The ROI of Wellbeing at Work

Some years ago, Penn State launched an employee wellness program that was quickly met with stiff pushback from professors and employees . Why? Because the program introduced stiff penalties for failing to provide detailed information about their health. Of course, had anyone with organizational change expertise been involved in designing the program, that response would have been predicted from the outset.

While research over the last few decades has shown that cultivating the well-being of your employees improved the well-being of companies in terms of performance, costs, and—yes—even stock price, the implementation needs to be considered an organizational change rather than the implementation of a program or company policies.

The situation in a company is much like it would be for a person. Say you wanted to lose weight, but your friends are not interested in losing weight. So, they keep inviting you to watch football, drink beer, and eat fatty foods. You want to stay included in the gang, so you skip exercising and succumb to delicious nut mixes.

Organizations work similarly. As we say in the organizational systems field, “Every organization is perfectly designed to be doing what it is doing now.” That is, the performance is the result of the interconnected and mutually reinforcing relationships about how to serve the customers, keep managers happy, maximize career growth, and so on.

Financial Growth and Profitability

The potential for a strong return on investment (ROI) from fostering the well-being of employees is well documented. For example,

• Research by Fabius and Phares showed how a portfolio of well-being-focused companies consistently outperformed the S&P500 over a 10-year period.
• Similarly, a meta-analysis of 339 independent research studies measured the well-being of 1.8 million employees and found a significant relationship between employee well-being and business performance, concluding that “higher well-being at work is positively correlated with more business-unit profitability.”

Sources of ROI Improvement

The ROI from employee well-being improvement derives from three primary buckets: reducing healthcare costs, improving productivity, and reducing employment costs.

Reducing Healthcare Costs

The employer's share of healthcare costs in the United States is around 70% to 80% of the total premium. According to data from the Kaiser Family Foundation's Employer Health Benefits Survey in 2021, the average annual premiums for employer-sponsored health insurance were approximately $7,470 for single coverage and $21,342 for family coverage.

So savings in this area can be huge. Research published in Harvard Business Review presented a case study focused on high-health-risk employees. Of those classified as high risk when the study started (due to a range of factors including body fat, blood pressure, anxiety, etc.), over half (57%) were converted to low-risk status by the end of the six-month employer-sponsored program. As a result, the employer saw medical claim costs decline by $1,421 per participant compared to the previous year. Every dollar invested in the employee wellness program yielded $6 in healthcare savings alone.

Productivity Increases

While absenteeism captures lost productivity due to employees being away from work, so-called “presenteeism” refers to lost productivity employees experience at work when they can’t or don’t want to function at their best. Presenteeism also includes what has recently been termed “quiet quitting,” where employees are only motivated to do the minimum required to stay employed.

So, while illness-related absenteeism can be mitigated by robust employer-sponsored wellness programs, the value can also be seen in differences that occur when employees are at work.

• A study of an employee assistance program found that 20% of lost productivity costs were attributable to absenteeism; whereas, 80% were attributable to presenteeism.
• In studies by the Queens School of Business and by the Gallup Organization, disengaged workers had 37% higher absenteeism, 49% more accidents, and 60% more errors and defects. In organizations with low employee engagement scores, they experienced 18% lower productivity, 16% lower profitability, 37% lower job growth, and 65% lower share price over time.

Reducing Employment Costs

The third bucket pertains to reducing the costs of turnover and making it easier to hire top talent.

• Turnover. Research showed that workplace stress leads to an increase of almost 50% in voluntary turnover. People go on the job market, decline promotions, or resign. And the turnover costs associated with recruiting, training, lowered productivity, lost expertise, and so forth, can be significant. The Center for American Progress estimated that replacing a single employee costs approximately 20% of that employee’s salary.
• Burnout. Correspondingly, a study by the American Psychological Association (APA) found that burned-out employees were 2.6 times more likely to be actively seeking a different job.
• Attracting talent. Having a good wellness program often increases the reputation of an employer, and consequently, well-being programs often figure highly in many people’s decisions to join and stay at a company. The previously mentioned Queens School of Business study also found that businesses with highly engaged employees enjoyed 100% more job applications than those with low engagement.

A Reinforcing Loop

A nice aspect is that healthier, more invigorated employees are also a network effect. That is, not only are they more productive and incur fewer healthcare costs, they influence others around them to be healthier as well.

This short discussion has given you a sense of where developing employee well-being contributes to the ROI. But, I'll give you a hint: It's not always sunshine and rainbows to get there.

In the upcoming weeks, I'll cover:

• Part 2: The biggest challenges and what often goes wrong
• Part 3: How to do it right

Thanks for reading!

For more information about organizational change methods, see my book Generating Change .

For more of my articles on a variety of topics, see https://www.essentialissues.news/