TOTAL REWARDS Student Workbook
Benefits and Business at Aflac and L.L. Bean
By Sandra M. Reed, SPHR
Project team
Author: Sandra M. Reed, SPHR
SHR M project contributors: Bill Schaefer, SPHR
Nancy A. Woolever, SPHR
External contributor: Sharon H. Leonard
Copy editing: Katya Scanlan, copy editor
Design: Kellyn Lombardi, graphic designer
© 2009 Society for Human Resource Management. Sandra M. Reed, SPHR
Case overview
© 2009 society for Human Resource Management. sandra M. Reed, sPHR 1
In its 2008 annual Job Satisfaction Survey Report, the Society for Human Resource
Management (SHR M) reported that for the past five years, employees rated
compensation and benefits among the top three aspects most important to their
job. But despite the importance of these aspects, employee satisfaction with their
compensation and benefits packages remains low. According to a Conference Board
report, “employees are least satisfied with their companies’ bonus plans, promotion
policies, health plans and pensions”. Employers are missing critical opportunities to
maximize employee job satisfaction and other organizational outcomes through their
total rewards programs.1
In the book Dynamic Compensation for Changing organizations: People, Performance
& Pay, The Hay Group asserts that traditional pay structures no longer keep
pace with the emerging, strategy-focused organizations that exist in today’s
globally competitive market. “What shifted were organizational work values, work
cultures and business strategies. Although they have been largely overlooked,
dramatic changes in the organizational rules have frequently rendered traditional
compensation strategies ineffective. Employees today are expected to work in teams
rather than solely on their own. They are expected to keep learning new skills and
to assume broader roles. They are expected to take more risks and responsibility for
results. As a consequence, we are slowly coming to the realization that we may be
paying for the wrong things, sending inconsistent messages about the company to its
employees, or creating artificial expectations of continued advancement and raises,
no matter how well the company performs.”2
Furthermore, in its publication Implementing Total Rewards Strategies, SHR M
notes that “the right total rewards system—a blend of monetary and non-monetary
rewards offered to employees—can generate valuable business results. These results
range from enhanced individual and organizational performance to improved job
satisfaction, employee loyalty and workforce morale.”3
Today, HR professionals are responsible for programs far beyond the profession’s
administrative personnel roots. They are expected to measure the success or failure of
HR practices based on the achievement of organizational outcomes. Brand identity,
bottom-line profitability, employee job satisfaction and increased management focus
are all outcomes that can be achieved in part through an organization’s total rewards
program. This case examines two very different organizations and how they align
their total rewards programs with their organizational goals and values.
Aflac Insurance
2 © 2009 society for Human Resource Management. sandra M. Reed, sPHR
Company Information
Aflac is a Fortune 500 insurance company founded in 1955 by three brothers, John,
Paul and Bill Amos. Today, Aflac employs more than 4,500 people and has more
than 71,000 licensed independent agents throughout the United States and Japan.
The following is an excerpt from the New York Stock Exchange business summary.
“Aflac Incorporated is a general business holding company and acts as a management
company, overseeing the operations of its subsidiaries by providing management
services and making capital available. Its principal business is supplemental health
and life insurance, which is marketed and administered through its subsidiary,
American Family Life Assurance Company of Columbus (Aflac), which operates
in the United States (Aflac U.S.) and as a branch in Japan (Aflac Japan). Aflac’s
insurance business consists of two segments: Aflac Japan and Aflac U.S. Aflac Japan
sells cancer plans, care plans, general medical indemnity plans, medical/sickness
riders, living benefit life plans, ordinary life insurance plans and annuities. Aflac U.S.
sells cancer plans and various types of health insurance, including accident/disability,
fixed-benefit dental, sickness and hospital indemnity, vision care, hospital intensive
care, long-term care, ordinary life and short-term disability plans.”
AFLAC Corporate Philosophy
“Since its beginning, Aflac has believed that the best way to succeed in our business
is to value people. Treating employees with care, dignity and fairness are founding
principles of Aflac.”
Aflac’s mission
To combine innovative strategic marketing with quality products and services at
competitive prices to provide the best insurance value for consumers.
