Today’s employers need to make more of an effort to keep workers engaged and satisfied
Walter Orthmann has worked for the same textile manufacturer in Brazil for more than 84 years, setting the Guinness World Record for longest career at a single company.
It’s a remarkable stretch, considering American workers now spend a median of 4.1 years with their employers, according to federal data collected just before the Covid-19 pandemic disrupted a spectrum of industries and spurred the so-called Great Resignation.
The record high quit rate — more than 40 million last year — has led to the tightest U.S. labor market in decades with employees using that leverage to call the shots and find better jobs. They’re renegotiating everything, from their salaries and shifts to remote or hybrid work and forcing employers to be more flexible.
The modern workplace has become increasingly transactional, a marked transformation from the post-war era when employees stayed put until they retired with a party, a gold watch, and a good pension. The dramatic change begs the question: Whatever happened to workplace loyalty?
“The balance of power continues to shift backwards and forwards. Sometimes the employer doesn’t need to make such an effort. They need to make that effort now,” Wharton management professor Matthew Bidwell says.
Janice Bellace, a Wharton professor of legal studies and business ethics, thinks loyalty is an outmoded concept. Instead, companies should be making sure that employees “feel engaged and well treated.”
“Loyalty implies something more about the relationship” being reciprocal, she says. “If you’re at a company and feel productive and properly treated, you may still go to another company if they pay you 20% more. But if people feel very engaged and well treated, they not only will feel productive, they will want to stay.”
The high cost of turnover
The lack of longevity in the workplace may feel like a recent trend, but it goes back at least two generations to the 1970s. Manufacturing was on the decline, the oil crisis sparked a recession, and high inflation followed. Companies were looking to cut costs, so perks like holiday parties and access to the company golf course — little extras that gave employees a sense of belonging — began to disappear. By the 1980s, globalization and foreign competition, especially from Japan, threatened American economic dominance. Factories shut down without notice, layoffs were common, and attrition was an easy way for firms to stay in the black.
“All of this made people much more cynical about the company, and they really did see it as transactional: I work for you to get paid. That’s it. There is no relationship,” Bellace says.
In the 1990s, a fresh wave of downsizing eroded any remaining feelings of loyalty because it was often done to increase profits rather than save the enterprise, Bidwell says.
“This was not, ‘We’re losing money, so we have to let people go.’ This was, ‘We’re doing fine, but we’re able to make more money by letting people go,’” he says. “That was a change in the contract. Before that, there was a sense that the contract was much more paternalistic.”
Bellace traces workplace loyalty along a decades-long timeline, with the employee-employer relationship slowly withering into the present. Along the way, employers came up with new terms to revive the dying relationship, like referring to employees as associates, team members, or even family.
“It’s very odd. What family would then terminate you?” she says.
Over time, job-hopping became normalized and even expected. Yet it’s still harmful for employers, according to the professors. There is enormous cost associated with turnover. Recruiting and training employees is expensive, time-consuming, and usually yields lost productivity as new hires make mistakes and get up to speed.
“What most companies tend to overlook is that there is a cost to employee turnover that they don’t put on their spreadsheet — experience and institutional knowledge,” Bellace says. “If a new person doesn’t know how you do something in the company, they have to use time to find out. How do you calculate that?”
Restaurants, retailers and other companies that rely on low-skilled workers have tried to mitigate turnover by “de-skilling” their jobs as much as possible with automation, Bidwell says. But that’s still not enough to offset the money saved by retaining an experienced employee. Perhaps that’s why so many stores and restaurants are trying to lure new workers with offers of $10 to $15 an hour — significantly higher than the current federal minimum wage of $7.25.
“They are starting to understand it makes sense to pay a bit more and have people stay longer, compared to a world where you pay people as little as you can get away with, but you reap higher costs somewhere else in your system,” Bidwell says.
Numerous studies have been conducted on the cost of turnover, and the figures vary widely based on position and industry. That variation contributes to the complacency that many companies have when it comes to retention.
“It’s super easy to see the cost of raising wages by a dollar. It’s very hard to calculate the cost of attrition,” Bidwell says. “It’s hard to measure, and we tend to focus on the easily measurable things.”
Besides money, there’s also the matter of organizational citizenship. Businesses are better off when their workers are emotionally invested.
“If everybody is purely out for themselves and just doing the bare minimum, nothing will get done,” Bidwell says. “Organizations need people who want to look out for the organization’s interests and want to do the right thing.”
The pandemic’s effect on loyalty
The Covid-19 pandemic has had a curious effect on the emotional component of workforce loyalty, particularly for office employees. The massive shift to remote work has prompted people to rethink their priorities. For many, that has meant changing careers.
Bellace isn’t surprised by what some have dubbed “the Great Rethink.” Working from home may be convenient, she says, but it strips away the social contact that fosters “good and fuzzy feelings” about going to the office.
“You chit-chat over morning coffee, someone comes in with a birthday cake, there’s a baby shower because someone’s having a baby,” she says. “All those things that would build up a relationship in a workgroup have been missing the past two years. So, I think it’s more likely right now that if somebody sees they can make significantly more money at another company, they’ll just up and quit.”
With workers leaving their positions in droves, employers are on the losing side of the currently tight labor market. Bellace cites figures that show the labor force participation rate is down 1% to 2% compared with before the pandemic.
“That may not seem like a lot, but it is,” she says.
But the labor market is cyclical, and both Bellace and Bidwell don’t expect this situation to last. They also don’t expect a resurgence in workplace loyalty. Orthmann, the Brazilian textile worker who celebrated his 100th birthday last month with his co-workers, could be the last record-holder of his kind.
“It’s always a moving target. It’s a calculative loyalty,” Bidwell says. “As long as I believe I will do OK, I’ll stay with you. But when the trust is gone, people are going to leave. That’s always been the case. I don’t see a big change to that.”
Republished with permission from [email protected], the online research and business analysis journal of the Wharton School of the University of Pennsylvania based in Philadelphia.