The Value of Wellness White Paper EN

2. Welcome to Horizon’s white paper on the valuation of wellness for organizations operating in remote locations. This white paper, written in association with Dr. Tom Cooper of the Faculty of Business Administration at Memorial University of Newfoundland examines an approach to valuing wellness within a remote location organization. The research effort for this briefing comprised two initiatives: Dr. Cooper reviewed numerous academic studies in the field of wellness valuation specifically looking at remote locations and helped Horizon develop the conceptual model for valuing wellness. Secondly, this research was supplemented by a number of interviews and field research conducted by Horizon. Organizations should realize that the numbers and value for wellness within an organization will vary on a case by case basis. The paper outlines a methodology and variables for examining wellness that is proprietary to Horizon. If you would like to discuss any of the issues addressed in this briefing, please speak to Mike Wahl at mwahl@definitionsonline.com. 1

3. TABLE OF CONTENTS Introduction ..................................................................................................................... 3 Cost Minimization Vs. Value – Building the Case for Wellness ........................................ 3 Working in Remote Locations – the Case for Wellness ................................................... 3 Modelling the Case for Wellness in Remote Locations .................................................... 5 Sustaining Wellness ........................................................................................................ 6 What is the Value of a Wellness Program? .................................................................. 7 What Drives Wellness? ................................................................................................ 7 What does Horizon mean by Value of Wellness? ............................................................ 9 The Cost of Wellness for Senior Management .............................................................. 10 Horizons’ Model for Valuing Wellness ........................................................................... 10 Conclusion .................................................................................................................... 14 2

4. INTRODUCTION Organizations frequently ask Horizon specific questions around the cost of wellness. How much does it cost to run a ‘best practice’ wellness program, how much should our cost be relative to our risk in an approach to employee’s wellness and are our current wellness arrangements cost-effective? The reason for focusing on cost is that financial directors, board members and human resources directors have all identified cost minimisation as a critical element in ensuring an efficient and effective approach to an employee’s wellness as part of a wider human resources and operational strategy. Horizon believes that examining the cost of wellness is just one part of the equation. Organizations also have to examine the value a wellness program provides. COST MINIMIZATION VS. VALUE – BUILDING THE CASE FOR WELLNESS Cost minimization is just one element in examining wellness. Placed within the broader context of operating in a remote location, examining the cost and value of a wellness program becomes even more complicated. Further, when you add in a workforce that may be starting to experience increasing wellness issues – such as a predominantly male workforce engaged in blue or grey collar jobs – there is even further complexity for most organizations working in a remote location. Undoubtedly, cost minimisation is a critical element, but only one, of a wider approach to how well a wellness program operates – especially in a remote location. Working in a remote location can be extremely stressful and demanding on an employee’s wellness. Physical workload, dissatisfaction with safety and contingency measures are only some of the factors affecting wellness. Moreover, stress caused by intrinsic features of the job description and perception of risk (Ulleberg and Rundo 1997) are all issues for wellness programs to address in remote locations. The purpose of this paper is to outline Horizon’s approach to valuing a wellness program. Horizon believes that a wellness program needs to be seen as an integral part of any organization’s operations and cannot be considered a ‘one-time’ cost and subsequent short- term benefit. Instead, wellness has to be valued across an employee’s time with an organization, the benefits accrued, the costs which are saved and the risks that are managed. WORKING IN REMOTE LOCATIONS – THE CASE FOR WELLNESS After a number of high-profile disasters (most notably the Ocean Ranger disaster and Piper Alpha in 1988 in which 167 personnel lost their lives), oil and gas industry companies as well as other organizations working in remote locations are making every effort to ensure that their accident rates are kept as low as possible. The focus on ‘accident’ prevention is the main driver for most Health, Safety and Environmental (HS&E) programs. For most industrial accidents, there is a causal chain of organization conditions and human errors with Reason (1990) indicating that human-factors causes can be attributed to 70-80% of accidents in high-hazard industries. Horizon`s research and working with companies and employees operating in remote locations makes us believe that focusing solely on accident prevention is not a strategic approach to 3

