Its with jobs. The issue is balancing the adjustment costs of moving people in markets to the longer run growth benefits of having more efficient markets. And that doesnt mean always that more is always better. But it means that preventing competition is always worse. So you have to figure out how to get around this. And thats the struggle where all of us in good faith are trying to figure out where the right point is on this issue. The final thing, before we turn to lunch and then to mark bertolinis speech, is that we are in a world and i dont want to come down on the public because i dont know enough. But were in a world where the reality is yuanou on union nigh zags is at an alltime low. And so in that context for those of us who care deeply about the distribution of wages, one thing you can talk about is giving more power back to union. Another thing you can talk about is well that doesnt seem to be happening at the moment. Do we have another avenue. And there again is where the productivity omgseity comes in because thats how you bride a corporation in a sense into doing the right thing. Thank you all for joining us this morning. Well reconvene in 15 minutes at 12 15 for an address by mark bertolini. Lunch is available for those of you in reality. Those of you on the web and cspan have to go feed yourselves. And just another round of thank you to our colleagues, justin, damon, michael and jacob who did a great job today. Thank you. [ applause ] ladies and gentlemen welcome back to your previously scheduled programs. It is my pleasure to continue from our Economics Panel more into our practical world. We have as a special treat today, mark bertolini, the chairman and ceo of etna who is going to talk about the role of Corporate America and reestablishing the middle class. Thats about as targeted and blunt a title you can have which i find typical of mark. Many of you have become familiar of him recently as he got immense coverage in the the New York Times and elsewhere for his leadership. And i think it is fair to say the word leadership. And taking aetna forward amongst other companies in voluntarily raising the wages of workers in its company. Something so far at least none of the other Major Health Insurers in the u. S. Have announced. We have gotten to know mark over the last few years. Hes been a member of the board of the peterson institute. We always knew he was an interesting provocative real world person. He didnt quite know he was going to do this. He came to us a little ahead of when he was working on this and asked us to think through the economics of not for aetna. Because he had already talked to his managers and shareholders and thats not our expertise. But to think through in a bunch of companies were to follow the example, who would they be, how many p how much of an impact would they have and what are the policy encouragements that might go with that. But i want to stress that marks view has been repeatedly this is about what Corporate America can do, which i think certainly doesnt end the conversation there but certainly is a part of the conversation that has to be said. And were very grateful to have mark with us to do that. Hes a distinguished career at aetna. He was just mentioning at lurch that even though he doesnt believe in the earnings per share accounting, hes done a good job. Hes held positions a cigna, select care, hes on the director of the Verizon CommunicationsMutual Life Insurance company, a couple of leading charities. And as i mentioned, hes a member of our board. And aetna supports us but in this case we have something to learn from aetna. With that in mind i invite mark to the stage. Thank you very much. [ applause ] thank you for inviting me to speak today. Good afternoon, everybody. A little bit about who i am not. I am not an economist. So ill offer those apologies up front. I am also not your typical ceo. I am probably one of the quickly vanishing examples of living the american dream. I paid my own way through college working for three different unions the steelworker, sicu and the aiw. I came from a union family. My dad and mother both worked part time so we didnt have insurance most of the time. My mother was a nurse. It took me eight years to get through undergrad because i was sirius about it at Wayne University and i was fortunate enough to get a scholarship to cornell where i intended on going back to work in the Auto Industry in the unions but was enticed to start an hmo with four friends of mine. Here i am in front of you to talk a little bit about why we did what we did at aetna. But more importantly why we think corporations and leadership in corporations have sort of lost their way. There is a big story in all of this that we can have a real impact. And when i took this job as ceo at aetna four years ago, i said to the board i had three sort of goals in mind. Im the 14th chairman of a 164yearold company. So i have an obligation to make sure that we have a commercial asset that continues into the future hopefully for another 164 years. The second was that im a very strong supporter of Health Reform in the United States. Its a shame that we have people that are uninsured in this country. And even though they may have access to health care, its quite frankly poor access. And i wanted to make that work. I devoted my organization and my time to making health care work. We have been behind the scenes as a company and well soon be the Largest Company on the federal exchanges in the United States in supporting the Affordable Care act. And then finally the last one, which is just a small goal but i thought it would be worth tackling is reestablish the integrity of corporate leadership in the eyes of the american public. And that has been a little more daunting than it thought it would be. People have all sorts of suppositions about who i am and how i behave. I dont summer. I learned that was a verb when i became a ceo. In the hamptons. I hang out with my buddies on motorcycles and cruise around. Im a pretty straightforward person. What i want to start with is our mission as a company. The single biggest threat to the Financial Security of every human being on the planet will be their Health Status in the future. 