Article

LS International 21 September 2020

Nurture Employee Loyalty to Create a Competitive Edge

For business organizations seeking profitable and sustainable growth, loyal employees who consistently deliver top-notch performance are just as important as loyal customers. Indeed, it can be argued that they are even more important because they are the ones who keep the business focused on customers through continuous innovation, superior design, and manufacturing, high standards of production quality, service delivery, delivering improved customer experience etc.

In their 1994 HBR article titled “Putting the Service-Profit Chain to Work” (republished in 2008 as an HBR Classic), James Heskett and his four co-authors wrote: “Profit and growth are stimulated primarily by customer loyalty. Loyalty is a direct result of customer satisfaction. Satisfaction is largely influenced by the value of services provided to customers. Value is created by satisfied, loyal, and productive employees. Employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers.” source

Although many aspects of how businesses operate have changed in the last 25 years, it is fair to say that employee loyalty remains a key determinant of sustained organizational success. It is also quite clear that not all organizations are equally adept at retaining employees who consistently deliver top performance. What differentiates the ability of organizations on this important dimension? Just as all ingredients must be good in order to make a tasty dish, I believe that an organization’s ability to nurture loyalty in its employees depends on how well it does multiple things. Here’s my take on what I believe to be the more important ones.

The starting point is to hire the right people. By “right” I do not just mean those who possess the skill sets or experience; it is as critical for them to be excited by your organization’s purpose and vision. Such people are inspired by the big picture and thus motivated to do their bit to get the organization moving in the desired direction. Working with friends and people with similar attitudes and interests is generally easier and increases the chances of better outcomes. There is admittedly some debate around the benefits of referral programs. But instead of rewarding the referring employee with a direct monetary payout, why not consider alternatives? For example, the company contributing to a charity of the employee’s choice, or paying for a hobby class or buying tickets to a game or concert where the employee can take his family.

Once an employee is hired, his/her managers must ensure that they are enabled with the necessary information and tools to perform their roles effectively. This must begin with effective onboarding. Although “virtual onboarding” is becoming common these days, I have noted that in a growing number of instances, both the candidate and the hiring manager end up feeling that the process was not effective. They both feel an absence of personal connection that impedes both sides getting to know one another- and managers must work on this, as the onboarding process represents the first steps in the employee’s journey with your organization.

An important next step is setting the right goals (“SMART”) and giving timely feedback in the right way. Doing so allows managers to shape behavioral changes and make course corrections more easily. In turn, this keeps employee motivation high and maintain focus on the agreed goals.

Perhaps the most important aspect of nurturing loyalty is to make employees feel valued. This need applies as much to old employees as it does to new hires or those who are promoted to new roles. It would be naïve to expect that all employees can or will acquire and hone specific capabilities and competencies on the job. Even if they do make an attempt to do so, the pace may be slow. Also, depending on who they learn from, they may also pick up biases and pre-conceived notions that could impede performance. Therefore, it is important for line managers to work collaboratively with employees and Learning & Development (L&D) experts to identify training needs and ensure that employees are afforded the best skill development opportunities. Champion managers consciously take the important step of working with their team members to track and monitor how they apply what they have learned to their jobs. The loop is closed by embedding the higher performance expectations following training into future goals.

When managers take a genuine interest in the well-being and personal/professional growth of their team members, employees notice. The employees’ sense of gratitude triggers both motivation (the desire to perform better) and loyalty (the willingness to stay longer in the organization). Mentoring colleagues is a great way of contributing to their growth. To give your people the opportunity to experience the diversity of managerial styles and ways of working, I would suggest mentoring members from other teams (your peers’ direct reports, for example). This is a great way to promote cross-pollination of good practices. Mentoring benefits all executives and boosts their chances of being more effective in their roles and hence, promoted. Mentoring women executives gives your organization an additional benefit of achieving diversity goals. You can learn more about LS International’s track record in enhancing the promotability of female executives. 

Fair compensation for every role (and equity with existing employees) are obviously important determinants of employee loyalty; after all, nobody wants to be exploited, or feel that they are being taken advantage of. But savvy organizations know that compensation is a necessary but not sufficient condition to foster employee loyalty. Instead of making employees wait for their year-end bonus, smart managers and leaders institute more frequent rewards (e.g. MVP of the month or quarter). Even if the monetary value of these rewards is not very high, the emotional value employees attach to such rewards can be high, especially if these are positioned as aspirational and winners are recognized and publicized within the organization through newsletter write-ups or emails.

Timely promotions are widely seen as rewards for performance. Of course, they ought to be subject to fair and objective assessment of the individual’s suitability for the next role in terms of skill levels, emotional intelligence, personal values, ethics etc. Assuming that an individual is cleared for a promotion, organizations can combine promotions with external publicity as an even more potent means of nourishing employee loyalty. Especially at senior levels (e.g. VP and higher), the in-house PR team (or external agency) can be leveraged to secure media coverage of the promotion- in the form of say, interviews in print/electronic media. Such coverage not only gives the company/brand visibility but also affords the executive an opportunity to build his/her personal brand.

Most of what I have listed above- e.g. onboarding, goal-setting, training, and promotions are discrete events that cannot take place frequently. But fostering loyalty is a continuous process. That’s why managers must, at all times, be able to exhibit empathy and kindness towards team members. Respect is another critical aspect of building loyalty. This manifests in many forms, but one that is often easily missed out is inviting everyone’s opinion and input before making important decisions that impact the whole team. This can easily happen in virtual meetings, so managers must be extra conscious. Managers must also close the loop with employees with regard to why their suggestions were not considered. To paraphrase American poet and civil rights activist Maya Angelou, “People will forget what you did or said, but they will never forget how you made them feel”.

The above-mentioned actions become even more important given the pandemic and the likely post-pandemic environment, where exigencies may arise at any time for any member of the team. Whether the situation is caused by a dodgy internet connection or something far more serious such as a medical emergency in the family, managers must show compassion and understanding for the employee. As Sheryl Sandberg said, “When companies offer support and assistance for personal and family hardships, their employees become more loyal and more productive”.

When managers do not consistently behave or act as outlined in the preceding paragraphs, it is easy for employees to assume that the organization does not really care for them. Even if the assumption is incorrect, perception is reality. To me, the essence of building employee loyalty is pithily captured in Sir Richard Branson’s wise words: “Train people well enough so they can leave. Treat them well enough so they don’t want to”.

PS: Employee loyalty is not just a “feel good” factor. It has tangible implications for business performance because the statistics are stark. At any given time, more than 55% of employees are believed to be looking for a new job. Hiring a replacement can cost 20% of the annual salary; at senior levels, this can be quite substantial. source