5. addressing wellness. Focusing on wellness, improving the overall organization’s and employee’s health is a significant way of driving down not only accident incidents but also overall operational cost. Working in remote locations such as the offshore drilling process is inherently dangerous, arduous and socially isolating (Elliott 1985; Ulleberg and Rundo 1997). The environment is characterized by constant noise and activity, and the employees live and work in a restricted working location for a period of time without any breaks. Most of the workforce is male, engaged in blue and gray collar jobs, and there is a significant portion of the population at risk The Waist/Hip Ratio (“WHR”) is the ratio of the circumference of the waist to that of the hips. It measures the proportion by which fat is distributed around the torso. The concept and significance of WHR was first theorized by Dr. Devendra Singh at the University of Texas at Austin in 1993. A WHR of 0.7 or less for women and 0.9 or less for men have been shown to correlate strongly with general health and fertility. Women within the 0.8 range have optimal levels of estrogen and are less susceptible to major diseases such as diabetes, cardiovascular disorders and ovarian cancers. Men with WHR's around 0.9, similarly, have been shown to be more healthy and fertile with less prostate cancer, testicular cancer, cardiovascular disease, and diabetes. Consequently the working environment in a remote location contains many environmental and organizational factors that are potential sources of ill health, i.e. demands in an individual’s environment that are perceived to be a threat to the individual (Caplan et al, 1975). The combination of heavy equipment, immense physical forces and geological uncertainty with numerous personnel creates an overall risk to wellness. Several studies on working in remote locations show there is an association between job stress, strain and health problems (Theorell and Karasek 1996; Ulleberg and Rundo 1997). Other studies have shown that social support – such as a wellness program - can have a positive effect on workers’ well-being and health (Parkes et al. 1994; Ulleberg and Rundo 1997). The need for a comprehensive wellness program in a remote location to manage stress, risk and employee health becomes clear. The question is whether the value that accrues to an organization is worth the cost incurred? In the case of the offshore oil industry, the fundamental nature of offshore operations is unlikely to change in the short term and some aspects like geological uncertainty will always be present. However, the focus on HS&E prevention has typically been placed on short-term management rather than an overall approach to employee’s wellness. In years to come, shifts in industry structure (majors versus independents), aging infrastructure, deep water operations, new drilling and production technology, more complex wells, and the turnover of the owner and contractor operations workforce may affect company-level and industry-wide HS&E performance (Jablonowski 2006). Horizon believes that wellness programs can be a major source of HS&E performance improvement. Moreover, by shifting the focus to value and cost savings there can be significant benefit accrued to the organization’s operations – including direct costs such as decreased used of medicines, reduced medical benefits as well as indirect costs such as lower recruitment and training expenditures. Further Horizon believes that senior management trying to make or 4

6. understand the case for developing a wellness program, can begin to model the cost using the variables below. By modelling the potential cost and subsequent value that a wellness program presents to organizations working in a remote location, the need for a wellness program becomes strikingly clear. MODELLING THE CASE FOR WELLNESS IN REMOTE LOCATIONS Horizon, through the work it has been doing in the North Atlantic offshore oil fields, believes that this company-level and industry-wide HS&E performance can be improved and managed from a strategic, risk based perspective through a better focus on wellness – especially long term wellness at both a company and employee level. Later in this paper Horizon presents a conceptual model for analyzing the overall value a wellness program to a company and an individual. Theoretical models have been developed to represent the effects of extended work hours on health (de Vries-Griever and Meijman 1987; Knutsson 2003) and to predict risks associated with particular shift patterns (Spencer et al. 2006) as part of a wellness program. However there are few quantitative studies that outline the benefits of a wellness program. Maniscalco et al. (1999) outlined a study on offshore oil workers which suggested a decrease in the number of injuries in association with exercise and perhaps with modification of psychosocial risk factors suggested a cost savings of over $800,000 and a return on investment of $2.51, as well as avoidance of pain and injury. Another study by Musich and Napier (2001) on long term employees showed that low-risk employees from a workers compensation perspective had the lowest costs. In this population, 85% of workers compensation costs could be attributed to excess risks (medium- or high-risk) or non-participation in a wellness program. Among those with claims, a savings of $1,238 per person per year was associated with a wellness approach. Moreover, Musich and Napier (2001) argue that focusing on employee health status provides an important additional strategy for health promotion programs. Wright et al. (2002) showed that time away from work costs, 36.2% was attributed to the excess risks of the medium- and high- risk individuals or nonparticipants in a wellness type program compared with low-risk participants. If time away from work costs follows risk reduction, a potential annual savings of $1.7 million could be achieved. However, it is important to put this potential cost savings in context. In recent years, HS&E performance in the oil and gas industry has received increased attention from operators, contracts and regulators worldwide. Significant investment has been made in risk assessment, process improvements and advancing HS&E management philosophy and practice – an approach that Horizon sees as a focus specifically on short-term management centred on operational cost savings. These efforts on accident prevention management have transformed industry culture and generated tangible short-term results. However, the management priority now is to sustain these gains and to continue to seek new opportunities for improvements. Wellness programs are a key element in performance improvement in the HS&E field. 5

