Moving to a Four-Day Week: the Business Case
Implementing flexible working practices is becoming a common practice within both the public and private sectors. With an increasingly competitive job market, flexible or reduced working practices are becoming seen as a recruitment and retention strategy – one that increasingly recognises the various impracticalities of the conventional 9-5, Monday to Friday week for the modern worker. Rather than simply allowing employees to reduce their hours whilst taking the correlating pay cut, or encouraging simply working from home, one of New Zealand’s largest trustee companies decided to go one step further by trialling a four-day week for its employees without a loss in pay. The trial ran over a two-month period in conjunction with academics from Auckland University, who carried out quantitative and qualitative research in order to ascertain the effects on well-being, productivity and work-life balance. The trial was deemed an ‘unmitigated success’, as staff stress levels decreased (they were 45% pre-trial and 38% post trial) productivity increased (job performance from the company was maintained over four days) and work-life balance improved significantly (54% pre-trial increasing to 78% post trial). The success of the trial has led the company to decide to install a four-day working week practice from early next year.
The person behind the trial is Perpetual Guardian’s founder and managing director Andrew Barnes. Autonomy’s Kyle Lewis and Will Stronge managed to meet with him recently to discuss the thought process behind the experiment, its success and the practical implications for adopting a shorter working as a broader political project. We’d like to thank Andrew for taking the time to talk in detail with us.
KL & WS: Maybe you could start by introducing what Perpetual Guardian does and outline what your role within the company is.
AB: I’m the founder and manging director of Perpetual Guardian. I brought these companies together over the last four to five years, although they are two of New Zealand’s oldest continually trading businesses and were established in the 1870s. We are New Zealand’s largest statutory supervisor, which means we act as trustee for securitisation schemes, superannuation and retirement homes. We are also one of the largest philanthropic trustees in New Zealand, as we look after over 650 charitable foundations.
KL & WS: Let’s talk about the practical steps in implementing a shorter working week trial. For example, did HR practices have to change to accommodate the reduced working week?
AB: There are several components to this. There are both the legal contractual components and also the elements about how people work and how they change their working practices. So the two kind of work hand in glove, but let’s start from the legislative perspective first. In common with everyone else in the Western world we (New Zealand) have a framework of legislation that reflects the history of the 10-hour day, the 9-hour day the 5-day working week etc. These are issues that have been fought over around providing protections for workers. So our legislation is exactly the same, in that it thinks in terms of days in the office, but it doesn’t think in terms of output. The biggest challenge we have is that if you try and change that, and remember our whole trial is predicated around the concept of output, the legislation can’t actually cope with it. Therefore, our day off (the fifth day) is a ‘gift’ and not a legislative thing. Take for example holiday pay. Under our system if we give you 40 days off a year we also have to accrue holiday pay on the days that we gift you off. That’s why I say the legislation around this is not particularly helpful and so what we’ve actually had to do is devise our own structure that circumvents the legislation, and then we had to put that in place on top as far as the workforce is concerned.
KL & WS: Does that mean working within the legislation as an overall shell, but then changing the amount employees work through the working practices of the company?
AB: Yes, for example our contracts don’t change. My contract with one of the staff remains a five day contract, so your normal working hours are 8 ½ a day 5 days a week. What I then do is gift you a day off if you meet your productivity goals, which we have collectively agreed. The reason why that’s important is that if you look, for example, at the French 35-hour week, in essence that leads to a reduction in pay if you are paid by the hour. I’m saying that the output is what I pay you for, so when I employ you as a staff member I don’t employ you to get x number of hours out of you in a year, I employ you to deliver me an amount of output. I don’t care if you deliver that in four days of the week or 5. Therefore, if you deliver me the output I’m looking for I will gift you a day off. We have got to avoid that gifted day becoming an implied term of a contract. So what you then have to do is have an opt-in structure to do a four day week, on behalf of the employee. Now in order to deal with the holiday pay issue I can’t actually get around that, but to make me feel better about it, what we’ve done is said you must devote 1 day a quarter of the gifted days to charity or for a social enterprise cause. I’m still paying for it but at least I feel that it’s meeting some of our social objectives. Is this an ideal situation? No. Is it fit for the 21st century? No. What we effectively see is companies like Uber who are effectively arbitraging the system because they’re adopting that gig style approach which means you can avoid all these rules and regulations, whereas if you are employing someone in a conventional form then you can’t actually do that.
KL and WS: With regards to the trial itself, did you notice any significant differences regarding the working culture within the company?
