UPDATE 1-AIG board OKs CEO pay, as Benmosche agrees to stay

* AIG says board OKs CEO Benmosche's pay package

* Benmosche signs non-compete agreement - source

* Pay pact finalized after Benmosche commits to stay

NEW YORK, Nov 24 (Reuters) - American International Group Inc (AIG.N), the insurer that received billions of dollars in a U.S. bailout, has been authorized by its board to pay Chief Executive Robert Benmosche's $7 million compensation, after it laid to rest concerns that he may quit the post.

The approval, which the company announced on Tuesday, means that AIG can pay Benmosche an already agreed annual salary of $3 million in cash and $4 million in fully-vested AIG stock.

He is restricted from selling the vested AIG stock for 5 years from his August start date.

As part of the deal, Benmosche has also signed an agreement that would bar him from working for AIG's competitors when he eventually leaves the company, said a source familiar with developments.

The agreement comes after Benmosche, a former chief executive of large U.S. life insurer MetLife Inc (MET.N), told the board in recent weeks that he was tempted to quit because of frustration over the extent of governmental oversight at the company, including how much it can pay top executives. [ID:nN19194585]

However, Benmosche told employees in a later letter that he was "totally committed" to seeing the company through its difficulties. He has also now given the board an assurance that he will stay, said the source, who asked not to be identified because he was not authorized to speak about these developments.