Whatever happened to employee loyalty?

With jobs for life a thing of the past, employers need new ways of winning hearts and minds.

Two leading companies are planning more major staff cuts: the first will axe more than 1,000 jobs as part of an efficiency drive; the second with substantially lower than expected sales, plans to cut a further 1,400 jobs on top of more than 3,000 jobs lost in recent months.

Serious as these cuts are, they are no longer out of the ordinary. Forecasts estimate that two out of every five employers are planning redundancies over the next few months and that retailing alone will lose 100,000 employees. Whatever the reasons, restructuring, cost savings or lack of sales, how much more damage can this do to industrial relations, morale and loyalty?

Employees expect a modicum of security, but they are not getting it, says Professor Cary Cooper, a leading business psychologist and Professor of Organisational Psychology and Health at Lancaster University Management School. "The psychological contract between employers and employees has broken down. There is almost no loyalty left in the workplace. Twenty or 30 years ago an employee worked for two or three employers through his working life and that built a lot of loyalty. Now he may be working for as many as ten or 12. Anyone who is mobile is no longer loyal."

Why has there been this declining lack of loyalty and what can be done to prevent it, even restore it? Employers are under greater pressure to perform, to achieve targets, and that often means cutting costs or staff, or both. Employee loyalty is often ignored. This damages the employer's brand in the labour market and doesn't help future recruitment. Not surprisingly, the Chartered Institute of Personnel and Development (CIPD) estimates that around 80 per cent of organisations in the UK are experiencing recruitment and retention difficulties, while 15 per cent are targeting migrant workers from the newer EU countries.

No wonder more people are asking 'what's happened to the sense of loyalty we were brought up with, which included loyalty to our employers?'. "It's just no longer there," says Graham Campbell, head of specialist recruiters Graham Campbell Consulting Ltd. "Blame the decline in the economy, inflation, redundancies. Huge swatches of the economy - manufacturing, mining and shipbuilding - have almost disappeared. Service industries, like retailing and banking, have partly replaced them. Where there have been redundancies, a degree of loyalty goes and self-interest rules. New generations are not interested in loyalty."

Another reason, Campbell claims, is the huge amount of consolidation throughout industry and the emergence of industrial giants, that make the economy more resilient but employees more mobile. "It's almost becoming like banking where once employees have collected their quarterly or half-yearly bonus they are off to another job. Short-term loyalty is still strong where training and experience are valued and in young businesses where employees can be genuine stakeholders."

When even highly regarded employers announce redundancies - to implement cost savings, restructuring or technological advances, what sort of impression is left on the workforce that remains? How can employees continue to believe in any established, if unwritten, psychological contract based on reasonably secure employment, training and personal development? No-one any longer believes in the idea of a job for life, but after the upheavals of recent years, the downsizing, delayering, streamlining and outsourcing, can companies continue to count on commitment from employees when they are no longer seen to be committed to them?

Reducing layers of middle management was largely the consequence of technology and cutting down on bureaucracy. The more companies downsize, the more they are seen to be breaking the psychological contract with employees. And once individuals perceive this to be the case, they will look after their own careers and their chief loyalty will be to themselves.

Finding middle ground

As Hamish Davidson, chairman of Rockpool, executive search specialists and personal development consultants, puts it: "I think there has been an erosion in our capability to be loyal and of course a diminution of the concept of a 'job for life' - the days when you joined ICI or the Civil Service for life. We don't have the same paternalistic approach as in the past. Today, Civil Service leaders want you to get some 'outside experience'."

A new psychological contract needs to consider the organisation of the future, which is likely to have only a small core of full-time permanent employees, with most of the necessary skills outsourced or brought in as and when necessary as temps, contract workers, part-timers, home workers and interim managers. Outsourcing among major retailers today, for example, might include IT, distribution, telecoms and cleaning.

In the UK, more than 10 per cent of workers are self-employed. Part-time and perceived short-term contracts are growing faster than full-time work. The number of men in part-time jobs nearly doubled in the last decade, while the number of people employed by firms of more than 500 employees has slumped to just over one-third of the employed population. More people are working from home and this trend is likely to accelerate. The impact of private equity and venture capital has also led to efficiency measures and job losses.

But how do you retain or rebuild loyalty in large scale engineering works or consumer goods factories? Neville Bain, a former chief executive of Coats Viyella and earlier deputy chief executive of Cadbury Schweppes, makes the point that "companies that are best at maintaining loyalty are those with a real focus on people. It's not just about money. Loyalty cannot be commandeered. It must be earned and constantly reinforced by continuous bond-building between the leaders and followers".

In his latest book, 'The Effective Director', Bain makes the point that high-level performance requires followers who are involved and informed. In order to maintain the high level of motivation that is characteristic of a well-led organisation, the thinking leader is constantly helping the constituent improve their skills base and develop as individuals. Personal development is one of the most important motivators of employees in all organisations.

