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Angie Basiouny

Management

Is Workplace Loyalty Gone for Good?

The postwar days of lifers, gold watches, and pensions are past and gone

Published: Tuesday, July 12, 2022 - 11:03

Walter Orthmann has worked for the same textile manufacturer in Brazil for more than 84 years, setting the Guinness World Record last month 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 postwar 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 said.

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 said. “If you’re at a company and feel productive and properly treated, you may still go to another company if they pay you 20 percent 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.

“It’s super easy to see the cost of raising wages by a dollar. It’s very hard to calculate the cost of attrition.”— Matthew Bidwell

“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 said.

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 said.

“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 said. “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 said.

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 said. “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 said. 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 said.

“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.”— Janice Bellace

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 said. “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 said. “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 said, 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 said. “All those things that would build up a relationship in a work group 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 cited figures that show the labor force participation rate is down 1 percent to 2 percent compared with before the pandemic.

“That may not seem like a lot, but it is,” she said.

But the labor market is cyclical, and neither Bellace nor Bidwell 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 said. “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.”

First published May 31, 2022, on Knowledge at Wharton.

 

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About The Author

Angie Basiouny’s picture

Angie Basiouny

Angie Basiouny is a freelance editor and writer based in Atlanta.

Comments

Orgs using Deming have minimal turnover - even now!

This is a great article! I love the points about finding other ways to engage employees, and how "transactional" employee/employer relationships are contributing to the turnover problem. I would like to offer a path forward for employers struggling with turnover. The Deming philosophy is all about treating workers with respect, engaging everyone in the work collaboratively, and making sure everyone is pulling in the same direction. Success, pride, and joy in work are byproducts of using Deming theories and tools - all of which bolster employee loyalty. It even works in all-remote offices, where you miss out on the usual bonding experiences.

The high cost of turnover, often driven by fear and competition at work, is one of the "unknown and unknowable" figures that Dr. Deming listed as important and manageable. If you're interested there are lots of free resources at www.deming.org. 

Another reason why there are high attrition rates

There is another reason why there are high attrition rates.  In a new world where people have been greatly encouraged to vent any displeaser, this has increased the vitriole on the service industry.  Many are just tired of the verbal and at some times physical abuse that has been dumped on them during the pandemic. They have decided that enough is enough and have left the industry for other better paying jobs with hopefully benefits.  The "kinder and gentler" voice has been drowned out by the "my way or highway' of new business models and general outlook. 

Great point!

Evelyn - that's a great point about the service industry. Managers/owners who don't focus on quality services (bringing down the number of irate customers) and backing up/shielding their staff from abuse are pushing folks out of their business, if not their industry. The Great Resignation (or Great Reshuffling) has laid bare how bad the working conditions are in so many "customer service" type jobs. Places that used to pay minimum wage are now offering hiring bonuses, higher starting wages, and other incentives, but the fact is they'll never be able to hold on to employees if they don't do something to change the working conditions. 

Employers Know What They Need To Do...

.... They just don't want to do it (to increase retention).  The senior leaders of most Orgs are very smart people. But they simply don't care enough. Why should they? From their perspective the monetary loss of high turnover can't be well quantified, so what loss is really there? It's not easily reportable so it doesn't affect the perceived bottom line, regardless of the hidden cost.  I actually think it's pointless to even argue the value of people; that should be indisputable but that's not how people are treated, everybody knows this and the sooner we all just accept it and move on the better.  Especially in a hyper-competitive global economic environment. Companies do what they do best. Make their balance sheets look good. Unfortunately layoffs are a big part of that. If you want to keep people it's easy. You just treat them like one of your own. Easy to understand even for the emotionally maladept. Not easy to execute on. If profit is your God, why would you care enough to treat your employees like that?