I had written this a while back and had not posted this. Now I have momentum.
Last week Fast Company devoted time and space to food as a benefit. http://www.fastcompany.com/3035005/the-future-of-work/does-incentivizing-employees-with-free-food-actually-work. Then a friend of mine on Infosys alumni network scanned and posted a copy of the canteen coupon. It got the most likes that I have seen in the recent past. So here it goes!
A lot of companies say that they pay market median salaries. Then, both HR and managers spend a lot of time thinking about what unique benefits other companies are offering and what they can do; There again, there will be a lot of common features and one does not have a real advantage.
Imagine going to a friend’s place for dinner. After all the fine food and conversation, you are about to leave. The friend asks you for a minute and after family discussions, submits a bill to you for the food; what would you think?
In olden days, most companies used to say that they are like a family; while the Public Sector companies had self-contained colonies that brought people together, even in other companies, peers used to hang out together; and the companies invariably had a cafeteria offering subsidized food.
New economy companies started off the same way; However, on the way, the accountants came with an argument;” You pay employees well; You give them annual salary increases; So, why should we pamper such well-paid people, with free food and stuff like that? They can as well incur the expense”
This no doubt is a rational argument; as much as your friend giving a bill to you!
So, when employees come into work, are they
- Members of an extended family, who are connecting for an important deliverable on a daily basis?
- Guests to the company’s facility?
- Paid workers, who are given a salary for doing work, but not anything more?
Consider the economics of food; If in IT services, typically it takes 2000 employees to clock revenues of $100 million. The payroll cost typically will be between $55 million to $65 million. And the net profits should be around $15 million.
On an average, it will be a safe bet to assume that it would cost rupees 100 per person to take care of all eating requirements per day. There are 22 working days in a month; Factoring in for holidays, it would approximately cost INR 2000 per month per person. Annual costs would be around rupees 25,000; probably, equivalent to 15 days salary, per person or around 5% of payroll costs. For the company mentioned here, it would be equal to probably 2% of overall costs; Difference between 15% and 17% net profits!
This no doubt is a moderate sized investment; Spend nearly 2% of revenues on an expense, which the employees can very well afford; What does it get in return?
At the same time, companies are not entirely moving to a cost model either; Coffee and tea are still on the house and MNCs also have their well stacked pantries; Annual days, picnics, quarterly outings all contribute towards feel good; Food coupons also try to create additional feel good. But can there be a better feel good than being treated like a guest at your own office?
In reality, the expenses could be less due to absenteeism and other reasons; Execution is an issue; Employees might be working in locations other than the office and ask for cash equivalent; What about employees outside the country? What about employees who work from home? J
A lot of these questions can be answered by just ensuring that meals are location dependent and wherever there are offices, food arrangements will be made; there is another argument; “What business are we in? Software or catering? “ In reality, administration teams still have to ensure catering and parking arrangements across all offices, anyway.
Someone had done an analysis of the cost of Google’s free food program, and estimated in 2008, that it probably costs $20 per employee and around $72 million per annum; Of course, the company earned more than $6 billion that year, and so the program cost just 1.2% of net profits and 0. 3% of revenues. How much goodwill has it earned? Is there a value?
Any company, that makes more than 20% net profits should use food as a strategic benefit; It does become a challenge, when things turn bad; Free food becomes an easy cost to do away with.
But at the same time compare the costs! Any services company, runs at an utilization of 75% on an average; Any given point in time, 25% of the workforce is treated as a business cost; In other words, around 25% of the payroll costs is ploughed into keeping people on the bench; Is 5%, too much for taking care of all employees?
As Larry Page says
How important to you are Google’s wonderful lifestyle perks, from the free food to the massages, for the employee experience you’re trying to design?
I don’t think it’s any of those individual things. It’s important that the company be a family, that people feel that they’re part of the company, and that the company is like a family to them. When you treat people that way, you get better productivity. Rather than really caring what hours you worked, you care about output. We should continue to innovate in our relationship with our employees and figure out the best things we can do for them. We’ve been looking a lot at the health of our people, and making sure we’re helping them stay healthy and quit smoking. Our health care costs have grown a lot less fast than other companies as a result of that. But our people have also been a lot happier and more productive, which is much more important.
Food is old fashioned, paternalistic and could be a susceptible to cost cutting; But in these cynical times, is there anything else that creates a better sense of community? Just make sure of variety and quality 🙂
hr3by2 