Aetna CEO Mark Bertolini has announced a wage floor of $16 an hour for its US employees, according to the Wall Street Journal. Aetna is a major provider of health insurance to companies and individuals, and a member company of the Center for Higher Ambition Leadership.
Bertolini framed the decision in Higher Ambition terms. “It’s not just about paying people, it’s about the whole social compact.” Bertolini told the Journal that the company hopes that higher wages will help it attract top talent and increase retention rates of customer-facing workers. Aetna wants “a better and more informed work force.” He said that the investment is small relative to Aetna’s size and “I’m willing to make the investment whether or not this happens.” The program is projected to cost Aetna $14 million this year and $25.5 next year. Aetna projects operating revenue of $62 billion in 2015 with operating profit of $2.4 billion.
“We are preparing our company for a future where we are going to have a much more consumer-oriented business,” Bertolini told the Journal. The wage shift will affect approximately 5,700 employees, largely in customer service and billing functions, or about 12% of the total workforce. It represents an 11% increase on average but a raise of 33% for some. The wage increase will take effect in April. Aetna joins Starbucks, The Gap, and others in setting a wage floor higher than the Federal minimum wage.
Aetna is working to change the “social compact” with its employees on another dimension as well–healthcare. Next year the company will allow workers with household incomes below a threshold, and who are willing to commit to engage in wellness programs, to choose health insurance that comes with lower out-of-pocket costs with no increase in premiums. This could save a worker with family coverage as much as $4,000 annually. The change could affect as many as 7,000 workers.
According to Russ Eisenstat, executive director of the Center for Higher Ambition Leadership, “We applaud Aetna’s leadership for working to reframe their relationship with a critical segment of their workforce from transactional – where compensation is viewed just as a cost to be managed down – to transformational where the interests of the company are aligned with the needs of workers to build something that is better for both. It is great example of the potential power of what MIT professor and author Zenyep Ton has referred to as the ‘good jobs strategy.’ Ton has shown how companies such as Costco and Trader Joe’s have achieved superior performance by ensuring that workers have well designed jobs and are making enough to have a decent life.”
Harvard economist Lawrence Katz told the Journal that higher wages can translate into lower turnover and better performance. Eisenstat said, “Each company needs to come up with their own answer given their unique circumstances and competitive context. But hopefully Aetna’s example will prompt others to ask whether they want to stake out a position of leadership in their industry in realizing the benefits of investing in employees at all levels, including the front line where turnover has traditionally been high.” As Bertolini highlighted for the Wall Street Journal, “Why can’t private industry step forward and make the innovative decisions?”