AIG Assess Corporate Compensation Structure

Case Type: operations strategy; organizational behavior.
Consulting Firm: Mercer Consulting 1st round job interview.
Industry Coverage: Insurance: Life & Health.

Case Interview Questions #00022: Your client American International Group Inc. (AIG) is a large multinational insurance company with its corporate headquarters located in New York City, New York, United States. According to the 2011 Forbes Global 2000 list, AIG was the 29th largest public company in the world. It was listed on the Dow Jones Industrial Average from April 8, 2004 to September 22, 2008.

Currently, AIG pays its insurance sales people a base salary of monthly wages and commission of 25% of new policy sales (2% of renewal). The CEO of AIG feels something is not quite right with the current compensation structure and he has hired you to assess what might be the right way to pay its sales agents. How would you go about the case?

Possible Answer:

This, in case you have not already surmised, is an organizational behavior and HR case. Again, you must first define what the “right way” is. Assume some generic definition like “the manner by which agents are both motivated and equipped to accomplish there tasks in the interests of the organization…” is applicable.

Having set up by definition, the results achieved by the above mentioned composed system are examined. The only factor determining how much the agents paid is their sales revenue. In essence, they are motivated to issue a policy to anyone at as high a price as possible. They are not motivated to give consideration to the riskiness of the insured party. The absence of such a consideration (for example) would be detrimental to the company in the long run. A more efficient compensation structure might be paying the agent on a sliding scale, depending on how risky (costly) an insured party proves to be.