Do Fringe Benefits Increase Productivity?

Does employee happiness improve productivity and which types of workplace benefits produced the greatest productivity gains?

Until we are all replaced by robots, there are very few businesses where employee productivity is irrelevant.  It is self-evident that fringe benefits which increase employee happiness and reduce stress are likely to increase productivity.  But until now there has been very little hard data around this concept.

A recent series of studies by the University of Warwick, Department of Economics, looked at whether employee happiness improved productivity and, more specifically, if they do, which types of workplace improvement produced the greatest productivity gains. 

The series of experiments was based on creating ‘happiness shocks’ in one group and not doing it in a matched group.  Both groups were then asked to perform a series of easy mathematical additions under time pressure.  They were paid about 50c for every correct answer, so there was incentive to take the test seriously.

Everyone was also asked to provide their most recent school level results in mathematics and do a separate mathematical reasoning test so that adjustments could be made for individual mathematical ability. The time-pressured mathematical test was designed to simulate the type of work done in typical white-collar job in a precise and measurable way. 

The happiness shocks in the first two experiments were created by showing the group a 10-minute movie clip of a well-known comedian performing comedy sketches.  Based on their own assessment, on average people shown the clip were 1 point (on a 7 point scale) happier than people not shown the clip.  In an attempt to make the happiness shock more closely reflect real-world examples, in the third experiment the participants were given chocolate, fruit and drinks instead of being shown a clip. They were given 10 minutes to consume whatever they wanted.  This was equally effective in raising the mood of the participants.

All three experiments showed that the happy people were more productive than the people who weren’t shown the clip or given treats.  Both groups were paid for their answers, but the happy group shown the comedy clips attempted 10 per cent more problems and got 10 percent more correct answers after adjusting for mathematical ability. 

The researchers analysed those results in detail and found that the improved outcome was entirely due to attempting more problems. The happy workers were more motivated to put in more effort. The improved mood did not make them smarter or better at maths. If they were bad at maths before the experiment, they still were when they were happy, they just attempted more problems and so had a greater chance of getting correct answers.  And the same was equally true of those that were good at maths before they started. The improvement was uniform across all ability levels.

The improvement was approximately doubled in the experiment were the ‘happiness shock’ was snacks. Interestingly one of the experiments involved not telling the participants that they would be paid for correct answers.  It made no difference to the outcome.

The researchers also tried a variation where they attempted to see if recent ‘bad life events’ in the participants real life showed up as having any effect on their happiness and their performance. In this experiment, no ‘happiness shocks’ were given, and they were asked to perform the timed task after they reported their self-assessed level of happiness.  After the test, they were individually asked if they had, at any time, experienced one of more of: close family bereavement, extended family bereavement, serious life-threatening illness in the close family or parental divorce.

People who had reported one of the ‘bad life events’ within the last three years were measurably less happy and less productive.  They were at least half a point lower on the 7 point happiness scale, they made 10 percent fewer attempts at the maths problems and got around 15 percent less correct answers.  The more recent the ‘bad life event’ the lower their initial level of happiness and the worse they did on the test. If it happened more than 3 years ago, it made no difference to either happiness or performance.  When they looked at how people who had suffered bad life events had gone in the other experiments they found that the ‘happiness shocks’ were just as effective at improving their performance.

When the researchers separated out the results by the type of event experienced, they found that ‘parental divorce’ probably didn’t qualify as a ‘bad life event.” It had no effect on happiness or productivity and in some instances actually improved both. 

These are obviously not real-world experiments, but they do a reasonable job of simulating the effect of delivering happiness to a workforce.  Happy workers try harder and do more immediately after receiving a ‘happiness shock.’ And their cash reward for the work, their pay, had little effect.

Translating those findings into the workplace suggests that if an employer provides “extras” which the majority of their workforce regard as a treat, the workers are likely to be at least 10 per cent more productive.  As long as the cost of that benefit is less than the measured productivity increase, then employers would be mad not to do it.

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