Report: Companies profit by investing in workers

Posted May 19, 2010 at 2:56 p.m.

By Alejandra Cancino | American Apparel is one of 12 companies that increased profitability by investing in employees at the bottom of the ladder, according to a report by Dr. Jody Heymann, the founding director of the McGill Institute for Health and Social Policy.

That growth defies the common perception that investing in low-tier employees is an unnecessary expense, according to the report titled “Profit at the Bottom of the Ladder.”

A few years ago, American Apparel was having a problem with its sewers. Each was assigned a task to complete. For example, one would sew a button and another a sleeve. When a new chief operating officer took over the company, he realized that half-finished clothes were piling up. 

To increase productivity, the company implemented a teamwork system in which sewers were paid based on the number of garments they produced by their team.  As a result, output tripled from 30,000 to 90,000 pieces a day.

As part of her study, Heymann has conducted employee interviews and on-site visits and compiled information from various companies since 2005. About half of the companies were based in the United States. The other half were based globally, including Africa and Asia. They all ranged in size, from 27 to about 126,000 employees.

In general, Heymann found that companies increased productivity by finding the best ways to motivate employees — even during the economic recession.

Costco Wholesale Corp., for instance, offered wages that were on average 42 percent higher than Sam’s Club’s wages. “Though Costco had higher labor costs than its competitors, it also had higher productivity and lower turnover rates,” the report states.

Dancing Deer Baking Co., a small company with one production facility in Boston, offered free ESL classes to its production workers. As a result, communication improved within employees, which also increased the efficiency of their work.

After seeing the success of the teamwork system, American Apparel also began promoting worker’s health with on-site exercise classes, massage therapy and a more nutritious menu at the cafeteria. They also set up an on-site clinic, which reduced unnecessary absenteeism.

Heymann said that when companies realize that improving working conditions make sense for workers and the company, they continue to make changes.

“If American Apparel hadn’t had the improvement experience, then it would have been hard to get the clinic and realize that it was worth making the investment and continue to change,” Heymann said.

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