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AETNA BUILDS STRONG LINKS BETWEEN PERFORMANCE AND PAY
By Sue Leroux
How does Aetna celebrate success? How do we ensure that all employees share
in the rewards of our success? How do we show people we value them?
"Bottom line, how we recognize and reward people is crucial," says Mary Ann
Champlin, head of Aetna Human Resources. "One of the ways we are changing
Aetna is by clearly communicating the kind of performance we expect and the
kinds of rewards employees can expect in return.
"Our compensation strategy is to pay employees competitively and according
to clear standards. We intend to pay for performance - simple as that," says
Champlin. "More and more - in base pay and bonuses - our employees can expect
their monetary reward to reflect how they or their business unit or their team
has performed."
Has the company always tied pay to performance? Not very well. Several
years ago, Aetna began assessing its compensation practices. "We found that
we weren't always consistent with our pay-for-performance strategy," says
Champlin. "We also began to understand how vital it is to think of the whole
package - base salary and variable pay or bonuses - as the means to provide
incentives and re-ward employees. Today, we're much further along and very
excited about the next steps. We're working with the SBUs to make sure that
all our compensation programs - at all levels - are competitive and reward
results that help Aetna reach its goals."
At the executive level, pay-for-performance is in place: In 1992 the
company had core earnings of $192 million - "totally unacceptable" according
to Ron Compton. Because of those results, Aetna paid no bonuses to top
executives.
Last year, however, core earnings improved in every business segment.
Although Aetna reported a net loss as a result of strategic decisions that
strengthened the company in the long run, core earnings were $610 million and
the total return to shareholders (stock price appreciation plus dividends) was
36 percent.
To reward those results and Aetna's progress toward its strategic goals, the
board of directors voted to pay competitive bonuses to a significant number of
executives, managers and other professionals.
EMPLOYEE MERIT AND BONUS POOLS INCREASE
The improved results were also reflected in non-executive compensation.
According to Mary Fitzer, head of base pay development and administration,
"Company-wide, merit increase and bonus pools significantly increased over the
previous year." She added that the funding reflects the company's desire to
pay for performance and remain a competitive employer in the marketplace.
But that's not all. According to Jim Gould, head of executive and variable
compensation, "More than a dozen new or revised incentive programs were
launched. They're proof of our progress in using variable pay to reward
stronger individual and team performance at all levels." Gould ticks off some
examples:
- - Individual Life - after its strong financial results in '93 - created a
special, one-time bonus to recognize the outstanding efforts of the broader
employee population.
<PAGE>
- - Other SBUs - Annuity and Small Business Market, to name two - are stepping
up their use of variable pay to give employees greater incentive to achieve
specific results. These include plans to reward customer satisfaction and
retention, in addition to sales and service.
- - Aetna Health Businesses developed a discretionary bonus fund to re-ward
outstanding individual and team contributions.
MORE ON THE WAY
But that's only the beginning. Broader measures to strengthen the link
between pay and performance are in the works.
For 1994, business leaders in Property/Casualty, Investments/Financial
Services, and corporate areas also will have special bonus pools to reward
employees for outstanding performance.
To focus Aetna's leaders on sustained financial improvement, shareholders
will vote April 29 on a new long-term executive compensation plan. The plan,
which is described in the company's proxy statement, is designed to motivate
senior management's collective efforts to increase shareholder value, which is
a measure of employees' success in building value for customers. In
connection with the plan, the company will adopt stock ownership guidelines
for senior executives. Specified grants would pay out at the end of the
four-year cycle (1993-1996) should the company's ranking significantly improve
as measured by the Dow Jones Insurance Industry Index (DJIII), with an interim
payout possible at the end of three years. The goal is for Aetna to achieve a
four-year average DJIII ranking in the top half of the 29-company index.
To achieve this long-term goal, Aetna leaders must intensify efforts to
focus employees on customers, on developing and selling competitive products,
on reducing costs, improving profitability, and creating an environment where
employees can fully contribute and excel.
This year, Aetna will continue introducing the Job Value System (JVS) -
which will eventually eliminate job classes. In place of classes will come
job families - fewer, more broadly defined jobs. This change will result in a
more relevant framework for paying for performance. Organizations will be
implementing JVS according to timetables established last year.
Beyond compensation, other rewards and recognition programs are on the rise.
The Chairman's Award, Hats Off, Aetna Health Businesses' Leadership Award,
Annuity's B.E.S.T. (Be Excellent in Service Today) Award and Life's Star
Service Award are examples of how businesses are recognizing and rewarding
people who contribute to the company's performance.
Bottom line? Champlin says, "We're working to make sure that the more than
$1.5 billion Aetna spends in compensation each year is used effectively. And
we're working to make sure that Aetna employees receive competitive salaries
and incentives for performance that improves customer service and supports our
business goals.
"It's important that our employees understand our compensation strategy and
programs and how they link to business goals," Champlin added. "If you have
questions, you should discuss them with your supervisor."
Sue Leroux covers compensation for AetnaSphere.