7. SUSTAINING WELLNESS Horizon believes that wellness is a strategic issue. Horizon’s work with companies and individuals in remote locations shows that recognizing the strategic value of a wellness program can be quite positive for a company – specifically on brand awareness, equity as well as decreased recruitment costs. At Horizon, we believe that HS&E programs centred on accident prevention cannot be sustained without a focus on wellness. Wellness, programs are a primary tool in sustaining long term competitive advantage in operating in a remote location. Initial compliance based strategies focusing on short-term expenditures and not value may ultimately create more operational costs in the long term. Horizon believes that most health and safety programs do not recognize the value of taking a wellness approach. This means that there is not only a lack of long term value but a potential failure of corporate responsibility and ultimately a loss opportunity for performance improvement. Employers have a corporate responsibility to provide a safe workplace to enact measures to reduce the likelihood that employees are injured (Jablonowski 2006). There are also direct economic consequences of HS&E events, and it is in an organization’s best economic interest to improve wellness performance. Estimates suggest that it costs between $50,000 and $100,000 to administer a lost time injury (Buchan 1999). This does not include other costs such as lost productivity, sick pay, equipment damage, increased medical premiums, the cost of medicines to treat the injury, increased insurance premiums or costs of legal action should a claim arise, which could be several times as much (Flin and Slaven 1996; Sumrow 2002; Jablonowski 2006). Moreover, it does not include operational costs such as the extra recruitment needed to replace workers, additional workforce to provide excess capacity in the case of accident and time away from work as well as training for new or replacement workers. Moreover, given the spotlight on companies conducting business in remote sites, especially from opponents in many of the locations where they operate, means that organizations must remain proactive if they intend to maintain their overall license to operate. Critics often cite HS&E performance as a reason to limit exploration and production (E&P) activities (Brinded 1998; Gidley and Hall 2002). Wellness programs can therefore be seen as a license to operate issue. For example, as outlined by (Jablonowski 2006), in the U.S. Gulf of Mexico, the Minerals Management Service (MMS), an organization in the U.S. Department of Interior, is charged with the management of offshore oil and gas leasing and regulation. The MMS has become increasingly aggressive in its assessment of individual operators with fewer inspections and less oversight. Companies with healthier performance (including less occupational and non-occupational injuries and illness) should incur lower compliance costs. Also good performance across the industry may drive broader reform than reduced compliance costs. Clearly companies benefit both individually and collectively from improved HS&E performance focused on wellness. 6

8. What is the Value of a Wellness Program? Wellness is a difficult area to examine, primarily because ‘cost’ is defined in a number of ways and used in diverse contexts by different organisations. The complexity around examining the issue means that it is a problematic area for organizations to begin to identify and manage. The area of ‘value of wellness’ is further complicated when the term ‘wellness’ is applied specifically to HS&E management. ‘Value of Wellness’ in HS&E management usually refers to the ‘cost’ of lost days from accidents, injuries and deaths. Horizon takes a broader view. Specifically, in working with organizations we encourage the examination of cost and value within the context of the overall performance of a wellness program throughout the operations of an organization – including human resources, risk management, finance and operations. Horizon believes that in addressing the overall value of a wellness program, organizations working in remote locations can take on the challenge as to how this affects operational efficiency and effectiveness. Through undergoing this examination, organizations working in remote locations will begin to examine how wellness links into broader issues of strategy and assists in improving operational performance. Horizon believes that a comprehensive wellness or Health Risk Prevention Program (HRPP) can make not only individuals but organizations perform better. What Drives Wellness? The drivers for examining the value of wellness and its link to performance in remote locations organizations are numerous. These external drivers include:  An increasing need to attract skilled and technical employees  Regulatory guidance, including that emerging from HS&E management executives  Increasing liability issues and more linkages on workplace environmental issues to overall health and wellness  Environment responsibilities, governance and senior management responsibilities  Requirements from suppliers and buyers including those specifically mentioned in service level agreements  Senior management responsibilities  Increasing needs for companies to compete on their corporate responsibility towards their workforce As well, there are a number of internal drivers that all firms working in remote locations should be considering. These include a focus on:  The competency of the existing wellness function  A predominantly male workforce – more prone to wellness issues  Lifestyle issues in the workforce  Increased use of medicines and medical premiums  The need to have adequate skills to address wellness within an organization  The role of the wellness function within the organisation 7

