It Pays to Care – In Dollars & Cents

The SAS Institute, the world’s largest privately-held software company (headquartered in Carey, North Carolina), is a highly successful business. It’s also a business that demonstrates the benefits of caring policies and practices in dollars and cents. SAS is a leader in family-friendly policies. The company supports:

• the largest on-site daycare operation in North Carolina
• a cafeteria with high chairs and booster seats for children so they can eat with their parents
• the entire cost of health benefits for employees and their domestic partners
• a seven-hour day, unlimited sick days, which may be used to care for sick family members
• a swimming pool, track, medical facilities, counseling services, and live music at lunch
• a 36,000 square foot company gym with workout rooms and classes, an area for yoga, and two full-length basketball courts, as well as outdoor fields for softball and soccer
• a masseuse comes in several times a week, and employees can discuss their workouts with the company's wellness coordinator.

What SAS does is to create a work environment that supports employees’ well-being on all levels. It leaves them time and energy to have a healthy family life, offers them preventative health and wellness care, provides education and caregiving for everyone in their families, and helps them with housing. It further offers them stability of employment, an ergonomically safe work environment, and respect for the work they do.

Because the company offers so many benefits to workers and their families, SAS’s employee turnover rate is just four percent, far below the average for the industry at 20 percent. Employees also like the company’s more participatory management style, which encourages communication and is yet another factor in SAS’s success.

SAS is just one example of how a growing number of companies are making more money by replacing hierarchies of domination with hierarchies of actualization and giving real value to caring and caregiving. Other companies, from successful publishing houses such as Berrett-Kohler and New World Library to the giant health-care products manufacturer Johnson & Johnson, which has been on the Working Mothers Best Companies list for over twenty years, also illustrate the benefits to both large and small businesses from caring policies and practices. They show that caring is not a luxury good of booming companies but a major factor in making companies more successful.

• But do we just have anecdotal evidence that caring economic rules, policies, and practices are good for both people and the bottom line?
• Can we calculate the benefits of valuing caring and caregiving through quantified statistical methods?

The answer is a resounding yes. Hundreds of studies show the cost-effectiveness of supporting and rewarding caring.

The Business Return on Investment in Caring

In Leveraging the New Human Capital (2004) Sandra Burud and Marie Tumolo showcase a large number of studies showing that childcare, flexible work hours, and paid family leave all have a very high return on investment (ROI).

• Chase Manhattan’s investment in backup childcare services for employees yielded a 115 percent ROI, saving the company 6,900 workdays in just one year.
• American Express had $40 million in increased sales productivity when it introduced telecommuting; Aetna had a 30 percent increase in claims processed after employees began working from home.
• A 2001 study showed that firms offering paid parental leave had 2.5 percent higher profits than firms that did not.
• Companies on Working Mothers’ list of 100 Best Companies for Working Mothers (which have child care benefits, flexible scheduling, telecommuting, and other caring policies), had high customer satisfaction ratings — and this translated into a 3-11 percent market value increase, or $22,000 per employee.
• Companies rated by Fortune as the best places to work also yielded shareholder returns on investment of 27.5 percent, much higher than the Russell 3000 stocks, which only had average returns of 17.3 percent.

Caring Strategies Reduce Employee Turnover & Absenteeism

Caring business policies sharply reduce employee turnover, saving companies millions of dollars.

• The cost of replacing hourly employees is about six months of their earnings.
• The cost of replacing salaried employees can be as high as 18 months of their salary.
• Job turnover can cost employers as much as 40 percent of annual profits.

And this doesn’t even take into account what a recent study found: that between 30 percent and 40 percent of employees planning to leave have already checked out mentally and emotionally, focusing instead on their next jobs rather than their current ones.  

There are also high business costs from absenteeism, which is often the direct result of workers’ family responsibilities. For instance, Chemical Bank discovered that 52% of employee absences were caused by family-related issues. Businesses that have more caring policies radically cut turnover and absentee related losses.

• Intermedics, Inc. decreased their turnover rate by 37% with on-site childcare, saving 15,000 work hours and $2 million dollars.
• Virginia Mason Medical Center in Seattle reported 0% turnover among employees using its on-site child care center, compared to about 23% turnover among other workers.
• Johnson & Johnson found that absenteeism among employees who used flexible work options and family leave policies was an average of 50% less than for the workforce as a whole.

Difficulties securing child care are a particularly important factor in the high rates of absenteeism, turnover, and as a consequence, overtime costs, in companies with extended hours operations. A 2003 report by Circadian Technologies, Inc. found that extended hours childcare reduces the absenteeism rate by an average of 20 percent. Their study, “Cost Benefits of Child Care for Extended Hours Operations,” found that turnover rates among extended hour employees also decreased substantially when child care services were available — from 9.3 percent to 7.7 percent. Since on average it costs companies $25,000 to recruit and train each new extended hour employee, this too was a big saving.