75 of the next 10 trillion worth of debt in the United States will come from medicare and medicaid. So when you look at the impact of Health Care Costs around the world, and every country were involved with and we paid for health care in every country in the world as a company. There is a problem that threatens every economy. I tell our folks if we can create a healthier world with healthier individuals healthier communities where i think health care ought to be based and then healthier nations wed have a better world to live in a more friendly place to live in and a more productive place. And our view of health is really that is healthy individual is productive, a productive individual is economically viable and an economically viable person is happy. Thats what we mane by healthier world. Weve been talking about this number all along. Im on a couple of boards. We look at household income. Its been flat for the last few years if you take a look at it. Wages are not supporting life styles of the people that do worker for us in our company at the lower levels of our organization. Thats 7,000 employees now that are below 300 of the federal pofrt level in their household. We just dont believe that the income and equality is sustainable. Two christmases ago a year ago this last christmas, i read a book and got a copy for all of the people on the executive team. I said heres some christmas reading for you because this is a point of view and an alternative. Who are we as an organization as executives. What are we going do as a company to find a way to make this different versus letting it happen . Do we want to be friends as a company . As a country . And how do we make it different and what do we need to do. That began the dialogue around or organization about whether or not we were taking care of our people appropriately, whether or not we were investing in our employees. So when we look at the amount of Corporate Cash sitting around the world its 3. 8 trillion. I kind of find it hard to say. 3. 8 trillion in cash sitting on shore or offshore. Cash is plentiful. And ill make the beginning of an argument around business education. Weve lost our way in the way we educate our Business Leaders because were normally taught the husband scarce resources and to put at risk plentiful resources. And for some business educations we are told that the scarce resources always capital so we should husband capital. Were going a great job of husbanding capital right now. 3. 8 trillion in cash. They closed their gates and then reopened thep them when it was safe. Were sitting on huge stash of cash. And thek÷ always assumed are people. But theres always plenty of people to go around. And i will make the argument that i think thats flipped. When i talked to my board of directors at the strategy we need to pursue, our single biggest risk is our human talent in the organization to make that happen. We have plentiful cash we borrowed 2. 5 trillion to do our latest acquisition at 1. 9 after tax. You almost cant screw up an acquisition that badly to not make a return on that kind of cash. So ive got a few these are for those of you that were educated in Business Schools, these are the numbers we Pay Attention to. And were told that these are if numbers we get measured by and this is how we get rewarded is that we maximize return on equity return on invest in capital, that we have to hit our Quarterly Earnings per share number and that the pe is really sort of a result of dividing the stock price by earnings per share. I would argue that the most important number on this stage is pe, a third, Human Capital. Let me make this argument. We would rather invest in technology and new equipment because we can capitalize and depreciate it than invest in our workforce. Because its all expense. We have been educated as Business Leaders that we create spread sheets that have numbers on them that is the truth. Once the numbers are in the cells, its truth. And we manage our businesses to those variances. In reality, the numbers in those spreadsheets cells are all lies from the getgo because theyre going change as we go through our business. Az and that what we need to understand are what are the underlying assumptions within each of those spread sheet cells, what are the variances around them. And when we array automatic of those variances on top of one another, what are the risks associated with the effort that were about to undertake. And is it a worth a risk worth taking. Thats what incense innovation. Not what is true. Not what we prove. But what we believe is a risk worth taking as a big in order to make the business work. Aetnas total shareholder return over the last four years is over 275 . Our earnings per share have grown at 13. 5 over that time. So what is the difference . Its the price earnings multiple. What is the prince earnings l multiple . Its the streets belief as to whether or not we can create a sustainable valuable product that our customers will continue to buy over time. And i argue that investing in the pe has given us a greater return. As a matter of fact if you look at the guidance to the street it has been well below the 15 . Weve guided to about 8 or 9 . Weve generated 12. 5 to 13. 5 but yet our shareholder return is up over 275 over that time frame. Its because we deliver a consistently valuable sustainable product to our customers. Its about growing the top line by keeping our customers. Who does that . Well our 1. 