The Economic Benefits of the ESQ
Of all the available selection tools, psychological tests have been found to be one of the most valid and cost effective means for identifying the most suitable applicants for the job (Schmidt & Hunter, 1998). Indeed, when properly conducted, selection testing can save companies hundreds of thousands of dollars each year. For example, Hunter and Schmidt (1984), using extremely conservative assumptions, calculated that the U.S. gross national product could be increased between $80 and $100 billion (in 1981 dollars) if selection testing were introduced throughout the workplace. Clearly, an organization can realize substantial benefits through the use of the ESQ. As the figure below indicates, 86% of the counterproductive workers failed the ESQ by obtaining a score of 50 or lower.
The following are the key counterproductive behaviors that can cost an organization hundreds of thousands of dollars annually:
Theft
On average, 44% of all inventory shrinkage is due to employee theft. Employees tend to steal significantly more than shoplifters. In fact, 20% to 40% of employees in the retail, manufacturing, supermarket, restaurant, and healthcare industries report a history of theft.
From unauthorized giveaways to friends and family to serious theft (over $100.00), the ESQ was able to screen those individuals likely to engage in thievery. Individual's who reported stealing from their work in the past failed the ESQ.
Turnover
A high turnover rate will result in unnecessary loss of both resources and reputation. In an example from the healthcare industry (a hospital with 200 beds employing 1200 persons with a turnover rate of 2% per month) Cascio (2000) calculated that the cost of replacing 288 employees per year was $2,888,295.52 when all sources of costs were analyzed. The common sources of these costs are:
- Recruitment of replacements.
- Lost productivity associated with the interim period before a replacement can be placed on the job and the time required for the new worker to get up to speed on the job.
- Costs of training, including supervisory and coworker time spent in formal training.
The ESQ can identify impulsive job applicants, and those with less inclination toward organizational commitment. In fact, the ESQ has been shown to predict for employee productivity and good citizenship, and therefore would have a substantial impact on overall turnover rates and employee performance. Click to read an Overview of Employee Turnover Research.
Loafing
Loafers (those spending an average of 20% of their time engaged in non-work-related activities) scored significantly higher on the ESQ counterproductivity scale than non-loafers (those spending an average of only 2% of their time on non-work-related activities). A dollar value can be placed on the cost of loafing to the employer using utility analysis (Cascio, 2000). First, it is assumed that an employee's total compensation value per hour is $23.00, the average total compensation for all full-time workers in private industry as of March 2001 according to the Bureau of Labor Statistics. Based on this level of compensation, utility analysis indicates that an employee who loafs for approximately 20% of an eight hour shift will cost an employer approximately $24,500 per annum. This amounts to a total cost of $122,500 per loafing employee over a five-year period. Stated differently, using the ESQ to identify and eliminate potential loafers from an applicant pool can result in substantial cost savings to the employer.
Absenteeism
There are several costs associated with absenteeism in the workforce, including loss of productivity, customer dissatisfaction and costs associated with a temporary replacement. Some individuals claim to be sick when they simply feel like a vacation day. Chronic absenteeism is prevalent in today's society, in 1998 about 4% of full-time workers in the United States, and more than 6% of full-time workers in Canada were absent from work (CCH Unscheduled Absence Survey; Statistics Canada). Those respondents who had reportedly taken 'bogus' sick days score below the 50, thereby, failing the ESQ.
On-the-job Substance Abuse
The US Board of Labor estimated the total cost of employee substance abuse falls between $75 billion to $100 billion per year. The prevalence of on the job alcohol and drug abuse is alarmingly high. Ten percent of employees consume more than five glasses of alcohol in a workday, and approximately 70% of drug users are employed (Williams-Harold, 1998). To save your company's resources and reputation, use the ESQ to screen out those individuals who are likely to engage in substance abuse during the workday. Those respondents who admitted to drinking while on the job failed the ESQ.
Safety Violations
The Insurance Research Council estimates that over 3 million employees experience on-the-job injuries per year. While insurance protects businesses from the costs associated with medical bills, Safety Services of CyperComp state that the costs not covered by insurance are four to five times higher. The following are examples of how these uninsured costs indirectly affect the productivity and profits of an organization:
- employee wages (e.g. wages to the injured employee and their replacement);
- repairing damaged equipment or products;
- time invested in investigating the accident and filling out paperwork;
- overtime by other employees and supervisors to compensate for the loss of production;
- the costs associated with a possible lawsuit (e.g. lawyer's fees, settlement, bad publicity).
Disregard of safety regulations can result in serious accident or death to the employee or coworkers and in substantial costs to the employer. Furthermore, adherence to safety regulations is an indication of employees' willingness to follow organization rules, procedures and policies. There is a direct relationship between frequency of safety infractions and ESQ scores. Those who most frequently reported safety violations failed the ESQ.
Conclusion
According to the Society of Human Resource Management more than 50% of potential employees misrepresent themselves on their job applications. It is therefore the organization's responsibility to ensure the hiring of productive, dependable employees. The ESQ can save an organization both time and money by making their employee selection processes more efficient and effective.
