But Mr. Greenberg still runs two obscure entities that have served as private honey pots for AIG to reward highly regarded executives. One is C.V. Starr. The other, Starr International Co., controls a large amount of AIG stock, some of which is earmarked for post-retirement riches. It has about 700 members. Both plans mainly pay out only when employees retire, ranking them among the richest of corporate "golden handcuffs."

The Starr companies have amounted to an extraordinary anomaly in the annals of American business: large shareholders intimately involved in the executive compensation and operations of the world's largest business-insurance company, operating entirely outside its corporate structure. They were effectively the private instrument of Mr. Greenberg, who used them to wield power during his autocratic reign. Whereas at most public companies executive pay is handled by personnel departments and reviewed by directors, Mr. Greenberg could dole out perks at his own discretion.

The Starr system provided the powerful engine that drove AIG's entrepreneurial spirit, which made the company into the huge and highly successful insurance conglomerate that it is today. But the system's potent financial incentives also fostered an edge-of-the-envelope, risk-taking culture that may have contributed to AIG's woes today, current and former AIG executives say.

Moreover, because the Starr companies did business with AIG, they were exposed to allegations of conflict of interest. A group of shareholders in Louisiana that is suing AIG claims the insurer didn't disclose commission arrangements between AIG and a Starr company. Law-enforcement officials are examining the Louisiana group's claims that money that should have stayed in AIG coffers was instead fed improperly into the Starr entities.

Several senior AIG executives who have been fired amid the burgeoning scandal and who are under regulatory scrutiny were in the Starr club. They include L. Michael Murphy, an AIG tax specialist; Howard I. Smith, AIG's chief financial officer; and Christian M. Milton, a vice president who regulators suspect helped to execute one of the main transactions under scrutiny.

Messrs. Murphy, Milton and Smith couldn't be reached for comment.

The incentive programs began shortly after AIG went public in 1969. Mr. Greenberg and a few other top executives could have cashed out their shares and become instant millionaires, but instead decided to seed a long-term incentive program. The goal was to mix "the entrepreneurial spirit of a private company with the discipline of a public company," Mr. Greenberg said. "This wasn't greed. This was an act of generosity. Now, how has it become something bad?"

It soon will become something of the past. Regulators and lawyers for Mr. Greenberg now are negotiating how to separate the Starr entities and AIG. At issue is what future role the Starr companies should play in AIG employees' pay, what other roles the Starr companies could assume, and how they should be owned and governed.

Late last month, lawyers jointly representing Mr. Greenberg and the Starr companies removed Starr documents from AIG's Bermuda building. That spurred federal authorities to secure a court order barring the destruction of records related to their investigation of AIG, including its ties to Starr.

C.V. Starr and Starr International could be sold, according to people familiar with the situation. All current Starr International awards, some $100 million a year, will be honored. But no more AIG executives will be admitted to the clubs, forcing the insurer to figure out a new system to motivate people to work around the clock and come up with the lucrative ideas. Mr. Greenberg has credited the compensation structure with helping AIG become one of the most profitable companies in America. Without the partnerships, it will resemble most other U.S. companies -- "black like a Ford," he says.

AIG acknowledges that its base pay is no better than average for the insurance industry. Yet many of its 92,000 employees have adopted a relentless work ethic because the allure of the Starr programs helps persuade them they are on the path to stardom. Candidates vie with one another to be seen as top producers, often by inventing novel products or storming into nontraditional markets. "Starr is the inner club," says Steve Schoenberger, a former AIG manager in Whitman, Mass.

Under the Starr International program, employees have in the past been given the option to cash out some of their shares after a year. For some, the Starr International payouts can range from 10% to more than 1.5 times their base pay. In 2002, Starr International allotted Mr. Greenberg $11.1 million, for example, though no records show that he cashed out. For most employees the fortune is deferred.

The ultimate goal is to become a "Starr partner" -- to get an invitation into the C.V. Starr program. With a smaller number of members and regular operating profits to be shared, this club determines which AIG employees are going to retire multimillionaires or even billionaires.

