Though rarely stated in such blunt terms, one of the big questions for a small business is, “how well should we treat our employees?” This is particularly true in an age where many of the non-industrial big boys are starting a new trend of increased benefits. The tech industry is famous for benefits packages in the way that airlines and auto-manufacturing used to have. Unfortunately, it seems many of the companies most famous for fair treatment are precisely those that can afford to treat employees well. The benefits to providing quality benefits include employee retention, the as-yet-unquantified benefits of better employee performance and even potentially customer loyalty. In many ways the question appears to more realistically lie along the lines of, “how are we going to afford treating our employees badly?”
There is evidence to suggest that employee turnover costs a company a net 20 percent of that employee’s salary. These costs will come from everything including loss of productivity, rehire costs, retraining and even client loss. Executives, on the other hand, can cost more than their annual salary. In 2003, of the 100 companies on Forbes’ “America’s Best Companies to Work For” over 40 percent were also on the Fortune 500.
After seeing these numbers, it’s easy to say that employee retention is a large expense, but compare that with employee operating costs that, excluding salary and benefits, includes: space for the employee to do their required work; equipment, like infrastructure and technology; hiring costs in the technological era; and of course, employment taxes. One estimate has the employee sum cost in their metrics at 2.7 times base salary.
The Psychology of Pay and Benefits
Employees who are satisfied with their work environment simply work better. Whether this is due to being motivated to work harder and smarter for a company they’re emotionally invested in or because the more productive employees simply tend to draw more satisfaction from their jobs is eternally up for debate. However, according to the Corporate Leadership Council, high levels of employee productivity can be directly addressed and maintained through a variety of strategies. These strategies do so indirectly by addressing “employee satisfaction, health and morale.” Several of the study’s cited sources are corporations that have seen direct profit increases derived from improved employee satisfaction which drives customer satisfaction, according to the respective corporations’ analytics.
What Does This Mean?
Although this doesn’t prove once and for all that the improved treatment of employees directly yields better earnings reports, it does decidedly link the two. So, small businesses in particular should be rewarding their employees for their labor as a means of keeping up with the big guys. Here’s why.
Customer satisfaction reports show direct links to employee satisfaction reports. Also, small businesses are often seen as being more human than their multinational corporate competitors with significant incomes. By putting a smiling, satisfied, human face in front of the customer, or at worst on the other end of a telephone or email, you are building on a predisposed desire to like you. It’s the David and Goliath syndrome — everyone roots for David, even if they secretly want to be Goliath.
Happy Customers Means Happy Investors
How many reports and articles are in existence concerning the vast benefits of word of mouth? Quite a bit more than a fewbecause word of mouth is the oldest and remains the most powerful tool for gaining or losing customers. You know the old mantra, “it’s better to retain one customer than to have ten one-timers.” Happy customers build reliable and continuous revenue. Since happy customers are created and maintained by happy employees, it’s crucial to maintain a happy employee base.
This makes the differential between baseline employee costs that would yield unsatisfied employees and costs of fair treatment — in essence, a marketing strategy. By putting more money into your staff you’re paying to have that moment where the customer tells someone else about your organization. So, the question is, how much is that worth to you?
Think of it as an investment into your company. Many large corporations report their dividend reinvestments. You could, in theory, treat this differential as a potential dividend reinvestment to be reported to whatever shareholders may exist. In the end it’s not about which comes first — better employee treatment or higher stock prices. Rather, it’s about the link of causality of the two. If you’re a growing business that has money to reinvest to chase growth potential, you’re inevitably faced with the decision of potentially rewarding employees who’ve been a direct cause of that success. You can either be the company that these hard-workers got in on the ground floor of, or you can be the company that tries to cut costs at the expense of loyal, happy employees — and loses out on revenue because of it.