Treating Workers Well Boosts Bottom Line

Harvard Publishes Study That Shows Treating Workers Well Boosts Bottom Line
The Golden Rule of Profitability
by Kent Bernhard, Jr. May 19 2010

A new study finds that treating the people at the lowest rung of the corporate ladder right isn’t just a nice thing to do. It improves the bottom line.

Want your business to make bigger bucks? Treat the grunts right.

A new McGill Institute for Health and Social Policy study published by the Harvard Business Review rolls up conclusive findings that, no matter the size of your business, the way you treat employees at the bottom rung of the company ladder has an impact on your bottom line.

That’s a direct contradiction to the pattern at most companies, where, for instance, high-skilled tech workers or executives get the big bucks and bigger incentives, and Wall Street rewards companies for squeezing the lower rungs of the ladder.

“These companies have been profitable for their owners and shareholders not only while being profitable for their employees, but because they have been profitable for their employees” Jody Heymann, the study’s author, said in a release. “These firms have been able to do this for a simple reason. How work is structured, how it is rewarded, and how workplaces encourage employee engagement are all central to the profitability of firms and to the quality of the daily lives of working men and women. Employees determine 90 percent of most businesses’ profitability.”

The researchers looked at companies all around the world, ranging in size from 27 to 126,000 employees. They examined a dozen companies from 2005 until now.

“The findings were striking,“ Heymann said in a press conference Wednesday. “Workers at the bottom profited, but companies profited as well.”

Companies cut turnover, found cost-savings, increased productivity, and decreased absenteeism and turnover, all by following the Golden Rule when it came to the least of their employees.

“This research confirms what we have known for some time, that these things are good for the economy and good for the bottom line,” said Heather Boushey, of the Center for American Progress. “These kinds of policies are good for workers and good for companies.

Among some of the other findings:


•By investing more in health care, employers managed to reduce the their workers' absentee rates and kept turnover rates low. Plus, the tactic boosted productivity. For example, American Apparel provided not only low-cost health insurance to its employees, it offered on-site exercise classes, massage therapy, and a more nutritious company cafeteria menu. All this cut illness and injury rates, and the costs that went with them.
•If companies did more training and offered more advance opportunities for those on the lowest rungs of the ladder, they were rewarded with lower turnover, easier recruitment, and increased efficiency. In Boston, for example, the firm Dancing Deer offered English as a Second Language classes to its employees, which improved communications between employees who had immigrated from a number of different countries and had no common language.
•Promoting from within had a big impact on keeping workers happy. Big-box giant Costco took this approach to advancement 98 percent of the time, and after the first year of employment, turnover was less than 6 percent for line workers.
•Companies that offered stock-option programs also benefited. After Dancing Deer put in such a program for all its employees, sales shot up 74 percent in a year and the value of those options increased 40 percent.
•Giving line workers more say in the direction of their work motivated workers and led to cost savings and efficiency increases. Novo Nordisk actively engaged line workers in questions about the production process and increased efficiency by 50 percent.

Heymann said the companies she studied were better able to weather the economic downturn than others in their sectors. For instance, one Australian company in the auto-parts field had instituted flexible time for its line workers. That allowed it to shift employees into more productive areas through the down times.

Another, Great Little Box, which operates in Canada and the United States, has been in an industry—packaging—that was particularly hard hit by the recession. But, she said, “they’ve actually been growing and buying out” competitors, because the company showed low-level workers its monthly financials and invited them to be part of finding cost-savings.

It isn’t just the big businesses that have benefited.

Rosanne Martino, general manager at the restaurant One If By Land Two If By Sea in New York, said her company had offered paid vacation and health care since 1999. And keeping those benefits in place has been a cause for employees as well as her company, helping it weather the downturn after the September 11 attacks and through the latest recession.

This year, she was able to enlist employees in a campaign to conserve energy that saved her restaurant $60,000. “It’s a win-win all around,” she said.

Martino said her company’s embrace of benefits and enlisting of workers in keeping those benefits in place had reduced turnover and theft, both banes of the restaurant industry.

“It’s like we have 65 managers instead of three,” she said.