© 2009 society for Human Resource Management. sandra M. Reed, sPHR 3
Guiding Principles
To offer quality products and services at competitive prices and use new technology
to better serve our policyholders.
n Build better value for our shareholders.
n Supply quality service for our agents.
n Provide an enriching and rewarding workplace for our employees.
The case at AFLAC
With a desire to be an employer of choice, Aflac Insurance is no stranger to the
competition for talent among employers in the United States. In fact, according
to the Bureau of Labor Statistics (BLS), the unemployment rate in the insurance
industry was at 3.3 percent in March 2008, a number consistently below the
National and state levels in other industries (Exhibits A and B). This makes finding
and retaining qualified individuals to deliver positive results to shareholders an
ongoing challenge.
Organizational outcomes related to human resources at Aflac reflect many of the
basic functions, including recruiting, retention, diversity and training. At Aflac, the
company strives to deliver quality service to its 4,500 employees while staying
competitive in the insurance market. Aflac prides itself on being ahead of the curve
From a consumer perspective and desires to mirror that philosophy in its treatment
of employees. How does the company made famous by the duck maintain the
integrity of its brand while delivering results through its people? How important are
benefits and compensation to the company’s ability to compete in a growing
industry?
Casey Graves, vice president of human resources in charge of compensation and
benefits at Aflac, says that the needs of the company’s employees continue to be the
driving factor behind Aflac’s total rewards programs. As with most programs, it
begins with an employee needs assessment and continues to be measured through
outcomes, which have been directly influenced through the company’s enhanced
total rewards efforts. The consistent thread throughout this process, according to
Graves, is the quality of communication. Graves explains that Aflac’s total rewards
statements have evolved from a one-page document to an in-depth review of the
true value of the employment compensation and benefits.
Employee satisfaction surveys and focus groups conducted in 2007 with Aflac
employees and managers drove the needs identification process. A key focus of
the survey was to help recruit talent and improve retention in an industry with low
unemployment rates. Although survey results varied, Aflac’s response was consistent:
to give employees what they need from a benefits perspective while balancing the
cost, all within a rapid period of growth.
4 © 2009 society for Human Resource Management. sandra M. Reed, sPHR
Throughout the process, the company focused on providing value-added programs
that would improve employee job satisfaction, support organizational initiatives
and provide opportunities for professional development. Aflac seeks to accomplish
this by:
N Providing Aflac products to employees at little to no cost—for example,
offering employer-paid life insurance, a company-paid cancer policy and company-
subsidized accident protection insurance.
Providing total rewards in line with philanthropic goals. Aflac dedicates
resources to efforts that support the community in four areas: health,
education, youth and the arts. One benefit offered to Aflac employees is the
recognition of a “Volunteer of the Month,” in which an employee is awarded
for the time spent volunteering at his or her charity of choice.
n Developing employees for their next career level through extensive
employee training and leadership programs to keep pace with the strategic
growth goals being executed company- wide. More than 91 percent of Aflac’s
employees at the senior vice president level and above have been promoted through
the ranks. Aflac’s corporate training department hosts two employee learning
initiatives. The first is a leadership development program with on-site courses for
all employees from entry level to senior management. There are three levels of
classes; some classes require employees to have taken prerequisite courses that are
a part of the offered curriculum. Instructor-led classes offer a variety of subjects
for workers seeking both career and personal development and are designed to
help employees achieve a quality work/life balance. Course topics range from
“Managing Your Career” to “Preventing Diabetes.”
Cost-containment is on every HR professional’s mind when discussing employee
benefits. According to the National Coalition on Healthcare, the cost of offering
health insurance continues to outpace inflation. In fact, “in 2007, employer health
insurance premiums increased by 6.1 percent, which was two times the rate of
inflation. The annual premium for an employer health plan covering a family of four
averaged nearly $12,100. The annual premium for single coverage averaged over
$4,400.” And, as Graves points out, that is added to the cost of steadily growing the
business each year, which includes adding staff. Suddenly, employee benefits become
a conspicuous line item on profit and loss statements and must therefore enhance the
achievement of organizational outcomes in order to be justified. An important
theme in Aflac’s communication to its employees is that the health care cost
containment is an employer and employee shared responsibility.
