What was AIG thinking?

The recent executive bonus flap at AIG reveals more than just inept public relations — why, in today’s political climate, would AIG pay these bonuses?

There are, of course, several reasons why this might have happened; 1) they were contractually obligated to the employees to pay these bonuses, 2) it was a function of a large corporate bureaucracy and simply got processed under the noses of their leadership, 3) leadership felt that in this time of their corporate crisis they needed to pay this money to retain key employees.  I suspect it has more to do with possibility #3 than any of the others.  It is hard to believe that AIG’s senior leadership is so insensitive to the political and public scrutiny of their company that they did not weigh the consequences of paying these bonuses vs losing good people.  Likely they felt they would roll the dice, pay the bonuses to keep good people, and hope that whatever public or political fallout occurred it would not be as harmful as it would be to lose the employees they were paying.

Granted, this is speculation on my part, but I suspect I am not far from the truth.  Many companies believe that their payroll is their retention strategy.   Although compensation is important to any company’s retention strategy, it is not the only ingredient.  Employees, across the board, consistently rate other aspects of their job higher than compensation when asked why they work for any particular company.  Companies who solely rely on compensation as their retention strategy are like a person trying to sit on a one-legged stool — they are going to be more focused on trying to stay off the floor then sitting comfortably.  Employees stay at companies because they are fairly compensation and their other job needs are met.  We see this everyday in our practice when speaking with executives about their career goals.  Compensation is always part of  our interview with them, but they very often place more emphasis on challenge, location, advancement opportunity, and company stability.  A true Strategic Employer understands how their key people prioritize and define each of these job elements.

At least AIG recognized the value their key people bring to their business.  Perhaps they understood that their long-term profitability and competitive edge will be defined and secured by the quality and retention of their top people.  This acknowledgement  is the first step in becoming a Strategic Employer.