9.  Links between wellness and other business units including human resources and risk management  The need to ensure efficiency and effectiveness in all operations  Time spent on dealing with past failures due to health and safety breaches instead of improving wellness and planning for the future It is important to recognise that in addressing cost and value of wellness, the driver is not solely regulatory or government compliance. Rather, it remains good business sense to manage and control wellness in a workforce and organization as well as understand the elements that underpin how a strategic approach to wellness affects performance and ultimately value to the organization. Equally, many of the issues highlighted here are not restricted to organizations operating in remote locations. Instead creating an approach to wellness represents a challenge for any organization interested in improving their employees and overall approach to health. At Horizon, we believe that organizations operating in accordance with best practice on wellness will understand that there can be, and arguably should be, a baseline cost saving. Value is achieved when organizations add wellness programs initially to key business units, and then to the organization as a whole. The approach that Horizon takes is to strategically target a number of critical elements and ingredients in a wellness program. Some of these ‘critical ingredients’ will be addressed in this paper but they vary by organization and are dependent upon the size, type of business activity and organizational culture. Horizon believes to generate value in an organization, wellness programs have to be tailored for the employee, the occupation, the environment and ultimately the organization. For example, understanding the role and effective expense of hiring another person, both in terms of what issues are to be addressed and their subsequent cost, can be critical in justifying the role of a wellness program and its cost relative to the organization’s operations. Some of the other critical elements that can be fully addressed through analysing wellness costs and its link to performance include:  Where to place a wellness program versus other programs in an organisation  The role of wellness within the business – what part does it play – what part should it play?  Utilising management information systems and tracking to drive forward the importance of a wellness program  Fully understanding and addressing the importance of people-risk  Wellness monitoring, the role of management assurance and human resources All of this issues pale in comparison to the absolute savings, both from a financial and a corporate responsibility standpoint, of preventing a death or counteracting a critical illness. However, the first step in approaching these crucial elements is understanding what exactly is meant by the term ‘cost of wellness’ and how it relates to value. 8

10. WHAT DOES HORIZON MEAN BY VALUE OF WELLNESS? Horizon’s approach to wellness in remote locations has been featured nationally for our efforts in improving health and reducing injury rates among our clients (IADC Drilling Contractor and HSE conventions, Oil and Gas Magazine and Progress) developed explanations around the concept of wellness. However, for the purpose of this paper specifically we want to focus on three concepts: Wellness value – the overall value (both financial and operational) that an approach to wellness gives an organization, its employees and other stakeholders Wellness risk–the risk of impairment to the organization’s business model, operations, reputation, and financial condition from failure to address wellness. This means that the organization does not meet expectations of key stakeholders such as customers, employees (both current and future) and society as a whole, laws and regulations as well as internal standards and policies. Wellness programs - the proactive mechanisms by which organisations exploit and manage wellness risk. When organisations talk about ‘wellness cost’ essentially they should be focusing on the costs of identifying and controlling wellness risk as well as developing the proactive mechanisms of a comprehensive wellness program. Regulators and other stakeholders may take a more narrow view, for instance, looking at wellness costs as specifically those related to reducing accidents and other health and safety incidents. However, taking a holistic approach to wellness is more appropriate to the everyday health and safety manager, human resources director, as well as the broader operations within an organisation. For example, Gerard has just been hired to work at your mining site. An experienced heavy equipment mechanic he has worked in the field for over fifteen years starting at the age of 22. His job is physically demanding and is a specialized skill set for your operations. Gerard is moderately overweight and after a year working with you has developed obesity and extreme hypertension. This is predominantly because of your nutritional policy on site and the lack of a wellness program. Gerard is advised by his Doctor to go off work and to start an expensive round of medicine to combat the illnesses. You are also forced to recruit an additional mechanic and this has to be done in quite a short timeframe as Gerard operates on a three weeks on, three weeks off period. So in Gerard’s case there are costs and issues to be addressed by the health and safety manager, human resources director and by operations. However, if Gerard’s continuing wellness issues are not addressed then there are significant issues related to critical illness as well as potentially death. Understanding that addressing wellness directly links into senior management concerns as to how their own individual liability risks are being addressed is also key in understanding its value. Ultimately, the value of a wellness program is derived from operations cost savings as well as risk management. 9

