Employee Stress: The True Cost

by David Lee

Published in The John Liner Review, Vol 11(3), pg. 33-38, 1997

Most organizations have no idea just how much employee stress costs them each year. A 1990 study by the Princeton, NJ, firm of Foster Higgins & Co. indicated that corporate health benefits cost the average company 45 percent of its after-tax profits. With research implicating stress in 60 percent to 90 percent of medical problems, companies cannot afford to ignore the huge health-care expense employee stress creates.Although the relationship between stress and health care costs has received considerable attention, the true price tag is far greater than health care costs alone.

Studies show that stress adds to the cost of doing business in a number of ways. In this article, we will explore the depth and breadth to which employee productivity and well-being is compromised by stress.Just How Costly Is Employee Stress? To paint a complete picture of how stress costs organizations would require a far longer article than space permits, but we will address some of the most serious consequences of employee stress.


Stressed-out employees are more likely to miss work both as a coping mechanism and due to health-related problems. A recent study published in the American Journal of Health Promotion found that workers experiencing high stress were over two times more likely to be absent more than five times per year. Lost productivity and replacement costs make absenteeism a costly consequence.

Workers Compensation Claims

Stress-related claims have skyrocketed. The California Workers’ Compensation Institute (CWCI) reports that the number of workers compensation claims for mental stress increased by almost 700 percent between 1979 and 1988. Nine out of ten stress claimants ended up receiving compensation benefits. “Job pressures” account for nearly seven in ten stress claims, according to the CWCI. In Maine, stress-related claims have increased by 1,000 percent since 1985, according to Bureau of Labor Standards statistics.


Litigation is becoming an increasingly more common occurrence – not just in the workers compensation system, but in employer-employee relations. The feeling of powerlessness, a major contributor to employee stress, also contributes to the desire for retribution. When people feel helpless, when they feel they have no control over their lives, they are more likely to resort to extreme measures. In our litigious society, many organizations are reluctant to identify and address worker stress, fearing that admitting workers are stressed would provide “ammunition” for employee lawsuits.

Although understandable, this approach creates the opposite effect. Stacey Moran, Ph.D., co-author of St. Paul Fire and Marine Insurance Company’s landmark report, American Workers Under Pressure Technical Report, addresses this issue: Discovering specific stressors and dealing with them is by far the best course of action for organizations. There is a better likelihood of litigation if a company ignores stress-related problems than if it addresses them up-front.


Frequent grievances are both a legitimate warning sign that organizational problems exist and a less extreme way of expressing powerlessness, which in itself indicates organizational problems. Robert Rosen writes about the connection between organizational climate, employee stress, and grievances in The Healthy Company. Rosen tells the story of a Safeway bakery manager whose department averaged 75 to 80 grievances a year. By honestly addressing his managerial style and cultivating a very different workplace environment, he saw grievances drop to just one in a five-year period. The effect of a grievance goes far beyond the employee and his or her supervisor. On average, every filed grievance translates into approximately 80 hours of lost productivity by the worker filing the complaint and by co-workers due to morale problems, according to an article published in the Personnel Journal.


Forty percent of employee turnover is related to stress, according to a study by the Bureau of National Affairs. When companies consider the cost of lost productivity and of recruiting and training new employees, stress-induced turnover is a very expensive problem. In the previous example of the Safeway bakery manager, his efforts at creating a more worker-friendly atmosphere translated into a turnover decrease from as high as 100 percent in some positions to a department average of 10 percent.


Stress causes a narrowing of attention, preoccupation, and fatigue – a sure recipe for workplace injuries. Stressed-out employees trying to do more with less are also likely to take shortcuts which lead to accidents. “With increasing work demands and time pressures, people are less likely to take safety precautions, use proper equipment, and implement appropriate body mechanics,” states Jonathon Torres, M.D., of Workmed Occupational Health Services, a Maine-based company. Workers who report high stress are 30 percent more likely to have accidents than those with low stress. Stress-related accident claims are, on average, two times more costly than non-stress-related cases, reports the Harvard Business Review. Accident claims also have a psychological component. The connection between stress, employee satisfaction, and claim filing cannot be ignored. A study of 3,020 aircraft employees showed that employees who “hardly ever” enjoyed their job were two and one-half times more likely to report a back injury than those who reported “almost always” enjoying their job.

Errors of Judgment and Action

When people are under stress, they become preoccupied with the issues troubling them. Stress also causes attention to narrow, creating a sort of “tunnel vision.” This makes the stressed-out employee more susceptible to missing environmental cues and information required to make both effective and safe decisions. Stress also dulls the thinking process. This is because endorphins – nature’s painkillers – are released under stressful situations. Besides killing pain, these natural chemicals also dull our ability to think and feel. Under extreme or unremitting stress, people become intellectually, emotionally, and interpersonally dull. This can result in costly – and sometimes life-threatening – mistakes.

