AAL Uses Varied Approach To Compensate Teams

Aid Association for Lutherans (AAL), a fraternal-benefits society, leaves nothing to chance when it comes to compensating members of its insurance-service teams. The company, which is based in Appleton, Wisconsin, has devised a four-legged compensation stool, which allows the company to:

• Recognize individual achievements
• Reward team productivity
• Compensate employees for the acquisition of new skills
• Remain competitive with its salary structure.

AAL has 15 service teams, organized geographically, that perform all services necessary for the company’s insurance products. For example, a team, comprising 25 employees, can underwrite a policy, pay a claim, change beneficiaries and modify coverage levels. Furthermore, team members can provide these services for any product, be it life insurance, health or disability insurance.

Before developing the team structure in 1987, the company had organized these services functionally, according to the type of product. Service requests traveled from unit to unit, increasing the amount of time needed to service a customer, and boosting the chance for errors.

“By moving to teams, we were challenging employees to see the whole job, rather than just the piece they performed individually,” explains Jerry Laubenstein, vice president of insurance services. “But we also wanted them to learn additional jobs that could help the team as a whole, and we wanted the team to find ways to boost its overall performance.”

To promote all of these changes, AAL revamped its compensation structure completely to include four main elements.

1. A skill-based pay program:
   The company has implemented a skill-based pay system that compensates individuals for each additional skill they acquire in an effort to help the team. As one of the first organizations to implement skill-based pay for white-collar workers, AAL developed a dictionary that describes all the services performed by team members and lists their associated dollar value. Employees are paid a base wage for the primary service they perform, and they can receive incremental pay increases for each service added to their repertoire of skills.


2. A team-incentive program:
   AAL has implemented a team-incentive program through which the entire team is awarded an annual bonus based on three factors:
• Productivity
• Customer satisfaction
• Quality of work.

This team incentive can be worth as much as 10% of an employee’s annual compensation.



3. The use of market data:
   The company now relies heavily on market data to ensure that employees are paid competitive wages.


4. An individual-incentive program:
   AAL has added an incentive component that recognizes outstanding achievement by individual employees. This lump-sum incentive is paid once a year only to those employees who are already paid at market value. This incentive is worth as much as 6% of an individual’s compensation.

AAL’s compensation structure didn’t change all at once, Laubenstein says, and there were several problems along the way. “We went to teams in 1987 and didn’t put any incentives in place until 1989. Then we moved entirely to team incentives, where we didn’t recognize individuals at all. This caused a lot of problems with employees who were used to being recognized individually. Finally, in 1991, we modified the program to recognize both individual and team achievements.”

Is the program working? “We’re on a journey, and we haven’t reached the destination yet,” Laubenstein cautions. “But in the five years that we’ve been in teams, we’ve increased our productivity by 40%. Surveys reveal that more than 90% of our customers are satisfied with the level of service they’re receiving. I’d say things are coming along well.”