11. THE COST OF WELLNESS FOR SENIOR MANAGEMENT For health and safety directors, focusing the ‘cost’ of wellness on identifying and controlling wellness risk within a specific department or business unit may be sufficient. However, for finance directors, CEOs, board members and other stakeholders there may need to be a different approach to costs. For them, cost can normally relate to a number of areas, including: Cost of Recruitment– the cost of recruiting new staff since existing staff decided to leave due to health related reasons Cost of Retention– the cost of retaining existing staff Liability – costs related to issues which lead to death or critical illness Medicine and Medical – based programs that add cost to the organization Wellness activity based costs – looking at the cost of activities such as monitoring health, policies towards wellness, oversight, reporting, rectification etc. Remediation –the cost of remediation to employees as well as any related internal costs and those associated with disciplinary action, e.g. fine for health and safety violations Business review – the cost of assessing whether there are problems in the business related to wellness – including root cause analysis The model below outlines some of the drivers to the cost of wellness. For executives, board members and finance directors, the actual cost of a wellness program is relevant only in respect of how it performs and adds value to an organization. If the wellness program does not perform or meet expectations then there is an increased risk to the business and individual senior managers/directors. If this risk is not addressed, the result may be increased fines, considerable medical premiums including medicine costs, individual liability for health related failings, employee retention issues – with the associated costs and risks, potentially significant remediation costs and license to operate issues. At its core, the question senior management has to ask itself is, therefore, that given the current level of costs, is the existing approach to wellness performing and what is the value a wellness program should be giving the organization? HORIZONS’ MODEL FOR VALUING WELLNESS 10

12. When it is clear that the wellness function is performing it is then necessary to quantify that cost so as to ensure that the firms’ strategy supports that level of overhead. Horizon has created a model to help Senior Management address the cost of wellness within an organization and to build the business case for its inclusion as a fundamental part of the organization’s operations. Through modelling the cost and value of wellness, senior management can understand whether their organizational approach to wellness is performing and how it creates value. Moreover, senior management can then make the case for either a decrease or increase in investment as well as whether there needs to be further work to be done to make sure there is adequate performance. This is especially crucial for organizations operating in a remote location. In the model outlined below costs may differ by organization. However, in Horizon working with major companies in the offshore oil and gas industry we believe these estimated costs are quite conservative. The model is based on an individual (male) coming to work for an organization working in a remote location, such as an offshore oil and gas company. The individual is 35 plus and the costs are based on their lifetime within the company between 15 to 20 years. The first three costs – Direct Cost to the Organization, Indirect Cost to the Organization and Medical Programs and Medicine Costs can be seen as annual costs. Time Away from Work, Death and Critical Illness as well as Training and Recruitment Costs should be considered hopefully as ‘one-time’ costs. Horizon has developed the model for examining the value of a wellness program for senior management. 11

