U.S. pay czar Kenneth Feinberg yielded on Monday to pleas from American International Group to modify terms for a top employee the embattled insurer said was vital to its regaining stability.

In a letter issued by Treasury, Feinberg said that initially no stock salary or long-term incentive was allowed for the unnamed AIG employee who had been expected to leave but now decided to stay.

In light of the fact that the specified employee will remain in the employ of AIG, it is appropriate to provide...long-term incentives to ensure that the employee contributes to AIG's long-term success and, ultimately, AIG's ability to repay taxpayers, Feinberg said.

(Reporting by Glenn Somerville)