Opening Case: Raising the Bar

Case Summary

Aetna recently made a startling announcement: the insurance giant increased the base wage of its lowest$-$paid employees to at least $$16$ per hour, more than double the federal minimum wage. This increase in pay affects $12$ percent of Aetna$$s $48,000$ employees and has a significant impact on both the employees and the company. The lowest paid employees, who had a base rate of $$12.$ per hour, received a $33$ percent increase in pay, with the average increase of those affected being $11$ percent. In addition, the company is extending health insurance benefits to nearly $7,000$ employees, lowering their out$-$of$-$pocket costs by up to $$4,000.$

Research has shown that low$-$wage workers are more likely to quit than their higher$-$paid counterparts. The costs associated with recruiting, hiring, and training new employees can be very high, so a high turnover rate comes with significant hidden costs. In addition, CEO Mark Bertolini thinks that the pay raise will make workers more productive. Many of the lowest$-$paid workers are employed in the company$$s call centers. On top of the stress of their job, these low$-$wage workers face the challenges of paying their day$-$to$-$day expenses with such low pay.

This is exactly the logic that led Aetna to take this bold move. Bertolini was surprised to find that many of his employees were on public assistance, such as food stamps and Medicare. He was shocked $$that we as a thriving organization, as a successful company, a Fortune $100$ company, should have people that were living like that among the ranks of our employees.$$ Aetna was careful to ensure that the raises that they awarded employees were substantial enough to offset any loss of public assistance benefits, so that they truly ended up in a better financial position after the change.

Bertolini also believes that Aetna$$s shareholders, the owners of the company, are supportive of the change. $$We positioned it with them on the economics first, but went to this very notion of $$this isn$$t fair.$$ We need to invest in our employees. We need to help restore the middle class, and that should be good for the economy as a whole. And so for us it is as much$$probably$,$ for me personally, more$$a moral argument than it is a financial one.$$

Think It Over

Do you agree or disagree with the notion that increasing pay will directly motivate employees to be more productive?

Do you think improving employee benefits would have the same effect as raising pay? Why or why not?