Employee happiness, the new bottom line
America is desperate for a new kind of private sector leadership. While languishing amidst the economic crisis, most Americans have lost confidence that corporations have their best interests in mind. Stock prices have been shown to reflect speculation as often as real value. Job quality has sunk almost as rapidly as employment rates.
We need corporate leaders who can make money for shareholders while creating jobs that are worth having. The good news is that this kind of CEO exists not just in fantasies and fictional books but in flesh and blood. Together with my research team at Harvard and at McGill universities, I carried out an in-depth, six-year global study of companies that sought to improve working conditions for employees at all levels of their firms. They increased wages, offered profit-sharing to entry-level employees, made leave and flexibility possible on the factory line, ensured that everyone had health care, and provided training and advancement opportunities at the bottom as well as the top.
These companies ranged in size from small firms of 27 to Fortune 50 firms of 126,000 employees. Active in every sector from automotive to technology, from construction to retail, they all managed to make money while improving working conditions.
What was their secret? Top managers recognized that their effectiveness relied on the productivity of the majority of their employees, and that the majority of their employees at other firms were ignored when it came to quality of working conditions and learning from their ideas. The leaders in these firms ensured that all employees, including those at the bottom of the corporate ladder, had opportunities for training, career tracks, a chance to make more money when the firm profited more, the ability to work in a healthy environment, and rewards for the benefits that their ideas and higher productivity brought to the firm. They knew how to support leadership at every level of the company and they knew how to listen.
At Costco, Jim Sinegal went against the norm by providing career opportunities for employees at all levels. In fact, senior managers estimated that the company promoted from within its own workforce 98 percent of the time. Costco's policy of growing and developing the skills and talent of its employees helped their recruitment, motivation, and retention of warehouse workers and improved the quality of management in the long term. Experience working in lower-level positions within the company provided an in-depth understanding of the company's day-to-day operations. Sixty-eight percent of Costco's warehouse managers had started out working with the company as hourly employees.
Costco's commitment to providing career opportunities also led to a low turnover rate. After the first year of employment, turnover was less than 6 percent. The quality of experience in the store and results in sales were so much better than their competitors that Costco profited more per employee, in spite of their high wages, or perhaps because of them, than Sam's Club, which follows the Wal-Mart approach to wages and compensation.
Across the border in Canada, Bob Meggy runs the Great Little Box Company. At monthly meetings with all employees, leadership from every branch of this packaging supplies company share financial updates, productivity reports, and strategic plans with the factory workers. A profit-sharing plan involving all employees means that factory workers know that each profitable idea they come up with returns benefit both to the company and themselves. These monthly meetings regularly led to direct savings and increased earnings as line workers suggested ways in which machines could be used more efficiently, production transitions mandated by the economy could be facilitated, and expansions as they bought up new companies could be sped up.
The success of this leadership style was not limited to North America. We saw the same returns in China, where a large multinational pharmaceutical company, whose profitability relied on high-quality and low-error production, used similar methods to reduce turnover to a third of the local average and cut error rates.
Last year's television included a new hit series: Undercover Boss. It starred corporate executives who went incognito to work at lower-level jobs in their own companies. The very premise would not have worked at any of the firms we saw succeed. Jim Sinegal could never be an undercover boss at Costco. While running one of the world's largest companies, he visits over 500 warehouses a year. His employees see how he treats customers and he sees the quality of their work every day. There's no employee who wouldn't recognize Bob Meggy. He runs the monthly financial meetings for all the employees of his company. At the pharmaceutical firm in China, top managers chose to situate their offices without walls so that they could hear what problems were being encountered.
At Jenkins Brick, Mike Jenkins put in wage incentives and profit-sharing, markedly increased employee productivity, decreased turnover, and took a hammer to the wall of the chief executive office. He tore the wall down so line employees and managers alike in this brick manufacturing company could come in and tell him what they thought. Come to think of it, all the firms who succeeded for their shareholders did so because they were succeeding with their employees, there was not a single one where the leadership was so rarely seen that it could have gone undercover, or where line workers were so rarely heard that it was necessary.
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