A showcase for success is 89-year-old Ernest Stempel, who was hired by Mr. Starr himself 58 years ago and is part of the small group that formed the Starr International compensation vehicle 35 years ago. Despite retiring nine years ago and being ranked as one of the world's richest men -- with a net worth estimated by Forbes magazine earlier this year at $1.9 billion -- Mr. Stempel continues to serve on the C.V. Starr board and frequent the AIG Bermuda office. Still, Mr. Stempel was accused by Mr. Greenberg a few years ago of showing disloyalty, because Mr. Stempel had sold some AIG shares, according to people familiar with the flap. Mr. Greenberg says that he doesn't give people heat about selling stock.

AIG has steadily held out the Starr system as a good way to promote loyalty and a long-term focus among its top producers. Insurers have struggled for years to devise appropriate bonus systems in an industry where premium growth is obvious, but it may take years to know whether that new volume is prudent or disastrous. Because the Starr payouts can't be collected until retirement, says Chris Winans, an AIG spokesman: "This forces people to stay and eat their own cooking."

The Starr programs help to explain why in an industry often portrayed as slow-moving and bland, AIG is famously blunt and aggressive. "I've worked for seven insurers, and I've never seen a company as driven to succeed as AIG," says Douglas Boyce, a former AIG manager. "The culture is simplicity itself. It's all about making money."

That relentless focus has paid off in financial terms. When AIG went public 36 years ago, it was a modest-scale player, with net income of $13 million and assets of $600 million. Both those measures have grown more than 800-fold since then. Today AIG has hundreds of separate profit centers that each resemble small stand-alone companies.

Last year AIG reported unaudited revenue of $98.6 billion and net income of $11 billion, making it one of the 10 most profitable U.S. companies. AIG's stock, adjusted for splits, currently trades at nearly 180 times its going-public price in 1969, compared with about an 11-fold rise in the Dow Jones Industrial Average. Last year, AIG became one of the 30 stocks in the Dow industrials.

Much of AIG's nonstop growth has reflected the personality of Mr. Greenberg, a World War II veteran who helped seize Normandy beachheads on D-Day. Managers under Mr. Greenberg were drilled on the importance of "the three 15s": 15% annual revenue growth, 15% annual profit growth and 15% return on equity. Stars got promotions and big bonuses. Laggards were demoted or sent packing.

AIG over the years has created many rungs in a caste ladder that ambitious employees can climb. Middle managers may hope the boss will invite them to play at MoreFar Golf Club in Brewster, N.Y., the company's deluxe private course on Mr. Starr's sumptuous old estate an hour north of New York City.

In terms of both cash and prestige, however, the Starr incentive programs tower over everything else. Starr International was registered as an insurer in Panama in 1943 by Mr. Starr, who sold ice cream, studied law and ran a laundry service before founding AIG in Shanghai in 1919, selling fire and marine coverage in China.

Starr International assumed its current mission in the 1970s, after its operating assets were sold to AIG for stock valued at $110 million at the time. Mr. Starr had died two years earlier, so decisions about Starr International's future were left to Mr. Greenberg and a handful of the founder's other long-time lieutenants, who were major holders of Starr International stock.

"When we went public, we didn't think it was right to keep all that to ourselves," Mr. Greenberg says. "Those who came before us didn't have it. And those who came after us should have the same opportunities."

In the 1970s, Starr International's allotments for individual AIG managers were small. But as AIG stock appreciated, Starr International's prominence grew. It owns 11.9% of AIG, a stake valued currently at about $16.2 billion.

Starr International became a career beacon for many ambitious younger managers at the company. When AIG announced that all Starr International participants would go to Disney World in Florida for a company celebration in May 2001, various AIG offices were buzzing with chatter about who had made it in, and who hadn't.

One of AIG's most notable career trajectories involved Robert E. Omahne, who joined AIG in 1990 and was president of a group within AIG's National Union unit, writing insurance for corporate directors. Mr. Omahne branched into a burgeoning new area called finite risk insurance, custom-tailored policies that are sometimes used to smooth earnings of corporate clients.

Not long after he started at AIG, Mr. Omahne was invited into Starr International. Mr. Greenberg in a letter hailed him as part of a group of employees "who have demonstrated outstanding performance in the past and who are expected to continue to perform well." A year later, Mr. Omahne was invited into C.V. Starr. Also invited in was his colleague, Susan Rivera, who became one of just a few female members in C.V. Starr. (Ms. Rivera later joined Bermuda-based insurer Ace Ltd., where she left earlier this year.)