Strange then that PricewaterhouseCooper's annual CEO study argues that what companies around the world are crying out for are CEOs with technical and business experience, including global experience, who are leaders, innovators, creative, and who can manage risk. Yet people skills, while a bonus, are not seen as essential. Less than half of CEOs globally and around a third in the UK felt their HR could manage the people agenda adequately by itself.

The survey echoes recent research by Accenture which found that more than two-thirds of executives are deeply concerned about not being able to recruit and retain the best talent. Its survey of more than 850 top executives found worries about talent management had crept ahead of competition as a key threat to future growth. And yet, while nearly nine out of ten CEOs globally agreed people management was one of their top priorities, this dropped to just over two-thirds who believed that their time was best spent on the people agenda.

A significant new factor raised by PWC partner Michael Rendell is that right now volatile stock markets' performance will lead some executives in larger UK organisations to question the value of their reward packages if they are substantially dependent on share price performance.

Should I stay or should i go?

New insights into how to create loyalty and boost staff retention, by Professor Ivan Robertson, make the point that one of the important reasons for employers to care about the wellbeing of their people is that well-being is linked to a range of important outcomes, not just for the individual employee but for the organisation itself. These include sickness/absence, customer satisfaction, productivity and employee retention.

The latest CIPD survey, says Professor Robertson, shows that the number of employers reporting retention difficulties has climbed from 69 per cent in the previous year's survey, to 78 per cent, with private sector businesses reporting particular difficulties (83 per cent). Whenever a productive employee leaves an organisation voluntarily there is a cost to the organisation. His estimate, based on CIPD data, puts this at at least £8,000 for each person who leaves, although some estimates put the cost per person at over £20,000.

Again, according to CIPD's findings, the most common reasons for people to leave were career development (including promotion) and pay. Improving people's career prospects would therefore be one way of keeping people. As far as pay is concerned, Professor Robertson notes, pay increases can be a cost-effective way of making it more likely that people will stay.

The most frequently cited reasons for people leaving were lack of support from their manager and stress. Research findings show very clearly that poor and unsupportive management and stress will damage retention. Overall, the research confirms the widespread benefits of looking after the psychological well-being of employees.

All employees, whatever their level, derive motivation from having a strong sense of purpose and feeling good about coming to work every day. When people are engaged in activities that bring them pleasure - activities which have a clear and relevant purpose, they are unlikely to actively choose to stop doing them.

A sense of purpose and feeling good about coming to work every day clearly pervade among the 68,000 employees, or partners as they are known, in the John Lewis Partnership. In successive polls by retail professions, JLP or its supermarket chain, Waitrose, come in turn first or second most favourite retailer in the country.  The Partnership's 'spirit' is based on four principles:

ensuring the happiness of partners is at the centre of everything we do,

building a sustainable business through profit and growth,

serving our customers to the very best of our ability,

caring about our communities and our environment.

How important is the Partner's reward? In 2005/6, the Partners or co-owners received an annual bonus of about 15 per cent of their salary. The founder's vision of a successful business powered by its people and its principles clearly works. Surprisingly, it hasn't been introduced by other companies.

Developments in recent years have reinforced the case for any new contract to be based on providing employees with suitable training to help them to become both employable and to work independently, to manage their time, familiarise themselves with IT and show them how to market themselves.

Such a contract should cover flexible work arrangements, such as flexi-time, part-time, temping, contract work and working from home. Ideally, what companies should say is 'we want your commitment and we are prepared to make a commitment to you'. For example, some companies are now offering a degree of job security in return for a negotiated wage agreement, even though this might be slightly below normal rates.

One of the issues facing large scale employers, whether in manufacturing, retailing or other service industries, is how to formulate policies for the range of employment practices in operation. How do you develop HR policies designed to motivate and build commitment and trust when dealing with a diversity of human interests and aspirations at a time of continuous restructuring and more contingency working?

Offering commitment

The old 'command and control' interpretation of loyalty in the workplace needs to be replaced with an attitude of commitment by both sides, which leads to a more pragmatic relationship with the limited time horizons against which businesses are being managed today worldwide. Employers will still commit themselves to their employees, but employment can no longer be guaranteed. The other side of the coin predicates that employees must constantly be looking beyond their job to the overall environment in which their company and their business sector functions in order to be able to predict for themselves what their future holds and what confidence they can place in it as far as their job is concerned. One solution is to prepare people earlier, even at school, as is beginning to happen, for this new uncertain environment.

Understandably, massive restructuring taking place in UK PLC every year has a negative impact. How are companies dealing with the immediate impact on workforce morale when redundancy programmes are introduced? Voluntary redundancy schemes point to one approach. At the same time, people are more sophisticated about the economy. If they are kept in the picture, they are more likely to support the management. The point is, you have to build a reputation for treating people well. It should be the company's duty to develop its employees so that those who leave find careers elsewhere. They face more choices.

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