STOP WORKPLACE BULLYING!

The High Cost to Fortune 500 Companies

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Level Playing Field

Estimating the Cost of Unfair Treatment to a Typical Fortune 500 Company

By Freada Kapor Klein, Ph.D.

Level Playing Field Institute

June 2003

Fortune 500 assumptions:

• average number of employees is 54,500.

• 2% are senior managers, with average annual salary of $175,000.

• 18% are mid-managers, with average annual salary of $75,000.

• 80% are employees/individual contributors, with average annual salary of $37,500.

Background assumptions about unfair treatment in typical Fortune 500:

• 50 % experienced some form of unfair treatment within the past year, at a frequency of "sometimes" or "often" (27,250)

Unfair treatment includes behaviors that probably have no legal claim such as public humiliation and bullying, as well as subtle and blatant forms of race and gender discrimination (e.g. stereotyping, unwelcome jokes or slurs, unwanted physical behavior, offensive e-mail, etc).

Employees who indicated that any of these behaviors occurred "rarely" within the past year are not included in our 50% estimate.

Of those who are subjected to unfair treatment in the workplace, they respond differently:

A) 2% just quit

B) 5% leave with unfair treatment comprising part of the reason

C) 50% try to ignore it/put up with it

D) 25% try to handle it themselves

E) 6% go to a designated complaint person within their company

F) 12% go to their manager for assistance

(These estimates are conservative and based on aggregate research in the fields of discrimination, harassment, and bullying)

Turnover

A) 2% just quit (5% of these 2% leave with severance)—545 total

11 are senior managers; cost of replacement $4,768,750 (2.5 times annual salary).

98 are mid managers; cost of replacement $7,357,500 (1.0 times annual salary).

436 are employees; cost of replacement $4,087,500 (0.25 annual salary).

Severance of $50,000 for 5% of the 2% (27.25 people) = $1,362,500.

Total of those who quit with and without severance = $17,576,250.

Level Playing Field Institute www.lpfi.org 51

Unfair Treatment

B) 5% leave with unfair treatment as part of the reason—1363 total

If 40% of the reason was unfair treatment for these 5%, then the costs above would be repeated.

Senior managers; cost of replacement $4,768,750.

Mid managers; cost of replacement $7,357,500.

Employees; cost of replacement $4,087,500.

Total of those who leave with unfair treatment as part of the reason = $16,213,750.

Ignore/Handle Themselves

C) 50% try to ignore it/merely put up with it—13,625 total

Assume that half of these are able to get the unfair treatment to end in half the usual duration; and assume a 1% drop in productivity for five months.*

Senior managers = $99,349.

Mid managers = $383,203.

Employees = $851,562.

For the other 50%, assume a 1% drop in productivity for the full 10 months.

Senior managers = $198,698.

Mid managers = $766,406.

Employees = $1,703,125.

Total of those who try to ignore unfair treatment or merely put up with it = $4,002,343.

D) 25% try to handle it themselves—6812.5 total

Assume that half of these are able to get the unfair treatment to end in half the usual duration; and assume a 1% drop in productivity for these five months.

Senior managers = $99,349.

Mid managers = $383,203.

Employees = $851,562.

For the other 50%, assume a 1% drop in productivity for the full 10 months.

Senior managers = $198,698.

Mid managers = $766,406.

Employees = $1,703,125.

Total of those who try to handle it themselves = $4,002,343.

*10 months average duration combines data on bullying (average duration is 16.5 months) and harassment of protected classes—e.g. sexual harassment (average duration is 4 months)

Level Playing Field Institute www.lpfi.org 52

Obtaining assistance from inside the company

E) 6% go to a company complaint handler—1635 total

Obtaining assistance from inside the company—complaint handler (human resources, employee/labor relations, ombuds, diversity officer, etc.) For half, the unfair treatment is truncated at half the average duration or five months; for this length of time, there is a 2% drop in productivity.