AB: If I may I’m going to step back a bit and explain how we did it, because its very important to understanding the success of the trial. First of all, the premise that underpins it is based on research that I read that indicates that true productivity is not very high within the working day. There was a UK report last year which stated that we only get 2 ½ hours of true productive time. Why is that? There can be social interruptions within your day, from having a chat when we get in to work with colleagues to going on the net to check my social media or the news etc. – that is an interruption in the day. I then have work interruptions within the day, which [is a phenomena that] has been perpetuated further by the modern office environment. It is designed in order to be social: this means you constantly get interruptions. The particular stat I love is that if you continually get interrupted when you are working on something that’s fairly detailed it is the equivalent of being under the influence of cannabis or having a 10-point drop in your IQ. Then there are what I call family interruptions – it could be a home crisis, say picking up the kids because something’s happened etc. Before you know where you are as a company you are paying for all three of those interruptions. So right at the get go the thesis was that if you gave people more [free] time, could people therefore change the way they worked, or change the structure of things, so that whilst they were working one day less, you were stripping out this extraneous stuff?
The first thing we did when announcing the trial was to go to the employees and say: “we have no clue how we are doing to do this. So you need to tell us how you’re going to do this, which means you have to think about how you’re going to change the way you work, how you are actually going to physically change the work.” We then said to people “you need to understand how we are actually going to measure you so that we know that this works.” We had to agree what the performance measurements were and it had to be agreed by all parties (chief exec, managers and staff), in order for people to buy into knowing what constitutes performance and that they’re willing to change their working practices.
The next thing to understand is that the working culture within the company is team-based, which means that if a team doesn’t meet their performance goals I can say to the team as a whole, “guys five days this week as you didn’t hit your goals”. What this means (and this is a little bit of my philosophy from the military) is that people don’t go over the top because of a flag or a cause – they go over the top because of the people next to them, as they don’t want to let their team down. So the culture is based on teamwork and self-policing. What does this mean more broadly? It means a change in attitude. We found a 35% drop in internet time. I was getting staff members coming up to me and saying “my wife has sent me all these houses to look at but I’m saying I can’t because I don’t want to let the team down.” This created a whole attitude change towards social media and using the internet at work more broadly. It also changed the way meetings were carried out. For example, we moved to standing and time-restricted meetings. We had small process-improvement projects which we would never have got to under the normal structure. We also had people putting flag poles in their pencil pots to indicate “don’t disturb me for the next 45 minutes as I’m working on something urgent or requires me to concentrate.” All these small changes were being applied that delivered an outcome that was essentially better productivity, so we meet the goals over four days rather than five.
KL and WS: Did all the teams across the board meet their agreed upon outputs?
AB: there was one team that failed. Interestingly, the biggest problem you have with this is if your leadership team doesn’t believe in it. They’re conditioned to think that “working harder equals working longer,” not working smarter. They are also conditioned to think that staff will not necessarily take team or global responsibility for this sort of stuff and so they are the people who are most concerned about this not working, and all our research indicated that that was the case. So the team that failed, failed for three reasons. First, it was a recently acquired company (acquired and now sits under Perpetual Guardian’s umbrella) and so it hadn’t understood the working culture of the rest of the organisation. Secondly, its leadership was weak, which was highlighted in detail by the trial itself. Subsequently the individual has now left the company. Thirdly, they viewed this the wrong way. When I first announced the trial I made it very clear to all employees that “if you take the piss it will fail.” They decided that half of them would take Friday off and half of them would take Monday off, and guess what? it didn’t work! But in fact we didn’t want to interfere in the trial in the way in which people did this, because what we wanted to see was what the outcomes were. So actually having a control group where it messed up was actually beneficial from a learning point of view. But it was the only team that failed across the whole trial.
KL & WS: To follow on from that question, there’s been a lot of talk recently about productivity within the context of the UK, due its stagnant productivity performance as an economy. Do you think our working culture should focus more on collective productivity rather than the amount of individual hours we work?
AB: Yes absolutely, that’s exactly the point that we are talking about here. The headline was “five days pay, four days work”. That’s not what this is about. What this is about is saying: “can you change productivity in a company by changing the way we do things?” Let’s be clear, we delivered the same productivity, in fact it was slightly higher, in four days as we used to in five, so that’s a 20% increase in productivity right there. We didn’t actually take it to the nth degree, there is still a huge amount of scope for further improvements and innovation – this was just an experimental trial. The key thing here is that this is a raw output, this is not an output that is necessarily working the best it could conceivably work. So just to repeat: productivity is the key issue here. It’s not, as it is sometimes portrayed, about work-life balance. Its productivity, productivity, productivity! I’m a business man first and foremost so I’m not doing this for free. I do think it’s a good thing and has wide ranging societal benefits, but to be clear: this is about delivering better productivity outcomes.
