Employee health management (EHM) has only in the last decade or so become a combination of health and productivity management (HPM). [R. Goetzel, et al. Becoming an Internal Champion for Health and Productivity Management” Absolute Advantage 4:10 2005 11-15] The main reason for adding productivity to the focus of EHM is the significantly greater financial consequences involved, often two to five times as great as are found in healthcare, disability, and workers compensation costs alone.

But productivity has its shortcomings, and most employers do not even attempt to measure it as part of their evaluation of return on investment (ROI). It is difficult to measure, except where employees are routinely monitored, also paid in many cases, on a “piecework” basis. With production workers, this is often complicated by the effects of teams on individual output, while with knowledge workers, it is complicated by the fuzzy nature of their output.

There are at least a handful of useful productivity estimators, based on surveys of workers in industries or jobs where objective measures of output are available to validate the estimates. These correct for the well-known and understandable tendency for individuals to overestimate the impact of problems affecting their productivity, and the improvements they achieve through EHM or other efforts aimed at improving their output. One study, for example, found workers exaggerating their perceived/reported impairment by 2.5x compared to measured output. [G. Pransky, et al. “Performance Decrements Resulting from Illness in the Workplace”, JOEM 47:1 Jan 2005 34-40]

Hard-headed executives tend to doubt self-reported productivity by workers, however, to say nothing of worrying about the costs of adding productivity questions to surveys of employees health and risk/disease behaviors and conditions. Moreover, in many cases, their EHM investments are already delivering positive and acceptable ROI based on objectively measured cost reductions alone, so why bother looking for more?

The serious downside to this attitude and thinking, however, is that it tends to focus EHM efforts on those employees and factors that most significantly affect healthcare, disability, and WC costs. And these are not usually the factors that most affect productivity. As a result, employers often ignore the factors affecting productivity but not having much impact on benefits costs, and miss huge opportunities to achieve significantly greater ROI through improved productivity.

On the other hand, there is a serious downside to measuring and focusing on productivity in EHM. For one thing, merely including it in the focus for EHM efforts can worry employees that the aim is entirely focused on making employees work harder at the existing compensation levels. Many probably feel already overworked and underpaid, so even measuring or asking them about productivity may create morale problems, with resulting effects on actual productivity.

For this reason, as well as because productivity alone, i.e. the number of units of work produced, misses out on the quality of output by focusing solely on its quantity. For example, in a well-known example of improving productivity by a dramatic 44%, while only increasing employee compensation by 10%, it was found that quality often suffered. The firm in question added both technical quality, measured internally, and customer quality, i.e. satisfaction with results, to change to what amounted to a pay-for-performance system, rather than pay-for-output. [B. Hall, et al. “Performance Pay at Safelite Auto Glass”, Harvard Business School, Dec 6, 2001 (Case # 9-800-291 & 292)]

The shift from a productivity base to a performance base was aimed at curing the negative side effects of the productivity emphasis, namely a decline in technical and service quality resulting from ignoring these dimensions to increase output. But it turned out to add to the motivation, satisfaction and retention of high performers as well, by enabling even greater earnings potential.

After the first few years of the new pay-for performance (P4P) system, Safelite added two incentives for top performers. Compared to the original average output of 2.5 windshields per day, if installation technicians increased their output to an average of 3.8 units, and achieved a 95% customer satisfaction rating, they could earn another $2.00 per unit, or $7.60 per day = $38.00 per week. And if they achieved a rate of 4.5 per day with 97% customer satisfaction, they would get an extra $4.00 per unit, or $18 per day = $90 per week.

This additional potential of up to $4500 per year over 50 weeks meant that workers, who had been making roughly $25,000 per year under the original hourly wage system could make as much as $50,000 per year under the new P4P scheme. And Safelite enjoyed all the advantages of improved productivity, quality and customer satisfaction while its overall profitability improved as payroll costs as a percent of sales decreased from 12.3% to 10.8%.

Since the ultimate purpose of both EHM and P4P is to improve the organization’s overall performance, ideally in as many dimensions thereof as possible, by combining a focus on performance rather than productivity alone, EHM can both be integrated with P4P efforts, and increase its overall effectiveness and efficiency. All that is needed is a system that accurately and credibly (to both employers and employees) measures performance, and links changes therein to improvements in workers’ health and compensation.