The government handed AIG another $40bn but insisted it had to comply with stringent limitations on executive compensation

The US Treasury Department said that it would purchase $40bn in senior preferred stock from the American International Group (AIG) as part of a comprehensive plan to restructure federal assistance to the company.

The Treasury said: ‘Together with steps taken by the Federal Reserve, this restructuring will improve the ability of the firm to execute its asset disposition plan in an orderly manner.’

AIG will use the equity to pay down $40bn of the Federal Reserve's secured lending facility.

Under the agreement AIG must comply with stringent limitations on executive compensation for its top five senior executive officers.

The Treasury is also demanding golden parachute limitations and a freeze on the size of the annual bonus pool for the top 70 company executives.

Additionally, AIG must restrict corporate expenses and form a new risk management committee under the board of directors.