CEO Mark Bertolini offered a host of good business reasons for substantially raising customer-serving employee wages – plus unusual sensitivity to employee economic struggles. Clearly Bertolini was trying to give his company a recruiting and retention edge. But did he instead fire one of those rare “shots heard round the world” (or at least the country)?
The unintended consequences of Bertolini’s actions could be huge for our economy – could be. Back in the recession Ezra Klein wrote in the Washington Post, “…the problem (with the economy) is that indebted employees aren’t spending as they usually do, which means business isn’t hiring, which means consumers have less money to spend, which is creating a vicious cycle of economic stagnation.” Actually, the cycle is worse than Klein described because employers have relentlessly driven wages down to levels we wouldn’t have imagined 30 years ago. But how are we going to escape the cycle? Yes, employment has to keep rising. But even more so, wages have to rise – a lot.
Aetna’s adopting the “Costco compensation model” may stay an anomaly – like Costco, Gap, Starbucks, Shake Shack and others. But coming now – when sellers are impatiently waiting for consumer spending to rise, income inequality is turning the public against business and many more consumers and a few executives realize increased consumer spending and only increased consumer spending can lead our economy out of the wilderness – could the boldness of Aetna’s move trigger a much broader round of wage increases that will finally put some jingle back in buyers’ pockets? In my most recent book I expressed skepticism corporate America would budge, but should we have more hope now?
In the book, The End of Poverty, by Jeffrey Sachs, the author mentions three societal benefits that corporations don’t ensure: 1) stability in financial markets, 2) equitable distribution of income, and 3) custodianship over the environment. As an economist, he believes that positive outcomes in these areas cannot be left purely to corporations, hence the role for government. When I heard him speak a few years ago, he described himself as believing in markets, but not in ‘free markets.’ Amen to that. I also believe that offloading the public good to profit-seeking corporations is a recipe that guarantees systemic inequality. So does chronic government intervention, so you can see my ambivalence on this topic.
While I admire Aetna’s effort, I question whether the move was entirely altruistic. After all, management has a clear and compelling interest in shareholder return. Could the move trigger a broader round of wage increases? Outside of the companies that are competing for Aetna’s employees, I’m not optimistic that other enterprises will follow suit out of sheer magnanimity.
Andy – good comment. I agree with all but the last paragraph, where you still might be right. However, public uproar over low wages could push government to intervene, and that gives me hope (some) that first a trickle and then a steadier flow of companies start realizing continuing to play hardball with employees, who are also voters and customers, could backfire. Let’s hope
Hello Dick,
Management in US corporations has spent a huge amount of time, effort, money and political capital in crushing labor. Why? To reduce the share of the pie that goes to labor (the workers) and maximise the share that goes to Tops and shareholders. The same occurred here in the UK with the rise to power of Margaret Thatcher.
So why would management now change its ways? Right now management has the workforce where it wants it. There is such a demand for jobs and such a shortage – especially of the kind that we are talking about (customer service, clerical work). In the UK, so many of those who lost their jobs in the recession and have been able to ‘find work’ are on zero hours contracts. Plenty of university graduates are working as unpaid interns. Some are even paying to work as interns! What could be sweeter music than this to employers?
If all it took to put enlightened management practices in place was seeing enlightenment practices in place in other companies. And yielding impressive results then we have Ricardo Semler showing us the way in Brazil. We have Zappos showing the way in the USA. We have the John Lewis Partnership showing the way with an employee owned organisation doing really great (whilst others struggle) here in the UK.
And then again the Berlin Wall did come down when it was least expected. So anything is possible given that we collectively determine the future. And one man can trigger large scale change.
All the best.
maz
Maz – I love your last paragraph. And I agree with most of your points. Especially because the U.S. economy is improving cosmetically, but not nearly enough to shift demand for labor over supply.
However, while the top 10% of Americans are feeling good again, below that level the optimism fades quickly – and as I cover in my new book anger is rising, between buyers and sellers, employers and employees and voters and government. It won’t take more than a single spark – such as politicians seriously undermining the Affordable Care Act here – before anger turns into stronger actions.
That’s why I hold out some hope public anger will channel into action – hopefully not destructive action.
How does that compare to the UK?
Hello Dick,
Remember the American Revolutionary War? It was you, Americans, who took up protest and then engaged in war to get your independence. So like the French you have protest/revolution as part of your cultural heritage.
The same is not the case in the UK. There was a moment early in the life of the current government when the middle classes embraced peaceful sit-in’s and protests. And the younger folks protested and some rioted. The government dealt with both quickly and ruthlessly. The peaceful middle class protesters were tricked under assurances, prosecuted and given jail sentences. The younger folks (including middle class university students) were given even harsh sentences. The idea was to make an example. And it worked. No more sit-ins, protests, or riots.
In the UK, we are an apathetic bunch. We may grumble and take it out on the immigrants / foreigners. And we will exercise the “stiff upper lip”, not let our emotions through, and wade our way through the current mess. And into the next one.
We are not a passionate/revolutionary people. It is not part of our cultural heritage. After all during the Corn Laws millions were deliberately allowed to starve to death by the government. And folks just took it.
All the best
maz
Maz – thanks for a very interesting perspective and some new (for me) insight.
Dick.