Aflac seeks to administer benefits in a cost-effective manner while staying
true to the concept of employee service. Aflac recognizes the actual value of
employee benefits, and as a result, its overall philosophy is that “it’s all about the
employee.” For Aflac, in addition to competitive salaries, it includes designing
benefits packages that reflect the needs of a multi-generational workforce—some
© 2009 society for Human Resource Management. sandra M. Reed, sPHR 5
seeking portability, others seeking stability. It is about creating a positive work
environment that is conducive to productivity—by offering one of the largest on-site
child care facilities in the United States. Aflac sponsors outdoor adventure days,
on-site fitness centers and service discounts. It pays 100 percent of the employee
premium for its ground-breaking cancer insurance, in line with the company’s
philanthropic commitments as a socially responsible organization, positioning
Aflac to lead its industry to enhanced service levels. These benefits, according to
Graves, send the message to employees that they and their lifestyles are important
to the organization. The proof continues to be demonstrated in recent employee
survey results:
n Approximately 90 percent of employees were attracted to and remain at Aflac
because of company reputation.
n Employees are happy with the profit-sharing bonus, with 81 percent of employees
saying they believe it is better than that of other companies.
n Eighty-nine percent of employees consider Aflac’s total rewards statement an
effective communication tool.
Perhaps most telling of all in the competitive world of insurance—employee turnover
fell below 10 percent in the first quarter of 2008.
6 © 2009 society for Human Resource Management. sandra M. Reed, sPHR
data series dec. 2007 jan. 2008 feb. 2008 mar. 2008
Employment (in thousands)
Employment, all employees
(seasonally adjusted)
2,316.8 2,313.9 (P) 2,310.2 (P) 2,314.1
Initial claimants for unemployment 514
benefits
1,022 468
Footnotes (P) Preliminary
exhibit a: the bureau of labor statistics April 2008
Insurance carriers and related activities: NALCS 524
employment, Unemployment & Layoffs:
Employment, nonsupervisory workers 1,848.0 1,836.0 (P) 1,839.7
Unemployment
Unemployment rate 2.3% 2.9% 2.6% 3.3%
Layoffs
Mass layoff events 9 13 7
(Source: Current Employment Statistics, Current Population Survey, Mass Layoff Statistics)
exhibit b: the Bureau of Labor Statistics, United States
Civilian Unemployment rate, all Industries
Labor Force statistics from the Current Population survey
year jan feb mar apr may jun jul aug sep oct nov dec
1998 4.6 4.6 4.7 4.3 4.4 4.5 4.5 4.5 4.6 4.5 4.4 4.4
1999 4.3 4.4 4.2 4.3 4.2 4.3 4.3 4.2 4.2 4.1 4.1 4.0
2000 4.0 4.1 4.0 3.8 4.0 4.0 4.0 4.1 3.9 3.9 3.9 3.9
2001 4.2 4.2 4.3 4.4 4.3 4.5 4.6 4.9 5.0 5.3 5.5 5.7
2002 5.7 5.7 5.7 5.9 5.8 5.8 5.8 5.7 5.7 5.7 5.9 6.0
2003 5.8 5.9 5.9 6.0 6.1 6.3 6.2 6.1 6.1 6.0 5.8 5.7
2004 5.7 5.6 5.8 5.6 5.6 5.6 5.5 5.4 5.4 5.5 5.4 5.4
2005 5.2 5.4 5.2 5.1 5.1 5.0 5.0 4.9 5.1 5.0 5.0 4.8
2006 4.7 4.7 4.7 4.7 4.7 4.6 4.7 4.7 4.5 4.4 4.5 4.4
2007 4.6 4.5 4.4 4.5 4.5 4.6 4.7 4.7 4.7 4.8 4.7 5.0
2008 4.9 4.8 5.1 5.0 5.5 5.6 5.8 6.2. 6.2 6.6 6.8 7.2
© 2009 society for Human Resource Management. sandra M. Reed, sPHR 7
L.L. Bean company Information
L.L. Bean is a privately held outdoor apparel specialty catalog and retail store
founded in 1912 by Leon Leonwood Bean, an outdoor enthusiast and entrepreneur.
In his autobiography, My Story, Bean wrote that nothing eventful occurred before
his 40th year when he created a leather-topped, rubber-bottomed hunting shoe.
