AIG: Forget about Retention Pay and Buy Them Pizza Instead

After reading about the cash that AIG is forking over in "retention pay," it occurred to me that I'm working with the wrong people, because when faced with a similar situation in the past (within a very profitable business unit no less), the response from management was: "Buy them Pizza."

Back Story:

I started a job at a good sized consulting firm and was soon put in charge of their largest IT services business, which had operations/client engagements all over the world. The primary reason for putting me in charge of that business is because I have a reputation as a fixer, someone who can go into a struggling business, and identify both problem areas and viable solutions.

About six weeks in I had a meeting with the CEO and COO to discuss (amongst other things) retention problems within one of the service delivery engagements in the U.S., things had gotten to a point where the higher-level managers were spending (at least) 1/3 of their time either mitigating problems caused by turnover or recruiting, interviewing, etc. Based on my research the source of the problem is that we were paying below market pay with arguably the worse benefits package around, high-level managers could go work for a competitor in an entry level role and out-earn their boss if not their boss' boss.

When faced with the prospect of a $20-$30k raise even the happiest employee will probably take the better offer even if it means a temporary demotion, because once they return to their prior level position wise they're going to be getting paid even more.

Anyway, I had my spiel and detailed calculations around the cost of finding new employees, the impact on morale, our credibility with the client, quality of service, etc, etc, how it would actually be more profitable in the long-run if we invested in our people more, etc, etc.

The CEO and the COO didn't dispute any of my findings (for the most part) and offered the following solution(s):

"You should buy them Pizza"

"You need to impress upon them that this is a great company this is to work for"

The best way to say is that I was effectively being told that I needed to convince my people to work against their own self-interest (salary, benefits, career path), so they could that of myself and the executives above me (our bonuses were based on the margins of our business units, our subsidiary overall, etc). Or better yet sell them on the Filet Mignon sizzle of working for the company, but give them Hamburgers from McDonald's.

Being someone who likes to invest for the long-term it goes without saying that I wound up not seeing eye to eye with the CEO and COO, and while I didn't especially respect them or their management style I have to admit that it appears they wouldn't be spending $450 million on retention pay if they were running AIG.

On the other hand that company is turning into an archetypal case study in what happens when companies ignore the medium to long-term in favor of short-term gains, as things have gotten markedly worse since my tenure and the company in question is sticking to its original playbook.

Come to think of it: it was that same type of thinking lead to AIG's downfall as well.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

Comments

[ChrisN:]

Did anyone proof your article before you published it? Though your thoughts are good, your communication skills are so poor, you should not publish anything without having someone proof your work. Or get in the habit of reviewing your own work prior to publishing it!

Jan 28 09:54 AM

[xrjx:]

You should have told them that approach didn't work especially well for Marie Antoinette...

Jan 28 09:56 AM

[The Eclecti...:]

You'd be surprised what pizza and beer or a little free food of any kind can do for workplace morale. Besides, where are these executives who need to be retained going to go? Check out my whole post at: eclecticdialectics.blo...

Jan 28 12:24 PM

[winslow:]

The execs need to eat pizza. Too many in upper management expect to be treated like royalty. A large number of executives today are business panzies. Ever hear the story of the platoon leader that said to his men "take you guns and go up ahead and kill the enemy. I'll wait here for the results".
Leadership is missing from most businesses today.

Jan 28 04:55 PM

[NBear:]

Anyone who would stay at AIG for beer and pizza is not worth recruiting to any other company. AIG will keep the mediocre, and their competition will steal their talent. No news there... AIG folks would be wise to realize which way the wind is blowing.

Jan 28 05:02 PM

[Slamminsammy83:]

I agree. Run on sentences, dropped participles, bad use of parenthesis, are all part of some "stream-of-consciousne... style. Where did you go to college?

Jan 29 09:14 AM