Finding Profit From Investing in Workers

May 21, 2010, 9:00 AM
Finding Profit From Investing in Workers
By STEVEN GREENHOUSE

Giving pay incentives to low-level workers and investing in their health and well-being can increase companies’ productivity and profits. Moreover, listening to the suggestions of low-level workers can go far to save companies money.

Jody Heymann
Those are among the findings of a six-year international study led by Jody Heymann, who is founding director of the Institute for Health and Social Policy at McGill University and was founding director of the Project on Global Working Families at Harvard.

The overarching theme of her report, “Profit at the Bottom of the Ladder,” published by Harvard Business Press, is that it is good business for companies to invest in and listen to their workers — not just high-level ones, but also those on the bottom.

“The companies in our study showed that investing in their employees at all levels made economic sense, going against the common market wisdom that considers these investments an unnecessary expense,” Ms. Heymann concluded in the report.

Her report found that after American Apparel adopted a teamwork system in which workers at a Los Angeles factory were paid based on the number of garments their team produced, productivity nearly tripled. Output jumped to 90,000 pieces a day from 30,000, aided by a 12 percent increase in the number of workers at the factory.

And once the Dancing Deer Baking Company in Boston began offering free classes in English as a second language to its bakery workers, the report found, efficiency increased because the company’s employees could communicate better with one another.

Ms. Heymann said she did not choose companies at random or do a scientific survey, but instead took an initial look at several hundred companies that had employee-friendly policies. Upon seeing that most of them did not have policies that improved conditions for employees at the bottom, she ultimately focused in depth on a dozen companies in nine countries that had such policies and were succeeding financially.

Her report said that investing in employees’ well-being yielded dividends for companies. The report found that after an auto parts company, Autoliv Australia, adopted a more flexible policy on leaves and vacations, turnover fell to 3 percent a year from nearly 20 percent.

When SA Metal, one of the largest metal recycling companies in South Africa, decided to provide employees with free access to H.I.V./AIDS treatment, that had substantial costs for the company, costing about $3.50 a day per employee who sought treatment. But the program produced considerable savings because it cost roughly $120 a day whenever one of the company’s truck drivers missed work for health-related reasons.

Another example cited in the report: by having a health clinic on site, American Apparel and SA Metal reduced the time that employees needed to take for outside appointments.

The report also found that “offering training and career tracks to line workers led to lower turnover and easier recruitment, and served to make employees more efficient while they were with the company.” Xerox Europe, the report said, “emphasized career opportunities to decrease the high turnover rates that were characteristic of the call center industry.” As a result of the career track program at Xerox Europe, over the course of a year, 20 percent of entry-level employees received promotions, the report found.

“Companies in our study established ways to learn from their lowest- level employees, who had the most expertise on the ways in which much of the work at the company was done and could be improved,” the report said.

At the Great Little Box Company, based in British Columbia, one employee put forward a money-saving idea on how a machine could produce 13-inch boxes in addition to the 20-inch boxes it was already producing. This increased the use of that machine and the flexibility of production. Under Great Little Box’s Idea Recognition Program, individual employees could receive rewards of up to $2,500 in Canadian dollars ($2,359) for ideas that saved several times that amount.

To increase workers’ sense of engagement, Isola, a roofing supplies company in Norway, adopted a teamwork system of production in which a half dozen workers functioned as a group, with the team leader reporting directly to the plant manager. The report said this fostered a greater sense of responsibility and, combined with the mutual pressure workers felt from other team members, led to a 33 percent drop in absenteeism over a six-month period.

The report was written with Magda Barrera, a research assistant.

Juliet Schor, a professor of sociology at Boston College and the author of a new book, “Plenitude: The New Economics of True Wealth,” said: “This effort has strong case studies showing that firms can prosper when they take the high road, and that means their employees are also prospering. It’s a good direction for any economy.” Citing the success of “high-road economies like Germany that share their prosperity,” she said the study demonstrated that “this strategy could work at the micro level at many firms.”

Herman Leonard, a professor of management at the Kennedy School at Harvard, praised the report for providing models to inspire other companies.

“This book is a terrific step forward in the general domain of corporate social responsibility because people have been talking for a long time about the business case for responsibility, the idea that if we do the right thing that will also be good for the company,” Professor Leonard said. “She focuses on how companies have re-engineered their own businesses in ways that have been good for their lowest-income employees and the community and also good for the company.”

In a telephone news briefing about the report, Roseanne Martino, general manager of One if by Land, Two if by Sea, a restaurant in Greenwich Village, embraced the report’s conclusions. Ms. Martino said that after her company began offering various benefits in 1999 — health insurance, paid vacation, paid sick days and a 401(k) plans — employee turnover fell and workers’ attitudes changed.

“What our workers did was, they helped us save money,” she said. “They policed one another. They came to us and let us know when people were stealing from us. Through good and bad times, we have had a very loyal staff, and you end up having 65 managers instead of three or four managers because everyone is really watching one another and watching your bottom line.” Ms. Martino said employee suggestions helped One if by Land save $60,000 last year on its electric bills.

Ms. Heymann said the companies that she studied had continued these employee incentive and engagement programs during the recent downturn. This was not surprising, she said, because these programs — such as incentive pay and soliciting employee suggestions — helped reduce costs and increase productivity.

“What was striking was how these companies fare under economic pressure,” Ms. Heymann said. “What they were doing helped them when they were under economic pressure. It doesn’t mean they were immune or bulletproof. It does mean they’re doing better than their peers.”

http://economix.blogs.nytimes.com/2010/05/21/finding-profit-from-investing-in-workers/?ref=business