Most employers confidently declare, and believe, that their employees are their greatest asset. Without well-qualified and well-trained staff, they cannot achieve high levels of product and service quality, and the future success, or even survival, of the organisation may be threatened. However, employers increasingly have to acknowledge that their employees are also the source of their greatest risk exposure. Much of this risk results not from the potential for some single catastrophic incident, but from the sheer volume of everyday losses that are characteristic of employed populations, with the level of employee absence from work being the most accessible measure of this exposure.
In order to gain an insight into employment risk within the public and private sectors, Glasgow Caledonian University and Marsh UK Ltd recently carried out a joint survey of senior personnel involved in the issue. This sought views on current practice in relation to 21 separate categories of employment risk. Respondents were asked for their opinions on the level of resource allocation and effort being expended in relation to managing these risks, on the effectiveness of measures designed to reduce and control their frequency and cost and, finally, on possible future developments in the area.
The results were fascinating. They point to a rise in focus and spend on employment risks across all senior management, coupled, however, with evidence of poor performance measures, a limited scope on the range of potential risks and an acknowledgement that more needs to be done.
Underestimated costs
Most surveys of employee absence underestimate the scale of the issue for three reasons.
However, even on the basis of conventional estimates, employee absence represents a UK cost in excess of £10bn per annum. Most employers are effectively paying a premium of at least £1,000 per employee for absence.
Case Study: Spiralling costs of absence A major public sector organisation undertook an assessment of its absence management systems across the best and worst locations in the country. It had absence rates higher than the public sector average, with annual costs estimated at more than £50m per year. After forming a central taskforce, and developing management training programmes and return to work policies, the organisation has achieved an estimated £6m reduction in these costs over the past 18 months.
Causes
So what are the causes of this employment risk? On the face of it, absence from work most commonly results from:
However, it is unlikely that the disabling incidence of these factors amongst working people amounts to more than about 1%. Yet, for most employers, absence from work exceeds 3%. So we need something else to account for the difference. This is probably best described as the ‘cultural’ factor, and it varies from organisation to organisation, depending on elements such as loyalty, commitment, morale and team spirit. It is a characteristic of employment culture that sometimes people feel an ‘entitlement’ to sick leave – whether they are sick or not.
Measuring absence
The first step in managing employee absence is to measure it. Apart from providing essential data on which an absence management programme can be based, the act of measurement has itself been shown to reduce absence by 16%. This is an example of the long-established ‘Hawthorne effect’ in which an employment variable tends to move in the desired direction when you measure it. Essentially, it is the response of people to being observed.
The measurement stage of the exercise can go well beyond simply determining the level of absence. It can reveal problems with particular employee groups, specific causes of illness, and will show trends. Other types of survey probe the underlying causes of absence. These might include inadequate management training, poor rehabilitation programmes, or high levels of employee stress.
Measurement will also give an indication of the cost, and the potential for saving. Let us take an organisation with 1,000 employees and a typical level of absence. As illustrated below, a significant intervention programme, aimed at achieving 20% reduction and costing £100,000, would save £180,000 in its first year.
Effects of intervention
Salary costs (average wage £20,000) £20,000,000
Direct absence cost at 3.5% absence £700,000
Indirect costs (admin, lost production etc) £700,000
Total absence cost £1,400,000
Saving if 20% reduction achieved £280,000
Intervention cost £100,000
Net saving in year 1£180,000
Case Study: Importance of effective performance measures A review of sickness absence management procedures within a large retail chain identified two key issues: absence was not recorded, and intervention methods were inconsistent and ineffective. The direct cost of absence was identified as more than £750,000 per year. The introduction of an effective reporting and recording system, combined with training for managers, have resulted in a greater all-round knowledge and confidence in tackling the issue, and an increased operational efficiency.
Of course there are other benefits and savings. If the programme, for instance, includes measures to reduce employee stress levels, the benefits include:
Key components
Although the detailed intervention programme will depend on the findings of the measurement stage, it is possible to make some general observations about three key components in the majority of effective employee risk management initiatives.
Many procedures are worthy documents that languish in filing cabinets but do not have any real value. They are often vague about accountability for implementation, or make unrealistic assumptions about individuals. Good procedures spell out who is responsible, and provide sufficient resources for effective implementation.
Employee risk issues are essentially behavioural, relating to attitudes, commitment and confidence. It is unlikely that any intervention programme will work unless it is accompanied by information and training. This should explain the importance of the subject, emphasise the organisation’s commitment to intervention, and give individuals confidence that they can play their part in the control programme.
Effective management of employee risks will demand significant changes in employee behaviour and management responsibilities. Back-up assistance may be needed to help people who are struggling. The human resources function may meet this need, or it might be that some occupational health input is required. Alternatively, an outsourced function such as an employee assistance programme might be appropriate in some circumstances.
In summary, the sequence is to measure the magnitude and cost of the exposure, identify the underlying issues, and introduce measures that address areas of weakness. The rewards will comfortably repay the efforts - in the hard returns of more resource available for work, as well as the ‘soft’ returns that come from a happier, more committed workforce.
Case Study: Policies and procedures that work A road haulage firm was experiencing high levels of absence and had no real understanding of what it could do to combat rapidly increasing costs. An audit revealed that its recording and reporting processes were uncoordinated and that, following a number of recent acquisitions, many employees were on different benefit packages, resulting in a high degree of dissatisfaction and poor morale. The company quickly set to work on overhauling its reporting and recording procedures to deliver accurate management information, reviewing its benefits packages and providing training for its supervisors in understanding absence issues.
EMPLOYMENT RISKS SURVEY
Dr Lynn Drennan of Glasgow Caledonian University outlines the main findings of the research.
John Humphrey is a director and Barbara Dahill is a senior consultant at Marsh UK Ltd. Tel: 020 7357 5190, E-mail: John.Humphrey@marsh.com
Dr Lynn Drennan is head of the division of risk at Glasgow Caledonian University.
For a copy of the Marsh Topic Letter, containing more information on the Glasgow Caledonian University research, E-mail: Barbara.Dahill@marsh.com
WORKERS’ STRESS INCREASING
Recent research claims that 53% of people are suffering from stress at work in the UK, with long hours being cited as a major factor. One in two workers said that they had experienced stress at work during the last 12 months and one in four needed time off work as a result. Too much work was the most common cause. Other catalysts included deadline pressures (62%), an unsupportive work environment (40%) and problems with maintaining an acceptable work/life balance (40%).
The research showed that over half of stressed workers felt that it was damaging their health and reducing their job satisfaction. Over 40% said that it was lowering their productivity.
The research was commissioned by the International Stress Management Association, UK and Royal & SunAlliance to coincide with National Stress Awareness Day on 7 November 2001.