Conflict and Interpersonal Problems

With a more diverse work force, the increased use of teams, and our increasingly more service-based economy, interpersonal demands on employees are increasing. This in itself creates tremendous stress. In fact, St. Paul’s report indicated that interpersonal demands due to working with team members and supervisors were the most significant cause of burnout. Thus, in today’s workplace, we have people who are already under stress from a variety of causes put into an interpersonal context that, by its nature, is very stressful. Being already stressed-out, they are less likely to respond appropriately and constructively, further heightening the likelihood they will find such a demanding interpersonal context even more difficult and depleting.


More than half of 500 managers from both large and small companies surveyed in 1994 reported incidents and threats of violence in the previous four years, according to a study by the American Management Association. Homicide accounted for 17 percent of all deaths in the workplace. A study by Northwestern National Life showed that workers who feel unsafe suffer the same level of stress as the actual victims. Violence is both a cause and a consequence of employee stress. The stress brought on by interpersonal challenges and conflicts, combined with the fact that many people are operating just below their “boiling point,” creates a potentially volatile situation. Conversely, the threat of violence or an actual violent episode in the workplace creates tremendous stress. Although the roots of violence cannot be traced to a single factor, stress is clearly a significant contributor. This is especially true in cases where powerlessness and helplessness play a central role in a person’s stress. The more powerless people feel, the more likely they are to resort to violence.

Customer Service Problems

Having stressed-out and depleted employees serve the public virtually guarantees alienated customers. This can have very serious effects on the bottom line. According to a study of over 100 companies by Frederick Reichheld and W. Earl Sasser, published in the Harvard Business Review, a 5 percent reduction in customer defection translates into anywhere from a 30 percent to an 85 percent increase in corporate profitability. Thus, even a relatively small percentage of customers who aren’t completely satisfied with a company’s service can result in a huge loss in profitability. The connection between happy employees and satisfied customers is obvious, yet so often ignored. In recognizing this connection, Daniel Steininger, CEO of Catholic Knights Insurance Company, cuts to the chase: Would companies have to train their employees to smile and be friendly to customers if their employees felt good about – and loyal to – their organizations?

Resistance to Change

Many attempts at organizational change and improvement fail because of employees’ resistance to change. Well-intentioned attempts at improvement are sabotaged because would-be change-agents ignore, to their peril, the connection between stress and the fear of change. Human beings, just like other mammals, are “hardwired” to revert to familiar routines and behavior patterns when stressed. This makes sense in an ancestral survival context. In such a context, if you were being chased and had to seek shelter, you wouldn’t want to be thinking about all the possible escape routes. You don’t want to spend time thinking and deciding in this situation. You want to go on “autopilot” and follow the familiar route that has proven successful (i.e., it enabled you to survive) in the past. This hardwired survival mechanism wreaks havoc in today’s climate of rapid organizational change. As a person’s stress level increases, that person is more likely to operate out of this primitive, hardwired response – clinging to the old ways, the tried and true, even if they are no longer effective.

Research shows that stress is also connected with “neophobia” – fear of novelty. Animals, which are naturally curious and motivated to explore new environments, avoid new objects and places when stressed. We see this throughout organizations everyday. As people become more stressed, the new and the different triggers fear. Millions of dollars are wasted on organizational change efforts that end up being sabotaged and on program implementation delays caused by this innate resistance to change and novelty triggered by stress.

No Time to Do It Right

Although the tangible costs of employee stress are staggering, it is probably the less definable costs which are most serious. Perhaps the biggest and most unrecognized loss of all is the sense of not having the time to do it right. It’s difficult to measure “what might have been” in terms of lost opportunity and unrealized potential. But the price is still there. Stress costs organizations dearly in terms of decreased quality and productivity. Says Jack Quirk, Training and Development Director for Blue Cross/Blue Shield of Maine: The major price a company pays for stress in the workplace, along with the human price, is that their ability to make process improvements nearly always stops. With overwhelming workloads, you have people going so fast, they don’t have the time to make the process better. It creates a terrible cycle of trying to work harder and harder because the volume you have to put out is increasing, but you aren’t doing anything to make the process more effective and efficient.

Quirk likens this pervasive problem to Stephen Covey’s “sharpening the saw” analogy. In his book, Seven Habits of Highly Effective People, Dr. Covey describes a woodsman feverishly trying to saw down a tree. When asked how long he had been working, he tells the onlooker that it’s been about five hours. When the onlooker suggests stopping, resting, and sharpening his saw, the woodsman informs the onlooker he can’t do that, he’s too busy sawing. He’s so busy working hard, he doesn’t have time to work smart. Too many companies get caught up in this “fool’s cycle,” as Quirk calls it. By pushing employees harder and trying to increase output, without taking the time to examine and improve the process, companies create a cycle of diminishing returns.

