By David Goldman NEW YORK (CNNMoney. com) — AIG announced on Wednesday that it is changing the way it pays out bonuses to its employees, opting to determine compensation based on performance. “Aligning pay and performance is the hallmark of many world-class organizations and is critical to our future success,” AIG spokeswoman Christina Pretto said in an e-mailed statement. “By motivating and driving our talent, it will also help us remain competitive and ensure a strong, growing enterprise. ”
Previously, AIG had offered some of its employees retention bonuses based on length of service but not on performance. Those were the kinds of controversial bonuses that AIG paid to 400 employees who worked at AIG Financial Products, the division that wrote insurance-like contracts on banks’ risky assets and are blamed for the company’s near collapse. AIG still has hundreds of millions of dollars left to pay in retention bonuses that were previously agreed upon with employees, but the company said that going forward, it will no longer issue those kinds of bonuses.
Under the new system, AIG employees’ performance will be graded and compared to their peers to determine their annual compensation, including bonuses. “The first step toward building a high-performance management culture is implementing relative performance ratings that will compare an individual’s performance to that of others in his or her peer group,” Pretto said. “These ratings will help ensure that our people are accountable, recognized and rewarded for their achievements. ” AIG said it is testing out the new bonus plan for several thousand staff of its more than 100,000 worldwide staff members.
In an interview with The Wall Street Journal, AIG Chief Executive Robert Benmosche said AIG employees subject to the new bonus structure will be graded on a scale of one to four based on their performance. Benmosche said just 10% of employees will be ranked in the highest (“one”) grade, 20% will get a “two” grade, 50% will get a “three”, and 20% will receive a “four. ” AIG’s CEO said in the interview that the top 10% will receive “far more” than the others. The two middle grades will receive “meaningful” incentive pay and the bottom 20% will take home lower amounts.
Though the specific manner in which bonuses are determined will vary by country and department, AIG said that eventually the entire company’s staff will have their compensation tied to performance in one form or another. AIG Overhauls Bonus System Concept Definition: Individual vs. group compensation is a concept that deals with how different methods of compensation affect behaviour in an organization. Some researchers argue that individual compensation can increase productivity and motivation. However some researchers argue that group compensation promotes equality and cohesiveness.
The main detriments of individual compensation are: -Increased competition for the most profitable jobs -Reduction in Cooperation -Focus on aspects of job with the most benefits Manulife: Where no insurer has gone before The insurer’s agents are trekking deep into rural Asia in a bid to draw clients with ‘really micro’ insurance programs Tara Perkins Friday, February 19, 2010 Manulife Financial Corp. ‘s customer service agent rolled up his pant-legs as the jungle path became increasingly muddy. Undaunted, he crossed a rickety little bridge made of sticks over a river of rushing brown water.
Eventually he reached the customer’s home in Tien Giang, and was invited into the small shack where he stood on the mud floor next to the family’s rooster. This is the future of Manulife, Canada’s largest life insurer, which is stretching into the far reaches of Asia in search of long-term growth. The company launched an experimental microinsurance program in Vietnam in September, an alliance with a women’s co-operative union. “In Vietnam, only about 20 per cent of the population lives in urban centres,” Robert Cook, head of Manulife’s Asian business, said in an interview. So you’ve got another 60 million people who we have no effective way to reach. ” Hence the microinsurance experiments in northern Vietnam. The customer service agent, Tran Bao Thinh, travelled to Tien Giang to make the first payment of a death claim. “He delivered the claim proceeds to, unfortunately, a grieving couple,” said Mr. Cook. “What was interesting was to watch the impact on the rest of the community, because it kind of made it real to them. ” The company built custom products just for this program. “When we say micro, this is really micro.
The premiums are one or two U. S. dollars a month,” he added. In the first three months the program attracted more than 15,000 customers. While there is a microinsurance market in India, Manulife is the first company to bring it to Vietnam, Mr. Cook said. “I hope it works. They’re such small policies you can’t make money on them now, but the theory is you acquire a customer and hopefully as economic development in the country extends to the rural areas we’ll be able to leverage that customer relationship with sales of other products. Global insurers such as Munich Re and Zurich Financial are also expanding into microinsurance – in many cases, by linking up with local partners – to reach poorer clients who need buffers against unexpected events such as health problems, workplace accidents or bad weather. Germany’s Allianz, for example, has more than three million microinsurance customers in India, along with clients in Indonesia, Egypt, Cameroon, Senegal and Colombia. Germany’s other major insurer, Munich Re, is testing a pilot project in Indonesia that will help protect households in Jakarta against economic losses due to floods.
