Average business losing £470,000 ii a year in increased staff turnover and absence
Failing to tell staff in financial services and insurance companies about the benefits on offer, such as private health insurance and income protection, is costing UK companies £2.7bn every year, through increased staff turnover and sickness absence, according to new research from Cass Business School, part of City University London. And companies who’ve invested in good employee benefits, but haven’t told staff what they are entitled to, are no better off than if they hadn’t provided the benefits in the first place.
Employees who are unaware of the benefits on offer are less loyal and productive, and as a result are more likely to call in sick or leave the company altogether. The cost of replacing a member of staff in this sector equates to a year’s salary due to recruitment and training costs, combined with lost productivity. For companies that fail to communicate about benefits, this costs almost £733mn a year. And, this rises to around £850mn when higher workplace absence costs for this group are included.
The research: Money Talks: Communicating Employee Benefits was commissioned by income protection specialist, Unum. It reveals that over 75% of financial services and insurance businesses have invested in good employee benefits, but don’t tell staff what they are entitled to. As a result, they are no better off than companies that don’t provide the benefits at all.
A typical organisation with 1,000 employees that offers good benefits but fails to communicate them (Silent Types) spends £470,000iii a year more on staff turnover and sickness absence than those companies that have comparable benefits packages, but have good communications practices (Communications Champions).
The research uses data from the UK Government’s 2011 Workplace Employment Relations Survey (WERS), the most authoritative source of information on employment relations in Britain, and includes data collected from both employers and employees from 2,680 workplaces. It demonstrates a gap in understanding between what employee benefits an employer provides, and what their employee thinks is available.
This ‘communications chasm’ exists for managers, as well as non-managers. Strikingly, people that need employee benefits the most, such as working mums, remain equally unaware of what they are entitled to.
However, amongst Communications Champions who communicate regularly about benefits, sickness absence rates and the level of staff turnover is lower. Employees are more likely to remain with a company where they know they will receive financial protection, and this has become ever more important since the recession began.
Peter O’Donnell, CEO of Unum UK, said: “Money Talks shows that simply offering a great employee benefits package isn’t enough to promote wellbeing and financial security amongst employees.
“Our experience shows that contrary to employers’ beliefs, communicating with staff about financial protection and well-being initiatives such as Income Protection and Private Medical Insurance, leads to lower absence rates and reduced time off sick. Having an open dialogue between employers and employees about benefits builds a more productive and loyal workforce, and the bottom line benefits are evident.”
Annabel Prow, CEO at The Wilson Organisation, which provides professional insurance, financial, risk management and corporate finance solutions, said:
“We introduced Income Protection to help us recruit and retain the calibre of staff we want. It is an essential part of our ill health and early retirement provision.
“And, we discuss our benefits package with all our staff as part of our recruitment and induction process. We then revisit it after three months of service and also talk them through all the options again in the event of a claim.”
“We’re also considering circulating an annual benefits statement to help maintain awareness of our benefits package. Even in financial services, some people do not take the time to really understand their benefits package and Income Protection is often undervalued until something happens.”
Professor Nick Bacon who conducted the research, commented: “With the cost of living rising more quickly than many peoples’ income, and employers struggling for growth, staff retention is a vital issue. When organisations can’t easily increase salaries, they need to identify other ways to build staff loyalty – and a good benefits package does this. However, our research shows that even if companies are offering good benefits, if they fail to tell staff what’s available, it’s no better than not offering these benefits at all.”
Who are the Silent Types?
The following types of workplaces are more likely to fall into the Silent Types category – offering a wide range of benefits, but ranking low in terms of communications:
UK or EU-owned organisations. US-owned workplaces tend to be far better at communicating with staff about benefits
Smaller organisations (with fewer than 50 employees)
£850mn is a combined cost for increased labour turnover and absence. It is calculated as follows:
Number of employees in the high benefit/ low communicator category: 1,218,000 x 0.5232 = 637,257.6
Cost of turnover per employee in this category: 0.1342 x 26,500 = £3556.30
Cost of turnover per employee were they to be high benefit provider/ high communicators: 0.0908 x 26,500 = £2406.20
Cost of turnover in low communicator/ high benefit providers in the sector as a whole: 637,257.6 x £3556.30 = £ 2,266,279,202.88
Cost of turnover to the sector as a whole were workplaces in this category high communicators: 637,257.6 x £2406.20 = £ 1,533,369,237.12
The saving to high benefit-providing firms that are poor communicators were they to become high communicators: = £2,266,279,202.88 – £1,533,369,237.12 = £732,909,965.76
Number of employees in high benefit provider/ low communicator category: 637,257.6
The cost of absence per employee in this category is £26,500 x 0.0242 = £641.30
Hence the cost to the sector as a whole of absence in the high benefits/ low communication category is 637,257.6 x 641.30 = £408,673,298.88
The cost of absence per employee were these firms to be high communicators: £26,500 x 0.0173 = £458.45
This would result in a total cost to the sector as a whole of 637,257.60 x 458.45 = £292,150,746.72
The cost to the sector as a whole, therefore, of organisations being high benefit providers/ low communicators rather than high benefit providers/ high communicators is : £408,673,298.88 – £292,150,746.72 = £116,522,552.16
For a typical company with 1,000 employees
An additional £250,000 is spent on turnover costs p.a.:
Average yearly salary in the UK is currently £26,500. Hence, in organisations with 1,000 employees:
Cost of turnover in Silent Types category (where turnover is 8.65 per cent):
0.0865 x 26,500 x 1000 = £2,292,250
Cost of turnover in Communications Champions category (where turnover is 7.73 per cent)
0.0773 x 26,500 x 1000 = £2,048,450
The difference in the cost of turnover between the two: £243,800
And an additional £222,600 is spent on workplace absence p.a.:
Workplaces in the Silent Types category, the rate of absence is 5.04%. Average earnings are £26,500.
Hence for an employer with 1000 employees, annual cost of absence would be £26,500 x 0.0504 x 1000= £1,335,600
Workplaces in the Communications Champions category have an absence rate of 4.2%. The same calculation £26,500 x 0.0420 x 1000 = £1,113,000
The difference between the two = £222,600
Global Banking & Finance Review
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