2 billion cost structure, 6 billion of it is people. Human capital. That number at the bottom which should really be at the top. So the traditional measures of success really should be different. And when we look at our employee value proposition, we looked at wages, we looked at benefits and Employee Engagement, we looked at turnover costs. And you can see those arent some of the traditional costs that we could do to put into a spread sheet to come up with the truth to say whether or not spending 26. 5 million a year is worth an investment to reduce 120 million worth of turnover costs, which is what our turnover costs are every year in a 6 billion people budget, its 120 million a year in loss of productiveityproductivity, training, rehiring of staff. Duplicate staffing in order to cover productivity curves. And our Employee Engagement like most employers have been dropping every year for the last five years. If you look at Employee Engagement across most corporations, those scores have been going down. So we realized a new economic model was necessary. And we started this four years ago and we started first with investing in the health of our employees and we started with Wellness Programs. We started with subsidizing their Insurance Coverage based on their income inside the company. So we created six Different Levels of stratify occasion wages inside our organization where people at the bottom 45,000 dollars a year didnt pay anything out of pocket for their premiums, i pay 62 at the top. We looked at wages which we found we had about 5700 employees who were making around 12. 5 to 13 an hour and we looked a the our Health Benefits which were becoming increasingly unaffordable for our employees as we increased the deductible, the out of pocket, reduced the trend every year by the virtue of the benefits that we offer not really thinking about whether or not those employees could afford. We invest in wellness, lets get them to stop smoking, lets get them to start kpaer sizing, keep the wages where we think the market clears and make sure the Health Benefit cost to us as an employer are reduced. Why . Because its an expense. Its in a spread sheet and we can actually control because all of those employees work for us. We can touch them every day. Well what we came to find out i sort of asked this question and i encourage you in your organization to ask this same question. Who are the people at the lowest levels of compensation in your organization . Do you know what theyre like . How they live their lives . Asking that question was a much more formidable problem than i thought it was going to be. It took us over a year to come up with the actual profile. And ill talk about those in a minute. But what we did was we started to invest first in our Wellness Programs and we started with eating properly exercising properly creating game theory and we nervous in mindfulness and yoga. Ill give you an example. Im a big yoga proponent. Of the top quinn tile of stress in our organization measured by heart rate variability and court sol levels those employees were spending 2500 a year more than health care. We eve now put 13,000 employees through the program. Those employees take a 12week online mindful course or a 12week yoga course and weve seen 69 minutes a month of higher productivity. Seen their Health Care Costs drop and we saw our trend in health care go down the trend go down, okay it wasnt a reduction in trend. Our Health Care Costs went down by 7. 5 . Just by investing in their stress levels. We then looked at the wages and we found that this employee population was 81 women in our organization, most of them single mothers who had a portion of their children in medicaid because they couldnt afford our dependent coverage and they were on food stamps a significant percentage. I said to the team, how is it possible a fortune 400 company, executives get paid very well, how can we sit here and let people be on medicaid and on food stamps and what do we need to do to change that dynamic. So we went through the struggle of the terrorism of the spread sheet. Lets put all of the numbers on a page and lets do a calculation. What can we really come up with. And so the first bidding was, lets go from 12. 50 an hour to 13. 25 an hour. We went through this a couple of times and i said why dont we try 16 dollars and see what happens. You would have thought we were giving the company away at one point because that was a very big number for a lot of people, about 10 billion. And then we look at the impact of wages on benefits. If you increase peoples wages, they lose their benefits. Or those wage increases go to benefits. So we said what can we do to actually manage the highest level of increase in personal disposable income among this population. So 5700 employees, the average increase is 11 . Everybody gets at least 16 an hour. For some its as much as 33 in actual income. The increase is actually effective today as our annual increase. So everybody got their raise this morning. And their bonus in 401 k contributions will actually be higher because its based off of their base wage. The second part is that we will now offer enhanced benefit program for our employees where theyll get the richest medical plan for the least expensive amount. All they have to do is submit an application to a third party who will verify that theyre under 300 of the federal Poverty Level as a family and well subsidize their Health Benefits. And so for a lot of these employees, the savings could reach up to 4,000 a year. And for them thats a significant amount of money. Now there is a quid pro quo. We will take care of them if they take care of themselves. So we have a number of screening programs that we would like for them to go through. If they engage in their disease management programs engage in getting healthier, well make that investment in them and eliminate their out of pocket costs as long as theyre taking care of themselves. The goal