WASHINGTON BUREAU — The special master of the Troubled Asset Relief Program is cutting top management salaries at American International Group Inc. by 91% for the rest of the year.

The mid-year pay cuts will be imposed after Nov. 1.

The special master, Kenneth Feinberg, also reduced the maximum annual cash compensation for executives at AIG, New York, (NYSE:AIG) to $500,000. AIG must show “good cause” to pay executives more.

AIG now owes the federal government about $81 billion for financial assistance provided by the U.S. Treasury Department and the Federal Reserve System.

If companies receiving government aid want to pay executives more than $500,000 per year, they should use stock arrangements that are not completely payable until the fourth year, or 2012, Feinberg says.

That approach will link the executives’ salaries with the companies’ performance, Feinberg says.

Feinberg also:

- Eliminated bonuses through the rest of the year for employees at the AIG Financial Products unit. “Employees in this unit who pledged to return amounts paid pursuant to previously existing retention awards must immediately repay the pledged amount,” and 4 of the 5 employees who have pledged to return their bonuses have not done so, Feinberg says. Feinberg says other AIG Financial Products bonus recipients have not promised to repay their bonuses.

- Declared that, “No additional amounts in 2009 may be accrued under supplemental executive retirement plans after today’s date.”

A federal law passed in February requires the U.S. Treasury Department to oversee pay at companies that took bailout money. Treasury created a “pay czar” office in June, and it appointed Feinberg to fill the post.

In addition to AIG, Feinberg oversees pay at Citigroup Inc., New York; Bank of America Corp., Charlotte, N.C.; General Motors Corp., Detroit; Chrysler Corp., Auburn Hills, Mich.; General Motors Acceptance Corp., Detroit; and Chrysler Financial L.L.C., Farmington Hills, Mich.

Under Treasury Department rules, Feinberg must review the pay of the 25 top earners at companies that have received “exceptional assistance.” He is supposed to examine overall pay structures and recapture payouts that go against taxpayers’ interests.

Any executive seeking more than $25,000 in special benefits — such as country club memberships, private planes and company cars — must get permission for those perks from the government.

Companies receiving exceptional payments from the government will have to undergo the same compensation examination procedure each year until they pay back all the money due the government, Feinberg says.

But Feinberg has not disturbed the contract of AIG’s new chief executive officer, Robert Benmosche, or the rest of his total compensation package, which is set to pay him $10 million over 10 years..

Feinberg also left 3 other AIG executives’ compensation packages undisturbed. AIG has argued that those executives were being paid under a previously existing agreement between the company and the employees.

But “such good cause” for annual pay over $500,000 “will not exist” in the case of the 3 top executives being paid under the prior agreement, Feinberg says.

Feinburg has not released the names of the AIG executives affected by his compensation review.