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AIG: Where Pay-for-Performance Goes to Hell in a Handbasket
Mar 18I’ve spent a good chunk of my career communicating about executive compensation and pay-for-performance. I believe in the variable pay model — it works. So, I’ve held back for a while commenting on AIG’s bonuses. As a friend told me yesterday, “We don’t know all the facts.” I’m sure there are many good people working at AIG. But I have to tell you, this situation with AIG paying bonuses to people who are in the unit that caused all the problems and to people who have left is where pay-for-performance goes to hell in a handbasket.
A NYT article this morning lays out the details:
The bonuses that the American International Group awarded last week were paid to 418 employees and included $33.6 million for 52 people who have left the failed insurance conglomerate, according to the office of the New York attorney general.
THEY PAID “RETENTION” BONUSES TO 52 PEOPLE WHO LEFT THE COMPANY.
First rule of pay communication: Don’t lie.
If you don’t get that one right, all the rest of the rules don’t matter.
About the Author
Frank Roche
Frank started IFRACTAL over 7 years ago with Sarah Chambers. Together, they've created HR communications and HR software for some of the world's leading companies. Frank is also studying Flamenco guitar and origami.
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Unfortunately, paying sizable retention bonuses is more common than most people realize. I’ve even seen companies grant a retention bonus, and then six months later change their mind and lay off the person (and payout the bonus after termination).
And it isn’t just AIG and Wall Street. In many companies across the US (yes, this is primarily an American phenomenon) people have figured out that if they go into the boss’ office with an offer (real or imagined) from another firm, chances are that a “retention” package will miraculously appear. I’ve even seen some employees “re-up” – when one bonus pays out, they negotiate the next one.
Managers allow themselves to be held hostage by these employees because they don’t know how else to keep them engaged; they haven’t developed credible replacement candidates; or because in many cases the behavior has become so much a part of the company’s culture that no manager has the courage to be the first one to say no.
You would think that, in a recession, the demand for these bonuses would decline…I mean, with unemployment nearing 10%, just having a job is a pretty good retention bonus, isn’t it? But, at least in my experience, there doesn’t seem to be an end in sight.
Seems to me that “retention” bonuses are Corporate America’s dirty little secret addiction.
Peach, it’s so true what you say about “retention” bonuses being Corporate America’s dirty little secret addiction. This article yesterday in the NYT tells the story of the research about CEO retention packages — they’re not needed at all. (http://www.nytimes.com/2009/03/18/business/economy/18leonhardt.html)
They write:” A few years ago, when the economy was still expanding, I looked into every large company that had changed chief executives over the previous six months. Not a single boss at any of them had left for another job. Such departures are so rare that Booz & Company’s annual study of executive turnover doesn’t even include a category for them. The benefits of the job — the pay, the perks, the gratification that comes from running a company well — are too good to leave, even for a similar job.”
I’d imagine this one’s going to be under a lot more scrutiny. I cringe at the unintended consequences that we’ll get when legislators get into compensation design. We’ll have to hold onto our hats.
After the government gave AIG bailout money, they should have used ownership rights and cancelled all performance bonuses and laid off the executives who have done nothing but run the company to ground. It is insane how AIG justified their action and rewarded failure. At the end of the day, it’s the US taxpayer that is getting screwed left and right. How come nobody is thinking about bailing out the middle class that is losing jobs and homes?