Friday, March 20, 2009

AIG, Cash and Retention Bonuses

There are some very interesting lessons to be learned from AIG’s recent payment of employee bonuses.

Here’s the story… AIG received $170 billion in federal government bailout funds. To date they have paid 73 employees bonuses of more than $1 million each. One person was paid $6.4 million. Seven other people received more than $4 million each! According to the Attorney General of New York, 11 of these employees no longer work for the company! And the company wants to pay out more… for a total of $165 million!

The company stated they were obliged to pay out these bonuses for a number of reasons.

1. They needed to keep “talented” executives on the payroll.
2. These were “prior” contractual agreements in place that could not be broken.
3. These people crafted the terribly complicated derivative trades and are needed to unwind them.

The payments are being called “retention bonuses.” In my opinion it’s more like “retention madness!” However they do provide some valuable business and recognition lessons!

First, spare me with the keeping the talent argument! These people are losers and should be fired. It reminds me of the losing baseball team whose star player held out for more money one year and the manager said, "We finished last with you. We can finish last without you!"

Secondly, if AIG had not received any bailout money these bonuses would never have been paid out. The company would be bankrupt. The government should have set stricter terms as a condition for their bailout money.

Thirdly, to argue these are the only people who can figure out how to unravel this mess is specious at best and puts us at the mercy of a band of incompetents. One of the lessons I’ve learned managing Rideau is that nobody is irreplaceable! AIG would be better off having someone with a conscience working on their behalf.

These payments are nothing but greed and arrogance. Greed for more money and arrogance for thinking the rest of the world would let them get away with it.

Calling these payments “retention” bonuses is particularly insulting to those of us who work in the recognition and reward business. We work very hard implementing recognition programs that do retain employees. Any true recognition professional will tell you that cash alone is not effective as a retention tool. It creates what I call “employee mercenaries.” People who are only there for the money. People who have no loyalty to their company or the customers they serve.

AIG proves my point. Of the 73 individuals who have received so called “retention” money, 11 have already left the company!

No, what AIG needs today are “employee patriots.”

People who go above and beyond.

People who have a conscience and care about what they do.

People who care about their customers.