Organizations are at a crossroads in their challenge to develop committed, engaged workers, and not enough executives are taking notice. Or if they do, they may not be addressing the most serious root causes. And part of this problem is the concept of loyalty.
The Loyalty Concept
In today’s business environment, corporations depend on their employees more than at any other time in the past. This is particularly true in hi-tech, biotech, finance, and other market segments where employee contribution does not directly depend on the nominal time spent at work. Employee dedication and employee care of corporate interests are part of employee loyalty.
William Altman noticed that, in the past, having a job meant a commitment for life. People would get hired by one company and retire from the same company. The employers were also more loyal to their employees. There was strong sense of trust between these two parties that would bond them for a long time. Marissa Levin concluded that in the past employees looked for job security in exchange for their loyalty and hard work; the same situation does not remain in the present context.
According to research published in the Advanced Management Journal by E. L. Powers , “employee loyalty (unfortunately) is whatever the employee and employer agrees that it is”. David Hart and Jeffrey Thompson in their article in the Business Ethics Quarterly make the point that although employee loyalty has been widely discussed in literature, the concept of loyalty remains loosely defined. They suggested a three-tiered, psychologically-based definition of loyalty that included “the variety of obligation types that loyalty can imply, and anticipates the potential for asymmetrical loyalty configurations between employers and employees”.
There was a day in the workplace when a person would get a job and stick with it throughout their professional lifetimes. The American Bureau of Labor Statistics reported in 2010, that the average person born the latter years of the baby boom holds or will hold 11 jobs from ages 18-44.
Today, people in their 20’s change jobs an average of every 2 years. Employers are frustrated with the lack of employee loyalty. At the same time, many employees are unhappy with their work because it contains no meaning for them. They ask, “What am I loyal to?” Peter K. Murdock, writing in Forbes, argues that Millennials were three times more likely than non-millennials to change jobs in the last year, and 91% don’t expect to stay with their current organizations longer than three years. In a Workforce survey, 80% of respondents agreed that their definition of loyalty in the workplace had changed over time.
According to the Center for Work-Life Policy, the proportion of employees professing loyalty to their employers slumped from 95% to 39% from June, 2007 to December 2008. The study also found that the number of employees trusting their employers fell from 79% to 22% over the same period.
According to a Deloitte study, “Talent Edge 2020: building the Recovery Together-What Talent Expects and How Leaders Are Responding,” a stronger economy may actually be fueling a growing concern among employers about retaining top talent. With the economy improving, nearly 65% employees surveyed are actively testing the job marked. “We’re living in a world where each generation in the workforce has vastly different goals, expectations and desires,” said Jeff Schwartz, principal, Deloitte Consulting and U.S. Talent Services leader. “As employees eye the exit signs following a hard hitting recession, employers need to tailor and target their talent strategies to satisfy each employee group from baby boomers to millennials.”
Some other key findings of the report include:
- Baby boomers, among all workforce generations surveyed, expressed the strongest discontent with their employers and the greatest frustration that their loyalty and hard work has been neither recognized nor rewarded. Almost 1/3 of baby boomers surveyed say a lack of trust in leadership is a top turnover trigger.
- Generation X employees are clearly the group most likely to be looking at exit strategies from their current jobs, with only 28% expecting to stay with their current employers, citing lack of career progress.
- Millennials exhibit a sharply different view of a strong corporate culture, providing their employers have a strong commitment to corporate responsibility/volunteerism, and seeing work as “fun.”
- Generation Z employees are just entering the workplace, but early indications are that, due to growing up during difficult economic times, they are more concerned with security.
Lynda Gratton, a workplace expert proclaimed in an article in the Financial Times, that employee loyalty has been “killed off through shortening contracts, outsourcing, automation and multiple careers.” Gratton argues that “loyalty is about the future-trust is about the present.”
In his notable book, A Brand Called You, management guru Tom Peters argues loyalty is not blind loyalty to the company. Rather, it’s loyalty to an employee’s colleagues, to the team, to the project and to themselves. Diane Arthur, author of The Employee Recruitment and Retention Handbook,says employers should worry more about giving loyalty than getting it.
