Q&A: How we’re encouraging US companies to offer paid sick leave

People management is a priority engagement theme for us because it could impact the long-term value of the companies in which we invest.

Employees help drive a company’s competitive advantage. By investing in their workforce, companies can attract, retain and develop top talent.

We encourage companies to evaluate compensation and benefits and provide for their employees’ physical and mental health. This includes paid sick leave, a topic on which we’ve recently urged our US service and retail sector holdings to establish a policy which provides sufficient provision per year accessible to all employees.

In this Q&A, Katie Frame, Social Engagement Lead at Schroders, Lucy Larner, Engagement Associate, Marina Severinovsky, Head of Sustainability North America, and Simone Geldenhuys, a Global Sector Specialist, explain why paid sick leave is a focus; what they have sought to understand about company policies; how approaches have changed since the pandemic; and what some of the challenges and opportunities are.

Given the breadth of social issues facing companies in the US, why focus on paid sick leave (PSL)? Why is this an important topic right now?

Katie Frame (KF): “The US is one of only two of the 38 Organisation for Economic Co-operation and Development (OECD) countries without country-wide statutory sick pay.

“The Covid-19 pandemic brought the issue of paid sick leave into greater focus, as self-isolation rules meant employees who were either sick or had been close to someone with the virus had to stay at home.

“Many companies were required to provide sick pay or otherwise faced pressure to adopt a paid sick leave policy. We engaged with retail and service sector businesses to understand how they had developed their policies since the start of the pandemic, what they learned along the way and where their policies stand now.

Marina Severinovsky (MS): “We are experiencing a regime shift around global demographics and cultural change which will require companies to really consider how they approach worker relationships.

Simone Geldenhuys (SG): “We are seeing more proposed legislation in the US aimed at protecting worker rights and pay. For example, the FAST Act proposed in September 2022 in California aimed to push up minimum wages for restaurants. It could be argued that companies that already pay their staff above the proposed rate may be held in higher regard by investors versus those that could need to take a margin hit to meet any requirement like this in future.

What sort of companies have you focused on – and what questions have been raised?

KF: “We focused on service and retail companies in the US because these sectors have historically been the least likely to provide paid sick leave. For example, 36% of retail workers had no access to paid sick leave in 2019, according to Pew Research Center.

“Questions we have asked included:

• ‘Do you provide paid sick leave and family leave to all employees?’;
• ‘Do you engage with employees to understand what benefits are most meaningful to them?’;
• ‘Are your benefits aligned to company values?’ and
• ‘Do you engage with shareholders regarding your benefits offer?’.”

What are the benefits of PSL for employers? Are staff benefits like this good for the bottom line?

KF: “Employers can achieve benefits through increased productivity, reduced turnover and preventing the spread of disease in the workplace.”

MS: “As demographics continue to shift, exacerbating labour shortages, we believe that companies which offer staff benefits that support worker retention and help to create a culture of greater productivity are likely to see real financial benefits as a result.”

SG: “Our engagements have shown that, in the long term, investments in worker wages and benefits can create a highly motivated workforce and reduce employee turnover. Ultimately, we believe that these outcomes have a positive effect on a company’s sales growth and market share.”

Do you feel that the situation has changed since the Covid-19 crisis, or are companies defaulting to their pre-pandemic policies?

MS: “People are not falling back into old patterns post the Covid experience. Their tolerance or appetite for making sacrifices on the job appears to be much lower. This extends to everything from flexible work arrangements to feeling that a company’s values are aligned with their own.

Lucy Larner (LL): “Some companies have focused on paid sick leave after seeing the benefits it can bring to workers and their businesses. Others have policies in place which may not be as generous as their Covid-19 policies were, but nonetheless give workers the ability to take paid time off.”

What is your view on PSL?

LL: “We believe that the benefits of paid sick leave outweigh the costs, and by ensuring workers can stay at home when sick, employers send an important signal to their workforce that their health and wellbeing is a priority.

“Unplanned absences can also be disruptive to the daily operations of businesses. By helping to prevent the spread of illnesses to workers, paid sick leave can help to keep businesses running smoothly and ultimately result in cost savings. Employers could save up to $1.88 billion in absenteeism-related costs by adopting paid sick leave, according to one study published in the Journal of Occupational Environmental Medicine.”

Any interesting anecdotes from your engagements?

LL: “A home improvement retailer told us it found that employees are three times less likely to leave when they make use of company benefits. The company had made improvements including sick pay days for part-time workers.”

Given the benefits you have mentioned, why do you think more companies are not adopting PSL? What are the main challenges?

LL: “We often hear that companies are prioritising other benefits, such as raising wages or providing career advancement opportunities. While we welcome this, we challenge companies on whether there needs to be a trade-off with other benefits.

“Given existing labour shortages – which are particularly acute in the retail and service sectors – it may be that employers are hesitant to give employees more time off at a time where they may be short staffed. We would argue that by allowing workers to take paid time off when sick, companies are demonstrating their commitment to their wellbeing, which can increase retention, and prevent illness from spreading in the workplace.

“Another challenge is the differences in the availability of paid sick leave for part time workers compared to full time workers. Our engagement has focused on trying to encourage the provision of sick pay to be extended to part time workers.”

What are the next steps? How do you plan to influence companies which do not provide PSL, and what are your expectations for voting season?

LL: “Following our mass engagement in 2022, we’ll continue to engage with the companies which don’t offer sick pay for all their employees. For those companies which fell well short of our expectations, we’ll continue to monitor how their policies develop and engage with them to re-emphasise the value we see in PSL.

“We will also closely examine shareholder proposals on this issue, and support those we believe would benefit the business, as well as its stakeholders and shareholders.”

MS: “Resolutions which address the workforce, known as human capital management, will be particularly important this year, given the tight market for labour and the importance of retaining and recruiting talent. There were several resolutions on the topic of PSL last year and it is an important theme to consider post-Covid. We’re considering how companies are evolving their approach to benefits to improve employee wellbeing and productivity. Another is cost of living. We will be looking closely at executive pay, and seeking to promote alignment between the treatment of the workforce and executives.”