KL & WS: Hypothetically you can imagine some companies trialling such an initiative, getting similar productivity results to those that your company experienced, and then reducing workers’ pay to four days. Do you think, if this were done, the productivity gains would actually be lost because workers in fact need that day off?
AB: There are two issues at play in your question. The first is a leadership thing. As soon as you [reduce pay in line with the days worked], your workforce is going to disengage from you. So sure, you can get that short term productivity burst but then your workforce will say ‘actually I don’t give a damn’ and then they will drop back. This, to me, is one of fundamental problems with the shorter working week. For example, let’s take a look at an hour within the working week. When you look at one of the hours [in my company]: I’m gifting you a day off, there is [therefore] a consequence for pissing around. However, if I’ve just reduced your working week [and cut your pay], what is the consequence? [Workers] can go back to surfing the internet or scheduling in unnecessary meetings because it doesn’t matter, resulting in productivity staying where it is.
Now this isn’t a carrot and stick issue. What you are really saying is: do people work better if they are empowered, engaged, stimulated, treated as individuals and with respect? Do you get better outputs as a consequence of having a more engaged, less stressed, loyal workforce? A bit of that is leadership, but it’s also a reflection of the fact that life isn’t the way it used to be. We don’t have the 20th century model of the wife staying at home and looking after the house. Instead, quite often you’ve got two hardworking parents who are juggling all sorts of things. We allow people to work five days with compressed hours, so if you’ve got kids that could save 400 bucks a week in childcare! People are saying to you: ‘this has changed my life’. With the best will in the world, any little tweaks that you might do [to improve working culture] are not going to have your employees saying ‘this has changed my life’, and that’s what is so powerful about what we are doing here.
KL & WS: So in terms of the teams themselves, did there need to be people in the office five days a week, as clients expected availability Monday to Friday? If so, did the team work out how to manage this themselves?
AB: Yes, and I’ll give you a great example of how this worked. We have two offices on the South Island which have two members of staff in each office. You implement a four-day week, two days of the week you only have one person. Off of their own backs those two branches buddied up and got the system to route their phone calls around the two offices. So, in fact the number of people actually answering the telephone went up from two to three.
KL and WS: Is that just because they had the capacity to do so?
AB: Yes, but it’s also because they thought about it. Again, what we’ve got here is people thinking how they deal with customers in the best possible way. You’re really giving people the opportunity to be creative about what’s going on. One of the consequences of the trial was that people felt much more empowered to make changes, as a consequence of the fact that they were given the opportunity to work out solutions.
KL and WS: Maybe it’s the right time to move on to discuss some of the social outcomes of the trial. Let’s start with looking at the results in terms of staff well-being. How did you manage to record this information?
AB: We have an engagement survey every year, but we thought when we announced the trial that we wanted to have external, independent research. So we contacted Auckland Business School and Auckland University of Technology about coming in and overseeing the trial. We had Dr Helen Delaney from the business school carrying out a qualitative report and Professor Jarrod Haar doing a quantitative report across the teams. What we were able to do is link our original survey to a survey that was done literally just after we announced the trial and then another one at the end. The scores for empowerment, engagement, stimulation, loyalty and leadership, which we had in the original staff engagement survey in November 2017, went up 40% by the end of the trial. The other scores we analysed at the start of the trial were already at high levels: the researchers even said they were the highest levels they had seen in New Zealand. Even so, the scores still went up after the trial, even allowing for the bounce at the announcement of the trial, it still delivered more than we expected. What was most interesting was that people’s perception of their workload dropped, so by changing the way they worked they could handle their workload better in four days than they used to in five. To me that’s the statistic that jumped out the most and which I find truly incredible.
Other statistics we could look at [from the trial period] include a drastic improvement in work-life balance (from 54% to 78%), but what that’s really about is the fact that in New Zealand it is estimated that one in five people in the workforce have mental health or stress issues. That’s partly to do with how the world now is, due to issues surrounding career opportunities and the expense of living, but its also to do with issues surrounding the pervasive way that email and social media has crept in and added pressure to our lives. So one way of addressing that is saying “do you want to surf the internet when you’re at work or would you actually rather have a day off?” But it also means you have time to engage in a different way with your family – you also have the time to take the pressure down. For example, someone who can’t work 5 days in a row, due to stress, could find a work pattern that is more reflective of their needs and in turn make them a more productive member of society.
