How employee stress puts your organisation at risk

Stress has now moved up to be the single biggest source of sickness absence, and FDs can no longer afford to ignore its blight, says Stephanie Spicer

Without resources spent on managing stress, organisations will increasingly find themselves financially
losing out as workers fall foul of the un-addressed pressures of work. Stress in the workplace impacts on productivity, customer service, creativity, decision making, as well as training, absence and recruitment costs.

Cary Cooper, professor of occupational psychology and health at Lancaster University, says there are three key facts FDs need to heed: “Firstly, stress has now passed backache and musculo-skeletal as the biggest single source of sickness absence. Secondly, stress and mental ill-health now represents 40% of all incapacity benefit. And thirdly, staff are now suing their employer for stress at work, and case costs are averaging £250,000.”

Still it is acknowledged there is a haze over the issue of stress and whether it sits within the finance director’s remit or elsewhere. Tony Urwin, general manager, Bupa Psychological Services, says, “Finance directors always like to see a very scientific and absolute number before they will recognise a problem. Unfortunately, [as with] issues like job satisfaction and organisational commitment, it is very hard to put a direct cost on it. But that doesn’t mean [there] is no impact.”

According to the latest CBI/Axa Absence survey the estimated cost of sickness absence in the UK is £13.2bn . In 2007 the average direct cost of absence was £517 per employee – or 3.1% of payroll – which includes lost production and the expense of covering absence with temporary staff or overtime. The CBI also estimates that for indirect costs – such as lower customer satisfaction – you should add another £263 per employee per year. When these indirect costs are added to the direct cost, the UK lost £19.9bn to absence in 2007. Non-work-related stress, anxiety and depression was the most significant cause of long-term absence among non-manual staff.

Dudley Lusted, head of corporate healthcare development at Axa PPP, says: “Long-term absence – which is mainly due to stress, anxiety and depression and to back pain and other musculo-skeletal disorders – is still a big problem, accounting for 40% of lost working time.”

A key hurdle for managers to get across is the meaning of stress. The Health and Safety Executive (HSE) defines stress as “the adverse reaction people have to excessive pressure or other types of demand placed upon them”.

There is often talk of stress being a good thing, but as the graph on page 20 shows, the level of stress is a key and potentially negative factor, ultimately affecting performance and health. According to Guy Suttor, director of Medical Biology Interactive and an honourary lecturer at the University of Nottingham Medical School, writing in People Management: “Chronic psychological stress appears to have serious effects on various neuron populations in the brain, probably because of the high levels of the hormone cortisol secreted into the bloodstream when the body is ready for ‘fight or flight’”.

In 1915 US physiologist Walter Cannon expounded this animal response to threat, as an hormonal trigger increasing heart rate and blood pressure, with more oxygen and sugar flowing to muscles. To focus on the threat was useful to cave men escaping from salivating sabre teeth, however, in today’s office environment this response makes it difficult to concentrate and make decisions.

Suttor says: “Stress can impair learning, attention and memory. Recent studies have also found that particular chemicals, for example, C-reactive protein, are released in response to stress, with negative effects on working memory.”

Another stress theory which reflects more on long term exposure to stress comes from Viennese doctor Hans Selye whose General Adaptation Syndrome (GAS) followed three stages of stress: alarm or shock, adaptation and exhaustion. It will be at the latter stage illness can happen.

But Urwin, says many FDs don’t acknowledge stress exists and is a problem. “Without them doing that there is not a lot they can or will do about it obviously. It is more likely directors will feel the absence costs but they may not recognise it as stress. There are a lot of less measurable impacts, such as the level of customer service someone might be giving, or the impact on decision-making and the quality of that decision-making. One of the big impacts of stress is the way it impacts their reasoning, their ability to problem solve and think ahead and be creative. There is also a direct impact on everyone else in the workplace in terms of morale or other staff having to pick up the additional workload.”

The last thing any organisation needs is a key employee or senior executive making a poor or even bad business decision due to the stress they are under.

In addition, there are plenty of points of legislation under which employers have a requirement to ensure employee health, and under which employees can have legal recourse.

Under the Health & Safety at Work Act 1974, employers must provide a safe and healthy workplace, which also means ensuring against work-related stress illnesses.The Management of Health & Safety at Work Regulations 1999 requires employers to be more active about identifying risks.

And when directors have failed on these counts the costs have been significant. In 1994 in the case of Walker v Northumberland County Council for example, an employee was awarded damages for psychiatric injury suffered as a result of work related stress. The complainant was awarded £200,000 in damages, although this was reduced to £175,000 by subsequent agreement. To prove it is not all a public sector issue, in 2000 in North v Lloyds TSB, a financial adviser was awarded £100,000 in an out of court settlement.

Peter Matthews, secretary of the Society of Stress Managers, says: “These cases emphasise the need for employers to conduct a risk assessment of the level of stress in their workplace and to have in place a stress management policy and a stress management programme. Such stress assessments, policies and programmes seek to examine the causes and symptoms of stress, and to provide ways of preventing and managing stress in the workplace, to the benefit of employer and employee alike.

“HR managers [may be] very aware of stress implications in a legal case but it is persuading the FD and the organisation in general to spend money to prevent stress rather than wait until it comes too late and ends up in court,” he says.

There is something worse however, than the impact on absence costs, staff morale or even litigation that FDs need to consider.

“Finance directors tell me one of the worries they have is the risk to the brand reputation of the company, its products and services. And the risk of the company being perceived not as an employer of choice but as a company you don’t want to work for because they stress you out, they work you long hours, they don’t give you control and autonomy at work, they manage you too much to the bottom line rather than giving employees a good work-life balance,” says Professor Cooper.

Neither can employer’s protect themselves by settling out of court, something that is happening more often, says Cooper. “The thing is, people within the organisation hear about it and then they leave which is another cost: employee turnover.”

The HSE has laid out six management standards against which employers can assess stress risk, covering demands on employees, the level of control they have over their work, their role within the organisation, relationships at work, support from managers and other workers and change management. At some point finance directors have to address an issue they think HR personnel are being ‘touchy feely’ about.

“It is about good management training and adjusting workloads and talking around the issues at work and those at home. It is important to talk about managed stress: some stress need not be a bad thing, but it is about getting stress at the right level, so we are performing at a high level, but not about to fall over the curve where we are making bad decisions,” says Urwin.

Professor Cooper says he doesn’t blame finance directors for being focused on costs and says, ironically, it will be the only thing that will convince FDs ultimately of the importance of addressing the stress impact.

“The costs of not doing so are enormous, it is a bottom line issue,” he says.

For more information on workplace stress:


Executive Summary 

• Stress has now passed backache and musculo-skeletal as the biggest single source of sickness absence. Stress and mental ill-health represents 40% of all incapacity benefit.

• Individual employees are now suing their employer for stress at work and cases are averaging £0.25m.

• Although a degree of stress can be a good thing, too much can impair reasoning, learning, attention, memory and decision-making. 

• A employer’s brand can be affected if it is perceived to be a place that stresses you out, where they work you long hours, and don’t give you control and autonomy.



 Source: CBI/Axa Absence and labour turnover survey 2008



Back to ‘Employee Benefits Report For Financial Directors – June 2008’