The Real Costs of Workplace Conflict
If You Can Measure It, You Can Manage It
Unresolved conflicts costs business millions of dollars every year. How much is it costing you?
Often these costs are hidden. Few budgets have a line item entitled "workplace conflict". Still, your company is bearing the costs. This lens will show you exactly where the costs are hidden.
At Salt Creek Associates we measure the real costs of workplace conflict and will tell you how much is being wasted each year by unresolved conflict in your business. We will also show you how to dramatically reduce these costs.
Workplace conflict drains the productivity of everyone at work
Fully Burdened Employee Costs
The first step in understanding the real costs of workplace conflict is to understand the full costs of each employee. Different industries have different benchmarks to create this number. The full cost of an employee can range from 140% of their base salary to 300% or more. Every analysis of employee costs should at least include:
Salary, Compensation, Commissions and Bonuses. This includes all of the income that we associate with employment. For some positions this can get complicated. For example, sales reps or sales managers can earn several different types of income that are received at different times of the year. They must all be included.
Fringe Benefits. Health care benefits, retirement benefits, life insurance vacation time, car allowances and much more need to be included in this category.
Supplies and Overhead. This is the long list of all the things your employee needs to do their job. This includes office space, supplies, car and related expenses, conferences, job training, workers comp insurance, tools and everything else that it may take to get the job done. This can be a daunting list.
Return on Investment
We must also include the expected return on investment for every employee hour. The loss of an hour of work is also the loss of expected profit. The expected rate of return is 150% to 1000% and more.
Once you have come to a real dollar amount for a fully burdened employee, then you can begin to work your way through the following costs of conflict.
1. Wasted Time
Conflicts take time. The people fighting waste time fighting. Friends and colleagues are brought in and pick sides. Discussions around the watercooler and in the break room. Spats and blowups. Supervisors and managers are brought in to put out the fires.
These hours will really add up. It is estimated that 25% to 40% of a typical manager's time is spent resolving conflict.
2. Reduced Decision Making
Decision making is a primary task of every employee. Being distracted by unresolved disputes makes decisions difficult to make. Conflicts can lead to important information being withheld and distorted. Decisions can devolve into simple power contests. Decisions left unmade cost money. Slow decisions cost money. Poor decisions cost money. Working in an environment of conflict leads to reduced decision making.
Decisions are expensive and can amount to as much as 200% of the salary of the managers that make them.
3. Restructuring Costs
Sometimes moving people around is necessary during a dispute. New assignments, new offices, new supervisors and new costs. This can lead a company away from "best practices" and toward greater costs. It can also lead to "promoting" difficult employees to move them out of the situation. These restructuring costs can account for 10% of the dispute.
4. Lower Job Motivation
Unresolved conflict eats like a cancer at the motivation of employees at all levels. There is the growing feeling like effort isn't rewarded while acting out is. Initiative, the commitment to excellence and pride in good work all suffer. So does the bottom line. A conservative estimate of this cost is 10% of the cost of the salaries of those involved.
5. Missed Work
Personal days, "mental health days" and sick days are often the result of a workplace in conflict. The stress of coping with such an environment may bring on psychological and physical illnesses. These can come in a wide variety from flu like aches to asthma to heart disease and much more. It can also impair mental ability contributing to such illnesses as depression.
Some business can not operate without staff to cover certain tasks. When an employee is unexpectedly absent and someone else is called in there are additional costs. We should also include the costs of temporary staff and replacement workers.
6. Customer Care
Customers, vendors and contract workers are also impacted by workplace conflict. Management will need to tend to these important members of the team when they are involved in a conflict. This is true regardless of the role they play.
The best and brightest can always find another place to work. If your company is engulfed in unresolved conflict why would they continue to do business with you?
7. Replacement of Employees
Good employees will not stay in an environment of unresolved conflict. Why would they? When they leave it wil cost to replace them. This cost will vary, but Rayetheon Corporation estimates their cost is 150% of a fully burdened employee.
8. Replacement of Customers. Vendors and Contractors
We know that it is easier and less expensive to keep customers than it is to secure new ones. Perhaps as much as 1000%. Losing a customer, vendor or contractor due to unresolved conflict is perhaps the most expensive item on the list.
These are the costs most closely associated with line items. Still they are often overlooked. Sometimes they are just considered the cost of business.
9. Theft, Sabotage and Damage
This is sometimes called shrink. Employees account for a great deal of shrink and workplace conflict adds to the feeling that it is an acceptable part of doing things. The U.S Chamber of Commerce estimates $40 billion is lost each year in this category. We estimate that 10% of the cost of tools, supplies, equipment and product that the parties in conflict have access to.
10. Health Insurance Costs
Health insurance costs are a major concern for business. These costs are significantly impacted by workplace conflict. The health of the employees is impacted by this conflict when it is chronic and unresolved. Improve the environment at work, improve the health of your employees and you will impact the number of claims on your insurance.
11. Litigation Costs
Litigation costs whether in house or from an outside law firm are astronomical. Beginning at $400 an hour and going north of $1000 an hour. Preparing for settlement discussions and then for trial is extremely costly. Sometimes it can not be avoided, but often these cost reflect a poorly handled conflict that has escalated and is costing your company tens of thousands.
12. Settlements with Victims
Poorly handled conflict results in settlements for people who are victimized by other employees, supervisors and managers.
13. Settlements with Abusers
Workplace abusers also receive settlements. These are often high-conflict people that companies are willing to pay off to get them to leave. There are, however, better ways to manage high-conflict people. Better ways that are less expensive.
14. Consultants, Executive Coaches, Therapists
Individuals, especially corporate leadership, will be encouraged to work with a variety of experts to help overcome a conflict. Executives with chronic problems will be expected to work with a coach or therapist, often at company expense. These fees start at $200 an hour with consultants charging $3,500 a day and more.
15. Remedial Training
In an attempt to impact a culture of conflict or to keep from publicly focusing on a few employees, remedial training may be necessary for the whole company.
We can't put a dollar amount to these issues, but we know that they are costing companies everyday.
Hiring and Keeping the Best People
This may be the most important issue of all. Companies that allow their employees to be abused, mistreated and in a state of constant conflict will not be able to keep the best and the brightest for long. Nor will they be able to hire the best talent available. The company's reputation will proceed them.
Higher Rates from Vendors
In a similar way, vendors will charge more to do business with you when you become known as a difficult customer. Consider this "combat pay". Also, if the relationship is damaged badly enough, you run the risk off being "fired" by your vendor.
Conflict Defines the Culture
When conflict is left unresolved, you run the risk of the corporate culture adapting toward conflict. People who once were cooperative begin to withhold their information, bully those under them, reduced cohesion, resistance to improvements in established systems and reduced cooperation with outside organizations.
Injured and weary employees want conflicts to be settled and settled fairly. When they are not, some will take matters into their own hands. They will want to get even with the person who they are fighting. They will wait for an opportunity to humiliate them, if they can. They will want to force them out, if they can. And they will feel completely justified in their efforts.
The most extreme example of retaliation is workplace violence. Very often workplace violence finds its origins in workplace bullying. The company has seen the bullying in one form or another but has been ineffective in dealing with it. The employee, disturbed and mentally ill, fights back the only way they can imagine. This leads to the greatest cost of all for a company, the injury and death of its employees.
The real costs of workplace conflict can be tricky to see. Do you think that I have missed anything? Let me know what else I should incorporate.