DUBROVNIK, Croatia (Reuters) - Wearing flip-flops, khaki shorts and a green polo shirt, the new chief executive of bailed-out insurer American International Group Inc says he’s getting a lot of work done from his massive villa overlooking the Adriatic.

“People criticize me for being on vacation. I actually started work a week before I was actually supposed to,” Robert Benmosche told Reuters in an interview. “I do have conference calls every day, I have all my information sent here. I can work here as well as in the office in New York.”

Benmosche, 65, previously the CEO of MetLife Inc, the largest U.S. life insurer, came out of retirement to become AIG’s CEO on August 10.

His holiday, which started only a few days after he took up the job at AIG, has raised some eyebrows in the United States, where financial executives have faced unrelenting criticism over high compensation and anything that smacks of a privileged lifestyle during the economic crisis.

Executives at companies bailed out by the government, like AIG, have had to be particularly careful.

Benmosche said that he regularly keeps up with AIG business via telephone and the Internet, helped by the villa’s array of satellite technology, and had three conference calls scheduled for Wednesday.

He had returned to the villa in a city famed for its medieval walls and crystal clear waters because he said he wanted to oversee the harvest of his vineyards to the north and spend time with his children and grandchildren.

He plans to return to work at AIG’s offices in New York after Labor Day on September 7.

PASSION FOR CROATIA

He makes no apologies for his passion for Croatia, including his palatial villa with 12 bathrooms and his vineyards on the Peljesac Peninsula about a two hours drive north of Dubrovnik. Benmosche has no previous family links to Croatia; his ancestors hail from Lithuania and Poland.

“When you come here, all of a sudden you appreciate the world you live in,” he said.

He bought the stone house (then a “complete wreck” in his words) in 2001 for about $1 million, and has since spent several times that amount in rebuilding the house and gardens. He used many imported materials, including Italian tiles, and added Viking stoves, an 18th century French tapestry, a well-stocked wine cellar and a huge 1922 Persian rug.

The terraces stretch across 160 or 170 feet of sea front, where he keeps a 135 horsepower boat parked in front.

“Every bathroom is like a piece of art,” he said while showing off his master bathroom with his wife Denise. “Women go wild when they walk in here.”

The room had an oversize wall-to-wall mirror, Jacuzzi, large glass-enclosed shower and plenty of natural light.

The Brooklyn-born Benmosche goes for a four-mile (6 kilometer) walk every day, frequently checks mail and stock prices on the Internet, and gets an in-house massage several times a week.

He rents rooms in the villa when he is not there -- 400 euros ($568) a night is the going rate.

He also hopes that his purchase of vineyards -- including in the well-regarded Dingac region, and another area where he has reintroduced once indigenous Zinfandel grapes -- will eventually yield good income for his family.

“My children worry about how do they reach my level,” he said in a wide-ranging conversation over three hours. “I suspect my son has a better chance because he is in real estate. My daughter is going to be a rabbi, so as a rabbi I don’t think she will ever make the kind of money CEOs make. But they were worried about how do they afford this.”

“So everything I’m doing, whether it is in New York or here, you will see, provides income. I want to make sure the estate I leave behind not only provides value but is a viable business.”

As much as he was looking forward to retiring to Croatia for a large part of every year, he said the economic crisis requires executives with experience to return to action.

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“Some of us need to come out of retirement -- who have done this before -- to help deal with the crisis,” Benmosche said. “If I sit here, I just felt that there are going to be continuing problems. I felt I had some of the skills necessary to fix the problems of AIG in particular and it made sense to come back.”

“I do know that if AIG fails, it is going to have devastating impact on the U.S. and other countries as well. They operate in over 100 countries,” he continued. “My sense is it has got to be fixed or it will affect me or other people around me because sooner or later what happens here will trickle down to all other businesses including MetLife.”

Benmosche still owns about 500,000 MetLife shares, and options to buy another 2.1 million shares, and continues to receive retirement payments from his former company.

MILLIONS, BUT ON ‘LOW END’

The new AIG CEO is being paid more than his predecessor, Ed Liddy, who made just $1 a year. AIG said it will pay Benmosche $3 million in cash and $4 million in fully-vested stock. He also could receive a bonus valued as high as $3.5 million.

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“It’s the bottom end of a competitive range,” he said, adding that he earned more previously and would be judged ultimately on his performance. “You still need to pay people competitively.”

Benmosche said he sees staying in the AIG job for two to three years. His predecessor left after 11 months.

Although very relaxed at his vacation home, Benmosche said he could be very tough on the job.

“I believe in people more than anything but I also believe in performance,” he said. “You also hear me referred to as the bull in the china shop. And I can be, I can break things. But what is important is that when I show up, I get everybody’s attention. And at the end of the day none of us are entitled to anything. It is what we earn.”

He showed one flash of wrath on a sunny summer day when he discussed the bitter public criticism of AIG over the past year.

“We have the ability. I know that I am telling people we are allowed to,” he said. “What I don’t know is if people (employees) are willing to. A lot of them feel hurt, embarrassed, a lot of people have lived in fear because of what I call lynch mobs with pitchforks.”

Benmosche was referring to severe criticism of the bonuses paid to some AIG staff at the financial products unit at the center of its meltdown. The verbal assaults by politicians and in the media led to several demonstrations, including a bus tour of employee homes near the unit’s Wilton, Connecticut headquarters, and threats to others.

“People think it is funny but it is not when it is your children,” he continued, his voice rising in anger. “It is not when you come home and you find people in front of your home and you had to sneak your children out in the middle of the night so that they are not attacked in a country called America.”

“It was wrong. I think that when you do that, when you incite that kind of feeling in people, it makes it difficult to come to work the next day and say ‘I’m going to work hard.’”

“It was a horrible period of time and I am hopeful that it is over.”

A year from now, Benmosche said he hopes to wow people with AIG’s performance.

“I think we will be clear as to what the vision is, what the reality of that vision is. We’ll have a better sense of what our strategic companies will be worth, and what the marketplace will be worth, and people will say, wow, AIG is performing well,” he said.