Wednesday, August 18, 2010

The Value of Healthy Employees

Why are exercise facilities, preventive care, and nutritional counseling considered perks?  We tend to treat these things as if they only benefit the employees and represent nothing more than additional costs for the company.

Consider the following:
  • According to a story in the May 7, 2010 Wall Street Journal (link), it is estimated that obesity-related health issues will cost U.S. businesses almost $43 billion this year;
  • A recent article in Fortune magazine stated that Americans will miss an estimated 6 million workdays in 2010 due to allergies compared to one million in 1995.  Medical expenditures related to allergies during this period have also risen from $4 billion to $17.5 billion.
If you add to this, the costs related to other health issues, I'm guessing the amounts would be staggering.


Although some companies offer wellness programs, most do not. The reason many ignore the issue may be that, although high on a national level, the direct costs (including sick pay and increased insurance rates) are not high enough in individual companies to justify such a program.  And since the indirect costs are not measurable, they also do not justify the investment in wellness.

This is the problem.  The costs of implementing a wellness program is easy to measure and will appear as expenses on the income statement.  The benefits, on the other hand, will not directly show up anywhere and therefore cannot easily be justified.  Besides the fact that there will be a delay in receiving the benefits from improved employee health, there is no way to directly tie an improvement in productivity, quality, or costs to the investment in wellness.

Although not directly measurable, the benefits of an effective wellness program can include the following:
  • Productivity:  Reduction in productivity losses caused by presenteeism (not feeling well at work) and absenteeism (paying for a worker to stay home plus the inefficiency related to work being performed by someone other than the missing employee);
  • Motivation:  People feel more valued when the company shows it cares about their health.  As a result, motivation, along with dedication from employees increases;
  • Creativity:  People need to feel relaxed and healthy to be creative.  The endorphins that result from regular exercise have been shown to increase creativity while, conversely, the distraction caused by illness decreases it.
The decision regarding the implementation of a wellness initiative comes down to whether or not the company's leaders believe that the above benefits outweigh the costs of initiating and maintaining the program.  Even if they do believe in the benefits, leaders must also commit to an ongoing expenditure that the accounting system will not show adding value.


I have spent much of my career dealing with organizational change associated with the achievement of strategic initiatives.  In doing this, I have always found that, whether talking about implementing lean, integrating an acquisition, or changing an ERP system, the process is much easier when people are relaxed, well-rested, and feeling healthy.  In my experience, companies that offer extensive wellness programs tend to have much more positive energy around a change initiative.

A wellness program can start small and expand as leaders gain confidence in the resulting benefits.  Initial steps can include any of the following:
  1. 24-hour nurse line for people to call with questions
  2. Annual physicals/health screens
  3. On-site immunizations
  4. Nutritional counseling
  5. Improved food choices at employee cafeterias
  6. Exercise facilities or health club memberships
  7. Newsletters with health coaching tips
  8. Support for smoking cessation
  9. Reward programs for health improvement/maintenance
  10. Stress reduction at work (meditation, yoga, etc.)

We have got to get past the idea that the return on every investment can be measured.  As I have written about extensively in my book and in blog posts, there are many critical aspects of leadership where one has to understand the cause and effect relationship between an investment and the resulting benefits, even if it is not represented in the financial statements.  After all, if management involved nothing more than making decisions based on numbers, it would be a much easier to do and pay a lot less.


Tim McMahon said...

Greg, You are so right. With healthcare costs so high it is a big reason for companies to look at this. I actually know of several companies looking to expand production. Unfortunately not in the US. They did a study on the health of people in various areas where they have plants and found the surrounding populations were overweight. The two companies found it would cheaper to expand their plants to Mexico. It would provide better quality then China. Mexicans have a good work ethic and healthcare is provided by the government. So now being overweight is another reason Americans are losing jobs. So being healthy is important.

Gregg Stocker said...

Tim - I didn't think about that angle, but you're absolutely correct. There are so many hidden costs related to health.

Thanks for the comment.