Report: Loyalty Is Built on Communication, Not Compensation

By Rebecca R. Hastings, SPHR Apr 1, 2008

Money isn’t the primary driver of employee loyalty and retention, recent studies suggest.

Open communication, employee recognition and involvement in decision-making top the list, according to the 2008 Management Action Programs Inc. (MAP) Quarterly CEO Survey, conducted by Vantage Research.

“This latest MAP survey shows that the number-one business practice—‘open communication between management and employees’—was mentioned nearly twice as frequently as ‘receiving raises,’ ” said Allan Hauptfeld, principal of Vantage Research & Consulting in Valencia, Calif., in a press release. “Clearly, a work environment where employees are recognized as part of the team is more valuable than simply receiving a paycheck.”

Savvy business leaders realize the enormous value of motivating employees in non-monetary ways, according to Lee Froschheiser, president and CEO of MAP, a business-consulting firm.

“Sure, financial reward is important, but the CEOs we interviewed are choosing to motivate first through other key fundamental strategies,” Froschheiser said. “For example, creating a workplace culture that recognizes employees for their professional contribution helps keep ‘A’ players from jumping ship.

“Clearly communicating the company’s vision and mission, as well as making employees feel they’re playing an important role in the business’ overall success, are among these CEO’s top employee-retention strategies,” Froschheiser added.

Communication Pays Off

But regular communication isn’t just a feel-good strategy to keep employees happy. It might also pay off in measurable business results, another recent study suggests.

Companies with the most effective communication programs had a 47 percent higher total return to shareholders from 2002 to 2006, compared with companies that communicate least effectively, according to the 2007/2008 Communication ROI Study by Watson Wyatt, a global consulting firm.

Moreover, those companies are four times as likely to report high levels of employee engagement as companies that communicate least effectively.

According to the report, more companies are communicating directly with employees on how their actions affect the customer. The percentage of companies providing such feedback consistently increased from 21 percent in 2003 to 39 percent in 2007.

Less than one in five respondents let employees contribute to decisions that affect them. However, companies described as top financial performers are 10 times more likely to invite such employee feedback.

The study identified six practices of high-performing companies:

  • Focusing managers and other employees on customer needs.
  • Engaging employees in running the business.
  • Helping managers communicate effectively.
  • Leveraging the talents of internal communicators to manage change effectively.
  • Measuring the impact of employee communication.
  • Branding the employee experience

“Top-performing companies treat communication as a key business driver,” said Kathryn Yates, global director of communication consulting at Watson Wyatt, in a press release. “They use communication to educate managers and engage employees in the business by providing line of sight to customers’ needs and business goals.

“Effective communication programs address the whole gamut of employers’ relationships with employees, and help engage and motivate workers,” Yates said. “This is not just a ‘feel-good’ exercise. Companies that communicate effectively with employees have an engaged workforce and superior financial results.”

Don’t Just Talk to Employees, Thank Them

A UK-based study, conducted by London-based leadership coaching firm White Water Strategies, found that two-thirds of workers feel undervalued by not hearing the words “thank you” often enough. Seventy-two percent of respondents believe it is very important to be acknowledged in the workplace but only a quarter of workers believe they receive enough praise.

The result, according to psychologist Averil Leimon, director of White Water Strategies, is that employees are less productive and more likely to look for another job.

“It is not a question of being nice—saying ‘thank you’ fundamentally affects the bottom line,” Leimon said in a press release. “Our analysis shows that acknowledging staff achievements properly has the equivalent perceived value of a 1 percent pay rise.

“Typically, only one in seven employees is engaged in their job,” Leimon added. “Address this and businesses will see lower staff turnover, people working harder, productivity increasing and sickness miraculously reducing.”

Leimon suggests that the return on investment of a few “thank yous” is clear. “It is well known that the real cost of replacing someone is nearly 50 percent of their salary,” she said. “Compare this to the minimal time it takes to make an employee feel valued, and you soon realize that by learning to say ‘thank you’ this country could save billions a year.”

The White Water research, conducted by TNS in January 2008, covered 1,007 UK-based respondents of working age.

Rebecca R. Hastings, SPHR, is editor/manager of SHRM’s Employee Relations Focus Area.


Job Finder

Find an HR Job Near You
Post a Job


Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 10,000 companies

Search & Connect