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Case Study: Arbella Insurance

The Business Issues

Arbella is a traditional, Boston-based property/casualty insurer. New competition from the e-commerce and banking sectors threatened the company's status quo. To make matters worse, Massachusetts Insurance Commission regulations prohibited Arbella from raising its policy rates.

The workforce was entrenched in a culture of entitlement. Each of the company's 1,500 employees earned an automatic 4% annual merit increase. High achievers were not rewarded; low achievers were not discouraged. Most employees resisted change and innovation. They showed up each morning and met minimum expectations. Management described the workforce as "sleepwalking, day in and day out."

Arbella asked Hay to restructure the company's salary administration program. The goal: reward high achievers and motivate average performers. Knowing that a successful salary program must be tied to culture, Hay used its Culture Sort (C-Sort) assessment tool to help Arbella identify the necessary changes.

The Challenge

Management wanted employees to cut costs, embrace new methods and technologies, and eliminate bureaucracy. But Arbella could not afford to pay bonuses to its top performers. The new program had to reward the best employees, but not cost more money.

Arbella wanted the new salary program to drive change, but could not articulate what changes it wanted. Hay's Larry Reissman recommended the C-Sort (also known as Targeted Culture Modeling). The C-Sort surveys top management on 56 key attributes of culture. Respondents rank each attribute by level of priority in the current and desired cultures. Hay compares attributes of the current culture to the desired one, and then helps the client identify the right changes.

The CIO, head of HR, and heads of Arbella's three business units were skeptical about the C-Sort at first. They suspected the Hay consultants were up-selling them. But Hay persuaded them to participate in the survey.

The C-Sort had a big impact. It showed that Arbella recognized the need for a performance-based culture. But getting there would be tricky. The suggestion that a more results-oriented Arbella would appear less loyal to its employees was an emotional sore spot for the "old school" leadership. There was heated discussion about what Arbella valued in its workforce, and how to compete in the changing marketplace.

Reissman led the executives in a dialogue. After discussing everyone's concerns, the team agreed: average performance would not result in dismissal, but above-average performance would be rewarded. That settled the loyalty issue. Finally, everyone bought into changing the entitlement-based culture to a performance-based one. "This is the toughest thing we've had to do," said one executive, "but it's the right thing to do." Next, Reissman and the management team discussed tying the desired culture changes to a new salary program.

The Hay Process

Hay restructured part of the company's salary program: Before, everyone earned a 4% annual increase. Now, average-performing employees would earn 3% (still within industry standards); above-average employees 4% or more; and top achievers an average of 7%. Based on performance instead of entitlement, the new program cost no more than the old program.

Implementation

Hay helped Arbella talk to lower level managers about the importance of change. These managers learned to identify and reward their best people. They also learned to explain why some employees would receive smaller raises than in previous years. That conversation was difficult, but necessary. The workforce heard this message: "Things are changing. If you step up and embrace the changes, you will be rewarded." Personal underwriters who got more involved in commercial underwriting were rewarded for their initiative. Clerks who learned new claims processing methods instead of asking, "What's wrong with the old way of doing things?" were rewarded for facilitating change. Marketing personnel who were proactive with agents instead of merely functioning as service providers were recognized for changing the culture.

Results

Arbella awarded the top 25% of its employees a 7% or greater merit increase without spending any more on payroll. Attrition remained low. No one left the company because of the new salary plan.

Today Arbella's culture is based on performance, not entitlement. Management sees the workforce as more adaptable, able to use limited resources more effectively, and interested in improving operations. Arbella's people are more committed to the company's long-term success than ever before.