Recovering From AIG
November 13, 2008
Mitigating the bad publicity from the insurer's ill-timed incentive trip will take time and effort
By Leo Jakobson
There may be a way to obtain worse publicity for your company than treating a group of executives to a lavish half-million-dollar resort "holiday" just days after accepting $85 billion worth of taxpayer money to avoid bankruptcy, but it's hard to imagine how.
Certainly the (ex) leaders of insurer American International Group (AIG), who were grilled by the House Oversight and Government Reform Committee, lampooned on Saturday Night Live and excoriated on every editorial page in the country for running a $443,000 program at the St. Regis Resort, Monarch Beach, in California from Sept. 22 through 30, would have trouble imagining a worse one.
And the fact that it wasn't an executive junket but an incentive program for independent insurance agents who outsold all their competitors—and that it helped drive sales whose profits likely exceeded the cost substantially—doesn't make a bit of difference, says Bill Boyd, president and CEO of Sunbelt Motivation and Travel, a Dallas-based incentive travel company.
"You'll never get your day in court on the ROI," says Boyd, a past president of the Society of Incentive & Travel Executives (SITE). "It's not for the meeting planner to decide, but a CEO should say, 'We are accepting government money, cancel everything.' If attrition would cost more, pay it."
What Comes Next
"I am very concerned," says Fay Beauchine, executive vice president of global engagement and events at Minneapolis-based Carlson Marketing. "The right to reward employees for a job well done is different than executive compensation packages for failed strategies. Keeping employees engaged and happy is a good investment for the company and for the economy. Employees of corporations can't be penalized for the good business practice of rewarding employees."
And yet, they are being penalized already. In a joint statement issued on Friday, October 17, insurance provider American International Group and New York State Attorney General Andrew Cuomo announced that the insurer "agreed to immediately cancel all junkets or perks which are not strictly justified by legitimate business needs… [including] more than 160 conferences and events, some exceeding more than $750,000 per event."
This specifically includes a $750,000 "best operator" conference planned for Las Vegas, a half-million-dollar conference that was to have been held last month at The Ritz-Carlton, Half Moon Bay in California, and a $350,000 sales conference that was scheduled for this month at the Sea Island resort in Georgia. In total more than $8 million worth of AIG conferences and events have been canceled. And as Beauchine predicted, Cuomo's office pushed AIG's new leaders to make these cuts while demanding that the New York–headquartered company eliminate or demand the return of golden parachutes and bonuses to former top executives, including a $69 million payment due to the head of the subsidiary whose investments threatened to bankrupt the firm.
"This will absolutely have an impact on the industry," predicts Boyd. "Any conscientious CEO will look at [AIG] and say, "Holy cow, we are not going to be in this position.' I had one program, an extravagant cruise in Europe, say 'No way, we are going to stay domestic.'" That executive, Boyd says, wants to be able to tell his shareholders, "Here's where we were going, here's what we did."
Richard Gaeta, president of Marblehead, Mass.–based Premier Incentives, adds: "We in this industry are not doing a good job of explaining the value of these programs as a marketing and ROI tool. During every downturn this is the classic replay: the image that [incentive programs] are boondoggles. Anything that drives revenue is positive. That is the message we have to get across to Washington, to Wall Street."
And as Boyd said, that is something that can't be done after the fact. This time, however, the incentive industry does have a response mechanism in place, or nearly so. The Incentive Federation recently brought a number of leading incentive companies [and this magazine] together to form the Industry Leadership Council (ILC), with the brief of providing more industry outreach to both business and government.
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