Sick days and medical leave help companies win with engaged employees

Obama's Latest Entitlement: Paid Sick Leave

The world of corporations divides in two when it comes to mobilizing and motivating employees. Some, for example Starbucks and Southwest Airlines, take the high road. They pay above average wages, provide above average training and take steps to engage their workers and keep them happy.

Other companies take the low road, cutting wages and benefits as far as possible, then pushing payroll costs even lower with exploitive on-call scheduling.

For years, the successful high-road brands have been held up as examples for other businesses to follow. But these examples are often dismissed by executives running low-road businesses and their defenders in academia. Corporations like Starbucks, Whole Foods and others were considered to be unrepresentative of business as a whole, because these companies are high-margin businesses that service a well-off clientele. Arguments like these were used to fight against policy proposals like a higher minimum wage and better insurance and medical leave.

New research recently published in MIT's Sloan Management Review strengthens the case for high-road business practices, and broadens the case beyond the service sector. The authors developed a scorecard to measure employee engagement, and then track the impact of engagement on profitability. The research was done at a wide range of companies and industries across North America, Europe and Asia. 52 companies were involved in the development of the scorecard, which was then deployed at 75 companies worldwide.

A year later, researchers went back to look for a connection between employee engagement and profitability. The findings were dramatic: The highest profit growth, year over year, occurred in companies whose employees were the most engaged. The lowest profit growth occurred in the companies whose employees were least engaged.

There were some differences across industries. For example, service businesses did tend to have higher levels of engagement than manufacturing businesses. But even after taking these differences into account, businesses with higher employee engagement enjoyed higher profitability.

Most importantly, nearly every business has the opportunity to boost profits by getting employees more engaged. About one-fourth of the businesses that were benchmarked showed an increase in engagement over the year-long research. These companies moved from the lowest level ("disengaged") to the next level ("somewhat engaged"). These companies showed a 19 percent average improvement in earnings per share over the same period. Companies that advanced from a higher starting point ("moderate engagement") showed an even stronger gain.

What does all this have to do with family leave, the minimum wage and other compensation and benefits practices? The foundation of employee engagement is employee satisfaction with the work place. This includes pay and benefits, a sense of being treated fairly, and having a good relationship with one's supervisor and co-workers. These basics need to be in place before workers will connect with the company's brand, and before they will feel inspired to go the extra mile to make a customer happy.

A few companies have already committed themselves to high-road business practices and are profiting from it. Many more could benefit. Policy change at the federal and state level can nudge companies upward from the lowest levels of engagement. For example, family medical leave is moving at the federal level with the Family and Medical Insurance Leave Act co-sponsored by Sen. Kirsten Gillibrand, D-N.Y., and Rep. Rosa DeLauro, D-Conn. Earned sick days can advance under legislation introduced by Sen. Patty Murray, D-Wash., and DeLauro. Minimum wage legislation got close to approval this year before being halted by a filibuster.

Many business owners support changes along these lines as long as they are moderate. Polling by American Sustainable Business Council and Business for a Fair Minimum Wage shows that a 61 percent majority of small business owners of both parties support raising the minimum wage to at least $10 per hour.

This latest research from MIT underscores what many smart business leaders have practiced for years: For durable performance in competitive markets, companies must engage employees and build their identification, loyalty and commitment. These desired attributes can't be cultivated without a foundation of decent compensation and benefits. If proposed legislation is able to pass, workers won't be the only beneficiaries: Companies will win too.

Copyright 2015 U.S. News & World Report

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