Of course, these savings don’t show the enormous benefits of childcare services to the approximately 28 percent of American women who regularly work nights, evenings, or weekends. Nor do they show the benefits to society at a time when latchkey children are a major U.S. concern.

This is one reason that, as emphasized by Professor Joan C. Williams, Director of the Center for WorkLife Law at the UC Hastings College of the Law, support for caregivers in the formal workforce is not just a business issue but a public policy issue. Legislation against what Williams calls Family Responsibilities Discrimination is urgently needed, especially for workers in the lowest economic rungs, who have the least bargaining power.

Today, 37% of the workforce has children under age 18. Small wonder that in a Radcliffe survey, 83% of women and 82% of men aged 21-29 put having time to spend with their families at the top of their priority list, way ahead of a high salary and a prestigious job.

The number of caregivers in the workforce will rise even more dramatically as Americans age. By 2020 the U.S. over-50 population will increase 74% compared to 1% for those under 50. Polls show that 54% of U.S. workers anticipate caring for an elderly parent or relative in the next 10 years.
Reports from the Families and Work Institute (FWI) and scores of other organizations, as well as books such as Sandra Burud’s and Marie Tomolo’s Leveraging the New Human Capital, show that factoring these realities into workplace policies is not only socially essential; it makes good business sense.

Many studies show that the costs of pretending that when people go to work they leave all else behind are huge. And so are the benefits from business policies that take workers’ lives into account.

• A study of clients of the KPMG Emergency back-up child-care program, for example, showed that offering employees childcare yielded a 125% ROI (return on investment) within 6 months of implementation. By the fourth year, the ROI was a whopping 521% .
• A General Services Administration Child Care study found that 55% of workers who were offered a child-care subsidy were better able to concentrate at work and 48% were more likely to stay.
• A study of users of the Bristol Myers Squibb child care centers showed that they had a deeper commitment to the company and felt more positive about their relationship with their supervisors.
• A Bright Horizons Child Care survey showed that even many employees without children feel work-site child care will have a positive impact on the organization for which they work.
• UPS found that flexible work schedules reduced employee turnover from 50% to 6%.
• Aetna's retention rate rose from 77% to 88% when it initiated a six-month maternity leave with flexible return to work possibilities — for a savings of $1 million per year.
• A survey of nine employers in Silicon Valley found telecommuters to be 25% more productive on the days they worked at home and 20% more productive overall. Illinois Bell found that telecommuting increased productivity by 40%.
• According to the Watson Wyatt Human Capital Index, companies that support flexible work arrangements have a 3.5% higher market value than companies that do not offer this flexibility to employees with caregiving responsibilities.

Other studies have documented company savings from investment in wellness and fitness programs. 

• Pepsi’s Fitness program produced a return of investment of $3.00 for every $1.00 invested (a stunning 300 % ROI).
• Johnson & Johnson’s Corporate Wellness Program saved the company an average of $225 per employee per year in reduced hospital admissions, mental health visits, and outpatient services, even after deducting the cost of paying employees to participate.
• Steelcase benefitted from 55% lower medical claims for participants in their wellness program over six years.
• Applied Materials’ Fitness Center participants had medical payments that were one fifth lower and accident-related disability costs that were a third lower than non-participants. In addition, its workers compensation costs per claim were 79% lower for participants in the program.

Characteristics of Caring Businesseses, Even Small Ones

First Tennessee National Corporation is a shining example of how businesses are beginning to see the organizational savvy of doing more than simply creating a series of caring activities, terrific as those may be. This financial institution found that by transforming its corporate culture to being a truly caring organization — putting the interests of employees truly first — it became the most profitable in its class, by a factor of two. It was consistently the most profitable bank, according to Forbes.

It discovered that measurable profits flowed from this caring, as the bank retains 97% of customers, who are better served by long-term employees who feel valued. That incredible customer retention rate along with the retention of good employees were key factors in the bank’s profits and shareholder value.

In short, many companies have found that the long-term benefits of caring policies far exceed their cost. Caring policies make for happier, more productive workers, stronger families, and more fulfilling lives. They lead to higher financial profits. And in the bargain, they make for a stronger, more productive economy.

In Values-Driven Business: How to Change the World, Make Money, and Have Fun (2006), Ben Cohen and Mal Warwick show how even small businesses with limited resources can derive enormous benefits from caring policies. Drawing from their own business experiences in Ben & Jerry’s Ice Cream and Mal Warwick and Associates, as well as from those of hundreds of other small companies, they focus on 5 basic relationships:

1. Relations with employees
2. Relations with suppliers
3. Relations with customers
4. Relations with the community
5. Relations with the natural environment

In addition to good employee benefits, Ben and Mal emphasize the importance of participatory management styles and profit sharing plans that further ensure that employees feel they have a real share in the company’s success.

Excerpted from The Real Wealth of Nations: Creating a Caring Economics (2007) by Riane Eisler