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Don’t Sacrifice Safety on the Alter of Financial Goals

Posted by Sean Martell
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A study published in Journal of Accounting and Economics came to a conclusion that won’t surprise many people in heavy-duty industries: When you try to meet or beat earning expectations or reach other lofty financial goals, employee safety can suffer. How can managers solve this three-dimensional chess game of being fiscally responsible while ensuring the highest standards of safety? With ever-increasing pressure on profitability, it can be a very tough nut to crack.

“If managers believe that the firm may miss expectations under the ordinary course of business,” the study reports, “they may increase employees’ workloads or pressure them to work faster. In response, employees can compromise safety by overexerting themselves or by circumventing safety procedures that slow the flow of work. Second, managers may cut explicit and implicit safety costs, such as the costs of maintaining equipment and training employees, in their attempts to report higher earnings.”

employee-safety.jpgThe National Safety Council (NSC) aggregates data on the cost of putting too much emphasis on financial goals and not enough on safety. In 2010, the council notes, U.S. employers paid $51.1 billion or almost $1 billion per week for direct workers compensation costs for most disabling workplace injuries and illnesses. Each time an employer-safety protocol prevented one such injury, it saved $37,000. Each time it prevented a death, it saved $1,390,000.

These figures didn’t include the indirect financial impact of workplace disruption, loss of productivity, worker replacement, increased insurance premiums, and attorney fees. When all of these costs are added in, the financial hit of a fatality can exceed $3,000,000. The NSC notes that some studies suggest that these indirect costs in the construction industry can be as much as 17 times more than direct costs, depending on the type of incident.

In 2013, the NSC asked CEOs if they saw a financial advantage in preventing injury, 60 percent reported that for every $1.00 invested in injury prevention, their companies saw an ROI of $2.00 or more. Direct financial savings aside, 40 percent of the executives said, the biggest benefit of effective workplace safety programs was improved productivity.

Safety & Health magazine recounts what happened when Alcoa began focusing on worker safety. As the magazine reports, “the Pittsburgh-based aluminum manufacturer saw its earnings increase from $0.20 a share to $1.41 in only five years, and sales grew 15 percent each year during the same period. Along with increased profits, the company reported that its lost time due to employee injuries declined over the course of 10 years.”

 In 2014, then-Alcoa CEO Paul O’Neill famously sent the stock market into a tizzy when he put worker safety before profit-increase.jpgprofits. It was an unorthodox—and wildly successful—gambit, as one year after this announcement Alcoa profits hit a record high.

Similarly, France-based Schneider Electric saw a dramatic reduction in accidents at U.S. facilities when it tightened up its safety program. Instead of spending time building a business case for more safety spending, it cut to the chase and focused on identifying and eliminating hazards that could hurt its employees. As a result, Schneider saw its U.S.-injury rate from an already low 3.6 per 100 to .5 per hundred in 2013. That works out to about 900 fewer employees being injured in 2013 than a decade earlier.

 None of these financial calculations include the profound emotional distress caused by workplace injury or death. Companies that take this potential distress to heart are shifting perspective the way Alcoa, Schneider, and many other companies have done. While still monitoring rates of injury and fatality, these companies have taken many much more proactive steps.

 Realizing the impact reduced employee safety has on the bottom line, they have taken steps to reduce the stress, workload, and hours placed on employees. And while they continue to collect measurements on rates of accidents and near misses, they also measure the adoption of proven ways to increase safety. This can include everything from the use of ever-improving safety warning systems on heavy equipment to safety gamification to driver training-program attendance.

 Efforts to bolster the bottom line by sacrificing safety are doomed to failure: injuries and accidents are just too costly in terms of financial, productivity, and emotional loss. But by being more proactive and rewarding employees for their engagement with safety initiatives, companies can checkmate rising operational expense and hit those earnings expectations.

 

 

Topics: Proactive Safety, Your Bottom Line, Best Practices, ROI, Safety Awareness, Safety Culture

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PRECO Electronics is a global technology provider that improves safety for operators, worksites, and the public. The effectiveness of our patented object detection radar systems is unmatched in heavy duty vehicle industries.

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