8 Steps For Measuring The Cost Of Employee Financial Stress

Even before the current economic crisis, evidence indicated that close to 70 million American workers suffered from financial stress, with 30 million severely affected.

Employee financial stress adds to operational costs in the form of increased absenteeism, shirking, errors, reduced productivity, turnover and rework. On the benefits side, employee financial stress increases health care costs and reduces 401(k) participation rates. The total cost to business is estimated as high as $15,000 per worker per year.

Before initiating a plan to reduce employee financial stress, HR/benefits executives need to take a hard look at the cost of this problem.

I highlight an eight-step plan to show HR executives how to measure the extent and cost of employee financial stress in their organization:

1. Write a brief report to your senior management, explaining the need for preliminary resources to examine the cost-saving opportunities connected with reducing employee financial stress. If you get the green light, proceed to step 2.

2. Select a test site that contains a diverse group of employees, including both salaried and hourly employees. Apply steps 3 through 7 to a focus group of a manageable size.

3. Inform employees you’re administering a personal financial stress evaluation to help them deal with their financial problems. Assure employees that the evaluation is exclusively for this purpose only.

4. Administer a financial stress questionnaire. The survey should be short — no more than 10 questions — and be in an easy-to-score format. Assign values to each answer, as in 1 for low stress up to 5 for extreme stress. Rank the scores from high to low and calculate your company’s mean score.

This mean score acts as a base for future comparisons. Group the scores into fifths, with 20% of employees in each group. Include some questions about demographics, like gender, for statistical analysis later. Do not include questions that reveal personal financial information, such as bank account or credit card numbers.

5. Obtain employee performance data for the bottom and top 20% groups. Compare the averages between your two groups. Are they different? Reach a conclusion on how financial stress affects employee performance by using the analyzed data. However, this method is nonstatistical. Statistical analysis brings more power to this step.

6. Monetize differences in employee performance based on different levels of employee financial stress. For example, say the employees in your highest group (those with the most stress) have two more absences per year, compared to your bottom group (those with the least stress).

What is the annual dollar cost to your company of those two additional days of absence? Multiply this dollar amount by the size of your top 20% group. Finally, make a present-value calculation that takes account of the future impact of these lost days. Repeat this procedure for every measure of employee performance that you select.

7. Repeat steps 5 and 6 by comparing each of your other groups with the bottom 20% group, or estimate a multiplier that extrapolates results from your initial analysis to the other groups.

8. Write a report that includes an estimate of the cost of employee financial stress at your test site and recommended next steps, like launching a program to mitigate financial stress, conducting further testing at other sites or expanding the set of employee performance variables analyzed. —M.N.

Contributing Editor Mark Nadler is an economist and professor at Ashland University in Ashland, Ohio. He is a member of The Financial Education Co. and president of Vincuro, a financial stress reduction firm.