Absenteeism: Eroding Company Profits
As the world economy struggles to regain its former pace and growth since the onset of the financial crisis in 2008, companies and their leadership may have overlooked a growing area of risk which could be costing them dearly. In almost all cases companies are able to count their losses in, for example, a line item which has an attached tangible value on their balance sheet from one period to the next. And these losses − or profits as the case may be − are invariably linked to a known risk which has been, or is still in the process of being managed.
The point being that whether such a loss (or profit) is made, is normally directly linked, defined and clearly understood by the people responsible for ensuring the financial health of a company. Indeed, these people – who comprise the chief executive officer, the financial director and even the internal auditors − are generally considered the core leadership team who are responsible for the proper governance of the company’s daily operations, which entails both the financial and non-financial aspects of the company.
Whilst there have been numerous corporate governance recommendations documented across the world, notably those such as the King Report on Governance for South Africa 2009 (King III) which emphasises the need for integrated reporting amongst other issues; one can’t help but wonder whether or not the company’s leadership have sufficiently applied their minds and reported the costs attached to their Human Capital, especially when employees are absent from their workstations and without proper permission?
In many companies, Human Capital has been considered a ‘soft issue’ and not much attention is allocated to this critical ‘asset’, unless of course there is a blatant problem, say for example a looming strike or a contagious health outbreak amongst employees or worse, the death of an employee. Clearly these types of examples pose tremendous risks to a company and its sustainability, and they are not such ‘soft issues’ especially when the business’ continuity is negatively affected. On the contrary, whilst these risks – which are quite obvious and visible – can also have significant impact upon a company’s productivity and its profits, there is yet a further risk which is much greater than these already mentioned, namely absenteeism.
At the face of it, absenteeism may initially be completely undetected, and in fact not known about, or completely misunderstood and not managed. In many respects, absenteeism can be likened to a ‘silent cancer’ that slowly erodes the company’s profits, productivity, morale and even its culture. In the workplace, absenteeism is one of the most common problems facing South African (‘SA’) companies and it is estimated to be costing the South African economy – according to the South African Chamber of Commerce (SACOB) – between R12bn to R20bn each year. In its most common form, employees will claim to be ‘sick’ and then stay away from their workplace to maximise their days for annual sick leave, and even exceed their benefits well beyond reason. Expectedly, an unsuspecting company may not at first easily detect such abuse against the company (especially in larger companies and state owned entities), mainly because the stay-away may have appeared legitimate as the employee may have produced a doctor’s certificate to validate their ‘illness’.
But absenteeism need not necessarily mean that an employee has to physically be away from their employer’s premises without their employer’s permission. Absenteeism also covers instances where employees are physically away from their work stations and are therefore unable to fulfill their obligations to their employer. Such circumstances include the employee habitually arriving late or leaving work early; taking extended tea, lunch or toilet breaks; taking excessive and unreasonable time to complete work assignments and attending to personal issues such as shopping during working hours.
The average absenteeism rate amongst SA companies is conservatively estimated between 3.5 and 6 per cent per annum, and with its increasing trends, suggests it may be a growing crisis within companies and the economy. And with the recent Reserve Bank announcement that South Africa was unable to attain a full one per cent (1%) GDP in the first quarter of this year; it’s clear that an unhealthy, lethargic workforce is not going to assist to rapidly improve this dire situation. Companies who are plagued with this scourge, and more particularly those who do not take proactive action to remedy the situation, will most certainly feel the direct and indirect effects on their bottom line earnings. Some of the expenses linked directly with absenteeism include payments for employees who are not at work, increased insurance premiums, additional salary compensations, benefit payouts, or paying for employees who are at work but who are ‘disengaged’ and therefore not adding to the overall profits of the company (presenteeism).
Let us also not be tempted to believing that absenteeism occurs only amongst the lower-level workers; it also happens amongst professional employees, and is sometimes worse at the higher levels compared to what is recorded at the lower ranks. Whilst there is limited research published in SA regarding the management or control of ‘sickness’ absence, according to the Adcorp Employment Index (April 2012), there has been a four-fold increase in absenteeism due to sickness since 2007. Moreover, in 2001, whilst 0.7 percent of SA employees were absent from work due to sickness, this percentage increased to 3.4 percent in 2011 despite no notable increase in the number of people employed over the past decade. Considering these facts, companies need to not only address their management and policy processes, but they may also need to consider the reasons behind absenteeism and which appear to be escalating this trend. Some of the reasons cited by employees that exacerbate absenteeism include:
poor income levels of employees,
poor communications and relations between management and employees,
poorly managed workplace disciplinary procedures,
unincentivised employer productivity programmes,
poor working conditions and/or the boring or repetitive nature of work, and
unfavourable geographic location of the workplace and/or workstation.
Finally, caution must be exercised by companies who may choose a more draconian approach to stamp out absenteeism. Remember of course that an employee has many rights (as does the company) and these are essentially found in our constitution, our common law, the Basic Conditions of Employment Act 75 of 1997 and the Labour Relations Act 66 of 1995 amongst other legislation. No matter how your company may wish to address this escalating problem, sadly, research suggests that notwithstanding the most noble sickness-management systems and programmes being implemented, few companies have effectively managed to solve this problem which is eroding the company’s profits.
Perhaps companies should be involving their employees more fully into the company’s strategy and explain to them how they will personally stand to benefit from the company’s overall performance? This may change the employee’s attitude toward the company and hopefully they will be more willing to support the company with better workplace attendance and personal performance within a shared stakeholder governance model. Of course there’s no telling what the outcome will be if the company is continually posting losses, or if the employee is also going to be held responsible with management when productivity is down? But then again, the company also has its rights, and employees who are caught defrauding the company of time through this malicious practice could find themselves facing disciplinary action, being placed on terms, or simply fired once they have been proved guilty.