Jan. 5, 2011
UI study finds corporate giving could improve a company’s bottom line
Corporate giving is good for the community and public relations, but a new study from the University of Iowa suggests it might also boost employee morale and productivity.
Ramji Balakrishnan, a professor of accounting in the UI Tippie College of Business, said corporate altruism sends a message to its employees that the company is a good place to work.
“It seems to act as a signal that the company is a good employer and it treats its people well, which attracts better employees, more motivated employees and more productive employees,” said Balakrishnan. Ultimately, he said, increased motivation and productivity creates a better work environment and can significantly improve a company’s bottom line.
He said the study also suggests that employees are motivated by two factors when giving money to charity. The first is due to altruism and a desire to do good, even if only a portion of their donation goes to charity and the rest goes to the employer’s bottom line. The second stems from the trust that corporate giving generates among employees for their employer, and Balakrishnan said it’s this trust-based effect on employee motivation and effort that is the basis for the study’s conclusions.
Balakrishnan’s research is in the paper “Contracting Benefits of Corporate Giving: An Experimental Investigation,” co-authored with Geoffrey B. Sprinkle of Indiana University and Michael G. Williamson of the University of Texas at Austin. He said it’s one of the first studies that attempts to measure the relationship between an employer’s charitable generosity—through a mechanism such as a corporate foundation—and employee motivation.
In the three-part lab-based study, undergraduate students were divided into pairs, with one playing an employer and the second an employee. In the first part of the study, the employee was given $15, any amount of which could be returned to the employer, with the amount tripled to reflect that employee efforts lead to profit for the employer. The employer then committed to donate a certain percentage of the profit to charity while keeping the rest for the firm. The employees saw no benefit in this phase of the experiment because their donation was either donated to charity or kept by the employer. The employee knew what percentage would be given to charity before deciding on a donation.
Balakrishnan said the researchers predicted that employees would not return any of their $15 to the employer. But, the research finds that the larger the portion dedicated for charity, the more money the employees gave back. When the employer said it would contribute 0 percent to charity, employees gave an average of only $1.16. But when the company agreed to donate 10 percent, the employee contribution jumped to $2.45. When 100 percent was donated to charity, the average employee contribution was $7.68.
“These results suggest that employee contributions increase with the level of corporate giving,” Balakrishnan said. “The results also suggest that employers can benefit from engaging in corporate giving. By giving to charity, employees give more to the firm which, in turn, leads to higher net payoffs for employers.”
The second part of the study allowed an extra step. The employer could return to the employee any portion of the amount left after the donation to charity. Interestingly, he said this innocuous change also increases the amount the employees give to the employers, particularly for low levels of giving. This increase suggests that employees trust the more charitable employers to return more of the residual to the employees.
A final portion of the study also asked participants whether they thought charitable giving was important, which led to some revealing insight. As expected, it found that employees who felt charitable giving was important donated more money.
“But employees who do not believe charitable giving is important saw their employer as a chump for giving away money, and they made smaller contributions because of it,” Balakrishnan said.
While this research uncovers some interesting insights, he said it’s the first of a number of studies he plans to conduct. The research wasn’t designed to answer many important questions, such as what happens when an employer requires its employees to donate, or when the employer donates money to a cause the employee doesn’t agree with. He’s planning future research to look at those issues.
STORY SOURCE: University of Iowa News Services, 300 Plaza Centre One, Suite 371, Iowa City, Iowa 52242-2500