Tammy Erickson, a Harvard Business Review blogger, believes the old system of loyal service in exchange for security is dead: “How can leaders recreate an atmosphere of trust in the organization? My superficial answer: Forget about it–or at least, forget about restoring trust as you understood it previously. Trust in corporations was traditionally constructed in this way: The individual was loyal. The institution protected and cared for the individual. Employees professed to have no priorities outside their specific institution. And the corporation promised long-term opportunities and enhanced rewards for those who stayed. In truth, we have been chipping away at one side of this relationship for decades…It’s time to acknowledge that the old equation…is gone. It won’t come back. It can’t be restored, and frankly, that’s probably appropriate given the nature of work today. Here’s the equation I believe will form the basis of trust between corporations and workers for decades ahead: The organization will provide interesting and challenging work. The individual will invest discretionary effort in the task and produce relevant results. When one or both sides of this equation are no longer possible, the relationship will end.”
So what is the root cause? It starts with the executives themselves. Frederick Reichheld, author of Loyalty Rules! argues that loyalty is still the fuel that drives financial success-even, and perhaps especially, in today’s volatile, high-speed economy-but that most organizations are running on empty. Why? Because leaders too often confuse profits with purpose, taking the low road to short-term gains at the expense of employees, customers, and ultimately, investors. In a business environment that thrives on networks of mutually beneficial relationships, Reichheld says, it is the ability to build strong bonds of loyalty-not short-term profits-that has become the “acid test” of leadership.
Employee loyalty depends on the mutual loyalty of employee and employer. In other words, while loyalty must come from employees, it is only generated by companies that show loyalty to its employees. Robert Dacri notedthat “Employers can expect their employees remain loyal-but employers must be loyal to them”. In his article “How to Resolve Employee Conflict”, John Maughan points out that employers often look for the success and profitability of the firm, whereas employees look for a stable and productive workplace with fairness, respect and equality. Both parties need to come to a point of agreement on these differences and identify goals that motivate the other.
Organizations must view employees as an asset rather than an expense. They must provide employees with an opportunity to grow in value to the organization, recognize the importance of the personal needs of employees, help them balance work and family and focus on satisfying the customer or client. In progressive organizations, a new kind of relationship, grounded in mutual trust and respect, is emerging. This new social contract is developed out of realistic expectations on both sides. Paternalism is changing to partnerships. Employees expect to be treated fairly, to delver professionally, and to have meaningful, challenging work. In return, employees owe the organizational their willingness to participate in business growth, ideal development, customer service and organizational transformation.
The workplace has become transactional for the employee. More and more workers are taking the view (and rightfully so) that they are the sole drivers of their own careers. The concept of climbing the corporate ladder leaves too much of that control in the hands of others. In the traditional corporate ladder model, growth (either in skills, leadership or compensation) can be too easily hindered.
S.K. Aityan and T.K.P. Gupta, writing in the Business and Economics Journal conducted a survey which revealed a serious disconnect between the opinions of managers, including executives, and non-management employees on issues of employee loyalty, trust of management, mutual respect between management and non-management employees and other related questions. The survey showed that the majority of employees do not feel loyalty from their employer, do not believe that companies take their interests into account, and do not trust or respect their managers, while most managers positively assessed the situation.
Employee loyalty is often confused with employee turnover rate. This is far from the truth.
Employee turnover rate in governmental organizations is low. Research shows that two-thirds of government employees do not feel committed to their organizations. Increasing employee training and emphasizing ethical conduct among managers and senior management will lead to more employee loyalty. The way the employees are treated translates into how hard they work for the organization. Employee benefits like health insurance and stock options are positively correlated to employee loyalty.
The quality of employees and their loyalty are two important factors that influence the success of the organization over the long term. According to Timothy Keiningham and Larzan Aksoy, disloyalty is a two-way street. When people are being downsized, other people leave too. They become disloyal, but then they would argue that the organization has been disloyal too. No CEO wants to lay off their employees. Cost benefits accrued by layoffs will be far less than the loss of confidence in employees. Prof. Benjamin Schneider at the University of Maryland, has shown conclusively that the employees’ loyalty-related attitude precedes a firm’s financial and market performance.