Companies “don’t sharpen the saw” in two ways: First, the people who are most likely to have process improvement ideas – the people who actually do the job – are so busy trying to “saw” that they don’t have time to think about how to make the process more efficient. Thus, value-improvement ideas, which can only come through reflection, are never generated. Second, because they are so harried and taxed, workers don’t have the energy or motivation to do this important “thought work.” Their depleting intellectual and emotional resources are focused on survival, not on improvement. They work harder and harder, but with diminishing gains. They end up burned out, continuing on like the living dead; they exit the organization through a disability; or they find another job.

The Loss of Intellectual Capital

Besides the lost opportunity of continuous process improvement, organizations pay for stress in terms of overall loss of intellectual capital appreciation. Intellectual capital is defined as the combined knowledge, know-how, proprietary expertise, and wisdom of a work force. Experts identify intellectual capital as the key competitive advantage in the 21st century marketplace. Only organizations that are perceptive, nimble, and responsive to market demands and customer needs will thrive. Unfortunately for most companies, their work force is under such stress, they are none of these. At the most basic level, the more stressed-out and depleted a person is, the less that person cares about excellence and innovation. As mentioned earlier, he or she is just trying to survive. But the roots of the problem go far deeper.

At the most fundamental psychological and neurobiological levels, stress compromises a person’s intellectual and emotional capacity. Stress makes people less intellectually and interpersonally intelligent. Research shows that when people are in high-stress situations over which they have no control, their thought process becomes more rigid, simplistic, and superficial. This is hardly the mind-set for innovation. Decades of research on “Learned Helplessness” has shown that the more helpless and disempowered a person (or any animal, for that matter) feels, the less likely that person is to come up with effective coping responses. Studies with humans shows that in high-stress situations in which they have no control, their ability to perform mental tasks and solve problems is diminished.

Intelligence isn’t just about “figuring things out.” It’s also about “figuring people out” or, more accurately, understanding how to bring out the best in others. Strong interpersonal skills and the kind of organizational synergy and customer loyalty they create are a tremendous source of intellectual capital. Again, many organizations fail miserably in this category also – and at a very steep price.

In high-stress, disempowering environments, people are less capable of empathy and interpersonal sensitivity. As their feelings are numbed by the psychological and biochemical consequences of stress – as their attention becomes focused on their own problems – people become increasingly more insensitive to the needs of others. We see this in the dull, disinterested eyes of the clerk staring at us from across the counter. We see this in the amazing acts of interpersonal “cluelessness” we have all experienced at the hands of people who were supposed to be serving us. This lack of interpersonal intelligence – or “Emotional Intelligence,” as Daniel Goleman, author of the book Emotional Intelligence, calls it – is rampant in today’s organizations. It also costs organizations dearly in terms of lost customers and lost productivity due to organizational conflict and morale problems.

In a high-stress, disempowering environment, what is rapidly becoming recognized as an organization’s most important asset – it’s intellectual capital – not only becomes illiquid, it also depreciates. The downward spiral of high stress, diminished performance, and negative consequences creating more stress results in a gradual erosion of an organization’s intellectual and interpersonal capacity.

The Benefits of Doing It Right

Although we can’t measure the “what if,” we do have compelling evidence about the opportunity loss when we see the “before and after pictures” of companies that have instituted management and compensation systems more favorable to employee well-being.

Kevin Paulsen, a consultant from W.M. Jackson and Company, a gain-sharing firm in Marion, IN, reports that gain-sharing programs, which link employee effort to rewards, often result in productivity improvements of more than 20 percent in the first year. Interestingly, three serendipitous by-products of these programs are reduced absenteeism, lower workers compensation costs, and fewer grievances.

This makes common sense, but seems to be ignored by so many organizations. Creating an organizational climate that encourages and supports people to perform at their best – and rewards them accordingly – not surprisingly creates a happier, healthier work force. Companies included in Robert Levering’s book, The 100 Best Companies to Work For in America, have more than twice the earnings per share and more than twice the rate of stock appreciation as the average Standard & Poor’s 500 company. These companies offer a glimpse at both opportunities lost by not addressing how worker well-being affects the bottom line as well as guidance about how to “do things right.”

What Can We Do?

The first step for risk managers – or any professional seeking to help their organization minimize the cost of stress – is to learn more about how stress affects people. By understanding this, risk managers can more clearly and compellingly communicate the depth and breadth to which stress compromises employee performance. Successfully addressing stress is not a simple or an easy task. It requires more than a one-day stress management seminar. It requires nothing less than brutal honesty about one’s management practices and policies and a commitment to do the hard work necessary to change course. For any company to undertake willingly the grueling work required to address employee stress effectively, the benefits must be compelling enough to warrant the effort.

By helping their employers recognize the cost of employee stress, risk managers can help their organizations take the first step in dramatically reducing their exposures and operating costs, while at the same time cultivating a happy, healthy, productive work force.

For permission to reproduce this, contact the author at david (at) humannatureatwork.com