American International Group Inc has formulated a new forced ranking system to determine bonuses and rate employee performance, Wall Street Journal said, citing people familiar with the matter.

AIG, which was bailed out by the U.S. government at the height of global financial crises in 2008, is struggling to incentivize employees to stay on after final batch of retention awards are paid out in the coming weeks, the Journal said.

Some senior managers in divisions such as compliance, legal and human resources have already left the insurer in the last few months, the paper said, citing a person familiar with the matter.

Some of AIG's 100 most highly paid employees, who fall under U.S. pay czar Kenneth Feinberg's oversight, are among the pilot group participating in the forced ranking system, an AIG spokesman told the paper.

The company is ranking employee performance from 1 to 5 to help it decide who will get a pay raise and larger incentive awards, the paper said.

About 10 percent of the employees will receive a top ranking, 20 percent will be rated excellent, and 50 percent will see their performance rated solid, according to the paper.

AIG is aiming to pay bonuses for 2009 to eligible employees by the end of March, the people told the paper.

AIG could not be immediately reached for comment by Reuters outside regular U.S. business hours.

(Reporting by Sakthi Prasad in Bangalore; Editing by Lincoln Feast)