The sector got a boost in 2008 with the launch of the Microinsurance Innovation Facility, which aims to make such insurance more accessible to the developing world and is funded by the Bill and Melinda Gates Foundation. The financial crisis has hit the sector, causing a slowdown in funding, escalating costs and, in some cases, weaker repayment rates. In total, more than 100 million microinsurance policies have been issued worldwide, up from about 10 million in 2000, according to ACCION International, a non-profit organization that works in microfinance.
Jennifer Lee, a Toronto-based manager in Deloitte ; Touche LLP’s financial advisory practice who has worked on the restructuring of the microfinance industry in Azerbaijan, said this is probably a good strategy for Manulife. There are a number of challenges that make microinsurance a difficult product to roll out, not the least of which is the need to produce paperwork and process claims in areas where paper can still be rare, not to mention computers. “The challenge with microinsurance will always be the paperwork and documentation,” Ms. Lee said.
Nevertheless, “Manulife’s strategy makes sense because it’s a market that Manulife could move into in the future. The brand awareness works. ” Broadly speaking, Manulife’s Asian operations, which make up about one-third of the company, are in many ways an investment in the future. Take China, a country where Manulife has placed a small army of resources. The insurer, which wants to be the first foreign company to operate across the nation, hopes to be in 75 to 100 cities within five years. “China is a long-term story for Manulife,” Mr. Cook said. Shareholders are not going to see a huge contribution to earnings from China in my working life. But, hopefully, down the road someone will look back and say ‘we’re grateful for those guys who laid the foundation there. ‘” Strategic Planning News from Reuters Barrick creates new London miner for African assets 18/02/10 By Cameron French TORONTO (Reuters) – Barrick Gold Corp will spin off its African gold assets into a new London-listed company in the hopes of uncorking added value, and will use the proceeds to fund its growing stable of high-cost mega-mines, the company said on Thursday.
The new London-headquartered company, to be called African Barrick Gold (ABG), will become the largest U. K-based gold miner when it begins trading at the beginning of April, with output of up to 850,000 ounces this year, Barrick said. The Canadian gold miner plans to retain a 75 percent interest in ABG. Barrick, the world’s largest gold miner, unveiled the move as it reported a doubling of quarterly core profit and said it would spend $475 million to buy an additional 25 percent of the massive Cerro Casale copper-gold project in Chile.
ABG will consists of Barrick’s four operating African gold mines — all in Tanzania — as well as exploration properties. It will not include the Kabanga nickel project, which Barrick has said it could sell. ABG will also seek a listing on the Dar es Salaam Stock Exchange in Tanzania. Barrick Chief Executive Aaron Regent said the company wanted to find a way to unlock value for assets which often get lost in Barrick’s portfolio of much larger mines, and also to establish a vehicle for additional expansion in Africa. If you look at the London exchange, there is a real scarcity of high quality gold companies,” Regent told Reuters. “So there are specific investors who not only have an appetite for precious metals but also have an appetite and understanding of Africa. ” The move is similar to the spinoff by Mexican silver miner Industrias Penoles of its precious metals division Fresnillo Plc in 2008. Taking the assets out of the larger company will initially lower Barrick’s overall cash costs, and should also dilute some of its exposure to security and political risks in the area.
Barrick has faced problems with local miners at its Bulyanhulu and North Mara mines, for instance. Regent said those concerns did not play a big role in the decision, but he said having more local ownership would help the company’s position in the country. He said Barrick planned to maintain its 75 percent stake in ABG, which will have reserves of 16. 8 million ounces. Asked on a conference call whether Barrick might consider a similar move in Australia, where it also faces higher operating costs, Regent said ABG was a one-time move. “We have not given up on growth in Australia,” he said.