Is Employee Loyalty Dead? Think Again!
(A case for Employee Satisfaction)

Prof R K Gupta
BE (Hons), MBA, FIE
Aravali Institute of Management
Jodhpur (Rajasthan)
E-mail : /

"Okay, here's the deal. You make this company your No. 1 loyalty-even above your family. You do what you're told. If we decide to transfer you to Chennai or Singapore, you move."

In exchange, we'll give you security-you'll have a job for life.

Perhaps no one ever stated it so explicitly, but any or all of these were the basic loyalty contract between employer and employee 20 years ago. Is loyalty dead and gone, a victim of turbulent time in the corporate world? Or is it still here, only somehow changed?

I've been closely observing and experimenting in organizational loyalty for two decades during my tenure with Indian corporate sector.

And what is meaning of loyalty. How it gets created. Are people basically loyal or disloyal types? How and why employees turnout rewarding performances?

In a recent survey a consultant asked 250 professionals if they were loyal to their organizations-and if their organizations were loyal to them.

It was overwhelming to know responses reflecting the importance of loyalty in people's working lives. Contrary to many headlines, employees in the study say their loyalty is very much alive! People want to be loyal employees. In fact, loyalty is such an inherent part of their values that many of them continue to feel loyalty even when their organizations have stopped being loyal to them, or when they have left the organization.

Are you loyal to your employer?
Some 85% said "yes". Only 7% said "no". The rest were responses called the "equivocal yes": "Yes, buts" or "Yes, depending on how you define loyalty," etc.

Is your employer loyal to you?
Yes: 51%. No: 42%. Unsure: 7%

Loyalty redefined

Loyalty has two dimensions: internal and external. Loyalty is, fundamentally, an emotional attachment. The internal dimension is the emotional component. It includes feelings of caring, of affiliation and of commitment. This is the dimension that must be nurtured and appealed to. The external dimension has to do with the way loyalty manifests itself. This dimension is comprised of the behaviors that display the emotional component and is the part of loyalty that changes the most.

The first step is to redefine loyalty as internal feelings that can be manifested in a variety of new ways. Instead, what happens most often is that the leaders of an organization feel that they are very loyal to their employees and that the organization has policies in place to reflect that-but that workers don't understand what management is trying to do. On the other hand, employees who feel they are very loyal to their companies aren't demonstrating it in ways management understands. So what you end up with are some well-meaning people at both ends who aren't clear about what is really going on.

The terms of the loyalty compact are far different from what they were in the past. Rather than a blind corporate allegiance, employees show their commitment through their efforts for the organization. Here's what my research showed about the current manifestations of loyalty:

How employees show loyalty

* Work hard and go beyond what's expected-80%
* Promote the organization's reputation internally and externally-65%
* Contribute to achievement of organizational goals-63%
* Make suggestions for improvement-53%
* Not actively look for other employment opportunities-20%
* Show integrity in business dealings-15%
Note: The percentages add up to over 100% because people described multiple ways they displayed loyalty.
But . . . even loyal employees aren't planning on staying with a single employer
* 24% of employees are planning on leaving their current employer when the economy/job market improves.
* 19% aren't planning a move, but are keeping their options open.
* 57% are planning to stay.
Interesting note: Within the 57% who plan to remain with current employers, many aren't staying out of commitment. They are staying because they don't see opportunities elsewhere.

How organizations show loyalty to employees

* Equitable pay
* Good benefits
* Professional development (training, challenging job assignments, etc.)
* Involvement and collaboration
* Flexibility (and caring) in regard to work/life balance issues
* Appreciation, trust and respect

Some Reasons for employee Estrangement and/or Disloyalty(Author's experiences):

- Employer discriminating in Salary and Wages to employees
- Lesser payments and rewards compatible with capability, commitment and seniority
- Lack of sensitivity to Employee
- Lack of appreciation
- Favoritism
- Poorly defined job responsibilities
- Failure to curb internal politics
- Failure to develop work and organizational culture
- Perception of stagnant career or stagnant organization itself.
- Discouragement to initiative and experimentation
- Lack of delegation in decision making (Particularly important in services sector)

A High Court in India once gave a dictum in HRM, while disposing a case related to blocking of promotion of an officer in a government department:
"Like a tree every employee should get space and opportunity to grow or else his very existence as an employee becomes stifled"

When Organizations are perceived to be disloyal

Retention (on both sides of the bargain) may be a relic of the past, and only a few people listed "job security" as one of the ways their loyal employers showed them loyalty. Still, almost everyone who insisted their senior management wasn't loyal listed layoffs, and the way they were handled, as indicative of organizational disloyalty. ( IT Sector Employers in USA and elsewhere-Please take note!)

Why people are loyal?

