Case Study: Recovering Productivity and Measuring Lost Productivity Through Disability Data – Part 1

DMEC StaffCase Studies, Resources

Recovering Productivity and Measuring Lost Productivity Through Disability Data

By Marcia Carruthers, MBA, ARM, CPDM

Given the extreme pressure on human resource professionals in the current corporate climate to preserve and retain qualified employees, never has the push to keep employees on the job been more urgent. Considerable research and effort has been expended into quantifying the effects of lost productivity in terms of presenteeism, but the other part of the health and productivity equation that is equally important lies in the measurement and management of absence and disability. What better an indicator of a “sick culture” or the effectiveness of health management, than the incidence of disability and absence in the workplace? Taking this a step further, if we can identify and manage the disability, we are then promoting and preserving productivity and health in our employees.

Integrated Disability and Absence Management (IDAM) is the subject of the following case study in which a very traditional industry (power) took a serious look at its disability rolls ten years ago and made some incremental changes that have resulted in some remarkable statistics. This is more than just the mere management of claims or giving lip service to getting employees back to work. This is a quiet but strong statement by the management of American Electric Power that:

  • employees are an important resource;
  • employee participation in AEP’s daily operations is a key variable in its profitability; and
  • having a productive workforce is a winning proposition for both sides.

Recovering Off the Job

In 1997, American Electric Power (AEP) was like the majority of other companies in the US in regard to their disability management strategy; it was unmanaged, outsourced or decentralized. Yet a year later, a visionary program, conceived by Steve Jamison, Director of HR Operations, began with the implementation of the Recovery Center, an integrated disability management (IDM) program which was then staffed with 15 employees. Its mission was to manage absence recovery by providing a customer-focused, flexible, Human Resource Team dedicated to providing high-quality, timely and consistent service while striving for continuous improvement.

Through integration, they were injecting a culture change: promoting RTW, quality care, and cost control but also being viewed as an employee advocate. While on the surface these may appear as lofty goals, they emphasized a new concept that recovery is a continuous process, occurring while employees are still off-work, never breaking the link with the workplace and maintaining the employee-employer bond.

The Power of Measurement

The Recovery Center is managed by Loyd Hudson. Loyd is an electrical engineer by trade, with a master’s degree in Safety Management who is a true “data demon” at heart. The Recovery Center, located in Heath, Ohio, is responsible for administering AEP’s absence programs: short-term sick leave; long-term disability; worker’s compensation and FMLA processes. He attributes his department’s success to “hard work, perseverance, the ability to change, grow and learn, paired with an excellent staff and a strong case management team.” While the success of the department is obvious to those who have been to the Center, and their total integration of their program is impressive, their ability to measure their success and to tie it to measurable performance, meaningful data, and operational goals makes them unique. Success is measured in several ways: cost savings, employee satisfaction, productive FTEs, and decreased duration and incidence.

Disability Cost as Percent of Payroll

American Electric Power was already below industry norms for disability cost, and has now reached its lowest cost in recent history, despite increasing its sick leave benefit, due to the success of its Recovery Center IDM initiative.

What AEP is most proud of is its ability to significantly reduce costs over 10 years while focusing on return-to-work issues and being an employee advocate. Last year AEP saw its costs drop again. Workers’ Compensation is now $10 million lower than it was 10 years ago and $7.1 million lower than the national average. LTD costs are $4.3 million dollars lower, but still only slightly higher than the national average. Sick leave costs are down by $2.6 million. These savings set the stage to allow for a 1999 and 2001 benefit change that increased employee sick leave benefits by $9.4 million dollars. The bottom line is – AEP costs are $10 million lower than they were ten years ago, even with their benefit increases!

About American Electric Power

Headquarters: 1 Riverside Plaza, Columbus, Ohio
2006 Ongoing Earnings: $1.093 Billion
2006 Ongoing Earnings per Share: $2.77
2006 Revenues: $12.6 Billion
Assets: $38 Billion
U.S. Employees: 20,400
Service Territory: 197,500 sq. miles in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio,
Oklahoma, Tennessee, Texas, Virginia, West Virginia
Miles of Transmission Lines: 38,953 miles
Miles of Distribution Lines: 207,632
Generating Capacity: 36,000 Megawatts
U.S. Customers: 5 Million-Plus
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