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Corporate Philanthropy and Employee Productivity

By Jeremy Douthit, Ph.D.; Patrick Martin, Ph.D.; and Michelle McAllister, Ph.D., CPA
October 1, 2021

Charitable contribution matching by companies can increase employee productivity because it encourages the social norm of helping others.

 

Many businesses participate in charitable giving. In the United States, for example, Giving USA estimated that corporate charitable giving totaled more than $21 billion in 2019. Companies often include a charitable contribution matching (CCM) program to direct a substantial portion of their charitable giving: They offer to match employee donations to qualified charities, often at a dollar-for-dollar rate.

 

It’s estimated that 65% of Fortune 500 companies offer this type of compensation benefit. We conducted research to see whether CCM programs benefit organizations by motivating higher levels of employee productivity.

 

CCM is a type of corporate charitable contribution. It’s often portrayed as a compensation benefit to employees, but its use requires employees to give some of their compensation to charity to trigger a matching donation from the company. Thus, a CCM program joins the company and its employees in a “giving partnership.” This giving partnership is unique to CCM, and distinct from more direct forms of corporate charitable giving, because it requires the employee to contribute in order to initiate the company’s giving.

 

Our research suggests that this difference makes CCM a powerful tool in increasing employee productivity because it yields a greater increase in employee productivity relative to other uses of company resources. (For more information and details on the study, look for “Charitable Contribution Matching and Effort-Elicitation” in a forthcoming issue of The Accounting Review. The research paper includes the full battery of our results, the methods we used to conduct the study, and other related research on this subject.)

 

CCM AND EMPLOYEE PRODUCTIVITY

 

We examined the effect of CCM programs on employee productivity using a series of laboratory experiments. To measure productivity, we asked our employee-participants to solve as many simple puzzles as possible within a set time limit. The more puzzles an employee solved, the higher their productivity. After the time limit for solving puzzles expired, employees could choose to donate a portion of their cash earnings from the experiment to charity. When a CCM program was available, the employees’ donations were matched. When CCM was unavailable, the employees’ donations were given to charity without the added match.

 

Employee-participant compensation also differed between experiments. In one experiment, employees received a fixed wage. In another experiment, employees received performance-based pay where they earned their wage based on the number of puzzles solved. Across all of our experiments, regardless of how employees were compensated, productivity was higher (i.e., they solved more puzzles) when the CCM program was available. This supports the conclusion that CCM can increase employee productivity under a variety of employee pay arrangements.

 

CCM is also a relatively cost-effective method of improving employee productivity. When we compared employee productivity under CCM to productivity in a condition where employees were told that their company is making a direct donation to a charity, we found that CCM results in greater employee productivity than an equivalent amount of direct corporate charitable contribution. Based on these findings, we conclude that a CCM program motivates greater employee productivity than direct corporate giving.

 

CULTURE OF CHARITABLE GIVING

 

The key to CCM’s potential in increasing employee productivity lies in its ability to create, sustain, and support beneficial social norms within an organization. A social norm is an unwritten rule that guides people’s behavior in certain settings because they believe it’s what individuals generally do in such settings. Social norms are prevalent across society but often have nuanced applications based on aspects of people’s surroundings.

 

For example, honesty is a common social norm that, despite what we often claim, can’t be boiled down to a single directive to “never tell a lie.” Rather, specific settings and contexts dictate whether total honesty is the appropriate norm. Most adults are aware of the importance of context for honesty and don’t apply the strict definition of honesty universally. They often tell “white lies” to avoid hurting the feelings of others when dealing with nonessential information. Practicing absolute honesty, rather than understanding honesty as a setting-specific social norm, can lead children to make (often humorous or hurtful) statements that would be socially unacceptable if made by adults. This highlights that social norms are dependent on their setting.

 

We hypothesized that CCM can act as an important element in the professional setting by creating a social norm of helping others. This norm implies that employees should contribute their time, resources, or effort to benefit others. Because CCM creates a “giving partnership” between the company and its employees, it’s likely that a CCM program signifies to employees that helping others is a norm that’s expected of them. In response, employees put in greater effort, which is personally costly to them but beneficial to the organization, as a means of demonstrating that they’re adhering to this seemingly expected norm.

 

Conversely, because direct corporate giving doesn’t require employee input, this form of contribution doesn’t uphold the social norm of helping others in the same way that CCM does. A CCM program helps establish and support a norm of helping others, which subsequently increases employee productivity to the company’s benefit.

 

IMPLEMENTING CCM

 

The results of our study indicate that utilizing a CCM program can potentially provide the external benefits companies are accustomed to pursuing with corporate philanthropy as well as the additional internal benefit of increased employee productivity. Thus, for businesses that already engage in corporate charitable giving, it would make good economic sense to shift some of those contributions toward a CCM program.

 

While many companies already offer a CCM program, employee awareness and participation in such programs is often low. Human resources departments in such organizations can consider shifting some resources toward making employees more aware of the program in order to establish the social norm of helping others and to reap the potential productivity benefits associated with CCM.

 

Jeremy Douthit, Ph.D., is an assistant professor in the Dhaliwal-Reidy School of Accountancy at the University of Arizona. Jeremy can be reached at jdouthit2@email.arizona.edu.
Patrick Martin, Ph.D., is an assistant professor of accountancy at the Joseph M. Katz Graduate School of Business at the University of Pittsburgh. Patrick can be reached at prm75@pitt.edu.
Michelle McAllister, Ph.D., CPA, is an assistant professor of accountancy at the W.A. Franke College of Business at Northern Arizona University. Michelle can be reached at michelle.mcallister@nau.edu.
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