You Can Buy Employee Happiness. But Should You?
Employees don’t pay a dime for health insurance. A registered dietitian is on hand to help workers create nutrition plans. If employees require time off to handle a family emergency, they get it, no questions asked. They get bonuses and profit sharing.
What kind of employer are we talking about? Some perk-laden tech start-up embroiled in a perpetual war for talent? Nope.
In fact, the company in question is Diamond Pet Foods, a manufacturer of, yes, pet food based in Meta, Missouri. The company, founded in 1970, has 535 employees at facilities in three states. Most of them are the kinds of factory workers and manual laborers who would be happy to have the most modest of benefits packages, let alone the lavish one supplied by Diamond.
Why go to such lengths when many of its peers do precisely the opposite? The answer: a substantial ROB, or return on benefits.
Wages at Diamond are no higher than those at similar manufacturers. But voluntary turnover is at a mere 3 percent, compared with an industry average of almost 11 percent. And people don’t just stick around--they produce. “When employees don’t have to worry about health care or financial issues, they can focus on success and growing our business,” says Andrew Brondel, the company’s director of administration. “They have the mental clarity to see areas for improvement and to take the initiative to offer and implement new ideas.”
In an age of outsourcing, declining real wages, and ever-rising contributions for health care (assuming insurance is offered at all), you don’t hear about this kind of thing very often. But some companies still go to extraordinary lengths and expense to attract, develop, and retain their employees. They treat benefits less as a cost of doing business than as an investment in their most important resource. More entrepreneurs would be wise to adopt such practices, says Kevin Lynch, leadership executive-in-residence at Benedictine University’s Center for Values-Driven Leadership. “When I was a CFO, I tended to regard benefits as a burden,” Lynch says. “I’m now confident that they do pay off--in the form of attracting good employees, retaining them, and making them more productive. When you have happy, satisfied employees, that creates value that does find its way into traditionally calculated ROI.”
That’s the thinking at Diamond. Benefits at the company account for about 35 percent of total compensation costs, compared with about 30 percent for a typical private employer, according to the Bureau of Labor Statistics. Many managers might see the greater expense as a threat to margins. But not Brondel. Robust benefits, he says, boost morale and well-being, and that translates into higher productivity. Diamond’s workers, Brondel says, are willing to dig in when demand spikes, which gives Diamond a competitive advantage. Pet food is a cyclical business: Demand rises in winter as animals consume more food. So everyone needs to step it up as temperatures drop. “I’ve literally heard people say, ‘I know the company has my back,’ ” Brondel says, “ ‘so I’m giving them everything I’ve got.’ ”
That logic is taken to another level at Aurora Electric, a Jamaica, New York-based electrical contractor that works on large, complicated projects, including the World Trade Center in Lower Manhattan. At its core, the company has just four employees, but that number rises to as many as 50 depending on how many projects the company has under way. And all of them get lavish benefits--even though many are union electricians who join the work force on a project basis. (Under union contracts, employers provide coverage; they are required to meet certain minimum requirements but free to go above and beyond.) Aurora’s perks include complete funding of what founder Veronica Rose describes as a “Cadillac health plan that covers everything, including wellness programs and even a 30-day drug or alcohol rehab program.” The company also offers a tuition-reimbursement program that employees can use to build skills in any field, not just construction or electronics.
Rose’s union electricians are not payrolled employees. So why invest in the kinds of benefits that most companies justify in large part for the impact such perks have on retention? “It creates a much better work environment,” Rose says. “Everyone is much more engaged. Instead of running to me with every little thing, they help each other.”
Rose admits that she views treating workers well as an end in itself. But the practice also has a serious business rationale. “We only do very specific kinds of electrical work,” she says. “We need electricians who have the highest security clearances, who have years of training in fiber optics and related technologies, and have pursued credentials on their own time. I need the cream of the crop, and they are hard to find. So I create an environment in which everyone wants to come and work for me.”
Rose’s instincts--that a well-designed benefits package can yield real, bottom-line results--are echoed by a number of business leaders. “Not enough company leaders try to quantify the results of providing both a good company culture and a good benefits package,” says Paul Spiegelman, founder of BerylHealth and The Beryl Institute and chief culture officer of Stericycle, a medical services company with 13,000 employees.“Historically, companies have relied on their financials as leading indicators. But employee satisfaction, customer satisfaction, attrition rates, and similar metrics should serve as your leading indicators, with financials becoming your lagging indicators.”
When managers begin correlating one metric to another, Spiegelman says, they “begin to see the relationship between investing in your employees and financial results.” Spiegelman’s own experience provides a case in point. A few years ago, his companies began offering a new health benefit--the opportunity to see a registered nurse within two hours, either at work or at home. There was an almost immediate payback: In just four months at Beryl, for example, 71 insurance claims were avoided and 246 work hours were saved (equating to an estimated $18,000 in wages) as employees got immediate care rather than having to visit a doctor.
Benedictine University’s Kevin Lynch believes smart leaders are evolving toward a broader view of what constitutes compensation. To some degree, he says, they may have no choice. Younger workers increasingly regard work as being about something more than just a paycheck. “They expect to be treated with more respect,” he says, “and that includes accommodating their external commitments, career goals, and other factors. All benefits programs are expensive propositions, but you can maximize the impact by offering the benefits that matter most to your workers.”
Ilan Mochari and Adam Vaccaro contributed reporting to this story.
SCOTT LEIBS is executive editor of Inc. magazine, where he oversees the Build and Money sections while also handling a range of other writing and editing duties for the magazine, website, and custom publishing projects. He is a former editor in chief of CFO magazine and a former senior editor for InformationWeek, and has written for many other publications, including The Economist and the San Diego Union-Tribune. He is a graduate of Emerson College, Boston University, and the University of Massachusetts.
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