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(Adds details on compensation, Paulson's departure)
By Suzanne Barlyn
April 13 (Reuters) - American International Group Inc's board of directors declined to award Chief Executive Officer Peter Hancock a cash bonus for his work last year, after the company's dismal financial performance roiled shareholders, according to a proxy filing on Thursday.
Hancock, however, will still receive a total of nearly $9.6 million in 2016 compensation, according to the filing. The figure includes his $1.6 million base salary, longer-term incentive pay in stock worth $7.8 million and additional funds. The stock incentive starts to pay out in 2019.
His total compensation for 2016 fell 23 percent from 2015, the filings show.
The insurance company's board also re-nominated Samuel Merksamer, who represents billionaire Carl Icahn, to serve on the board for another term. Merksamer, who last year left the activist investor's firm, Icahn Capital, a unit of Icahn Enterprises LP, will continue as Icahn's representative, according to the proxy filing.
AIG's board also disclosed in the filing that hedge fund manager John Paulson is leaving the board because of "other time commitments." Paulson owned 4.55 million AIG shares as of March 15, according to the filing.
The proxy filing comes at a tumultuous time for the U.S. insurance company. AIG announced last month that Hancock, 58, would step down, after a poor fourth quarter frustrated shareholders and the insurer's board of directors. Hancock will stay on as chief executive until the board finds a successor, the company has said.
Icahn, AIG's fourth-largest investor, began acquiring his stake in the insurance firm in 2015. He advocated splitting AIG into three parts. The company instead embarked on a two-year turnaround plan developed by Hancock, which intended to return $25 billion to shareholders.
Last year, AIG returned a total of $13.1 billion of capital to shareholders, the company said.
While Hancock must forego a 2016 cash bonus, other AIG executives will receive bonuses of $680,000 or more, representing 40 percent of possible target amounts, according to the filing. (Reporting by Suzanne Barlyn; editing by Lisa Shumaker and Dan Grebler)