13. It is important to explain how the model works so that senior management, in developing the business case for wellness, are cognisant of the full impact that wellness may have on an organization. Regulatory Compliance Costs and License to Operate There are two main drivers that senior management have to understand when valuing wellness - how it affects how it both the contextual and situational environment in which the organization operates. At a situational level, taking a strategic approach to valuing wellness reduces regulatory compliance costs along with license to operate issues. While it may be possible to quantify some of the regulatory compliance savings on a year-by-year basis, this is an intangible cost that only senior management focused on regulatory risk management will truly appreciate. Also at a situational level, license to operate and corporate responsibility issues also have to be considered within a broader context of examining wellness. Organizations, as outlined above, should start to see employee-specific and an overall approach to wellness as part of their corporate responsibility. Ultimately, Horizon believes, that wellness will become – just as safety is already – an essential license to operate issue. Organizations that begin to address wellness start to address wellness and recognize it as a fundamental part of their corporate responsibility will be able to create competitive advantage and sustain growth related strategies – particularly within the competitive remote location industries such as mining, oil and gas and construction. Brand Equity and Company Loyalty At a contextual level, organizations who take a strategic approach to wellness may be able to develop further brand equity and company loyalty. Horizon, in working with organizations in remote locations, has seen increasing competition for workers – especially those with specific skill sets. Research has shown that workers increasingly want to be employed by organizations with a good brand equity – that is they are seen as a good place to work. This means that there is a reduced overall cost of recruitment because of the existing brand equity. Further, workers are more likely to remain loyal to a company where they like to work and where their needs – not only financial but also their health and mental wellbeing – are managed and considered. Horizon has found that a comprehensive wellness program greatly assists in building brand equity and ultimately loyalty in an organization. Employees feel that the company is looking after their interests and providing them with an environment to work that is not only safe but also considers their health and overall wellness. Ultimately this brand equity and loyalty is difficult to measure and value. However, senior management involved not only in wellness program management but also recruitment, operations and managing the increasing cost of human capital recognize the importance of brand equity and company loyalty in a competitive world. Wellness programs are a way of increasing both brand equity and loyalty creating huge value to the organization. 12

14. Wellness at the Start of the Employment Lifecycle When an employee joins an organization, there may be a number of different motivators in joining. There may be increased responsibility, better pay and benefits or be perceived as a good place to work. Ultimately, even with the dangers of working in a remote location, employees do not want to work where their short or even long term health will be put at risk. This is against human nature and organizations, who for whatever reason cannot manage this risk perception, will have to pay an additional cost in having the new employee join the company. It is also important to recognize that most wellness programs do some sort of assessment of health and wellness when an employee joins an organization. This can be instrumental in identifying potential problems and engaging in preventative measures to encourage health and wellness right at the beginning of an employees` time in an organization. This preventative approach, rather than a remediation one later on, can have a significant cost savings and can create much value to an organization. For example, Bob has recently joined your company from a competitor. As an experienced offshore oil worker he has been in the field for ten years – with seven years with your competitor. Bob was attracted to come work for you, as although the money was similar, he wanted a better working environment and your commitment to an employee’s overall wellness was well-known within the industry. As part of your wellness assessment, including nutritional, health and exercise programs – you identified that Bob had a specific health related issue that although outside of a typical medical assessment, if left untreated would mean significant time away from work. By developing a specific wellness program for Bob, you were able to engage in a preventive activity reducing the risk for the organization and ultimately creating more loyalty from the employee. Bob appreciated the fact that his health and wellness issue was being addressed – something your competitor would not consider. Ultimately, a wellness program can also assist in identifying which employees are at high risk or a lower risk for potential health and safety costs in the future. This assists with human capital management and can result in significant direct cost savings. Once again, through a programs’ assessment of health and wellness, the value of a wellness program can be significant throughout the employment lifecycle. Direct Costs within the Employment Lifecycle The employment lifecycle will differ by employee and organization. Some organizations would hope to have an employee for five years, others for twenty. For the purposes of illustrating the model, we have gone with a best case estimate of twenty years with the same organization. The illustrative numbers are indicative and will vary on a cost by cost basis. Clearly, companies with a higher turnover may have increased costs (due to the accrued costs savings from a wellness program). There are also some direct costs that can be reduced through a wellness program. Direct Cost to the Organization of Injury and Illness – Horizon has seen that a wellness program can have a direct cost savings to the organization through injury prevention. Depending on whether an employee is at a high or low risk, we have seen direct cost savings of 13

