What If Every Company Conducted An Employee Financial Distress Test?

When PayPal learned that 60% of their hourly and call center employees were struggling to make ends meet (even though they were paid at or above market rates), and that financially distressed employees spend 10-20 hours of their month worrying about finances at the office, they implemented four new initiatives:

1. they increased base wages; 
2. they lowered healthcare costs by an average of 60%; 
3. they made every employee a shareholder of the company; and 
4. they created educational programs on financial planning and health.

It set us wondering. How many companies even know how many of their workers are financially distressed? What if every company emulated what PayPal did? In fact, let’s make it simple. What if every company took the initial step, and conducted an internal “living wage” audit? Call it a financial distress test of their most at-risk employees. There are resources available to get started. The Living Wage Calculator that our partner at MIT developed, for instance, is frequently used by companies for this purpose.* And it would provide corporate leaders with a baseline understanding of a critical issue for one of their key stakeholder groups. 

We know from our survey research that “paying a living wage” is consistently identified as one of the most important criteria for the American people when it comes to defining just corporate performance. This holds true regardless of respondent political ideology, age, income, and other demographic splits and given that nearly 40% of Americans can’t afford a $400 emergency, should come as a surprise to no one.  

By our own estimates, there are millions of people working full time at large corporations who do not make a living wage. These are people who typically make ends meet by working two or even three jobs, who often commute long distances, and who rely in many cases on government assistance programs. 

Putting the morality of this aside, it is just bad for business. According to MetLife, employers have lost $250 billion each year due to employee stress affecting their work, with personal finances as the number one driver of employee stress. For those of you who missed it, Dan Schulman talked about his company’s experiences in detail on CNBC Squawk Box last week, as part of JUST’s first ever Quarterly JUST Call. Employees living in a constant state of financial distress are less productive. And it’s a problem that is getting worse not better. 91% of S&P 500 Companies’ earnings over a ten year period were used to buy back stocks or pay dividends, rather than going toward wages.

Other initiatives on the broader issue of financial distress are emerging. BlackRock, our #1 ranked company in Financial Services, has announced a $50 million philanthropic commitment to fuel innovation that will allow millions of people living on low- to moderate-incomes to establish a stronger financial safety net. Each partner participating in the Initiative will work with experts from Common Cents Lab, Commonwealth, and/or the Financial Health Network, three nonprofits focused on consumer financial health. Current participants include UPS, Mastercard, Etsy, Brightside, Arizona State, and Acorns. 

Investing in workers is not rocket science. It is good business. It means investing in their financial well-being so they can be fully present at work, since we know that 85% of all workers are not engaged at work. It means raising wages at the most financially vulnerable work locations. It means lowering premiums and modifying health plans to help pay for deductibles and copays for employees in lower job grades. It means giving employees equity in the company. Providing a pathway for employees to move beyond living paycheck to paycheck will not only have an incalculably positive impact on our social challenges, it will generate a return for all stakeholders. 

NOTES: *In our model, we use data from Professor Amy Glasmeier at MIT, one of the leading authorities on living wages, to identify living wage levels by county across America for a typical family of three, composed of one full-time worker, one part-time worker, and one child.