7/31/2019 AIG Case Study

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CONTROVERSIAL RETNETION BONUSES AT AIG

Linkage of Case to Motivational TheoriesThis case focuses on the controversial $165 million in retention bonuses paid to employees of theFinancial Products unit of the American International Group (AIG), a behemoth insurance andfinancial services company. In early 2008, employees in the Financial Products unit were asked

to remain with the company through the units shutdown and, essentially, to work themselves outof a job. To entice talented employees to stay and work through the shut-down, a contractualretention bonus plan was instituted. When the bonuses were paid in early 2009, controversy andoutrage arose given that AIG was the recipient of a substantial amount of United Statesgovernment bailout money under it Troubled Assets Relief Program (TARP). Amid thiscontroversy, Edward Liddy, AIGs CEO, requested the bonus recipients to return half of the

bonus amount. Some Financial Products employees decided to return their bonuses; others optedto keep their bonuses. Many, is not all, affected Financial Products employees felt betrayed byAIG because of repeated reassurances of the bonus payments under contractual obligations.

The case is related to multiple motivational concepts. Internal needs reflect the reasons for

which the employees chose to remain employed with AIG during the process of windingdown the Financial Products business. External incentives reflect the retention bonuspayments. In addition, needs theories of motivation can be invoked to provide perspective onwhat seem to be important motivational factors for the Financial Products employees. Equitytheory and the individual/organizational exchange (or social exchange) relationship are

highly relevant to the caseand, arguably, provide the best explanation of the behavioraldynamics described in the case. Both perspectives help in explaining and understandingemployees reactions to being asked to return part of their bonuses in the wake of the

governmental and public outrage. Expectancy theory also can be applied to the case facts, byexamining the impact of expectancy, instrumentality, and valence on the motivation of theFinancial Products employees.

Questions :

1. What types of work behaviors did AIG intend to encourage through its retention bonus plan?2. Which needs seem to be important to the employees of AIGs Financial Products unit?3. Using the model of the individual-organizational exchange relationship, explain the

relationship that employees of AIGs Financial Products unit believed they had with thecompany. How was this exchange relationship violated?

4. Which motivation theory do you think has the most relevance for understanding theresponses of the Financial Product employees to the implementation and unraveling of theretention bonus plan? Explain the reasoning behind your answer.

5. The amount of compensation earned by executivesas well as by professional athletes andfamous actors/actresses and musicians

often spark emotionally-charged debate. Do you

believe the $1 million plus retentionbonuses received by 73 employees of AIGs FinancialProducts was excessive? Why or why not?

6. What would you have done if you were one of the 73 Financial Products employees whoreceived a retention bonus of $1 million or more? Explain the reasoning behind your answer.