15. injury and illness prevention being at a high of $30,000 to a low of $5,000 per employee. This includes the time spent on injury assessment as well as preventing illnesses that may exist because of stress or other environmental factors commonly seen in working in a remote location. Indirect Cost Due to Injuryand Illness– there is also an indirect cost due to injuries and illness. Indirect costs could include an increased regulatory burden, investigations as to why the injury actually incurred, increased insurance premiums and lost management time in addressing the issue of injury. An injury prevention program that focuses on wellness can have significant cost savings and add value to an organization. Once again, depending on whether an employee is at a high or low risk, we have seen direct cost savings of injury prevention being at a high of $60,000 to a low of $10,000 per employee. This is particularly difficult for companies to quantify as the indirect costs can be much higher than $60,000 but we believe this is a reasonable amount to use in the modelling as an estimate of indirect costs. Medicine and Medical Costs – Horizon has seen this as an increasing cost for organizations – especially those operating in the United States and other territories which require private medical insurance. Ultimately, if a worker has a specific related illness – such as hypertension – that can be partially or completely treated through a wellness program – this will have a reduced cost on the organization. In addition, an overall approach to wellness should result in decreased medical premiums and an ultimate cost savings for the organization. Indicative costs are for a lower risk employee only incurring approximately $20,000 in medicine and medical premiums. On the other hand, a high risk employee may incur significant insurance premiums for medicine and medical related issues (a conservative estimate of $70,000) that can be reduced through a wellness program. Time Away from Work– is a significant cost and will depend on whether the employee is away from a substantial amount of time. An employee who is off work up to a year may cost the organization up to $150,000 in lost time. On the other hand, a lower risk employee may be much less expensive for a company – in the $40,000 range. Death and Critical Illness – is never something that an organization wishes to address and the cost of a life is unquantifiable. However, if someone is making $100,000 a year and they are no longer able to make this salary then the company may be liable for up to the full salary over the employment lifecycle - $2 million. On the other hand, if there is a critical illness that is less significant then an employee may only require to be absent from work for six months or less which will have a significantly reduced cost of $50,000. Once again, these numbers are indicative but if one employee was saved from either death or critical illness because of a wellness program then there is a corporate responsibility met and an ultimate value to the company. Recruitment Costs– are also significant – recruiting one or more individuals in high risk specialist positions can be quite expensive – with the inclusion of management time up to $40,000 – for positions that are less specialized somewhat lower at approximately $10,000. Recruitment costs will be incurred when an employee has to leave an organization due to a wellness issue. This excludes recruitment fees which can be up to six months of a new employee’s salary. 14

16. Training and/or Retraining Costs– are related to recruitment costs but will vary with up to $20,000 training individuals for new positions and/or to replace workers departing the organization to issues with wellness and health. This is a direct cost that is not usually attributed to a wellness program. Overall Value of a Wellness Program– taking all the direct costs together than a wellness program can assist in a cost savings of up to $125,000 per employee on a yearly basis within an employment lifecycle when seen within the entire spectrum of operational costs. The ‘one-off’ costs such as Time Away from Work, Training and Recruitment could save a company an addition $150,000 over the employment lifecycle. Based on a twenty year lifecycle, this will result in savings of $2.650 million – excluding the potential costs of death and critical illness which would potentially double that amount. Ultimately the value is not only direct cost savings, but also intangibles such as brand equity and license to operate issues. However, for senior management, direct cost savings can be estimated using activity based costs and it is clear that there is significant direct costs savings that a wellness program may prevent over the course of an employee’s time within an organization. For senior management, the ‘bottom-line’ number for the business case for wellness will clearly depend on the organization, its operations and the nature of the work in remote locations but nonetheless the value of a wellness program becomes clear. CONCLUSION At Horizon, we believe that the cost and value of a wellness program has to be considered both from a ‘bottom line’ and ‘forward-looking’ perspective. Our research and working with numerous industries, companies and employees in remote locations, has demonstrated to us that the cost of a wellness program should be seen primarily from savings accrued to an employer throughout the time an employee works for a company – the baseline for the overall value of a wellness program to an organization. Savings through the establishment and implementation of a comprehensive wellness program can be seen, not only from a health and safety perspective, both also from operational effectiveness. We believe our research shows that there is significant value accrued to an organization through the establishment of an effective wellness program. 15

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