Is Employee Loyalty Important?
High-value employees are a major assets for a strong company. Losing a high contributing team member could leave a void and impact the team’s morale and workflow. Investors are also concerned by high turnover rates, especially amongst the senior executives. Groupon had trouble retaining their senior executives, which contributed to an 85% drop in their value a year after going public. It’s clear we want to retain high-valued employees, but is employee loyalty the way to achieve retention?
I read an article on LinkedIn which shared some interesting perspective:
If companies are going to excel, they need two things: Loyal Employees and Loyal Customers. The link between employee satisfaction and productivity is long-established. Research has found that happy workers are 12% more productive than their less satisfied counterparts. Loyal employees = Loyal customers.
I don’t totally agree that companies should treat employees like they do customers. For many people, their career gives them a purpose and is a part of their identity. Pepsi drinkers don’t identify themselves as a “drinker of Pepsi”. Further, many people find fulfillment and personal growth through their jobs. Their jobs are an essential part of their lives.
There are a few reasons I believe that employee loyalty is not totally achievable or desirable.
What is Loyalty
Loyalty implies having someone who would stay with the company for a long time until retirement out of faith and allegiance, a sentiment that doesn’t seem to align with the principles of a market economy. In a job market, which is guided by the principles of supply and demand, companies compete for talents and the one that offers the best compensation for the talent wins. Compensation means different things to different people and evolves over time as younger generations with different values and needs enter the work place. Employees with high-in-demand skills are more likely to leave the company to work at another with a better compensation package and company culture and mission. If every company strives for employee loyalty and succeeds, it removes talent from the job market, which would drive up the cost of hiring a new talent who’s less qualified for the job to replace someone who’s retiring.
Everyone Leaves Eventually
The notion that employees are motivated by carrots and sticks may have some basis in the industrial age when everyone works in a factory, the driver of today’s economy is an educated, self-motivated, and creative workforce who are not motivated by carrots and sticks. Even if someone is loyal to the company, it doesn’t mean they won’t leave. Everyone leaves eventually either taking on to other opportunities, trying out something new in their lives, or going into retirement. Also employee loyalty detrimental to the employees because loyalty is underpinned by faith, which instills the false belief that the employer is watching out for their interest and they can count on a stable job. In this age of globalism, rapid innovation, and automation, your job could be gone the next few years due to forces outside of your, your manager’s, or even company’s control. Entire industries can be made obsolete in a decade. Look at what’s happening to the coal miners and workers at coal power plants who were counting on that being their forever job and now only coming to the realization that they need to learn a different skill to make a living.
Mitigate Effects of Turnover
Retention is a noble goal but is subject to market forces outside of the company’s control. As such, companies should put emphasis on redesigning their business models, internal processes, and hiring philosophies to withstand and even thrive with a high turnover workforce. The most profitable and innovative companies in the world have stopped fighting people from leaving the company and have embraced that this is the reality today and probably for the best because freedom of mobility, flexibility, and change are important drivers of human happiness and growth. Having a high turnover rate could be beneficial because new people bring new ideas and challenge the status quo.
It’s unfortunate that some jobs consist of almost entirely maintaining the status quo (work on legacy systems), making slow and incremental improvements over a long period of time, and rely on antiquated processes and tribal knowledge. You are going to have to figure out how to still function after losing those “village elders” due to retirements. But you don’t see many of these companies around in the private sector. They are still prevalent in the public sector but I think people who voluntarily work in the public sector - many are coerced but that’s a different story - work there for a different reason than personal enjoyment, purpose, and growth so they probably won’t just quit over an argument with a manager.
Generational Expectation Gap
There’s this saying: the grass is always greener on the other side. In this information age, it’s hard to ignore or be oblivious to the fact that the grass on the other side is indeed greener. We are bombarded by ads about tools and resources that can help us get over to the greener side. Digital natives (millennials) are always tuned into how green the grass on the other is and are bombarded with ads about resources that help them get on the other side through social media.
When baby boomers, who have spent their entire adulthood going up the ranks in a company to reach senior management positions, decide company policy for retention, they shouldn’t make decisions based on the presumption that employee loyalty equals retention. Although job stability is what they were raised to value by their silent generation parents (a generation who grew up in turmoil and loss), they shouldn’t assume that the youngest generation (the millennial) also feel that job stability is of the utmost importance and that an increasing income and going up the ranks translate to personal and professional growth. When making decisions about retaining the millennial generation, they should consider other points of view and the life decision-making framework used by younger generations - a framework focused on fulfillment, flexibility, and growth.
Instead of focusing on building employee loyalty, we should be focusing on these goals:
- Employee happiness - If they are happy, they are more likely to stick around. Word will get out that your company is a fun place to work and you will see more top talent applying to work at your company.
- Resiliency - Your company needs to be able to deal with loss of talent and prepare for these contingencies. It’s unlikely you’ll survive after a mass exodus of all your talent but losing one or two really experienced people should not put you out of business.