Modern life in all its complexity creates a feeling of isolation. Meaningful involvement in our work and workplace relationships can provide a rewarding sense of belonging. Most of us learned about affiliation and commitment in our early home life and social activities. The importance of belonging, contributing and being loyal is easily recognized.
Here are the three categories of reasons why people give their loyalty to an organization. Imagine the power of blending all three! People are loyal because:
* They are inspired to be loyal.
* It's part of who they are.
* It's an equitable transaction.

What does all this mean for Management?

Okay, so here's the new deal. Workers can no longer expect lifetime employment, nor can they expect stability. Change has become "business as usual." Employers, on the other hand, must deal with a far more mobile work force that has multiple loyalties and a different set of values than the previous generation (See the IT Industry). The brainworkers of today consider job-hopping a normal route to professional growth and personal fulfillment.

Smart companies and leaders can tap into employee commitment by recognizing and accepting these new realities and creating programs and relationships that capitalize on them. The components of the new deal are:

1. The relationship between employees and organizations has changed from one based on a long-term agreement to one that addresses the temporary nature of most business liaisons. Just remember that people want to work at organizations they care about-even if it's not forever.

2. Loyalty to an employer does not have to mean disloyalty to other important parts of life. A new definition of loyalty allows for balance among multiple loyalties, including family, personal ethics and overall career goals. Properly positioned so that all loyalties enhance one another, organizational loyalty profits the individual as well as the company.

3. There is a strong positive relationship between employees' perceived future opportunities with their present employer and their commitment to that employer. If organizations are serious about building an incentive for longer-term loyalty, they need to focus on succession planning, leadership development, special assignments, challenging work, job shadowing, training programs and ongoing feedback. The irony that complicates the issue is that employees are more loyal when they are challenged and given the opportunity to develop skills-the same skills that are useful in looking for a new job elsewhere someday.

4. Pay might not be always the most important thing, but it always ranks right at the top. Pay is only a non-issue when an employee is not dependent on a paycheck or has another source of income. A general rule is that you must offer a competitive salary/wage for that position.

5. Benefits are similar to pay. If other like businesses are paying certain benefits, you also will have to. The more astute businesses offer "cafeteria style" benefits, enabling employees to pick and choose which benefits are best for them.

6. Corporate leaders must set the loyalty agenda, articulating how an employee's participation contributes to the greater good of the organization. That greater good must involve doing something more than contributing to the bottom line and building market share. It ultimately has to do with values, mission, purpose and being connected to something greater than themselves.

7. Inspiring loyalty takes good management. People work best when they have meaningful relationships with their bosses. That doesn't necessarily mean a social relationship (though it could be), but at least an open, trusting relationship where bad news can be shared as safely as good news. And even more than honest communication (which is one-way messaging), employees must feel they have input in the workplace. They are looking for a dialogue, not a monologue.

8. A most critical element is respect. To what depth do your employees feel that you respect and sincerely care about them as individuals? Respecting an employee means that his/her opinions count, that appreciation and recognition are shown for good work, and that the employee feels listened to. Gallup research has found that peak performers in a variety of organizations feel that someone at work cares about them and their personal progress. They report that someone regularly and frequently asks about their progress.

9. Layoffs have become an inescapable part of today's business reality. But when it comes to layoffs, a responsible employer who adheres to the loyalty contract takes a long-term view of employment. This doesn't mean they guarantee jobs for life, or fail to remove under-performing employees, or disregard profit and shareholders. It just means that employers do their best to keep employees who are performing well in their jobs-and that they use layoffs only as a last resort.

10. Loyalty is tied directly to the health and quality of the corporate culture. Organizations that treat people well, placing emphasis on future development and providing opportunities for growth, generate allegiance and commitment. Although jobs are currently scarce, employers need to recognize that if they have not worked to maintain employee commitment, they will experience a dramatic problem with employee retention as the economy improves. It is a LONG TERM Investment in GOODWILL.

Employee satisfaction Survey-The need

All large organizations that have more than say 250-employee strength and/or multiple office locations would do well to conduct annual Employee satisfaction Survey. The nature of survey could be on paper or on the Internet/Intranet depending on type of organization and have twin benefits>
1.It stimulates Employer -Employee bonding
2.The change in perception of employees may point to deterioration of work environment that can well be corrected in time.

