To the CEO of Aetna: Three More Ideas to Reduce Inequality

Last week, the CEO of Aetna, Mark Bertolini, announced the company's plan to boost wages of their lowest paid workers to a minimum of $16/hour, jumping way above the federal minimum wage. The company falls in line with other market leaders-especially retailers-like The Gap, Whole Foods, The Container Store and Starbucks. Costco, the real innovator, has a long-standing policy of paying way above their competition--a practice that has served them very well.

Yet, as the first major company in the health care industry to make this move, Aetna has earned its headline in the Wall Street Journal. Next year, the company will take a further step and enhance the health care benefits for income-eligible worker families, whose benefits were hit in the go-go years of fixation on stock price.

The rationale for this increase was presented in business terms: by upping wages, the company hopes to attract workers with better skills and to enjoy higher retention in a competitive industry that is increasingly consumer facing. This comes at a time when workers might start jumping ship as the economic recovery opens up new options.

But Bertolini isn't just thinking about dollars and cents saved by cutting down on turnover. He assigned Thomas Piketty's best seller on inequality as reading for his top managers and made this statement when the pay decision was announced: "Since I became CEO, one of my goals has been to help re-establish the credibility of corporate America." He added, "With these investments, we are leaning into the recovering economy and working to bring everyone along instead of just a few."

What could Bertolini add to his play book if he wants to have an even bigger impact on inequality? What might his peers - other executives thinking past the stock price today and with concern over of the health of the wider system that feeds them-what might they do besides elevate their internal minimum wage to "re-establish the credibility of corporate America" and "bring everyone along instead of just a few"? Here are three ideas that don't require any government intervention-but would have even greater impact on pay differentials. They might even help Bertolini in his quest to restore trust in American Capitalism:

  1. Inquire about pay policies for your company's hidden workers. Along with reductions in benefits for full time workers, another factor in inequality is the shift to casual and part-time contract workers for jobs that used to be on the payroll-from cleaning offices to call centers. The drive to maximize profits and bump the stock price was the driving force behind stripping these essential workers of full-time work with benefits in the 1990s. What choices might be revealed by taking a much closer look at the standards for pay and benefits of contractors who work in your name?

  • Reconsider who walks home with stock and equity incentives. While government reallocates wealth through tax policy and subsidy-business is the creator of wealth to begin with. What elements of business design are most effective in creating shared prosperity? Profit-sharing structures that facilitate broader employee stock ownership not only help spread the wealth around, but research suggests they also make for more resilient, high-performing organizations with a loyal and productive work force.
  • Realign executive pay. Principles of good organizational design advanced by Peter Drucker among others offer a concrete, common-sense approach to pay equity. If we agree that value-adding managers doing complex work deserve compensation for what they contribute, then "felt fairness" research supports an internal pay equity multiplier of ~2.5x between manager and direct reports. These calculations can be extended up the corporate hierarchy, from front line supervisor to the CEO-and firms like Intel have already done so.
  • Cynics will point out that while Aetna may be a first mover in the health care industry, the total cost of Bertolini's announcement is chump change. Aetna's profits weigh in at about $2 billion per year. The cost to the enterprise of the announced improvement in pay and better health care for low-income workers is estimated at $25 million for 2016. That is a miniscule amount for a corporation of Aetna's size - and less than what Bertolini personally made in 2013, according to Forbes pay survey. But for change to happen, we need executives who are confident enough in their own skin to take action against inequality. Bertolini has taken the first step; let's see where his next foot falls and who he might bring along in his journey.