If a finance executive noticed a cost of operation was steadily escalating every year, to the point where it averaged 15% of total payroll, you would think that the executive might make controlling the growth of the expense a high priority. You would think, but it doesn't always work out that way. Why? Sometimes the executive simply believes that the inflation is what everyone else is experiencing, and there is not much that can be done. And sometimes the problem and all the related costs haven't been identified sufficiently enough for the executive to appreciate fully just how much it is sucking off the bottom line.

Both factors were at work at Springs Industries Inc., a $2.1-billion textile manufacturer in Fort Mill, S.C. When chronic health problems among its employees began costing it $35 million a year, the company at first chalked it up to inflation in medical care. Then somebody asked how much the same conditions were costing the competition. The answer made the executives at Springs Industries sit up and take notice: "We found that our total cost was running $10 million higher than the benchmark average," says Paul Gilles, vice president for compensation and benefits.

That was only part of the bad news. At the 17,000-employee company, these chronic health problems–typical of aging workforces at many U.S. companies like Springs Industries where turnover is quite low–were also leading to sharply higher absenteeism in general with all the related costs, including lost productivity, connected to that. As is true for most companies, Springs Industries, which went private in 2001, hasn't yet tallied up what the full impact of its absenteeism actually costs it. But based upon a number of studies showing a correlation between health problems and absenteeism, Gilles projects that the problem has increased Springs Industries' overhead between $20 million to $40 million above the average for its industry sector. In an industry with relatively low margins–in the last year Springs Industries published financials, it had net earnings of just $67.1 million on total sales of $2.3 billion–these costs were threatening the company's ability to remain competitive.

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