An American International Group Inc's board meeting is expected next week against the backdrop of Chief Executive Robert Benmosche's frustration with the U.S. government's involvement in the insurer's affairs, a source familiar with the matter said on Thursday.

But the board does not plan to take any action with respect to Benmosche when it meets next Tuesday, the source said.

The Wall Street Journal has reported that the recently installed CEO had threatened to quit earlier in November, partly because he does not have discretion over pay packages for top executives.

But Benmosche said in a letter to employees last week that he was totally committed to seeing the company through its difficulties.

Benmosche has been frustrated with the extent of governmental oversight of the bailed out insurer, and would rather focus on improving its operations, the source said.

AIG, which has received up to $180 billion of federal aid, including more than $80 billion in loans, is around 80 percent-owned by U.S. taxpayers.

AIG declined to comment. The source did not want to be identified because the upcoming meeting is not public.

Benmosche, a former CEO of MetLife Inc , said in the letter he was particularly concerned with the pay of the company's top 100 executives, which is under the purview of Kenneth Feinberg, the U.S. government's pay czar.

Feinberg has cut average compensation for the 25 best-paid employees at companies that received multiple bailouts and is setting guidelines for pay for the next 75.

For AIG in particular, Feinberg has vowed to limit bonuses at the company's financial products unit, whose massive payouts earlier this year sparked huge outrage. AIG is on track to pay $198 million in bonuses to Financial Products employees in March 2010.

Benmosche, a native New Yorker who prides himself on a reputation for toughness, took an aggressive stance joining AIG on August 10.

During a closed-door staff meeting in Houston, Texas that month, Benmosche sharply criticized New York Attorney General Andrew Cuomo, who was looking into bonuses to employees in the financial products division. Benmosche subsequently apologized to Cuomo's office for his comments.

In mid-August, just days after taking over the struggling insurer, he left to oversee a grape harvest near his villa in the Adriatic Croatian city of Dubrovnik.

AIG posted its second straight quarterly profit on November 6, helped by a recovery in the value of its investments.

AIG's shares closed down 50 cents, or 1.4 percent, at $35.66 on the New York Stock Exchange on Thursday.

(Reporting by Paritosh Bansal and Lilla Zuill; Editing by Phil Berlowitz)

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