Now, although it was only a short trial period we did see a reduction in sick days. Why? Is it because people aren’t having to phone in sick so they can have the plumber round? Or are they genuinely able to recharge the batteries? And just think of the consequences for the environment of people not traveling into work 5 days a week or the reduction in stress due to a 20% decrease in commuting to work every week. So that will have a health spin as well as an environmental spin. The other significant consequences concern retraining the workforce to deal with the coming age of automation (we are encouraging our staff to take educational courses on their extra day off as a result of the trial).
Finally, we have the gender pay gap. For example, the first thing my head of HR did when she came back to work was to negotiate a day off. Therefore she would be paid less, but she works just as hard. So we’re now proving that if you can do your work in four days and not five, then why should you be paid less? Subsequently I informed her before the end of the trial that I would be paying her for her full salary, rather than the adjusted one, with immediate effect because she consistently delivers on the performance outcomes set for the role. It [therefore] also changes the working culture within the leadership team to one of working smarter instead of working longer. Does that mean we start viewing women coming back into the workforce with the appropriate skill set as being people just as suitable for promotion because suddenly it’s not all about working every hour God sends, [rather] it’s about what you deliver in an efficient manner? In this [new] culture, are people who value work and home-life balance excluded from promotion and from getting to the top of their profession? I would argue not.
KL & WS: What has been the response internationally to your four day week trial?
AB: The thing that really surprised us was that when we announced the trial there was a media frenzy domestically and globally, but it was over pretty quickly. However, when we announced the results it was far above anything we ever expected. Somebody told me that the global audience for this story had been about 800 million people. What that says is that wherever you are in the world now this is an issue, and it’s an issue that’s about rethinking a method of working that was attached to an industrial type of environment. It was also an era when the social composition of society was different, and we haven’t responded [accordingly to the way society and work has changed]. What concerns me is arbitration by legislation. Again, take the example of Uber. What I see them doing is saying we are going to ignore all of the rules and we are going to do it by calling someone a contractor. Now they’re not a contractor. However, the minute they do that, it means that they can operate accordingly. So what I’m trying to say to government is if you don’t adjust how you think, you’ll force companies down that path whereas I would like to see it neutral whether you are a contractor or a non-contractor because [every worker category will come with] holiday and sick pay, pension contributions etc. built-in. This would mean that you couldn’t bypass the system as it would be standard practice regardless. But if you don’t adjust the legislation, you’re going to have an outdated system forcing people to try and put different structures in place, zero-hour contracts etc. We’re not saying one size fits all – that’s the problem we have at the moment!
KL & WS: Will you be implementing the work day week on a permeant basis? Do you also have any additional plans for innovation regarding flexible or reduced working practices?
AB: So yes, we will be implementing it on a permanent basis. We are currently going through a legal process to find out what we must do to comply with the law in order that we have ability to put the scheme in place. The next stage is to look at more flexible working in the shape of home working, but of course there’s a limit to how flexible we can be or how much we can reduce working hours. Interestingly, I want to see what impact this will have on leave loading or weekend loading. If, for example, somebody wants to work Sundays because it’s not an issue for them, why should I prevent them from doing that? If anything, its good for the business. We are also bringing in more initiatives to combat mental health issues in the work place, beyond simply reducing the time spent at work.
KL & WS: And lastly, is there anything you would have done differently regarding the trial that you will try to put in place during its permanent implementation?
AB: Nothing major. We probably would have worked a bit more with the leadership team, but on the other hand the point about the trial was to challenge norms rather than necessarily come up with solutions. Trying to over-plan these types of things can actually be the problem. The thing that made our trial work is that we asked [our staff]. We knew that it was a good thing, but we didn’t know how to necessarily implement it – that had to come from them. That way you might come up with solutions that we would never have come up with [as a management team]. And that’s the point: if you think you know the answer you might be wrong. The one thing you need to do, however, is you must have a team that’s empowered to think creatively already. If you have a top down command type structure, this type of working practice might not be for you. So the working culture is vital, but the trial somehow sets the [problem-solving] culture because it is an honest conversation.
You can read more about the results of Perpetual Guardian’s four-day week trial on their website.
Join us at the World Transformed festival on September 25th in Liverpool to discuss the shorter working week, with our exciting panel. More details here.