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Mario Augusto Jr

Week 4 Chapter 5
Cases and Exercises

1. What types of work behaviors did AIG intend to encourage through its
retention bonus plan?

According to the passage, AIG intend to encourage through its retention bonus
plan two manners of behaviors of their workers. Loyalty to the company is the first and
main important behavior at the workplace. Even though the Financial Products unit was
being closed, AIG managers proposed the retention bonus plan in order to maintain their
employees with them until that unit be completely closed. According to a report in The
Washington Post newspaper, the Financial Products employees were repeatedly
assured, subsequent to the plan's implementation decision being made in March 2008,
that AIG would honor these contractual obligations. The purpose of this retention
program was keep the workers loyalty to the company even though they knew that they
will not be working for AIG in the future. This made the employees keep their interest and
stay with the company until their last days there because they were going to earn a
considerable amount of money at the end.
Second AIG tried to avoid destabilization by applying the retention bonus plan. As the
employees had not an incentive to stay in that job a lot of them may leave the company
and increase the high turnover rate. In addition, considering that the company was not in

a good phase, hiring new people would be highly obtrusive for them when they were
unwinding of the financial products unit.

2. Which needs seem to be important to the employees of AIG's Financial


Products unit?

Motivation and hygiene factors seem to be important to the employees


of AIGs Financial Products unit. Most of the employees stayed with them after
they signed the retention bonus contract, it was a motivational factor that
made the employees active on their jobs. On the other hand, some
employees decided to leave the company despite of hygiene factors as
paying, fringe benefits, and working conditions. Also, The financial crisis and
the possibility of loosing their jobs was the result of dissatisfaction by those
workers.
In addition, employees of that unit were seeking safety, security, and be
recognized for the hard time and stressful work that they were doing. They
knew that eventually they were not going to have a job; it generates a lot of
stress and possibly harmful to the worker and to his family. Even though the
employees could be guilty for the financial losses, employees still had to
assist their families in the short and long term.

They felt that the

compensation that AIG was offering to them was fair.

3. Using the model of the individual-organizational exchange relationship,


explain the relationship that employees of AIG's Financial Products unit

believed they had with the company. How was this exchange relationship
violated?

Regarding to the individual-organizational model, workers of Financial Products

unit believed they got a fair professional connection with the company about
the demands and expectations implanted on each other. But, the company and
the employees were facing a bad time, their work was much more challenger, but they found
that they would obtain job satisfaction by being paid a surplus amount of money for their
hard work that they were placed to do. On the other side, the company agreed to give them
bonuses if the worker fulfilled their compromise.
This exchange relationship was violated once the workers were asked to return the bonuses
that they received; even they fulfilled their job of the agreement. The company was asking the
bonuses back, due to the pressure of bad press that was addressed onto AIG. The firm
managers shouldnt have done the agreement initially, if they were not sure that they were
going to be capable to pay them. The staff failed to their commitment made for a mutual
social exchange of contributions and demands among the workers and the company. This is a
result that the managers were not managing the firm well again that is why they put AIG into
a bad situation before.

4. Which motivation theory do you think has the most relevance for
understanding the responses of the Financial Product employees to the
implementation and unraveling of the retention bonus plan? Explain the
reasoning behind your answer.
TheEquitytheoryandSocialExchangeisthemostrelevanceforunderstandingtheresponseof
the Financial Product employees to the implementation and unraveling of the retention bonus plan.
AccordingtoDebraL.NelsonandJamesCampbellQuick,Equitytheoryisasocialexchangeprocess

approachtomotivationthatfocusesontheinteractionbetweenanindividualandtheenvironment.Inthis
casestudy,betweenemployeesandAIGFinancialProductsunit.Thistheoryisconcentratedoninternal
behaviorandmotivationwithsocialprocessesthatinfluencethem.Thecompanymadetheagreementof
givingthembonusesfortheemployeeswhokeepthehighperformanceexecutingtheirjobs.Afterthis,the
employees that found fair and equitable compensation and decided to stay with the company were
motivatedandhadtheirbehaviorchangedtrustingthecompany.Next,thetrustofworkerswereallbroken,
theworkerswhohaddedicatedtheirtimetostaywiththecompanywereaskedtoreturntheirbonuses.This
actionmadeemployeesworksbehaviorchangeagain.Foranycompany,trustingisfundamentalbetween
therelationshipofemployeesandmanagers.

5. The amount of compensation earned by executivesas well as by professional athletes


and famous actors/actresses and musiciansoften spark emotionally charged debate.
Do you believe the $1 million plus retention bonuses received by 73 employees of AIG's
Financial Products was excessive? Why or why not?

Taking into account that workers had to spend a lot of hours inside the
facility, were in a environment filled of stress, insure about their situation in
the company, feeling of harm, and consequences for them and their families.
The salary paid, plus the bonuses that they received were fair taking into
account the workplace and all situations previous mentioned. Also, the AIGs
Financial Products unit made the right decision of keeping the doors open and
keep their relationship with the company.
Professional athletes, famous actors/actresses, executives, and musicians earn they salaries
in terms of demand and supply. They have capability of providing at a talented level of
entertainment, and executives prosperously run business as well. It can be a large company,
which has to compete to others and has a large group of employees that need to be under

supervision. There are too few executives that are able to run very well a business or an
athlete capable to perform a sport differentially, which explain their high salaries.

6. Do you think that the various decisions made by Kenneth Feinberg with respect to
executive compensation at AIG were justified? Explain the reasoning behind your answer.

Every decision in company can have a risk behind it. Kenneth Feinberg chose
to take the risk with respect to the bonuses compensation. I agree with his
approach when the executives received a fair salary based on their task and
bonuses were given if they perform their job correctly until the end. He was
trying to equilibrate previous commitments with the money that AIG had to
bail out the company. The thing was that people that were well compensated
in the past failed. Then it became a poor investment that resulted in many
people loosing their money, who worked for the company or invested on
them despite no fault of their own.