Inside Human Resources Blog

Study reveals most companies don't know the cost of sick time and personal days

Companies are potentially losing millions of dollars in payroll expenses and employee productivity. That alone is enough to make an executive's blood pressure rise and his/her skin to crawl.  What is even worse is that they do not know how much money they are losing. 

John Sullivan wouldn't be surprised.  Sullivan, a professor of management at San Francisco State University, set off a firestorm of activity a few weeks ago when he described "most HR generalists as little more than hand-holding, silo-building, no-change agents who serve as barriers to HR having a measurable business impact” in the March 26 issue of Workforce Management.

Sullivan added “for the most part they are genuinely nice people but they do more damage within an organization than any negative article about HR could ever do…….they resist measurement.  If you look within your firm, you’ll find that your generalists have no output or results metrics of any kind.”   According to Sullivan, HR generalists have elevated excuses to an art form.

Whether this is 100 percent accurate or not, the Hewitt study seems to confirm the need for more managers to ask:  What is HR doing with their time and resources?  (See last week's column about HR's role in Circuit City's decision to lay off 3400 workers.)

Hewitt's survey of 421 companies found that only 11 percent of companies provided the same time-off programs across all employee groups, making them difficult to administer, track and manage.  In fact, only 57 percent of companies formally tracked sick days for their exempt employees, and less than half (46 percent) tracked personal days.  And how about this finding: most companies revealed they did not know the financial cost associated with their employees' time away from work, even though they were allowed to provide an estimate.

Three-quarters (75 percent) of companies could not provide an actual or estimated cost of their sick pay as a percentage of payroll.  Those that did, however, estimated the potential cost to be between 1 percent and 3 percent of payroll.  For a company with $450 million in payroll, the cost of sick time could potentially be between $4.5 million and $13.5 million a year.  Expanding the example to include all types of time-off pay – sick time, vacation time and disability – overall costs could reach an estimated 9 percent of payroll, or $40.5 million in time-off expenses.

According to Hewitt, creating and implementing a successful time-off program requires employers to adopt a new paradigm – one that views employee health, absence and disability as interconnected and translates into the adoption of new strategies.

Not a bad idea if you can get HR to do it.

Plugging the Brain Drain, Crashing the Gray Ceiling

Warnings about the near apocalyptic "brain drain", when baby boomers would leave the workforce en masse to travel, play golf, visit grandchildren or consult, have been front-page news for nearly a
decade.

Many forward-looking companies responded and have been putting strategies in place to retain older, experience workers longer. The Society for Human Resource Management reports that more than half
(55%) of big U.S. companies are "giving managers the tools to increase retention of baby-boomers," including flexible or reduced schedules and retention bonuses.

The good news is the planning paid off - sort of.

Boomers are staying put longer for a whole host of reasons.  Topping off the list is a lack of money to retire in a style in which they are accustomed. Next, eighteen holes of golf every day isn't all that it is cracked up to be.

But just like a medication that eliminates an infection, it sometimes creates a side effect that may be worse than the cure.

The workplace side effect in this case is that twenty- and thirty-something managers are in trouble. Fifteen-hour days and being handcuffed to a Blackberry have become the norm. All this might not be so terrible if that big promotion from middle-management hell into the senior ranks was just around the corner.

But increasingly, younger workers are finding that no matter how many hours they put in or how much their bosses rave about their work, they're just plain stuck. An entire generation is bumping against
something called the Gray Ceiling.  Just a few years ago this term meant something very different: older workers who couldn't get promoted because they could be replaced with less expensive younger
employees.  Today, Gray Ceiling takes on a new meaning: In today's leaner companies, executive jobs are fewer, and boomers who have hung on to them are in no hurry to let go.

The Gray Ceiling is purely a function of mathematics. Between 1946 and 1964, the U.S. experienced the baby boom, a demographic surge of 77 million new Americans.  The children of these boomers, known as Gen Y, are forming a second demographic bulge. But sandwiched in between is the baby bust, or Generation X. Known variously as the laziest generation and the most entrepreneurial, they are unambiguously the smallest generation since the Great Depression.

