Employee Loyalty is Declining

MetLife’s 10th Annual Survey of Employee Benefits, Trends and Attitudes released in March puts employee loyalty at a seven-year low.  According to the survey, one in three employees  plans to leave his or her job by the end of the year.

A 2011 Careerbuilder.com report shows 76% of full-time workers would leave their current workplace if the right opportunity came along. Other studies show that the average company loses from 20% to 50% of its employee base each year.

Causes of Employee Disloyalty

Among the reasons cited for this:
  • The recession, during which companies laid off huge swaths of their employees with little regard for loyalty or length of service.
  • Whittling away of benefitstraining and promotions for those who remain.
  • Career expectations of Millennials (ages 15 to 30), including the need to “be their own brand,” wherever it takes them.

Wharton management professor Adam Cobb says the core reason is inequity.  As the Occupy Wall Street movement has shown, growing economic inequality is one of the most damaging economic trends of our time.

“When you are talking about loyalty in the workplace, you have to think about it as a reciprocal exchange,” says Cobb. But there is one party in that exchange which has tremendously more power, and that is the firm.”

Employee behavior, Cobb says, has been influenced by the dramatic organizational restructuring that began 30 years ago. He points out that in the 1980s, even healthy firms began laying off workers, mainly for shareholder value.  He also notes cuts in employee benefits:

“You would also see cuts in employee benefits — 401(k)s instead of defined benefit pensions, and health care costs being pushed on to employees. The trend was toward having the risks be borne by workers instead of firms. If I’m an employee, that’s a signal to me that I’m not going to let firms control my career.”

Peter Cappelli, director of Wharton’s Center for Human Resources and  author of the forthcoming book, Why Good People Can’t Get Jobs: The Skills Gap and What Companies Can Do About It, says that employers’ attitude toward their employees has changed.  Employers see employees as short-term resources and  as employees see their careers operating across many employers, they no longer focus their attention solely on the ones they work for now.

What Makes Employees Loyal?

Loyalty is to Individuals, Not Institutions: Wharton management professor Matthew Bidwell points out that  employee loyalty has two parts: 1. having the employer’s best interests at heart; 2. remaining with the same employer rather than moving on (which management experts describe as “organizational commitment.”)  Bidwell questions how much loyalty people feel to their organizations in general. Rather, loyalty is to individuals with and for whom one works.

“Employees are often more loyal to those around them — their manager, colleagues, maybe their clients. These employees have a sense of professionalism, and loyalty, that relates to the work they do more than to the company.”

Bidwell’s research comparing independent contractors to full-time employees supports this. While you might expect independent contractors to have an “arm’s length, less-committed relationship” with company managers compared to full-time staff, “when I talk to managers, they often suggest there really isn’t much difference between the contractors and the company employees.”

The Engagement Level Factor Hasn’t Changed Much Over Time: A Gallup poll first initiated in 2000 to measure employee engagement divided workers into three parts: “engaged” employees who are “emotionally attached to their workplaces and motivated to be productive,” “not engaged” employees who are “emotionally detached and unlikely to be self-motivated,” and “actively disengaged” employees who “view their workplaces negatively and are liable to spread that negativity to others.”  The poll indicated that the results in 2010 were not substantially different from previous years. As he sees it, not much Harter sees it, “not much has changed in terms of people’s everyday experience at work.”

  •  28% of employees were engaged.
  • 53% were not engaged.
  •  19% were actively disengaged.

A Gallup report titled “State of the American Workplace: 2008-2010” which addresses issues including productivity, quality of relationships with coworkers and managers, and employee alignment with the organization’s overall mission, concludes: “Despite the workplace stresses accompanying the most severe recession in decades, American employees’ average level of emotional engagement with their jobs did not drop significantly.”

Manager Relationship is a Key Factor in Employee Loyalty: Harter says that loyalty, which can be considered a component of employee engagement, is based on a number of factors, including whether the employer “looks out for employees’ best interests, pays attention to their career path, gives them opportunities to improve their well-being and so forth.” A survey done several years ago that analyzed all the reasons people stay with or leave an organization shows the following:

“If you’re looking for a silver bullet, it is the quality of the relationship between an employee and his or her manager that determines the overall level of employee engagement. Good companies develop a growing list of great managers over time…. It’s local level teams and how they are connected together by leaders and managers” that have the most impact.

Harter adds that in recession, “the need to be connected — to a manager, a co-worker and/or a purpose, and also the need to be recognized” remains constant. While people’s perceptions of their living standards dropped, that same drop was not evident in workplaces where employees said they have “someone who encourages their development. “Having a mentor, or someone in your life who helps you see the future in the midst of chaos can make a difference.”

Fairness Matters: Wharton marketing professor Deborah Small cites a body of research on what is called “procedural fairness,” indicating that much of what employees feel about an organization “is not the outcomes they get, but the processes. If people feel like processes are handled fairly in the organization, even if they don’t get the best for themselves,” that would tend to encourage loyalty.

Financial Incentives Do Not Always Encourage Loyalty:  Incentives, including stock options, restricted stock and pensions are ways that companies try to retain valued employees. But Wharton accounting professor Wayne Guay points out that while there is evidence that financial devices that require vesting do result in lower turnover, it doesn’t suggest an implicit bonding between an employer and employee. And defined benefit pension plans have largely been replaced by 401(k)s, which require employees to bear investment risk and are portable, so employees can take these vehicles with them when they leave the company.

Stock and stock options can motivate executives to stay and work hard and go beyond the minimum requirements, because they can see how their own actions affect the firms’ stock price and overall performance, but there is usually less of a direct link between employee actions  and overall performance further down the line.

Benefits Can Boost Employee Loyalty

MetLife’s 9th Annual Survey of Employee Benefits Trends shows that a well-designed employee benefits package can help restore loyalty, drive employee engagement and encourage workers to stay on the job. It shows that employees who are satisfied with their benefits are the most loyal. Here are some evocative findings:

  • 71% of employees who are satisfied with their benefits report being very loyal to their employers.
  • Retirement and nonmedical benefits including life, dental and disability insurance are shown to be major drivers of employee loyalty, yet only about 37% of employers recognize this.
  • Employers should be careful not to overlook the value of voluntary benefits options, especially for young workers. Some 40% percent of  Generation Y and X employees report that a choice of benefits that meets their needs is extremely important for creating loyalty.

The study finds that flexibility and effective communications are key given the increasingly diverse workforce. Generational differences, for example, account for differing attitudes toward benefits. The study reveals four very different perspectives:

  • Older Baby Boomers (ages 55-65) are financially unprepared for retirement.
  • Younger Baby Boomers (ages 45-54) are frustrated with their prospects for retirement and could be a threat to workplace productivity.
  • Generation X workers (ages 30-45) are the least satisfied with their benefits.
  • Generation Y workers (ages 21-29) are anxious to leave.

The report concludes that “a one-size-fits-all benefits package is a thing of the past…Instead, employers should consider choice, flexibility and customization to engage an increasingly diverse workforce.”

Snap! principle of the importance of benefits to employee loyalty:

Benefits are one of the key drivers of employee satisfaction.

Related Articles:

Communicating Recognition Can Close the Workplace Generational Gap,SHRM Online Benefits Discipline, March 2011

Cutting Costs with Voluntary Benefits: A Small Business SolutionSHRM Online Benefits Discipline, December 2010

3 Cash-Free Ways to Motivate Employees , Fiscal Times, February, 2012