A Specimen Employee Satisfaction Survey Form on Internet or Intranet:

1. Overall, how would you rate your satisfaction with your job at this time?
Check one:
Extremely satisfied
Very satisfied
Somewhat satisfied
Not very satisfied
Not at all satisfied

2. Compared with last year, how would you describe your overall job satisfaction now? Are you?
Much more satisfied than last year
Somewhat more satisfied than last year
As satisfied as last year
Somewhat less satisfied than last year
Mush less satisfied than last year

3. Please rate your agreement with each of the following statements.


-You have a good understanding of the company's overall goals              
-Employees feel free to voice their opinions openly at this organization
-Where you work, customer concerns get resolved quickly
-Day-to-day decisions demonstrate that quality is a top priority for this company
-It is clear to you how this company is differentiated from the competition

4. What department do you work in?

Human Resources
Information Technology
Customer Service

5. What is your age (Domicile/Background/education)?

6. Share your views about the Work Environment?

Employee Loyalty>Leads to>Customer Loyalty

(It is particularly relevant for services sector, and customer care departments of companies)

Where does your company stand on each of the critical "4Cs" of employee satisfaction?
* Commitment
* Culture
* Communications
* Compensation

Employee loyalty -- and ultimately customer loyalty -- starts with the chief executive and is part of the culture of the company, according to Larry Butler, senior vice president with the (Ross Group), a Boston, Massachusetts-based consulting firm that works with senior management on employee and customer loyalty issues.
"Loyalty is a two-way street," "Employees will value you if you value them. And that type of attitude has to start at the very top of the company and be infused throughout the organization."
Corporate leaders must set the loyalty agenda, articulating how an employee's participation contributes to the greater good of the organization.
"That greater good must involve doing something more than contributing to the bottom line and building market share. It ultimately has to do with values and being connected to something greater than themselves," Butler said.
Valuing an employee goes well beyond money. According to (Butler), value also means empowerment and the ability to grow personally.

Role Enhancement

Giving employees greater responsibility and authority is a critical component in building loyalty in an age when few workers expect to stay with their current employer for life.
"Role enhancement -- an expected increase in the complexity of employees' duties -- and more autonomy can increase the morale and commitment of employees,"(Bruce Prince, Associate professor of management, Kansas University)
"Past research has shown a strong positive relationship between employees' perceived future mobility opportunities and their psychological attachments or commitment to their employers," Prince says.
The twist that complicates the issue is that employees generally are more loyal when they are challenged and given the opportunity to develop more skills -- the same skills that could be useful in looking for a new job elsewhere someday.
Some employers offer recognition and reward as a means of encouraging the loyalty -- and longevity -- of their most valued staff.

For example, when a customer service rep for a suburban Pittsburgh, Pennsylvania-based food company was assigned to oversee the sales department's ballooning travel expenses, she took on the job because it might provide skills that could prove useful elsewhere -- even though it added more immediate stress to her workday.
After a year, the rep not only had contained expenses, but also had reduced them significantly, saving the company tens of thousands of dollars. Because she was scheduled to attend a conference in Orlando, Florida, her employer decided to express the company's appreciation by sending her entire family to the conference three days early so they could enjoy an all-expenses-paid vacation.

Loyalty Reflected Outward

According to The Ross Group's Butler, management understands that building employee loyalty is critical to building long-term success in customer loyalty.
"People are every organization's most valuable asset, and that reflects outward to customers. Customer service training is not an isolated process. It must be part of the whole culture and values of the company," Butler said.
"Companies can't preach one thing regarding customer service and another thing when it comes to their own employees. They have to walk the walk and talk the talk that gives it credibility and importance," Butler added.
He said the culture of customer service and employee loyalty ideally should extend to all employees, not just those in front-line touch-point positions.
"There are no artificial boundaries between a company and the rest of the world. Every employee can come into contact with customers, making each and every one of them potential ambassadors of the company and part of customer service," Butler said.

How to Create Employee Loyalty?

Employees are becoming the competitive advantage for business in the modern world. Bad employees can cause a business to fail; mediocre employees can cause a business to break even. Good employees can make even a so-so business soar.
I would say, in fact employees are the only assets that appreciate in balance sheet.
The key of course is to hire right. At least poor hiring policies cause half of the personnel problems we face in this regard. But just as important as hiring good employees, is keeping good employees. Good employees often feel (and with good reasons) that their employers take them for granted. It takes focus, work and commitment to keep good employees. The idea is that the satisfied employee is less likely to search for greener pastures. The following are keys to keeping the best employees in your business:

Pay. Don't believe the 'experts' when they tell you pay is not important. Pay might not be always the most important thing but it always ranks right at the top. Pay is only a non-issue when an employee is not dependent on the paycheck or has another source of income. A general rule is that you must offer a competitive salary/wage for that position. You can offer minimum wage to a journeyman level worker but you will not get journey level skill. If you are offering below market rate you will only attract the worst of the prospective employee pool.