As the legend goes, he sold his first 100 pairs by mail order with a 100 percent
satisfaction guarantee. When 90 pairs were returned defective, he kept his promise
and made the refunds. Bean borrowed $400 from his brother to perfect the design
and went on to become a clothing consultant for the military during World War II,
an author and, of course, the president and founder of a retail giant. As described by
Yahoo finance online:
“With L.L.Bean, you can tame the great outdoors—or just look as if you could.
The outdoor apparel and gear maker mails more than 200 million catalogs per year.
L.L.Bean’s library includes about 10 specialty catalogs offering products in categories
such as children’s clothing, fly-fishing, outerwear, sportswear, housewares, footwear,
camping and hiking gear, and the Maine hunting shoe upon which the company
was built. L.L.Bean also operates about a dozen retail stores and some 15 factory
outlets throughout the Northeast. In addition, it sells online through English- and
Japanese-language Web sites.”
L.L.Bean’s annual sales grew from $616.8 million in 1990 to $1.169 billion in
2000, with an average annual growth rate of 6.8 percent. In 2000, L.L.Bean paid a
10 percent company-wide bonus.
More than 11,000 people worked for the company during the 2006 holiday
season, and in 2007 the company reported $1.5 billion in sales, with approximately
80 percent of those sales coming from Internet and catalog sales. The company
continues to evolve into a multi-channel sales giant through mail order, telephone,
Internet and in-store sales.
the brand
L.L.Bean has always been a marketing professionals’ dream of creating a brand into
an institution. Strategists, marketing specialists and other business professionals
(including the competition) have tried to duplicate the company’s achievements
with varying degrees of success. A brand is built on perceptions about quality,
service and status created by using a particular product or working with a specific
8 © 2009 society for Human Resource Management. sandra M. Reed, sPHR
company. A brand can be built using marketing techniques such as visual imagery,
wording that identifies what the organization does, and advertising campaigns
targeted to a desired demographic. Strong brand identity can build a relationship
with the consumer. In L.L.Bean’s case, this is a relationship with Maine and the
great outdoors. The company operates on the belief that the brand should reflect
Bean’s values, not just the products it sells. This case examines how L.L.Bean built
the brand by using employees as the critical channel through which to accomplish
strategic directives.
When Leon Gorman, grandson of Leon Leonwood Bean, assumed the presidency of
the company in 1960, he sent a message to employees defining their stakeholders—
those to whom L.L.Bean was ultimately accountable in a values-driven business.
L.L.Bean’s stakeholders were its customers, employees, vendors, communities and
the natural environment.
In addition to a strong customer focus, the company sought to solidify the brand
through social responsibility. Social responsibility is a business concept driven by
the principles of ethically sound practices, awareness of the business imprint on the
environment, and improvement of the quality of life of the company’s employees and
the communities in which it operates. Social responsibility at L.L.Bean is divided
into four categories:
n The environment
With company products geared for outdoor use, L.L.Bean focuses its
philanthropic efforts on preserving the environment. Examples include green
building, charitable giving and employee participation in preservation activities.
n Paper procurement
L.L. Bean is committed to sustainable, responsible paper procurement, an
important consideration because the company mails more than 200 million
catalogs each year. It uses recycled fiber, and suppliers are required to have
programs in place to support sustainable management of natural resources.
n Labor rights
When the company decided to move some operations offshore, it made a
commitment to labor rights, including human rights monitoring. In fact, the
company terminated at least three offshore vendor relationships that did not meet
its human rights standards. Included in Bean’s Vendor Code of Conduct are
standards for safety, non-discriminatory practices, and fair compensation
and benefits. This code of conduct includes processes for auditing and
investigating complaints.
© 2009 society for Human Resource Management. sandra M. Reed, sPHR 9
n Charitable giving
Charitable giving at L.L.Bean is based on Gorman’s concept of the stakeholder
and the company’s heritage in the outdoors. The company has donated more than
$5 million toward environmental conservation efforts to groups like The National
Park Foundation and Ducks Unlimited. It sponsored the Peace Climb up Mt.
