After much public outcry, AIG [AIG] has developed a new way to determine who receives annual incentive pay and how much, according to recent reports.
Under the new initiative, called a "forced distribution" system, thousands of AIG employees will be ranked on a scale of 1 to 4 based on their performance relative to their peers, says The Wall Street Journal, which also says a similar forced-ranking system has been used by General Electric Co.
AIG employees’ annual variable compensation, which may include bonuses, will be determined by their rank. According to reports, individuals ranked in the top 10% will get far more relative to their peers, and will be labeled rank 1. Rank 2 will go to 20% of the employees and rank 3 will be given to 50%. Those who get rank 4 will get minimal incentive pay.
"I want to make sure we're paying the best people for their performance," AIG CEO Robert Benmosche, who is pushing the system, told the Wall Street Journal. He also insists the company needs to "better differentiate performance in order to show the American public we are not just giving money away."
Just last week, reports surfaced that AIG is moving forward with a plan to accelerate bonuses to employees of its financial products division after they agreed to a $20 million reduction in $195 million of previously promised awards. As reported in American Banker, The Wall Street Journal said some lawmakers took issue with the move, which could result in $100 million of payouts.
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