Paul Holmes 07 May 2005 // 11:00PM GMT
Employee morale pays off in terms of a higher share price, according to research conducted by human resource specialist Sirota Consulting for a new book, The Enthusiastic Employee: How Companies Profit By Giving Workers What They Want, by David Sirota, Louis Mischkind, and Michael Meltzer.
The stock prices of companies with high morale outperformed similar companies in the same industries by more than 2.5 to 1 during 2004, and the stock prices of companies with low morale lagged behind their industry competitors by almost 5 to 1.
The study focused on 28 publicly traded companies with a total of more than 920,000 employees where morale was surveyed by Sirota Consulting, over the last 4 years. The stock prices of these
28 companies were compared to the industry average stock prices for more than 6,000 other companies in the same industries.
The stock prices of the 14 high morale companies increased an average of 16 percent in 2004, while those of other companies in the same industries increased by an average 6 percent. The stock prices of the six low morale companies increased an average of a little more than 3 percent in 2004, while the stock prices of others in their industries climbed by an average of almost 16 percent.
An earlier study, also reported in The Enthusiastic Employee, showed the same strong trends, using 2002 stock market results and survey data. For example, in that down year for the stock market, the high morale companies showed a small increase in stock market performance (+1.80 percent), while their comparison companies declined by 18.23 percent.
Says Sirota, “Morale is a direct consequence of being treated well by a company, and employees return the ‘gift’ of good treatment with higher productivity and work quality, lower turnover (which reduces recruiting and training costs), a decrease in workers shirking their duties, and a superior pool of job applicants. These gains translate directly into higher company profitability.”
High-morale companies provide the three main things that matter most to employees: fair treatment; a sense of achievement in their work and pride in their employer; and good, productive relationships with fellow employees.
“High-morale companies reasonably satisfy all three goals,” said Sirota. “Employees who work for companies where just one of these three factors is missing are three times less enthusiastic than workers at companies where all elements are present, and are correspondingly less productive.”
The results are then felt throughout the value chain.
“Satisfied employees lead to satisfied customers, which results in higher sales. Satisfied customers and higher sales, in turn, result in more satisfied employees who can enjoy the sense of achievement and the material benefits that come from working for a successful company. It’s a virtuous circle,” says Sirota.
Yet too many companies continue to treat employees as disposable parts, easily replaced.
“At most companies, management unwittingly de-motivates its employees by treating them as disposable as paper clips. At the first sign of business difficulty, employees—supposedly a company’s most important asset—become expendable.”
Employers continue to buy into myths about workers. These myths include:
• Employees will never be happy with their pay. On the average, 40 percent of workers rate their pay as “good” or “very good,” 23 percent rate it as “poor” or “very poor,” and the rest (37 percent) rate their pay as middling.
• Employees object to the large difference between their earnings and those of senior management. Workers are upset by this discrepancy only when a company that is doing poorly financially demands wage and job cuts from most employees, while upper management remains unaffected. Employees at superior-performing companies don’t complain about upper management’s high salaries when most workers are also benefiting.
• Complimenting employees on a job well done goes to their heads and increases their demands for more money. Recognition by management is one of the most powerful motivators of continued good performance and high morale. It is the lack of recognition that depresses most people’s natural desire to want to do a good job.
• Companies that have no hesitation laying off workers perform better than those that go to great lengths to keep their workers employed. “Research shows that downsizing companies outperformed the S&P only slightly during the six months following news of a restructuring, and then lagged badly, netting a negative 24 percent by the end of three years. The theory of keeping a company ‘lean and mean,’ then, may really only be making it mean,” says Sirota.
• Most employees are lazy and need to be controlled. The authors’ research shows that the overwhelming majority of employees are industrious, want to do a good job, and derive satisfaction from their work.
• Most employees resist change, whatever it is. Employees resist changes that they see as harmful to themselves or their organizations, such as speeding up the pace, which hurts work quality. However, they gladly welcome changes they see as helpful, such as new equipment that helps them do their jobs better. Employees are also resistant to changes that management secretly develops without their input and springs on them at the last minute.
“Instead of continuing to perpetrate these myths, management policies need to be directed toward satisfying the three primary goals that matter most to all employees,” says Sirota. “These are: equity, or to be treated fairly; achievement, or to be proud of one’s job and company; and camaraderie, or to have good, productive relationships with fellow employees.”