Tuition Fruition
By Holly Dolezalek
August 13, 2009
Chris Howard knows how companies can throw away money when it comes to tuition reimbursement. Now an analyst for Oakland, CA, research firm Bersin & Associates, Howard once worked for a phone company that paid for him to get an MBA. "The day I finished my MBA, I left the company," Howard says. "My manager knew I was enrolled, even the vice president of my unit knew, but nobody ever came to me and said, 'When you finish your MBA, here's what we're going to do.' They didn't have to say they were going to promote me, but there were conversations we could have had. They spent $20,000 on me, and there was no management of that $20,000 at all."
Tuition reimbursement is a huge business in the U.S. Bersin and Associates' "Tuition Assistance Programs: Best Practices for Maximizing a Key Talent Investment," published in January 2009, says global and U.S. corporations spent $16.5 billion on tuition assistance last year.
Based on responses from 396 companies to an online survey in September, the survey data showed 87 percent of those companies (which ranged in size from less than 1,000 employees to more than 10,000) have tuition assistance programs. Even among smaller organizations, 77 percent offer tuition assistance, and among larger organizations, 94 percent do so.
Howard notes that tuition assistance generally accounts for about 10 percent of a company's training budget, although that ticked up to about 12 percent this year. That figure is borne out by ASTD's data, as well. In its "State of the Industry" report for 2008, ASTD found that tuition reimbursement comprised approximately 12.6 percent of organizations' training budgets, but in previous years the figure had hovered around 10 percent.
Throwing Money Away?
For such a huge business, you'd think it would be a carefully managed and tracked business, as well. Not always, according to the Bersin report: Some 27 percent of respondents said their organization did not measure the effectiveness of its tuition assistance program. Ten percent said it was of low or no value, yet they still continued the program.
In part, that can be explained by another data point: When asked why they had a program, 54 percent said it was an expected benefit, and 57 percent said they had to do it in order to stay competitive (respondents could offer more than one reason). When they don't feel like they have a choice about offering it, there's no solid incentive for organizations to monitor it.
But it's also a matter of organization, Howard points out. "The vast majority of decision-making and funding for tuition assistance takes place at the business-unit level," he says. "The business unit often doesn't have the resources or the inclination to measure its effectiveness, and there's frequently no central management through HR or training, so there's nobody sitting back and asking, 'Are we getting anything out of this?'"
As one Training Top 125 Hall of Famer says, "I think tuition reimbursement is a non-strategic way to support learning, and usually, if not directed, it has little ROI for the organization."
Time to Grow Up
But the days of spending on tuition willy-nilly may be coming to a close. Last autumn's economic meltdown, and the ongoing fallout, was similar to the chaos after the dot-com bubble burst. But this time, as industry giants collapse into bankruptcy—or oblivion—and unemployment continues to rise, the damage is going deeper. Tuition reimbursement programs are likely to be in for a great deal more scrutiny in the years ahead.
Not all of that will be cuts, though. "Companies are still competing for talent, and in some industries, they're all chasing the same talented people," says Andrew Yang, CEO of Manhattan GMAT Prep, a New York company that prepares potential graduate students for the Graduate Management Admission Test. "While one of my clients said it was going to stop offering tuition reimbursement, another said it actually was going to increase it."
For those that haven't started looking at the value of their tuition reimbursement program because they don't know what to look for, it's actually surprisingly simple to calculate a rough ROI for these offerings. What's difficult is collecting the data that will make those calculations possible. Without centralized management or at least reporting of tuition reimbursement expenditures, an organization won't know what it's spending, or on whom. Says Bersin and Associates' Howard, "It takes infrastructure to manage policies and track expenditures and approvals so you know what's going on."
Decide by Data
Of course, the lack of infrastructure allows companies to avoid unpleasant realities about their programs. No company wants to spend money and time to discover it's been spending $3 million a year with nothing to show for it. But Michael London points out there's a back-of-the-envelope calculation that might start the ROI conversation nicely. "Comparing voluntary turnover rates among employees who use the tuition assistance program to that of employees who don't is a quick way to figure it out," says London, president and CEO of College Coach. "Then you can calculate the turnover costs of those employees who did participate, and if the costs of turnover would have been more than what was spent on their tuition reimbursement, you know it's a good expenditure."
But a company can learn far more about how to spend wisely and get more out of what it spends, even if it's less. London consults with organizations that track where employees are one year after any requirements for repaying tuition reimbursement (say, if the employee had to agree to stay with the company for one year after the schooling was completed), or three years after, or five. Others track whether participants are more likely to be promoted than non-participants, or the number of levels they rise in the company after they complete their education. Some even track these metrics by the school participants attended. "One client tracks spend by school, and found that 25 percent of its spend was with one school," London says. "That's good data to have, because then you can ask: Are graduates from that school doing better in the organization, or staying around longer, than graduates from another?"
Don't Just Spend: Manage
Howard's experience at the phone company shows that the proof is in the manager and his or her response to the employee. For tuition reimbursement to work in favor of the company, it has to be aligned with the talent needs of the company, so the employee's education contributes to more than just his or her resume.
In fact, managers need to be involved just to get the full retention benefit of tuition reimbursement. "If a company pays for everything but isn't part of the process, that's generous, but why shouldn't an employee look elsewhere afterward?" Howard says. The data from the Bersin study confirms this. "Participation in TAP tends to build employee loyalty and has a positive impact on retention—but only when aligned with overall organizational talent strategies," the report said. "When such alignment is present, retention rates increase; when it is not, retention among program participants drops by 50 percent."
Why? London says it's a matter of managing employees' expectations as much as it is letting them know the organization values them. Companies often worry that they'll pay for a degree, only to lose the employee; but managers have the power to prevent that by working with employees from the day they ask about tuition reimbursement. "It's a matter of setting proper expectations. If an employee thinks, 'Hey, I got my degree, but my degree didn't get me the promotion I thought it would,' well, he or she might decide that the company down the street values this degree more."
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