Forget the Fitness Center. Spend Your Money on Education

Using the recession as an excuse, organization after organization has cut out or reduced their tuition reimbursement programs and their support for additional education. But, I have not seen any company close down the fancy cafeteria and many maintain a fitness center and other perks of marginal value for retention or motivation.

At the same time, CEOs and VPs of HR complain about how hard it is to find good employees and retain them. It seems obvious to me that we need to invest more in employee education and less in other areas.

It is a strange and almost uniquely American trait to dislike learning and limit an employee’s ability to learn by not providing time or money.
In most other countries, organizations or governments subsidize or reimburse employee education to some degree. They almost all provide significant internal development even when times are tough. Toyota and many Japanese, Chinese, Singaporean, and Korean companies increase spending on developing employees during bad times because there is slack time to do so.

Moreover, American firms almost universally limit the amount of money that can be spent, they require the employee to pay back the expenditure, or they demand a minimum length of service before eligibility.

This has always seemed strange to me. Learning improves the entire workplace and creates more skilled workers. If everyone developed employees, losing a few would be offset by the ones you hired to replace them.

But let’s take a look at this whole concept in some depth.

First of all, there is no doubt that historically a degree has made a difference in the level of the position one could attain, as well as in total lifetime pay. And, the higher the degree obtained, the higher the status and often the pay (teachers and professors excluded).

As that is still true for the most part, wouldn’t it make sense for employers to encourage employees to get degrees so that they could earn more, feel better about themselves, and potentially contribute more to the organization? Any employee who voluntarily decides to go back to school must be motivated and capable. Many of them may not have had an opportunity to go to school when they were younger for economic or family reasons, or they may have now become more mature and motivated to learn.

In fact, they may be the best employees a company has, as they have tons of energy, are motivated, and seek to contribute more to the company. Organizations that recognize this and encourage and support the ongoing development of their employees have the lowest turnover and highest productivity.

And, what does this cost an organization? Perhaps in an extreme case, where an employee has to go to the equivalent of four years of college to get the degree, the total cost might run as high as $75,000 — roughly what a mid-level manager gets in a large national corporation in a year. Roughly what the executive search fee is for one senior level executive. Roughly what it costs to replace a $30,000-a-year employee (using a standard of replacement cost equaling 2.5x salary).

That doesn’t seem like a lot to me, and more importantly, it seems like a fair trade. The organization gets to keep and nurture an existing employee, making them more productive, useful, and loyal, and avoids the need to use recruiters or search firms and then assimilate a new employee. The chance that a new employee will not succeed is high as are the training costs. Yet, if a new employee quits, no one asks them to pay back the costs involved in recruiting them. Search firms may refund their fee, but more likely they will bargain to refill the position at no additional cost.

So in my way of thinking, organizations should encourage all employees to continue their education. They should offer internal programs and make attending them part of the performance appraisal process. If more organizations focused on promoting internally, rather than going to the outside except for entry-level people, they would have a much stronger and more capable workforce. I frequently use IBM as an example of this. It has spent billions of employee development and prides itself on allowing employees to move internally easily and often. And IBM is thriving despite a recession and despite having changed its entire business model.

By encouraging people to pursue degrees, a company gets the benefits of their increased skill and motivation while they are in school as well as after they complete the degree. The employee doesn’t magically become smarter or more useful to the company only after completing their studies. The skill growth is incremental and takes place over the entire time they are students. Forward-thinking organizations recognize employees at the beginning of their studies and strive to find challenging positions for them in the organization. They may offer rotations or other opportunities for these students to contribute right away.

Companies could work with the schools and tailor degrees to their needs. They could work out ways that student course electives could actually become internal projects that would benefit the company. Or they could work to get term papers and theses written that would be of interest and use to them. Most schools that I have worked with will consider these things when approached by responsible and caring internal representatives. I have set up numerous degree programs with local universities and colleges that provided the employees with course content that they could immediately use on the job. Professors were encouraged to learn more about the company and about its needs so that they could tailor content and even create case studies based on the events in the company.

In most of these programs, the organization assumed all the costs for the education, including books, fees, and tuition. If several students were pursuing the same degree, the company purchased books for them through wholesale channels and even negotiated reduced tuition fees. There is a lot a determined and resourceful human resources group can do to lower costs and improve the quality of the education the employee gets.

Organizations that are positive, encouraging, and supportive of employees who are trying to better themselves will have lower turnover rates, make more money and have a better public reputation than those who don’t. The cost of tuition reimbursement programs is small compared to the benefit and a more liberal approach to tuition reimbursement and on-going education, especially when recruiting new college grads, is a powerful recruiting tool. It’s a way to differentiate your organization from others.

Investing in education should be a priority and should supersede other benefits and bonuses.


Reprinted with permission of ERE Media