EMPLOYER'S WORLD WEEKLY VOL. 23

EMPLOYERS' WORLD WEEKLY – Vol. 23 Summer 2008

It's Summer : Are High Air Conditioning Costs Putting Heat on Your Operating Budget?

By: Fred B. Carlson, Staff Writer and Principal, Carlson Cost Consultants, Ltd. (CCC)

It's almost August and you're afraid to open your office electric bill. "How much did the air conditioning cost me this month," you wonder aloud. With temperatures on the rise and employee air conditioning use up, managers all over the country are feeling the heat on their operating budgets. Brooke Thorpe, a senior actuary at Efficient Workplace Cost Management Solutions, Inc., explained: "Summer is no fun for company budgets. On average, employers nationwide must add 6% to their overall electricity costs, forcing them to put the shortfall on consumers. Providing a cool environment for employees translates into lost profits, lower sales and reduced margins."

Employers are actively addressing the air conditioning problem. Brent "Big B." Crawford, a Senior Office Manager at Houston-based Magellan Capital Markets LLC, carefully monitors employees' air conditioning use. "Prior to 2005, we let employees use all the air conditioning they wanted in the summer. They had a comfortable work environment as a result, but our profits got cooked for three months per year. Obviously things had to change."

In June 2005, Crawford turned off air conditioning at Magellan's Houston offices. Despite employee complaints, profits rose sharply that summer and remained robust in the summers that followed. "Senior management was very pleased that we eliminated a superfluous cost that was really hurting our returns. Now, we have hot summers in Houston, but we made a fair deal with our employees: If you want air conditioning, you can pay the bill out of your paycheck. That was a fair way to approach the problem and several employees took their own temperature-related responsibilities into their own hands. We have very mature employees."

Other major companies picked up on Crawford's lead, devising creative solutions to strike a balance between budgets and employee comfort. Miami-based Bainbridge Hedge Fund Partners LP discontinued air conditioning use in May 2006. In response to several heat-related employee deaths, Bainbridge compromised by installing large fans to cool its 234 active analysts. Since then, summer profits have been at an all-time high thanks to lower operating costs. Atlanta law firm Rigamorole, Carp & Weiner LLP discontinued air conditioning use last summer, opting instead to provide ice cubes to employees at no charge. Employees used the ice cubes to cool their faces during hot spells. Like Bainbridge, Rigamorole reversed its historical summer losses and reported a profit in 2007.

Air conditioning is a substantial company expense in any enterprise. Prudent managers know this, and they also know that good business practice means that every dollar should pull its own weight. Recognizing that, many companies have adopted a benefit-based approach to employee air conditioning. In today's competitive employment market, it is not reasonable for employees to expect that a company should provide such a costly service free of charge. Rather, only qualified and experienced employees should receive it as part of their benefits package. Air conditioning benefits do more than merely reward capable employees. They also attract the Nation's best and brightest graduates to firms that offer air conditioning. For example, Harvard Law graduate Shelley E. McMichael explained: "I chose to accept an offer from Rigamorole, Carp & Weiner because they offered air conditioning benefits for all new associates. That was a major consideration in my decision."

Air conditioning management also affords businesses a way to offer merit-based incentives to employees. At Washington investment house Pryor & Jennings, Co., Inc., senior management employees and bank principals receive air conditioning, while lower level employees, support staff, independent contractors and secretaries do not. Office Managing Partner Theodore W. Plunkett explains: "Everyone at Pryor & Jennings looks up to the employees who 'make it.' If you 'make it,' you get air conditioning. So it's a win-win situation for us: We reduce costs in the summer months, and we encourage healthy competition among employees to do the best job they possibly can so they can get air conditioning."

Like any successful management program, air conditioning reduction has its critics. Naysayers blame companies for creating a harmful work environment that increases risks of stroke, heat exhaustion and heart attack. Others claim that forcing employees to work in unbearably hot offices with no ventilation is "cruel." Brent Crawford disagrees: "Sure, lots of people say that it's 'cruel' to turn off air conditioning in the summer. But if anything we do is considered 'cruel,' it is merely incidental to our overriding duty to our shareholders to save money and reduce costs."

We know you worry about costs, especially in the summer. But there are solutions out there. We live and work in a tough market. Managing an office is not what it used to be. When electricity usage threatens to kill your margins, consider air conditioning reduction. It may just save your business. Because when you cut costs, your company wins.