Judith M. Bardwick, Ph.D.
It’s very strange: In the years that I’ve been speaking to management about the hundreds of studies that clearly demonstrate that high levels of employee commitment and engagement predict financial success, I’ve consistently found that virtually no one had ever heard of these data.
Here is a small sample of data supporting the idea that when employees feel very positively about the place where they work and the work they do, tangible success is achieved as measured in financial results:
- The Best Companies to work for are run by people who hold two goals in mind simultaneously: to achieve their business targets and to uphold the welfare of their employees. These organizations have higher market value, growth, return on assets and return to shareholders than peer organizations that don’t value and involve employees.
- The world-wide consulting firm Watson Wyatt administered surveys of the Human Capital Index (HCI) to 51 organizations in the United States and Europe. When the HCI scores were compared with each corporation’s five-year total return to shareholders, companies with a low HCI score averaged a 21 percent total return; companies with medium HCI scores achieved a 39 percent total return, and those with high scores had a 64 percent return.
- When customers give a company high marks, that organization earns a 160 percent five year return to shareholders when compared with the S&P Index. When both customers and employees give a company a high rating, that company’s five year returns to shareholders is 320 percent of the S&P.
- Vanderbilt University and human resource consultants, Hewitt Associates, studied the financial results of Fortune’s “100 Best Companies to Work For” from 1998 to 2003. “Best Companies” cumulative stock returns averaged 50 percent above the market average. The publicly traded companies on Fortune’s 2007 list of “Best Companies” consistently beat the market over the preceding ten years.
Two decades of international commitment and engagement studies continuously find that where employees are committed to their organization and find pride in being a member of it, and they are fully engaged in their work because it fulfills their need to do work that matters, motivation, employee innovation, retention, discretionary effort and financial outcomes are all very high. When these are the prevailing feelings, customers enjoy doing business with that organization and, like employees, they stay. Replacement costs for employees and customers are low, positive feelings prevail, and sales and profits rise.
It is just that simple.
The reverse is also true: when employees are treated as costs and not as assets, they feel abused and frightened for good reason. When people are neither trusted nor respected and their work is not regarded as significant, they are neither committed nor engaged. Instead, they become preoccupied with their negative feelings about their organization and their boss and while they show up at work, in fact, they’ve quit.
When management doesn’t know these data, the decision makers in business and government are unaware that the surest path to success involves creating high levels of positive feelings in their members. In fact, the most prominent current practices regarding employees essentially guarantees high levels of negative feelings and low levels of commitment and engagement – which is a route to failure.
In other words, most executives are making choices in regards to employees which will almost certainly assure employee alienation and business failure and they don’t know that will be the outcome of what they’re doing.
What might account for this widespread ignorance? The data from many studies over the past twenty years might lie in esoteric sources that management doesn’t usually see. While there was a time when this argument had some truth to it, that hasn’t been true for at least five years as business books and blogs have addressed the issue.
Perhaps the more powerful reason for this continued executive ignorance is this information disagrees with the most wide spread practices regarding employees. Those practices are based on the assumption that employees are costs and costs must continuously be cut.
Internationally, negative feelings among employees prevail. Increasingly, employees in many nations share experiences that differ only in timing. For example:
- While rich countries outsource to nations with lower wages, after a while the nations that received the off-shored work find they need to outsource to nations with even lower costs.
- A meritocracy in which sustained excellent performance earned employees some measure of security gave way to large, impersonal layoffs. Closing factories and divisions, downsizing, rightsizing…have become standard practices to cut costs.
- Investing in employees in ways to make their knowledge and skills more current and useful frequently came to be regarded as an expensive luxury.
- Investments in R&D to make the organization more competitive declined in light of falling profits.
These organizational responses to increased competition and declining margins became the norm. When people feel there is no way for them to achieve any level of control over their life, when there’s no way to gain reasonable security, fear prevails. Even when the economy is good, these people feel vulnerable economically and psychologically. I call this feeling a Psychological Recession;” the feeling that while the present is awful the future will be worse. Prolonged fear and depression make it impossible for people to do good work because scared and worried people can’t concentrate and focus.
But the financial data tell us that 90 percent of an organization’s performance comes from the 20 percent of employees who are engaged and committed. To succeed, an organizations needs to view its employees as assets where an investment has a great rate of return, and as stakeholders along with shareholders and customers.
When employees can earn conditional commitment, they have a job if their performance is consistently outstanding, their knowledge and skills are current, the organization needs what they can do, and the organization can pay them, then employees and the organization have a reciprocal and fair deal and both feel they have a considerable degree of control over what happens to them. Creating conditions that reduce fear and hopelessness in employees liberates employees to have positive feelings about their work, their boss, their organization – and their future.
Where there is mutual respect and trust between employees and the organization, there is also mutual commitment and good feelings. Organizations need to know that it is in their own best interest to greatly increase their commitment to employees in order to gain high levels of employee commitment and engagement…and financial success. In unsettled times, great leaders resonate to the feelings of the population and they never underestimate the importance of creating hope and a belief in a positive future.