Recovered from the original publisher: Kellogg Insight
At least that’s what many modern-day workers seem to believe. In the U.S., workers have increasingly prioritized purpose and meaning in their jobs over pay. And many American companies have responded in kind, collectively donating $44 billion to prosocial causes in 2024 rather than investing that money back into their business—a 9 percent bump from the prior year.
The software company Group Elephant offers a striking example of this trend, says Niko Matouschek, a professor of strategy at the Kellogg School. Formerly called EPI-USE, the company completely revamped its brand and business model in 2015, combining its technology services with donations for the conservation of elephants and rhinos.
“This is a for-profit company,” Matouschek says. “It’s an SAP implementer that has nothing to do with elephants. Then it decides, ‘One percent of our revenue, about $4 million a year, we’re going to donate to elephants.’ And the question is, Why would you do such a thing?”
For some companies, the answer often centers on motivating their employees.
“Many companies give so they can win over consumers. Group Elephant points to a different motive for giving: making work more meaningful, which can help companies attract and motivate employees,” Matouschek says.
Along with Luis Rayo, also a professor of strategy at Kellogg, Matouschek built a theoretical model to examine when companies should use donations, rather than cash alone, to motivate employees, and how they can best do so.
The economists found there indeed can be significant financial upside for a company that donates more as its workers’ performance rises. Motivating employees in this way can be even more lucrative for a company than the more-common practice of offering employee bonuses—particularly in team settings where employees’ individual and collective performances are closely tethered together.
“Our results suggest that firm-funded donations are not mere corporate philanthropy layered on top of incentives,” Matouschek says. “They are an integral, public component of the compensation contract.”
A scale advantage
Matouschek’s interest in this topic stems from a famous 1970 article by the economist Milton Friedman in The New York Times Magazine. In what became known as “The Friedman Doctrine,” he argued that it’s the social responsibility of a business to increase its profits and maximize shareholder value, not to push policy or support other movements.
Friedman’s argument raises a challenge for corporate giving aimed at employees. “Even if employees are altruistic, why wouldn’t a profit-maximizing company simply pay them more and let them decide how much to donate—and to which causes?” Matouschek says. “Altruism alone doesn’t justify having a company donate on its employees’ behalf.”
The model suggests that the answer lies in a simple advantage of donations over cash: scale. A bonus paid to one employee benefits only that employee. A donation to a shared cause rewards all employees who care about it. This can make donations a more-cost-effective reward than pay. In fact, for a large-enough group, “paying with purpose,” as Matouschek and Rayo call it, can be more cost-effective even if employees, individually, do not care very much about the cause.