Senior managers = $23,844.

Mid managers = $91,969.

Employees = $204,375.

For one-quarter, the unfair treatment continues for the average duration of 10 months and there is a 2% drop in productivity.

Senior managers = $23,844.

Mid managers = $91,969.

Employees = $204,375.

For one quarter, the complaint involves investigation, fact-finding, and/or mediation. For this latter group, a 10% drop in productivity results for three months.

Senior managers = $35,765.

Mid managers = $ 137,953.

Employees = $306,562.

A designated complaint handler conducts interviews with four peers, one manager, and one accused initiator; the complaint is reviewed by one senior manager; each of these are two-hour meetings.

The total caseload takes 25% of one FTE at an annual salary of $100,000. = $25,000.

Total cost of using an internal complaint handler = $1,145,656.

F) 12% go to their manager or a sympathetic manager in the company—3270

Obtaining assistance from inside the company—manager

For half, the unfair treatment is truncated at half the average duration or five months; for this duration, there is a 2% drop in productivity.

Senior managers = $47,688.

Mid managers = $183,938.

Employees = $408,750.

For one-quarter, the complaint is referred to someone inside the company for further investigation. For this latter one-quarter, the complaint involves investigation, fact-finding, and/or mediation. For this group, a 10% drop in productivity results for three months.

Senior managers = $71,530.

Mid managers = $275,906.

Employees = $613,124.

Total cost of going to a company manager for assistance = $2,241,312.

Level Playing Field Institute www.lpfi.org 53

Use of paid leave—From other research we assume that 25% of those subjected to unfair treatment use some paid leave time for health problems caused by the treatment and/or to seek advice and/or to avoid the situation. We will assume that each person subjected to unfair treatment who used paid leave avails him/herself of one day per month for four months.

Senior managers = $366,154.

Mid managers = $1,415,093.

Employees = $3,144,230.

Total cost of use of paid leave = $4,925,478.

Total cost of unfair treatment to a typical Fortune 500 on an annual basis is $50,107,132.

Categories omitted from cost estimate: Litigation, responding to charges filed with municipal/state/federal regulatory agencies, and destructive behavior or sabotage are very costly categories that have been omitted. Similarly, we have not calculated the cost of lost co-worker productivity when those individuals witness behavior or offer advice or support to colleagues or participate in investigations. Financial costs borne by employees are also not included (e.g. consulting with lawyers, counselors, unreimbursed health care costs). In addition, although the study documents the profound relationship between being treated unfairly at work and being unwilling to recommend the company to prospective employees, we have not calculated a cost estimate. Finally, other categories of costs to individuals, corporations/other employers, and society as a whole are not calculated—the costs of abandoned careers, disrupted personal lives, and disrupted relationships between co-workers.

The cost of inappropriate/unfair treatment is $919. per employee per year, for a typical Fortune 500 Service or Manufacturing firm of 54,500 employees.

In contrast, meaningful efforts to prevent and intervene could be undertaken for less than 10% of this figure—i.e. for $90. per employee; this includes:

• conducting anonymous, web-based, customized survey of experiences and perceptions of unfair treatment as they are linked to job satisfaction; evaluation of teamwork and supervisors/managers; confidence in management, the company’s products and services; and assessment of whether the employer lives up to its stated values

• developing a comprehensive diversity/anti-harassment/fair treatment code of conduct

• developing informal and formal complaint mechanisms

• developing company-wide customized training programs

• monitoring the on-going effectiveness

Note: This cost estimate is closely modeled after that calculated by Freada Klein, Ph.D. and Mary Rowe, Ph.D. in 1988 for the cost of sexual harassment to the Fortune 500. Mary Rowe is a labor economist by training and serves as Special Assistant to the President at the Massachusetts Institute of Technology and Adjunct Professor at the M.I.T. School of Management.

Level Playing Field Institute

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Information provided by Level Playing Field Institute at www.lpfi.org