Olivia Guillon and Cécile Cezanne writing in the Journal of Organizational Change Management, extensively reviewed the literature on employee loyalty and found the economic performance of firms, whatever their sector of activity, is becoming ever more dependent on the participation, commitment, and more generally, loyalty of their employees. Loyalty has become a fundamental concern for organizations, particularly in a context of the economic tensions related to the “psychological contract” between employers and employees.
Reciprocity is a universal component of the moral code that governs human behavior. Yet in today’s work world, reciprocity operates with less force. Indeed, says Stanford Graduate School of Business professor Jeffrey Pfeffer, “Implicit contracts are violated in the corporate world on a daily basis. Workplaces not only fail to acknowledge past employee loyalty and contributions, but they also renege on what has been implicitly or explicitly promised, such as pensions and retiree health care.”
Companies would be wise to build less calculative cultures, says Pfeffer, where there is greater emphasis on morality and ethics, and where the norm of reciprocity still operates. “Research shows that when people believe implicit agreements have been violated, they are more likely to be dissatisfied, less engaged, less committed to work, and less productive,” he says. “There are hard consequences to breaching these norms, and yet we breach them all the time.”
Strategies to Gain or Regain Employee Loyalty
- Know your employee value proposition (EVP) for each role and make sure it aligns with the employees in that role. EVP is inclusive of many pieces, including compensation, rewards, benefits, mentorship, employee brand and the work product itself, among other components. Know the EVP for each position. If you have employees looking for growth and advancement but the position at hand does not really provide that, you will have to either move the employee to another role or understand that you will lose them — and probably sooner rather than later.Identifying those mismatches will allow you to make proactive decisions.
- Make sure that employee reviews include time spent understanding how your employees see their own careers developing. Understanding where an employee wants be career-wise will help you make better decisions. Not every employee has a clear career path in mind, and some have high expectations but not a clear road map. By sitting down and understanding where an employee expects to go, you have the ability help co-pilot the journey. Obviously not all goals can met, but realistic expectations should be embraced, even if it means mentoring an employee knowing they are going to be leaving when the right position becomes available to them. The fact that you take an interest and help them grow may prolong their length of engagement with your organization or even create a boomerang opportunity down the line.
- Know upfront that three years is long-term planning for your employees, and preparing accordingly is imperative. If you can’t see where your employee will be in three years within your organization, assume they will be working for someone else. Creating a succession plan, even for lower-tiered positions, will help avoid crisis when the inevitable happens. In a perfect world, you would always have employees who are ready to move up the ladder of success within your own organization. But since we do not live in a perfect world, you should be constantly evaluating who you are most at risk of losing.
- Offer more than just a job: Employees who view their current job as part of a rewarding career path with their employer are naturally more motivated in their work. They are also more likely to view necessary but tedious parts of the job in the context of the bigger picture.
- Empower employees: Providing a channel for employees to communicate ideas and influence company practices gives them a stake in the business’ success and promotes team spirit.
- Invest in training and development: If you invest in your employees, they are more likely to invest in your company. They’ll also have a better understanding of your organization’s business goals and practices, which can likely translate toimproved performance. This is particularly relevant to millennial employees.
- Recognize and reward often: Employees appreciate positive feedback and tend to be more productive after receiving it. Additionally, a productive employee tends to inspire and motivate co-workers by example. The annual performance review has been shown to be ineffective both in motivation and performance improvement.
- Build a cooperative corporate culture. Research shows a cooperative, rather than competitive culture improves performance.
- Create an engaging workplace: Cutting-edge employers offer their employees an environment as steeped in fun and creative energy as it is productive. The cubicle farms and library-like atmosphere that once dominated large organizations have been replaced with TVs, dart boards, high-technology gadgets, nap rooms and communal workspaces. It may seem unproductive and distracting to some employers, but highly competitive and creative organizations try to create a high-energy, high-output workspace.
- Provide independence and more autonomy to employees: This has been shown to have a positive beneficial effect on employee motivation and performance.
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