Talent Management Disaster at AIG
INTERVIEW EDGE • MARCH 2009
If you are furious about the AIG debacle, you are not alone. The insurance giant’s trade in risky credit-default swaps, which brought it stratospheric profits, eventually brought it to its knees. Today, after a $128 billion government bailout, American taxpayers own nearly 80 percent of AIG, which reported a $61.7 billion fourth-quarter loss, the largest ever by a public company.
But what has infuriated most Americans is the $165 million in bonuses paid to the very executives who caused the company’s near-collapse. As I see it, AIG isn’t just a financial fiasco; it’s a talent management disaster.
To explain what I mean, let’s start by looking at AIG’s high-minded mission statement: “We aspire to be an employer of choice, providing a rewarding and team oriented environment where professionals with integrity work together with a shared vision to create unmatched value for our customers, colleagues and shareholders.” It sounds good, but let’s see how well that mission statement got carried out in talent management categories like selection, retention, performance management, and succession planning.
Rather than seeking out executives with judgment, integrity, and a “shared vision to create unmatched values for shareholders,” AIG hired, rewarded, and promoted people driven by personal ambition and greed. Had company executives actually had the best interests of shareholders in mind, they would have used their mission statement to identify the competencies and qualities they wanted and needed in candidates. We help our clients drill down for evidence of required competencies and avoid hiring solely on credentials and experience.
AIG didn’t attempt to retain its “indispensable” people with a shared mission but rather with a contract bonus. It’s that $165 million in “retention” pay for employees of the failed Financial Products subsidiary that has the public up in arms. But it gets worse. Eleven executives who received retention bonuses of $1 million or more are no longer there, including one who received a $4.6 million bonus. There were no strings attached to the retention bonuses, so they failed to deliver on their intended purpose of retaining “top” employees.
The performance management bonuses set in the spring of 2008 were tied to 100% of 2007 bonuses. There is no business or sports franchise that guarantees, with a contract, future bonuses to be 100% of past performance bonuses. At AIG, was “performance” really managed at all?
Since AIG management had no apparent plan for replacing talent who left, they had to resort to cash contracts to hold onto the employees they had. And even that didn’t work.
When you look at AIG from a talent management perspective, you don’t have to be an economist to see what went wrong. Management crafted, or at least approved, a sleek mission statement, but they never implemented it. And now this taxpayer-owned company wants to reward the very people who failed. No wonder the outrage.
We help our clients make certain that their culture, mission, and values get translated into specific behavioral competencies that can be measured. Then we help them learn or fine-tune methods to interview and select the people who will demonstrate those values on the job. When all is said and done, hiring, promoting, and retaining the right people is not only what makes companies successful, it’s also what prevents catastrophic failures like AIG.