Posted by: Paul | 09/02/2009

Saving by Spending

When I clicked on “Burger Chain’s Health-Care Recipe” on the Wall Street Journal’s Web site on Monday, I was expecting a piece about food. Instead, I got an example of counter-intuitive intelligence on how an employer can save money (and a lot of headaches) by spending more on its employees in the first place:

“Four years ago, executives of Burgerville, a regional restaurant chain, agreed to pay at least 90% of health-care premiums for hourly employees who work at least 20 hours a week. Today, the executives say the unusual move has saved money by cutting turnover, boosting sales and improving productivity.”

It seems obvious when it’s spelled out like that. Too bad most fast-food employers (as well as employers in many other industries) take a more short-sighted view. They try to save money by paying employees as little as possible — both in terms of salary and benefits. But all that does is create trouble and expense for the employer, who must constantly hire and train new workers, and ill will among the staff, who often pass along their dissatisfaction to customers.

That’s not the case at Burgerville. Its turnover rate fell from 128 percent in 2005, before the revamped health plan went into effect, to 54 percent in 2006. As the Journal article notes, that’s a big deal when it costs an average of $1,700 to replace and train a restaurant worker. No wonder Burgerville executives say the plan has more than paid for itself.

Its sounds paradoxical — spending more to save money. But that’s what has happened to Burgerville. Let’s hope other employers try their recipe for success.

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