Former colleagues say Mr. Omahne became known as a rainmaker. When he later joined Ace, a news release credited him with selling $4 billion in AIG contracts. Pushed to help National Union meet or exceed revenue targets -- which would increase his chances to get bigger Starr International rewards -- Mr. Omahne flew to destinations ranging from Japan to South America to Europe to book business, these people say.

In this zealousness, some of Mr. Omahne's projects didn't work out. He designed a contract to underwrite bonds backing construction of a golf course abutting Disney World. It fared so poorly that AIG was forced to take title to the property, which became known internally as "MoreFar South." A child-themed shopping mall in the Midwest also proved a poor risk. In late 1999, Mr. Omahne was fired, losing not only his Starr International set-asides but stock options that were going to vest three days later, according to people familiar with the situation. It was an unnerving reminder to colleagues of how perishable those supposed long-term benefits could be.

"If you're not going to ride the course," Mr. Greenberg says, "why should you have it?"

Even one of Mr. Greenberg's sons, Evan, forfeited $14 million in his Starr International account when he quit AIG in 2000, according to public filings. Evan Greenberg now is CEO of Ace.

As far back as 2001, AIG's regulatory filings suggested that Starr International's trustees weren't rushing to disburse the money. At that time, AIG said, less than 2% of the Starr International portfolio had been paid out to employees during the lifetime of the program, with an additional 8% allocated for payouts on retirement. Total bonus allocations for 2001 to 2003 averaged about $80 million a year, according to AIG filings, less than 0.6% a year of Starr International's assets.

C.V. Starr was formed in 1949 as the late Mr. Starr began grouping his many insurance operations together. It currently is a U.S.-based insurance agency that operates both as a broker and underwriter, doing 47% of its business with AIG, according to AIG regulatory holdings.

C.V. Starr's common stock is closely held by a few current and former AIG executives, led by Mr. Greenberg, who owns 16%. Martin Sullivan, the CEO of AIG, owns 4.6%. C.V. Starr also has issued multiple series of preferred shares over the years, which top AIG producers have bought. C.V. Starr's assets include a 2.1% stake in AIG, currently valued at about $3 billion.

As regulators are examining the relationship between AIG and the Starr system, some big AIG shareholders are complaining about conflicts. Jay Eisenhofer, an attorney representing the Teachers Retirement System of Louisiana, an AIG shareholder, says he believes that AIG isn't disclosing commission arrangements between AIG and C.V. Starr.

These arrangements, he contended in a letter last week to the Securities and Exchange Commission and New York Attorney General Eliot Spitzer, provide undisclosed revenue for C.V. Starr totaling $404.8 million for the years 1999 through 2002. If they were properly acknowledged, he said, AIG would be seen to be responsible for 100% of Starr's business.

A related suit filed against AIG in Delaware by Louisiana Teachers is pending. AIG, which disputes the charges, has filed motions seeking to dismiss the case.

C.V. Starr shares aren't handed out for free. When members are invited to join, they initially are allotted a 0.5% nonvoting stake, generally, for about $300 a share. One former executive says he paid $20,000 to join, while another paid $36,000 -- both with loans from the company. Every year, if they continue to produce, their stakes and power increase. One percent, for example, brings voting rights. When members leave the partnership, their stake is liquidated and they are reimbursed.

The investors said the exact workings of C.V. Starr weren't ever made clear to them. When one newcomer asked for more details at a C.V. Starr meeting a few years ago, Mr. Greenberg was riled, according to people who were there. He jokingly asked the top company lawyer to brief those who didn't understand the partnership, club history or culture, investors recall.

The members of the firm took turns speaking up, as Mr. Greenberg circled the table calling on individuals for comments. He came to James Manton, another co-creator of Starr International, who was sleeping at the table, according to several attendees.

In what one attendee described as a touching act of affection, Mr. Greenberg gently shook his long-time colleague awake. Mr. Manton, who is in his 90s, said he had no comments and dozed back to sleep.

Write to Ianthe Jeanne Dugan at ianthe.dugan@wsj.com³ and George Anders at george.anders@wsj.com⁴