What poor supervisors and managers cost the organization

Mark Allen, Ph.D. is the Academic Director of the Master of Science in Human Resources at Pepperdine’s Business School. According to an article he referenced in The Real Costs of Bad Management-And What You Can Do About It bad management can lead to death:

 

If decreased productivity and increased turnover aren’t reasons enough to stop the practice of having bad managers, consider this: bad managers lead to increased stress, major health issues, and even death.

 

Toxic management practice leads to decreased productivity, increased turnover, increased stress to employees, major health issues and even death. He quotes an article written by Jeffrey Pfeffer, Professor of Organizational Behavior at Stanford University’s Graduate School of Business, and author of the book, Dying For A Paycheck. Pfeffer co-authored a paper¹ in Management Science where he and his co-authors built a model to estimate factors for mortality and health expenditures associated with exposure to workplace stressors including unemployment, long working hours, low organizational justice.

 

Their conservative estimates found that in the U.S. more than 120,000 deaths per year and the related extra health care costs were $190B of annual health care costs could be attributed to harmful management practices.  They conclude, “Our results suggest that more attention should be paid to management practices as important contributors to health outcomes and costs in the United States.” This, they say, makes the workplace the fifth leading cause of death annually.

 

What I hear from these results is that there should be more accountability to how human capital is managed, and organizations should look at how power over others’ lives is wielded in the workplace. The alternative could be fatal.

 

In own article, “The Real Costs of Bad Management” Allen says:

 

What astounds me is that organizations still blindly accept the premise that having bad managers is a routine and inevitable cost of doing business. I wonder if this would be as acceptable if our executives knew the true costs: lost productivity, turnover of high performing employees, $190 billion in healthcare costs, and 120,000 annual deaths. So what can we do about this problem, a problem which can now accurately be called an epidemic?

 

In addition to the potential of creating unhealthy environments and contributing to employee illness, toxic organizations have tangible costs. Employee turnover costs companies one and one-half times the employee’s salary, says Allen. Based on this information in the following table I have created a snapshot of the manager’s salary, the employee’s salary, and the cost impact of replacing two employees and four employees within a 12-month period.

The point of the table below is to name the costs to an organization from a manager who has high staff turnover; whether through firings or employees leaving.  A manager’s salary may be $75,000, but if they have to replace a role or roles twice in the same year, which is not uncommon, and the employee makes, say, $60K, that manager is costing the organization $180,000 which is 140 percent of their own salary. Not only are they costing their organization employees, but they are costing the organization in decreased productivity due to the downward trajectory of morale by the employees who witness what the poor supervisor is able to get away with and how they are able to drive out talent. 

Manager/Sup. Sal.	Employee Sal.	Cost to replace  employees 2x in 12 mos.	Cost to replace  employees 4x in 12 mos.
0	0	12 mos.	12 mos.
40,000	25,000	75,000	150,000
65,000	50,000	150,000	300,000
90,000	75,000	225,000	450,000
120,000	100,000	200,000	400,000

 

 

In “The Real Costs of Bad Management” Allen talks about the phrase well-known in the business arena: People don’t leave organizations, they leave managers”. He says where companies refer to “employee engagement”, this can be tricky. He says, “bad managers lead to low engagement. Low engagement leads to declining productivity and higher turnover.”

Allen says the first step in addressing the problem is to admit there is a problem. In my personal experience, organizations that are well-aware of toxic management and leadership too often prefer to not acknowledge a problem. If the problem comes to a head, it’s easier to get rid of the lower-level employee and to leave the supervisor or manager in their role. The happens even when the employee is a perfectly high-functioning individual; the person in the position of power is the one who gets to retain their job, even if they are contributing to an exodus of staff.   Allen says, “I believe that the greatest source of dysfunction in our organizations is the abundance of bad managers. They cost us productivity and drive away our talent. But this is also our greatest area of opportunity.”

 

Allen offers a solution to creating a better environment which he says is to choose the right people to manage other human beings. Just as you wouldn’t hire an accountant with no aptitude for the job, and no experience, nor an engineer without the same, don’t hire someone without the interest and aptitude for managing people. He says it’s also important to ask people if they want to manage others, because the ones that want to do so may be the folks with an aptitude for managing your greatest asset – your employees.

 

Sources:

The Relationship Between Workplace Stressors and Mortality and Health Costs in the United States. By Joel Goh, Jeffrey Pfeffer, Stefanos Zenios. Management Science. March 13, 2016, Vol. 62, Issue 2, Pages 608-628. (https://www.gsb.stanford.edu/faculty-research/publications/relationship-between-workplace-stressors-mortality-health-costs-united) ¹

 

Allen, Mark (2019).  The Real Costs of Bad Management-And What You Can Do About It. Graziado Business Review 22(1). https://gbr.pepperdine.edu/2019/03/the-real-costs-of-bad-management-and-what-you-can-do-about-it/ ²

A link to a graphic from Decision-Wise.com on the costs of bad management: https://decision-wise.com/infographic-the-cost-of-a-bad-manager/