At companies that pay their workers particularly well, executives cite all sorts of reasons for their openhandedness: Some have determined that it reduces turnover and spurs engagement. Others explain that it helps to attract talent, especially millennials who want to work at a place in which all of their colleagues—including those on the lowest rungs—enjoy a living wage and are treated with dignity. Still others say it’s just the right thing to do.
But Mark Bertolini, the CEO of Aetna, recently offered another, starker rationale for creating more well-paid jobs: The survival of capitalism depends on it.
“If we don’t reinvent the capitalist model,” Bertolini told the Committee for Economic Development, a business-led public policy organization, “we will lose it because it will be changed for us.”
He is hardly alone in raising this prospect. Worry is mounting among top executives that the nation’s economic system may be at risk if more of corporate America can’t move beyond its single-minded focus on “maximizing shareholder value.” With income inequality at historic highs, they say, it is incumbent on business to help spread prosperity.
“Society will soon demand change through the ballot box or in the streets,” Peter Georgescu, the former CEO of advertising giant Young & Rubicam, declares in his book Capitalists Arise!, published last May.
Some fret that things may get even worse as automation puts increasing strains on the working class, particularly the more than half of U.S. adults who lack any kind of post-secondary education.
“If we focus too much on the speed of change rather than ensuring that all benefit from change, then we risk greater disenfranchisement and civil dissent,” said Stanley Bergman, the head of healthcare products and services distributor Henry Schein, as he was named Chief Executive magazine’s “CEO of the Year” in July.
At a gathering of corporate chiefs in New York last week, Allstate’s Tom Wilson was even more straightforward. “We are in danger of losing our operating license,” said Wilson, who also serves as chairman of the U.S. Chamber of Commerce.
THE “OPPORTUNITY TO WORK, TO LIVE DECENTLY”
Of all the warning flares being fired, Bertolini’s caught my eye the most because of the forum in which he delivered his remarks. My new book, The End of Loyalty: The Rise and Fall of Good Jobs in America, opens with a meeting of the Committee for Economic Development (CED) in 1943, shortly after the group’s founding.
The CED, which is now a part of the Conference Board, was then a prominent voice for the business community. And its mission was plain: Its members not only wanted to make certain that there were a sufficient number of jobs for the tens of millions of servicemen about to return home from World War II, but they were bent on making them good jobs—with good pay, strong benefits, and real security.
The CED promoted “free enterprise,” but a brand of it that would afford all citizens the “opportunity to work, to live decently . . . to provide against sickness and old age.” It was industry that should “lend a helping hand to its workers,” said Alfred Sloan, the chairman of General Motors, one of the corporations instrumental in the formation of the CED, protecting them “against the vicissitudes of life.”
Over the next 35 years or so, big American companies did pretty much just that for a huge swath of the workforce.
Hourly earnings, adjusted for inflation, rose by more than 75% for the typical U.S. worker between 1947 and 1973. Company-sponsored medical insurance became commonplace. More and more workers were covered by guaranteed pensions.
Over the past 40 years, by contrast, real wages for the vast majority of workers have stagnated. “We find that exceedingly troubling,” CED president Steve Odland and Joe Minarik, the organization’s research director, write in their book, Sustaining Capitalism, adding that “opportunity broadly and fully shared . . . is the essence of the American dream.” At the same time, corporate healthcare benefits have eroded tremendously. And full retirement security has become ever more rare.
STRUGGLING TO MAKE ENDS MEET
Bertolini realized a couple of years ago how tough it was for many of his own lowest-paid workers, like those staffing Aetna’s call centers, when the company looked into the day-to-day challenges they and their families faced. To make ends meet, he discovered, some were forced to turn to Medicaid for their children or to food stamps.
And so Aetna boosted its minimum wage from $12 to $16 an hour. The move was a boon for 5,700 of the company’s 50,000 employees, giving those affected an average boost in pay of 11%.
Aetna also enhanced its health benefits so that its lowest-paid workers would have lower out-of-pocket costs, resulting in savings of up to $4,000 a year. The company is also helping employees repay their student loans. And it has put in place a wellness program, complete with yoga and mindfulness training, to teach employees how to manage their stress.
To some, Bertolini might seem a strange champion for those struggling to get by, given that he himself netted $41 million in compensation last year. But unlike many CEOs, who’ve gotten rich by slashing costs and thereby pumping up the company’s share price in the short term, Bertolini has made clear that Aetna is willing to invest in “the business fundamentals” in a bid to generate value over the long term. That has translated into spending tens of millions of dollars on the company’s workers—who, in turn, should now be positioned to offer a better experience for Aetna’s customers, leading to higher revenue. It is a virtuous circle.
Beyond the business case, Bertolini—who grew up in Detroit in a family of very modest means and once worked on a Ford assembly line—has also emphasized that taking care of your workers is a matter of corporate responsibility. “The people out there that live in the real world need our help,” he told the CED.
THE PROSPECT OF PITCHFORKS
And then there’s the other factor: fear.
After Bertolini spoke to the CED, I was curious what he meant when he asserted that “we will lose” capitalism if the country’s current level of inequality persists. And so I asked him: Was he truly concerned that, as venture capitalist Nick Hanauer has put it to his “fellow zillonaires,” the “pitchforks are going to come for us”?
Bertolini, for his part, envisions something less violent—more “death by a thousand cuts.” Yet he has taken notice of polling, which has shown that a majority of young people now support socialism over capitalism. “That’s sort of a scary statistic,” he says.
Perhaps, Bertolini suggests, we might ultimately wind up with a system that looks more like what you find in Europe. And while that could help bring a measure of equality, he says, it could also stifle innovation and economic growth. “Has Europe flourished from an economic standpoint since World War II?” Bertolini asks skeptically.
I don’t know whether other executives who are anxious about the future of capitalism subscribe more to Hanauer’s doomsday scenario or Bertolini’s, but I do know this: Whatever form it comes in, fear can be a powerful thing.
When the members of the CED were first forging their vision for the social contract between employer and employee in the 1940s, they were motivated by a variety of impulses: a paternalistic feeling toward their workers; a desire to keep the consumer economy humming by handing out fat paychecks; pressure from organized labor.
But there was also this: If there weren’t enough good jobs, the nation might tumble into another Great Depression. And that might allow socialism or even communism to take root on American soil. “Any nation with a great unemployment wave becomes a seedbed for -isms,” cautioned Harrison Jones, the chairman of Coca-Cola and a trustee of the CED in its earliest days.
There are, to be sure, a host of companies in lower-wage industries that are investing meaningfully in their workers—Costco, Starbucks, and Shake Shack, among them. Target announced last week that it would increase its pay floor to $15 an hour by 2020.
But Bertolini believes that far too many workers are still being left behind. “I am frustrated that the pace is too slow to head off the potential problem,” he says.
Aetna, as part of its wellness program, gives its workers up to $300 a year if they get at least seven hours of sleep a night. Bertolini’s message to his fellow CEOs, however, couldn’t be more different: It’s time to wake up.