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A retention bonus plan can be defined as a simple concept aimed at improving employee loyalty through monetary incentives (Jost, 2011). In the case of American International Group(AIG), the company was not only trying to cut down on employee turnover but also aimed at motivating the employees to work harder and boost organizational performance. The company was trying to make the employees stay during the shutdown to help the company transit into a new culture that did not include them. The employees, in this case, would have been better off taking other jobs rather than remaining in the organization that only needed them in the short term. The work behavior that the company intended to encourage was thus employee commitment and loyalty to the organization. The retention bonus was simply a bribe for the employees to stay despite fully understanding that they would be ‘working themselves out of a job.’ The overall expectation of the company was that the employees would consider otherwise and continue working after receiving the bonus despite having to worry about their future.
When the employees at the Financial Products unit were given the retention bonuses, they stayed with the company. Therefore, the monetary incentive was rather effective. Based on the self-determination theory, employees who have extrinsic aspirations are more likely to be lured by monetary incentives. The extrinsic aspirations in this case include materialistic life goals such as a dream car or house, more expensive lifestyle, bigger paycheck, and fame or popularity among other things (Nelson & Quick, 2015). The fact that these employees chose to stay with the company despite knowing that they did not have stability in terms of their job security indicates a stronger response to the money.
From another perspective, however, it can be appreciated that finding a job may not be easy, especially in the contexts of these employees at the time. With the market being not stable, employees within the financial services industry were not confident about their chances in the labor market. Consequently, employees were compelled to stay with the company for as long as they could, and they may have agreed to stay even without the retention bonuses. In this case, it would seem that the employees might have valued their commitment to the organization more than their personal interests. Their greatest need within this context would be their work within the organization and not the money.
Using Herzberg’s Two-Factor Theory of motivation, the employees in AIG’s financial products unit were motivated effectively by the job context factors including compensation and job security (Jost, 2011). They had to be given the bonuses because they were likely to leave in the absence of a long-term commitment or assurance of their job security. This is why the company had to pay them retention bonuses despite being in a shaky financial status. Based on the assumption that the bonus plan was approved by the management team that was fully aware of the kind of employees that the company had, it can be stated that the monetary incentives may have been the only thing that could work. This fact also explains why only a few of the employees were willing to return a half of their bonuses after the public outcry regarding the company’s retention bonus plan.
The individual – organizational relationship is based on the concept of a psychological contract defined by an individual’s beliefs, expectations and commitments as well as effort within an organization (Jost, 2011). In this case, the employees can be stated to have had an equitable professional relationship with the company. These employees were a part of the organization. They were committed to the organizational goals and objectives. They had expectations of the organization as the organization had expectations of them. The relationship was thus more of a symbiotic situation where each party needed the other one. The psychological contract, in this case, was simulated based on the mutual understanding whereby the employees worked to meet the organization’s needs, and the organization paid them well for it.
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When the company decided to shut down the financial products unit, it violated the individual-organizational exchange relationship with its employees. The employees had grown to work as the company’s partners, learning about the company and aligning their goals and expectations with those of their employers. When the employers suddenly decided that they did not need the financial products unit anymore, they ceased to be equal partners with the employees. AIG discarded these employees thus violating the psychological contract that was based on a symbiosis, in which the employees were working to build the organization while expecting the organization to do the same for them. Discarding the unit simply eliminated the equality that the employees thought they shared with the organization (Jost, 2011). While it is understandable that there are some cases where the company needs to terminate their employees to survive sustainably, the employees do not expect to be treated as anything less than a partner within the organization.
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The employees at AIG were not motivated. Their job security was threatened by the fact that they would soon be out of a job regardless of being offered the retention bonus. With this in mind, it can be appreciated that the most effective motivation theory would be Maslow’s hierarchy of needs. According to it, a basic need for employees within an organization is the physiological category of needs. These include needs that are mandatory for the employee’s survival (Nelson & Quick, 2012). Basic needs such as food, water and shelter thus fall in the first tier of the hierarchy. The employees at AIG wanted the second tier. According to Maslow, the second tier stood for security. Employees would only be truly motivated if they were safe in their positions whether physically, emotionally or financially. Employees within this organization were not secure. Their financial and emotional security was threatened by the fact that they were soon to be unemployed.
Therefore, emotional threat among employees created a situation in which the employees were not committed to the organization and thus not in any way obliged to work hard or even work at all. By providing employees with the retention bonus, the company managed to resolve their financial uncertainty. The bonuses, however, did not resolve the imminent threat to the employees’ emotional security. This is probably why the entire plan ended up as a major fail. Employees have financial needs, and they are likely to respond impressively to monetary incentives, but they also need to be secure in order to be motivated. The absence of job security within the organization can thus be blamed based on this theory. If the employees were not worried about being out of work in the near future, they would have focused on their roles and responsibilities within the organization, and they would have been willing to return the bonuses after it had become a controversial public knowledge. The basic argument in is that when employees have to worry about meeting their needs, it is highly unlikely that they would consider the needs of the organization in question (Nelson & Quick, 2012). AIG thus lost the commitment of their employees as soon as they found out that they were going to be relieved of their duties within the company.