Note to bosses: workers perform better if you give to charity
February 05, 2015
Corporate philanthropy can inspire employees to knuckle down just as much as a pay hike, say Mirco Tonin and Michael Vlassopoulos, University of Southampton.
We are used to the idea that workers respond to financial incentives, whether it’s a bonus or wage increase, but it might be that bosses can boost workers’ performance by appealing to their altruism, not just their pockets.
As economies recover from the financial crisis, businesses have remained shy with the purse strings, but new evidence from our research has shown that involving employees in corporate philanthropy can offer the kind of motivation that we may have thought only money can buy.
Data from a survey of 261 leading US companies, including 62 of the largest 100 companies in the Fortune 500 list, reveals they contributed more than $25 billion in total giving in 2013, equivalent to around 1% of pre-tax profits, or more than $600 per employee. With that kind of commitment they’d better hope there is an effect on their employees.
Odd job
To find out how corporate philanthropy affects productivity, we recruited more than 300 university students to enter bibliographical records. The job was set up so that they could work from home on their computer, at their own pace, without direct supervision.
In terms of compensation, we offered participants a fixed wage plus a bonus, relating pay to the amount of output produced. We varied the amount people would receive for each entry and observed their response in terms of productivity.
This donation was paid over and above the private compensation that workers would receive. In some cases the donation was a fixed amount, in other cases it was related to the worker’s performance, so that more work corresponded to a bigger donation. Finally, we offered people the possibility to split their performance bonus between themselves and a charity.
We found out that, not surprisingly, a higher bonus increases productivity, but so does introducing a donation. In particular, when a charitable donation is present, performance increases by an average of 13%, regardless of whether the donation is linked to productivity or not. This rises to 30% amongst those workers who are initially the least productive. For these workers the increase in productivity arising from a charitable donation cannot actually be distinguished from the effect of an equally costly increase in the bonus.
We also found that when donations were optional, more than half of participants chose to give a proportion of their own pay to a charity, with women more likely to do so than men. Giving workers the opportunity to choose whether to include a charitable donation in their compensation package was the most effective way to increase performance, more so than just paying a higher bonus.
Doing good pays off
These findings are in line with the evidence from other studies based on surveys of employees or job-seekers. The usual conclusion of these survey studies, with populations ranging from production workers in manufacturing to service workers in the financial sector, is that corporate social responsibility is positively associated with employees’ commitment to the firm. Moreover, companies with a reputation for social responsibility are more attractive to job-seekers, especially to the more qualified ones.
Going beyond employees, other studies have documented how customers respond to the ethical characteristics of products (for example, by paying more for goods where part of the proceedings go to charities) and there is also some evidence that ethical criteria affects investors’ decisions (affecting investment in companies involved in the production of alcohol and tobacco or in gaming).
All this suggests that for companies, “doing good” may actually be a viable way to do well in terms of their bottom line. The Economist Intelligence Unit surveyed corporate executives some years ago and 34% of them indicated that social responsibility was a high or very high priority for their firms three years earlier, compared to 56% saying so with regard to the present and almost 69% expressing their expectations on how high a priority it will be three years hence.
As the Economist put it, it is “almost unthinkable” for a big corporation to be without a philanthropic policy. After all, the informal motto of one of the most successful companies in the world, Google, is “Don’t be evil”, and its founders, in their letter for the 2004 initial public offering, states:
We believe strongly that in the long term, we will be better served – as shareholders and in all other ways – by a company that does good things for the world even if we forgo some short term gains.
From a public policy and fundraising perspective, the evidence that workers were willing to donate part of their bonus to charity means there may be an opportunity to raise charitable donations and boost productivity at the same time. We might encourage employers to introduce payroll giving schemes in their workplace, for example.
It also confirms that workers want to be able to look up to the company they work for; sharing in something a little more noble than a free bar at a work party.
Mirco Tonin and Michael Vlassopoulos are both Associate Professors in Economics at University of Southampton.
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