AIG overhauls bonus system
By David Goldman
NEW YORK (CNNMoney.com) -- AIG announced on Wednesday that it is changing the way it pays out bonuses to its employees, opting to determine compensation based on performance. "Aligning pay and performance is the hallmark of many world-class organizations and is critical to our future success," AIG spokeswoman Christina Pretto said in an e-mailed statement. "By motivating and driving our talent, it will also help us remain competitive and ensure a strong, growing enterprise."
Previously, AIG had offered some of its employees retention bonuses based on length of service but not on performance. Those were the kinds of controversial bonuses that AIG paid to 400 employees who worked at AIG Financial Products, the division that wrote insurance-like contracts on banks' risky assets and are blamed for the company's near collapse. AIG still has hundreds of millions of dollars left to pay in retention bonuses that were previously agreed upon with employees, but the company said that going forward, it will no longer issue those kinds of bonuses. Under the new system, AIG employees' performance will be graded and compared to their peers to determine their annual compensation, including bonuses. "The first step toward building a high-performance management culture is implementing relative performance ratings that will compare an individual's performance to that of others in his or her peer group," Pretto said. "These ratings will help ensure that our people are accountable, recognized and rewarded for their achievements." AIG said it is testing out the new bonus plan for several thousand staff of its more than 100,000 worldwide staff members. In an interview with The Wall Street Journal, AIG Chief Executive Robert Benmosche said AIG employees subject to the new bonus structure will be graded on a scale of one to four based on their performance. Benmosche said just 10% of employees will be ranked in the highest ("one") grade, 20% will get a "two" grade, 50% will get a "three", and 20% will receive a "four." AIG's CEO said in the interview that the top 10% will receive "far more" than the others. The two middle grades will receive "meaningful" incentive pay and the bottom 20% will take home lower amounts. Though the specific manner in which bonuses are determined will vary by country and department, AIG said that eventually the entire company's staff will have their compensation tied to performance in one form or another.
AIG Overhauls Bonus System
Individual vs. group compensation is a concept that deals with how different methods of compensation affect behaviour in an organization. Some researchers argue that individual compensation can increase productivity and motivation. However some researchers argue that group compensation promotes equality and cohesiveness. The main detriments of individual compensation are:
Increased competition for the most profitable jobs
Reduction in Cooperation
Focus on aspects of job with the most benefits
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