Question

Hello!

How would you calculate the potential financial returns of offering a three-month sabbatical for certain employees after 15 years of service? How should such a benefit be designed in order to optimize such returns?

Answer 1

Employees can ask for a sabbatical or the management may grant them one after completing a particular time period of service. The financial returns from sabbatical are subjective to measure. It depends on the what an employee chooses to do during the sabbatical. If an employee gains job relevant skill, then that may provide increased productivity for the company. Even if the employee does not get job relevant skill, he/she may take 3 months off from work and come back rejuvenated and ready to work more.

For example lets say that the management pays a salary of $10,000 per month during the sabbatical. Ignoring the time value, the present value of this shall be approximately $30,000.

Now if the employee contributes only $1,000 worth of extra work for next 10 years, even at a high compound rate of 12% per annum the present value of these benefits shall be:

N	120	(12 * 10 ) Periods
I/Y	1.0000%	Rate per month
FV	-
PMT	$           1,000.00	Payment
CPT PV	$         69,700.52	(Present value)

The present value of benefits far outstrip the costs.

These benefits should be designed such that it is offered only after a certain time period. Also, the employee might be asked to contract to work in the organization for a given amount of time.