A link exists between management pressure to meet earnings benchmarks and an increase in workplace injuries, according to a new research study co-authored by Dr. Naim Bugra Ozel of the Naveen Jindal School of Management and Dr. Judson Caskey of UCLA.
Ozel and Caskey examined data from the OSHA Data Initiative (ODI) program, since 1995 an annual U.S. Department of Labor report on “injuries and acute illnesses attributable to work-related activities in private-sector industries from approximately 80,000 establishments in selected high hazard industries.” The study, “Earnings Expectations and Employee Safety,” found that managers who believe their firms are at risk of not meeting earnings benchmarks may increase employee workloads and reduce safety-related expenditures in an attempt to meet those goals.
Their research is the first of its kind to tie financial outcomes to operational outcomes having to do with workplace safety, Ozel said. When managers exert pressure on their workers to increase their workloads or work faster, the workers who feel that pressure tend to overexert themselves to meet the increased workload or bypass safety procedures to speed work flow, thus compromising workplace safety, the study found.
Not only that, but managers under pressure to report higher earnings will more likely cut safety costs by reducing dollars spent on equipment maintenance and employee training.
“Previous research on injuries did not try to relate them to financial outcomes,” Ozel, an assistant accounting professor, said. “Similarly, previous research on accounting or financial targets did not necessarily relate them to operations directly. Instead, they looked at how shareholders get affected.”
Ozel and Caskey broke study data into four earnings-expectation categories: Large Beat, when firms beat expectations by more than two cents; Meet/Just Beat, when firms meet or just beat expectations by two cents or less; Just Miss, when firms miss expectations by three cents or less; and Large Miss, when firms miss expectations by more than three cents.
The study, which covered a 10-year period from 2002 to 2011, revealed that most injuries and illness rates occur in the Meet/Just Beat Category, when firms are on track to meet their goals and feeling the heaviest pressure to perform financially. The lowest injury rates occur within the Large Beat category. When companies are feeling comfortable about their earnings expectations, they put less performance pressure on their employees, the study finds.
The study finds that companies less affected by workers’ compensation are putting more pressure on their employees when they feel the financial pressure, Ozel said. In states where injuries have a greater effect on workers’ compensation premiums, they find that firms push employees less. “When it’s cheap for managers to push their employees harder, they try to do it more,” Ozel said. “When it’s more expensive, in terms of workers’ compensation, they do it less. There is a rationality there.”
Union monitoring also has an effect on management’s willingness to push employees harder.
“When there are unions in the workplace, we find that our results are weaker,” Ozel said. “They can step in to demand better safety measures; that, or perhaps managers are deterred by the possibility of a confrontation with a union.”
A wide range of high-hazard industries, including manufacturing, hospitals, grocery stores, the U.S. Postal Service, airports and ground transportation, were captured in the study based on OSHA directives for auditing ODI data.
According to Ozel, a key conclusion that can be reached from this study is that looking into workplace safety can inform investors about whether a company is struggling to meet its financial targets.
“One thing that insurance companies look at when evaluating firms is injury rates,” Ozel said. “They think it’s value-relevant. And from the safety regulators’ perspective, it basically points out which companies should be monitored more.”
