FDs lack data to asses real risk of staff absence

Healthcare perks are increasingly being used by people managers to fend off the blights of sickness absence, but FDs lack hard data to assess the real risk to business, says Clare Bettelley

Publicly-listed companies are under increasing investor pressure to maximise the transparency of their businesses and return on investments, yet this rarely relates to staff, let alone absenteeism and associated combative strategies.

Nick Jeffrey, senior manager in the technical team at accountancy firm, Grant Thornton, says he is particularly interested in staff costs if they are material to an organisation. That is, they are likely to change readers’ understanding of a company’s accounts. “Absenteeism may not be discussed [as part of an audit] in its own right, but may be an indicator that things are not right with the business generally, [and] that there are staff, director, or health and safety issues,” he says.

He adds that it’s not just poor attendance that should ring alarm bells, good attendance is potentially as important in risk terms as absenteeism. For example, it may indicate a member of staff ensuring their attendance to actively cover their tracks in the event of fraud. Jeffrey attributes the responsibility of the associated risks of staff attendance to finance directors as far as systems of control within their departments, particularly around payroll systems, are concerned.

Most conversations with FDs about absenteeism revolve more around risk and than cost, with concern as to whether absence is managed consistently. For instance, seemingly high pockets of absenteeism could simply be a product of those departments having more efficient managers that monitor and report absenteeism more accurately back to HR. Elliott Hurst, a senior consultant in healthcare and consulting for Watson Wyatt, says: “There is often good documentation but it is not very well applied. Organisations have got to implement a process, which takes out all scope for inconsistencies.”

The seeming lack of interest that FDs may have on absenteeism may stem from a lack of research on the subject. There is endless data on the cost of absenteeism, though little quantitative research on its impact on the employer’s bottom line.

That said, even absenteeism cost figures are broad estimates usually relating to staff salaries, often without considering the cost to productivity and lost opportunity and potential litigation costs relating to staff on long-term sick leave.

The two most quoted national statistics are The Chartered Institute of Personnel and Development’s 2007 survey on Absence management which reveals that the average cost of absenteeism has increased to £659 per employee per year from £598, year on year, and the Confederation of British Industry/Axa Absence and labour turnover survey 2007 which claims that staff absence cost UK public companies £13.4bn last year.

Another reason why FDs may have frustrations in addressing absenteeism is that its complexities are often baffling, and will become more so over time as new theories are formulated. According to The Work Foundation’s director of research Stephen Bevan, there are 44 ways to measure absenteeism. This is because “no single measure can adequately reflect the very variable patterns of absence that organisations experience,” he states. The Work Foundation report, Attendance management, also goes on to indicate that “most ‘headline’ figures mask patterns of absence which, while dominated by sporadic or short-term absences, are skewed by a growing amount of long-term absence”.

FDs also tend to prioritise the factors impacting their cost-income ratios, and given that most organisations accept a certain level of absenteeism, it’s no wonder it falls off FD radars.

Chelsea Building Society is a case in point. As part of his preparation for the implementation of International Financial Reporting Standards, Chelsea’s deputy chief executive and finance director, Peter Walsh, says he focused on staff costs after the society’s cost-income ratio rose to 53.9% for the year ending 31 December 2004, from 45.2% in 2003 – and that’s without even drilling down to assess the proportion relating to absenteeism.

But perhaps the most important factor explaining FDs’ lack of interest in tackling absenteeism is because of the shift in focus on the issue. As Jeffrey explains, absenteeism must be addressed as one element of FDs’ risk strategies rather than as a cost.

Organisations must now conduct risk assessments of the psycho-social wellbeing of their employees, which Bevan interprets as relating to the risks of workplace stress and mental ill-health. This has led to the launch of wellbeing programmes in many UK organisations.

This, he explains, means “going beyond the bare bones of the legal ‘duty of care’ for which employers are accountable under Health and Safety legislation”.