The affect of this go-stop-go demography is that it is causing hiring and retention fits for employers.  The workplace makeup has changed dramatically from just a decade ago. In 1996 there were 64 million
U.S. workers between the ages of 30 and 39 and only 43 million ages 40 to 59. Now the situation has reversed. As of June 2006 there were only 40 million ages 30 to 39 and 69 million workers 40 to 59, according to the Bureau of Labor Statistics.

What worked to the Gen Xer's favor just a few years ago is what is holding them back today.  Fortune Magazine in its August 21, 2006 issue described this workplace dynamic: "Generation X, it would seem,
is in danger of turning into the Prince Charles of the American workforce: perpetual heirs apparent awaiting the keys to the kingdom."

But Xers, long known for their fast-track careers, free agency, and need for continuous stimulation aren't waiting around anymore. Many Xers have decided that the fastest way out from under the Gray Ceiling
is to ditch the corporate ladder entirely. Gen Xers don't talk to their boomer bosses about it. Instead, they just quit. Employers in kind have said good riddance, breathing a sigh of relief when these
uppity, independent workers leave.  The last words often heard are "don't let the door hit them in the butt in the way out."

Is that really a smart move?  Email your comments by replying to this
email or add them to our HR Blog at http://hrblog.typepad.com/hrblog.

An important moral of this story is this:  one strategy doesn't fit all.  Naiveté is a pervasive condition circulating around many C-Level suites and HR departments when it comes to workforce solutions. What
works for one organization may not work for another.  A strategy that attracts and retains workers in one business may repel candidates and employees in another.  Like the weather today (Nor'easter slamming
Northeast U.S.) it's not only rain that is the problem.  It's not the winds that are the problem. It's not the cold air that is the problem. It is the rain AND the winds AND the cold air. 

It's the Perfect Labor Storm.

Can HR save Circuit City?

Circuit City in late March announced the layoff of 3,400 of its most experienced, and therefore its highest paid, salesclerks. “This ‘wage management initiative’,” writes Stephen Meyer, B21 Publisher and author of HR Cafe (http://tinyurl.com/yovx5n)– “which replaces the experienced clerks with cheap, inexperienced ones -- will save the company up to $250 million over two years.”

What it will cost them in the long run is anyone’s guess.  But you have to ask:  what were Circuit City executives thinking when they approved this strategy?  Where was HR, purportedly the advocates and protectors of the employees?

I can only suppose how the discussion might have gone, the proponents for and opponents against this strategy pleading their case.  Imagine yourself as a member of the executive team, listening to the pros and cons of laying off workers.  The CFO reports replacing 3,400 salesclerks with lower paid ones will save $250 million. The VP of HR pleads against this strategy by emphasizing how layoffs will have a devastating effect on morale.   The CFO responds:  Show me how paying someone $15 per hour vs $8 per hour is more productive.  The VP answers back: that’s hard to measure.

Which one would you choose?    Unfortunately when a business is scrambling to stay competitive, support for cutting expenses over avoiding lower morale wins every time.

But now let’s assume the VP of HR comes to the meeting armed with financial data.  He admits the immediate economic effect of layoffs will far exceed the risk of lower productivity, morale, and customer satisfaction.  But he deftly argues the value of retaining experienced and productive employees with historical and predictive data. He demonstrates how experienced workers outshine the inexperienced when comparing profit per employee, how recruiting costs and turnover rates soar with untrained, lower skilled employees, how lower morale leads to lower customer satisfaction which adds to customer churn. 

Imagine how much more effective a major strategy change like this might end up had the VP of HR (or any other executive for that matter) possessed the data to evaluate the additional direct and indirect costs associated with recruiting costs to hire replacements, training costs to train new employees, the cost of turnover and the higher costs of mistakes, customer returns, and lost customers. 

Putting the right financial data in the hands of HR isn’t about them winning every time but helping business make the right decisions.  Who knows – maybe the $250 million is the best option for Circuit City but I fear like so many other organizations, they have no idea.