Everest, during which more than three tons of trash was collected. In addition,
quality of life of the Bean employee and customer is reflected in the company’s
charitable giving efforts to groups such as United Way and the Portland Symphony
Orchestra.
the Problem
The company spent the 1970s and 1980s developing the brand into an American
institution. L.L.Bean operated on the premise that profits are an outcome of strong
customer service. Profits, therefore, were a byproduct rather than a corporate
focus. Growth was strong, particularly in mail order. By 1990, however, sales were
stagnating, productivity was declining and the mailing list was not growing. The
U.S. economy slipped into a recession, and as a result, 1990 was the worst year for
L.L.Bean in a decade. Sales growth improved in 1992 when the company expanded
into the Japanese market. In 1995, Bean launched their e-commerce web site.
There was significant upper-management turnover, though, and Gorman believed
that because of the rapidly changing external environment, the company had lost
direction. In 1996, sales flattened again, and for the first time under Gorman’s
leadership, the company reported a decline in sales. It was the first time the board of
directors voted to not award annual bonuses to employees.
the case at LL.bean
L.L.Bean launched a strategic review. The 80+-year-old company had been through
decades of change, yet its core business model had consistently provided excellent
growth and profit. This was no longer the case by the 1990s when the competitive
landscape reflected a more technically savvy and cost-conscious customer and global
employee market. The need to reorganize became obvious to Gorman.
The strategic review process began in 1996 and included analyses of both
strategic and operational processes, including brand identity, target markets and
operational competencies (employees). HR was one of the strategic business units
(SBUs) developed as an outcome of the review process. The SBUs were part of
a decentralization process in which each unit had responsibility for its profit and
loss and was held accountable to a balanced scorecard approach in performance
metrics. This designation for the HR department allowed it to develop operational
tasks such as compensation and benefits into a strategic process with measurable
outcomes—for example, linking pay to performance and increasing employee job
satisfaction. In addition, total rewards were used as strategic solutions to many of the
10 © 2009 society for Human Resource Management. sandra M. Reed, sPHR
issues identified in the review process, including global outsourcing, multi-channel
marketing initiatives, employee recognition and the redefining of the brand.
Multi-channel marketing was another outcome of L.L.Bean’s strategic review.
Multi-channel marketing is the ability to offer customers more than one way to
purchase a product. The company decided to expand their brick-and-mortar stores
and capitalize on the opportunity presented by the Internet (Exhibit A). According
to Gorman, Internet retail sales doubled each year since 1996.
A weakness identified in the strategic review was that the company’s financial and
human resources were geared to grow the catalog business but not retail expansion
or Internet sales. The diversification initiative took staffing to another level. For
example, the decentralization of the management team to other locations required
concentrated efforts by the company to infuse the non-corporate facilities with
L.L.Bean values. The development of new jobs required thorough market research,
including a comprehensive job analysis process. The lack of technical skills such as
data processing threatened to topple the organization if it didn’t acquire the staff
with the required knowledge, skills and abilities to perform in a highly competitive
market at an organization that was used to setting the standards for quality.
Developing job descriptions and conducting salary surveys allowed the company
to develop a comprehensive compensation and benefits framework to manage this
period of rapid growth and diversification.
As a result of the strategic review process, total rewards at L.L.Bean became a core
business practice critical to the accomplishment of organizational goals. Traditional
benefits offered at L.L. Bean include performance-based bonuses and cafeteria-
style health care. Non-traditional benefits include store discounts, on-site fitness
programs and the use of company-owned outdoor gear such as tents and canoes.
The company continues the tradition of outdoor adventure days and trips as a way
to connect employees with the L.L.Bean values—the love of the outdoors. L. L.
