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Corporate Tuition Aid

Studies Reinforce View Of Improved Retention;

By ERIN WHITE May 21, 2007

Economists have long questioned the value of corporate tuition-assistance programs, asserting that employees’ new degrees would make them more marketable and more likely to leave.

But a growing body of research concludes just the opposite: Paying for employees’ education makes them more likely to stay.

One new study, by Stanford graduate student Colleen N. Flaherty, found dramatically lower attrition among participants in a tuition-reimbursement program at an unnamed nonprofit institution. Among employees hired the year after the program started, only about 33% of participants had left the employer within five years, compared with about 60% of employees hired the same year who didn’t use the tuition program. The study was published by the National Bureau of Economic Research as a working paper in March.

Ms. Flaherty’s research supports results from other recent studies. Peter Cappelli, a management professor at the University of Pennsylvania’s Wharton School, found in a 2004 study that “tuition assistance appears to select better-quality employees who stay on the job longer,” in part to make use of the benefit.

The academic research may come as comfort to executives, who overwhelmingly back tuition-assistance programs. In 2006, 85% of about 1,000 large employers offered some form of educational assistance, a figure that has remained roughly constant for the past several years, according to Mercer Human Resource Consulting.

Jennifer Calhoun, a Mercer principal, says employers see the programs as retention and recruitment tools. Their value may be increasing in a competitive labor market where employers must worry about retaining good workers and replacing the legions of baby boomers heading for retirement.

Genentech Inc. says it believes its tuition-assistance program, which covers expenses up to $10,000 annually, helps attract, keep and develop talented scientists. Last year, 500 employees took a total of about 1,200 courses. “Having these opportunities makes it more exciting to work here,” says Kenneth Bradshaw, associate director of benefits for the South San Francisco, Calif., biotechnology company. Mr. Bradshaw says recruits in competitive Silicon Valley expect employers to provide such benefits.

United Technologies Corp. has a particularly generous tuition program, which it believes bolsters employee retention. The Hartford, Conn., conglomerate started the program in 1996 amid restructuring, in part because Chief Executive George David wanted affected employees to have a better shot at landing other jobs.

UTC pays the full cost of a degree program, including tuition, books and other fees, and provides up to three hours per week paid time off for employees to study. Employees who earn associate’s degrees or higher also get a grant of UTC stock; a bachelor’s degree earns $10,000 in company stock. By comparison, a recent survey by Hewitt Associates Inc. found that overall, big employers limit benefits to a median of $5,000 a year.

About 12% of UTC’s approximately 72,000 U.S. employees are enrolled in the program. That is more than most companies; consultants estimate that nationally, fewer than 10% of eligible employees tap tuition-assistance programs. About half of UTC’s participants are getting master’s degrees; most of the others are earning bachelor’s and associate’s degrees. The company spends about $70 million to $75 million annually on the program world-wide.

Bill Bucknall, the company’s senior vice president of human resources, says some managers initially worried that degree-earners would take the money and run. Instead, UTC says participants are less likely to leave. Turnover among employees who enroll in the program runs about two to three percentage points lower than the rest of the work force. “People are pretty loyal as a result of being sponsored by the company,” Mr. Bucknall says.

Linda Stra, a purchasing analyst at UTC unit Hamilton Sundstrand, which makes aerospace and industrial products, has earned associate’s and bachelor’s degrees through the program. She says she joined UTC in 1999 as an administrative assistant, choosing the post over a job at another company partly because UTC’s tuition program was more generous.

Ms. Stra says the degrees helped her move ahead at UTC; she has been promoted several times and feels loyal to the company. “The benefits of [the program] are obvious in my career path,” she says. Now she’s considering getting a master’s degree. If she seeks another job, she plans to stay inside UTC. “I wouldn’t think about going someplace else,” she says.

Gary Perman is President of Perman Technical Search Group, a national search firm that specializes in recruiting Executives to Engineers in the technology industry since 1996.
If you have questions about this article, feel free to contact him at [email protected]

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Gary Perman is a certified recruiting professional and owns PermanTech, which specializes in recruiting technology executives, managers and engineers. He hosts an employment-technology blog.

See our Blog for Technology discussions,Interviewing advice, comments relating to IT, Software, Technology issues.