Aetna’s Wage Floor Increase

Aetna embarked on the decision to increase the wage floor for its employees who fell within the lowest percentages of the wage scale. The increase in wages was promoted by shifts in the economy as well as the need to employ a high-level of new talent. To accomplish this goal, Aetna decided to increase the starting salary of it’s domestic employees to $16 per hour. This decision would not only impact the employees positively but would also allow the company to produce and develop exponentially in the long run. Although the current economy showed decreases in the rate of unemployment, Aetna is hopeful that this change would decrease employee turnover and entice new talent to come aboard. At first glance, this change may seem to be challenging for the company initially, however the profit and revenue the company stands to gain, outweighs the initial investment.

Aetna’s Wage Floor Increase

Aetna, one of the largest health insurer companies, decided to set a $16 an hour wage floor to increase the wages of 5,700 employees nationwide. These individuals fell in the lower income levels of the company’s employees. Due to talks regarding wages, “State and local governments around the country have moved to raise minimum wages…” (Matthews & Francis, 2015, p.186) classifying this decision as a nonprogrammed decision. The decision to implement such a wage floor would be out of the norm for Aetna and carries high levels of risk and high uncertainty. Although reasoned judgements in the form of research was conducted, in part by watching the actions of other company’s such as Gap Inc. and Starbucks Corp., there is no way to know for certain the increase in income would draw the top candidates they hoped for. In addition to this, it is also ambiguous that the rise in wages would reduce employee churn and solve the company’s retention problem.

One way to reduce the loss of employees and pursue a higher caliber of new employees, Aetna also made the decision to “cut health-care costs for many of the saine employees…” (Matthews & Francis, 2015, p.186). To accomplish these goals, it is imperative for the manager and/or management team to use sound decision making models to ensure the quality of their decisions and reduce the risk associated to their decision making.

Managers recognized the need to make this decision because of “signs of a tightening labor market” (Matthews & Francis, 2015, p. 186) and the country’s turn to raising the minimum wage levels nationwide for those individuals who fell within the lowest levels of the wage gage. Another reason managers at Aetna made the decision to raise the wage floor was due to the shift in the insurance industry. This shift follows a more “consumer-oriented business” and Aetna’s Chief Executive Mark T. Bertolni says, “Aetna wants a better and more informed work force” (Matthews & Francis, 2015, p.186). Economists also researched wage improvements which were trailing other economic movement. Because of this, they foresaw the need for an increase in employee salaries. The effects on individuals in the low-wage categories promoted conversations with labor groups which led the SEC to craft “a rule requiring publicly traded companies to disclose how much their CEOs make relative to their average worker” (Matthews & Francis, 2015, p.187). The large disproportion between the incomes between the higher executives and low-wage employees may have caused more of a concern when Aetna identified that none of the 5,700 employees were making the minimum wage amounts in their local areas (Matthews & Francis, 2015, p.187).

In my opinion, although Aetna’s decision to increase employee’s wages to $16 was unprogrammed, I believe satisficing played a minimum role in the decision making. Aetna had the means and opportunity to fully assess the potential risk and investigate alternate solutions prior to implementing the change. Although there may be some pressure to increase wages based on the economy, it seems that Aetna was in a position to discuss all alternatives in an efficient manner.

As a company, salaries were reviewed based on the current market for its lowest earning employees and steps were taken to make a change that would not only benefit its employees but would also be for the betterment of the company in the long run. Even though there was an initial impact financially over a few years, the cost-benefit analysis would reveal that the cost is insignificant based on the size of the Aetna. The cost-benefit was in favor of the company over all and this alternative was not one that could be passed up. Based on the four criteria used by managers (legality, ethicalness, economic feasibility and practicality) to evaluate the advantages and disadvantages of different courses of action, I would evaluate the decision by Aetna to raise the wage floor to $16 for 12% of its work force as legal, ethically sound and economically feasible.

The course of action taken did not affect any government regulations domestically or internationally in an adverse manner. Considering the company’s stakeholders and all parties involved, the decision to increase the wage floor did not favor one particular group and in this case was a benefit for the company. By increasing the floor, it allowed Aetna to find the high-level talent it needed to grow and expand the company over time. Increasing employee wages also shows that the company is invested in its employees which in turn builds morale which can lead to an increase in production. Economically speaking, the decision was feasible as the increase in wages allows for more economic growth.

As economist said, “there’s a very strong relationship between wages and turnover” (Matthews & Francis, 2015, p.187) and although Aetna is taking choosing to gamble slightly by increase the wages of employees, it’s one that could pay off large dividends for the company and the economy if other company’s follow suit.