Transparency of staff costs
But the trade-off in taking a more proactive approach to staff wellbeing is that the qualitative nature of wellbeing strategies widens the gulf between human resource teams striving to implement them and their FDs from whom they are trying to secure a budget to do so.

Absenteeism would certainly have rocketed up FDs’ agendas had the government’s Operating and Financial Review been implemented in 2006, says Dudley Lusted, Axa PPP healthcare’s head of corporate health development. Instead, the initiative that had been more than 12 years in the making, was scrapped as a statutory requirement. This is despite, by the government’s own admission, it being a fundamental tool with which good corporate governance, including transparency surrounding staff costs and systems and controls, could be achieved.

However, Lusted says that a lot of organisations would have struggled to disclose information on staff attendance because of a lack of systems and records.

FDs and their HR specialists need a much closer relationship to crystalise the issue. “If only FDs had to pay sick cheques out on a daily basis – then things would change,” says Lusted.

He says directors’ focus should shift their preoccupation with getting staff back to work, particularly when they are still sick, to analysis of staff sickness. This could help organisations identify which staff are too sick to travel into work but are willing to work from home. In such cases, this will enable employers to ensure staff have the home-based facilities, such as computer and internet access, to do so.

Sallows urges HR directors to develop processes and collate attendance data with FDs in mind, which means learning to “translate data into pounds, shillings and pence”. A breakdown of costs and returns on investments made to tackle the issue is imperative.

Similarly, in The Work Foundation report Achieving strategic alignment of business and human resources, author Natalie Turner states: “Each HR strategy requires the development of robust metrics that enables the HR department to show the ‘before and after’ effects wherever possible, [such as with] reduced employee turnover, new skills acquisition by staff, increased numbers of ideas and levels of innovation through reorganisation.”

The Bradford Factor formula is a common tool with which to track and quantify staff absence (see table below). So, someone who has five spells of absence of one day each (5x5x5=125) will have a higher Bradford Factor score than an individual who has one episode of absence, which lasts five days (1x1x5=5).

But Hurst says: “It’s a chicken and egg situation. If you want to make an investment in, for example, an outsourcing system, to gain the budget you have to prove there’s a case in the first place, but most employers don’t know what their absenteeism levels are right now.”

At accountancy firm KPMG, information relating to absenteeism, such as return to work times, the time taken to retrieve medical reports, is posted within its wellbeing department, though information remains anonymous. Julie Bennett, health and wellbeing manager at KPMG, says that it allows department managers to look at the information and gauge how it relates to their departments. She stresses that the importance of sickness levels being more directly linked to the commercial value of a business.

However, as Nick Isles, director of advocacy at The Work Foundation, warns: “Staff represent invested capital, so it’s pretty stupid to allow it to lie idle.”


Executive summary

  • Most employers do not know if absence is affecting benefits because they do not invest in finding out.
  • Absenteeism may be an indicator that things are not right with the organisation generally, that there are management, staff, or health and safety issues.
  • HR needs to develop robust metrics to show ‘before and after’ effects of reduced employee turnover, new skills acquisition by staff, increased numbers of ideas and levels of reorganisation innovation.
  • FDs concerns on absenteeism revolve more around risk than cost, particularly in the extent to which it is managed consistently. Most employers accept a certain level of absenteeism.
  • There is endless data on the cost of absenteeism, but little quantitative research on its impact on businesses’ bottom line. No single measure can adequately reflect the very variable patterns of absence that organisations experience.
  • Most ‘headline’ figures mask patterns of absence which, while dominated by sporadic or short-term absences, are skewed by a growing amount of long-term absence.


Aim for a high attendance culture

  • Develop objectives and success criteria for managing absence
  • Identify priorities for costing and measuring absence
  • Focus on line manager training
  • Focus on engaging employees at work


The Bradford Factor formula

S [spells of absence] x S [spells of absence] x D [total number of days absence in that period] = Bradford Factor score
Source: EEF?Axa, Managing sickness absence report, 2007

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