Bean himself believed in profit-sharing with employees long before it became a
strategic compensation practice. Back in the days when pay was 18 cents an hour,
paid in brown envelopes of cash, Bean surprised employees with bonuses calculated
as a percentage of profits—Bean’s employees were paid when the company
performed. These practices reflect the L.L.Bean philosophy that the employees’
passion for the company and its products will translate to the customer. As far as
Bean was concerned, the company had an obligation to stakeholders, and it began
with employee satisfaction. As Leon Gorman put it:
“Our stakeholders have invested their patronage, careers, finances, social services
and outdoor values in our enterprise. They trust us to tell the truth, to sell quality
products, to guarantee satisfaction, to pay fair wages and provide opportunities
for growth, to secure their investment, to participate in society, and to sustain our
natural environment. They trust us to grow to the extent that we can enhance our
benefits to them. They trust us to go the extra mile in everything we do.”4
© 2009 society for Human Resource Management. sandra M. Reed, sPHR 11
Global outsourcing of operations brought intense scrutiny to the function of
compensation and benefits. This resulted in Gorman leading the challenge for fair
wages at the company’s global subsidiaries and vendors and, in some cases, firing
those who failed to comply.5 In addition, global benefits were markedly different
from U.S. benefits because they were infused with cultural purpose. For example,
among Japan’s official holidays are Respect for the Aged Day, a Cultural Day,
the Emperor’s Birthday and Physical Fitness Day. In addition, although Japan’s
retirement system was similar to the United States (a combination of Social Security
and employer-sponsored plans), Japanese employees typically collect one lump-sum
severance payment at the time of retirement based on years of service. Commuter
costs and housing subsidies are also common fringe employment benefits in Japan.6
Did the 1996 strategic review work? Were employees rewarded for their continued
excellence, loyalty and dedication to the corporate objectives? Let’s look at
L.L.Bean’s 2006 Year in Review press release, as reported by PR Newswire:
LL Bean Inc. reports 2006 net sales results
“For the 2006 fiscal year ending February 25, 2007, L.L.Bean reported record
annual net sales of $1.54 billion, a 4.6 % increase over 2005. The company also
announced that its Board of Directors approved a cash award of 7.5% of annual pay
to eligible employees, a payout of approximately $25.5 million. An additional $8.8
million will be allocated to the pension plan, keeping the plan fully funded.
“It’s a well-deserved bonus,” said Leon Gorman, L.L.Bean’s Chairman of the Board.
“2006 was a year in which we made excellent progress on a variety of strategic
initiatives important to the future of our business. We are pleased to be in the
position of rewarding Bean employees for their achievements.”
Chris McCormick, L.L.Bean’s President and CEO, expanded on the year-end
results for 2006. “We had a strong start and strong finish to the fall and winter
selling season,” he said. “Although unseasonably warm weather had an impact
on sales in December and early January, our business performed very well and
the product line continues to hit the right mark with our customers. I am very
proud of all that we accomplished in 2006 through our employees’ hard work
and dedication,” he continued. “It was an exciting year with a lot of energy and
growth, including the opening of three additional stores, launching $90 million
in investments in our hometown of Freeport, and making further progress on the
international side of our business.”
12 © 2009 society for Human Resource Management. sandra M. Reed, sPHR
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exhibit a: LL bean-bureau of labor statistics for electronic
shopping & mail-order houses, establishments Primarily
engaged In retailing all types of merchandise using non-store
means such as catalogs or electronic media
The eight industries with the highest productivity growth rates over the
1990–2000 period, each experienced growth in output per hour of more
than 12 percent per year, on average.
Industries with highest labor productivity growth rates, 1990-2000
35%
30%
25%
31.7
27.0
20%
15%
10%
5%
0%
16.2
14.5 13.9 13.8
13.4
12.4
© 2009 society for Human Resource Management. sandra M. Reed, sPHR 13
1. Society for Human Resource Management. (2008). 2008 job satisfaction: A survey report by SHR M.
Alexandria, VA: Author.
The Conference Board. (2005, February 28). U.S. job satisfaction keeps falling [press release]. Retrieved from
www.conference-board.org/utilities/pressDetail.cfm?press_ID=2582.
2. The Hay Group (1996). Dynamic compensation for changing organizations: People, Performance & Pay. New
York: The Free Press.
3. Heneman, R. L. (2007). Implementing total rewards strategies. Alexandria, VA: SHR M Foundation. Retrieved
from www.shrm.org/hrdisciplines/benefits/Documents/07RewardsStratReport.pdf.
4. Gorman, L. (2006). L. L. Bean: The making of an American icon. Cambridge, MA: Harvard Business School
Press.
5. Gorman, L. (2006). L. L. Bean: The making of an American icon. Cambridge, MA: Harvard Business School
Press.
6. The Japan External Trade Organization. Human Resources and Payroll [fact sheet]. Retrieved from www.jetro.
org/documents/fact_sheets/f_hr.pdf.
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