Updated: Aflac freezes merit raises for employees

A day after reporting a decline in third-quarter U.S. sales, Aflac Inc. informed employees today the company will freeze performance-based raises until domestic sales rebound.

“The economy is showing signs of recovery and we anticipate sales will rebound in the near future, but we must carefully manage expenses until we experience that turnaround,” Kriss Cloninger III, Aflac president and chief financial officer, wrote in an e-mail to employees Thursday. “Therefore, we have made the difficult decision to defer merit increases for everyone until the economy strengthens and sales return to a level in line with our objectives.”

Aflac announced Wednesday its earnings for the third quarter of 2009. While operating earnings met company expectations and exceeded those of 19 analysts surveyed by Thomson Financial, U.S. sales fell short.

Total new annualized premium sales for Aflac U.S. declined 7.2 percent to $342 million in the third quarter. For the first nine months of the year, total new sales came in at $1 billion — which was 6.4 percent lower than a year ago. The company said it did not expect to meet its U.S. sales objective of flat to 5 percent growth for the year.

Cloninger said in the e-mail the company plans to implement merit increases once sales rebound to “acceptable levels.”

Employees will still undergo annual performance reviews, which will be used to determine raises once they are reinstated.

Most employees received a 2 to 3 percent performance-based raise this year, said Laura Kane, Aflac spokesperson.

To offset the financial impact on employees, Aflac said it would pay in 2010 a larger share of employee health insurance costs, which had gone up. All eligible employees — except those in top-level officer positions — will also receive Nov. 20 an annual profit-sharing bonus of 3.5 percent. “What we’re looking to do is protect our employees and make sure they have job security,” Kane said. “It was a difficult decision but the last thing we would ever want to do is what other companies have had to do.”

Since its inception in 1955, Aflac has not had to implement layoffs at the company. It employs about 4,000 workers today.

Cloninger said though they were deferring merit increases, they were not going to implement a “complete moratorium on spending.” Aflac still plans to invest in marketing and sales to boost the latter, he added.

In Wednesday’s third quarter earnings report, Aflac Chairman and Chief Executive Officer Dan Amos said he believed new agent recruitment, strong training programs and new payroll account growth in the U.S. would position the company for a better sales year in 2010. In the third quarter, newly established payroll accounts jumped 15 percent. The number of newly recruited agents also climbed 9.4 percent to more than 7,000.