

In the letter, Mr. Feinberg said the package is “appropriate when compared to the total packages of other applicable presidents and chief executive officers of similarly situated companies.” He said the salary, stock and annual long-term incentive award are performance-based.

Mr. Feinberg’s letter, which was addressed to AIG’s compensation and management resources committee, said he also will review the compensation packages “for certain other” unspecified AIG employees.

An AIG spokesman had no comment.