Benefits are similar to pay. If other like businesses are paying certain benefits you will have to also. Health and dental insurance are benefits that better employees are demanding. But you can also offer additional benefits that will attract better employees. Life insurance, 401K plans, sick and vacation days will "sweeten the pot." Some of these benefits may cost less than you think. The more astute businesses are also offering a 'cafeteria style' benefits plan -- the employee can pick and choose which benefits are best for them.

Training. Good employees know they must be continually learning and improving their skills. They will search for a 'home' that not only encourages but provides regular training. Most businesses concentrate only on direct job-related training. Don't forget non-business training such as English, foreign languages, computers, etc. Employees also have interests that are not job related. Improving some of these interests may also help improve job performance. Don't forget to look carefully at cross training so they can learn to do other functions in the business, which helps all concerned.

A Learning Environment provides a chance to learn on the job. This not only improves skills, knowledge and performance but keeps the employee's interest level high. The employee is more eager to go to work if they feel they will learn something new and improve themselves. Hit an interest and loyalty will follow.

A Career Plan will help the employee set their long-term goals. If the business can assist the employee in reaching those goals the employee will become more loyal. Most businesses do not help their employees in this way.

Evaluations and Reviews should be held on a regular basis and certainly no longer than three months apart. Problems and concerns can be addressed and progress toward goals monitored. The idea in these reviews is not to build a case to force the employee to improve or to build a case so they can legally be fired. The idea is to focus on the individual as a person and how they fit in the business. Reviews should be used as a way to keep good employees and not weed out bad ones.

Regular Business Meetings are an excellent way to get employee input, make improvements and address concerns before they become problems. Good employees feel they must have input in the workplace. Meetings should be held at least once a month but I advise my clients to have them weekly.

Recognize Good Work with financial and non-financial recognition. Employees often feel management only addresses them when there are problems. Good employees expect to be told when they do good work (Very important motivator at executive level).

Good Working Conditions are a must. Good employees expect their employer to be making constant improvements so the workplace is not only safe but pleasant.

Have Fun. Good, loyal employees do not want boring, drudgery-filled work. There are many ways employers can make work fun and many of these techniques cost little or nothing. This is not the same kind of fun one has on vacation. But it does add excitement and keeps attitude high and motivation up. Many recent studies are pointing to a labor shortage and a battle for the best employees. One study recently found that only one out of four applicants is actually qualified to do the job. To attract top prospects the business must offer an attractive package. The successful business of the future will not only attract the best but will create a loyalty to keep the best. The indicators are suggesting these will be the only businesses that truly succeed

Research indicates that the following can influence an employee's positive feelings:

Participation in goal setting: The HR department in IT companies must learn to enforce the appraisal system, more so a participative system.

* Performance feedback: Supervisors must be trained hard by HR to give objective feedback. PCMM or no PCMM, a supervisory feedback can make or break an employee's well being.
* Supportive communications with immediate supervisors and upper management: When an employee is in difficulty, both in work situation and personal life, there has to be supportive communication and information. The feeling of being let down or helplessness destroys loyalty once and for all.
* Justice in performance appraisals: Appraisal decisions, if contested, must have avenues for review by a senior person.
* Objective measures of performance: The standard of performance must be prescribed for all levels.
* Sufficiency of pay benefits and rewards: It is not the quantum but the fairness and treatment that count.
* Quality of supervisory relationship: The leadership style must leave employees wanting to be with their leader.
* Favorable developmental opportunities: Where there is adequate training budget, learning opportunities exist and loyalty blooms.
* Clearly stated guidelines defining appropriate work behavior and job demands.

Expect nothing so give nothing-is that acceptable? How much impact can employers make on employees who are pre-disposed to being weary of mistreatment by the organization they work for. It is important to understand that high achieving employees will be high achievers if their employers take their needs into consideration, forgive an honest mistake and care about their opinion, or, in other words-can be trusted to do the right thing.

The more weary or mistrusting an employee is about the organization, the less likely they will exceed the minimal acceptable level of job performance. Significantly, weary employees can develop a positive feeling about their employer if the management takes steps to address few issues mentioned above and can perform well above standards and better than less weary employees.

The X generation is a group that is notoriously weary and mistrusting of organizations after having watched their colleagues suffer. They learned from their peers that what is important is not the company or the organization but the individual. High individualism is the attitude these days. But employers also need not follow the same dictum. They can be less selfish to become employee friendly. But how? A responsible employer who adheres to the loyalty contract takes a long-term view of employment. This does not mean they guarantee jobs for life or fail to remove under-performing employees or disregard profit and shareholders. It just means that employers do their best to keep employees who are performing well in their jobs.

The ROI of Employee Loyalty

Much of my time was spent studying employee loyalty during course of my corporate
tenure. Two decade or so ago, many in the business community considered this subject only interesting but not essential. In fact in India employee was considered a commodity.
Today, however, a growing number of companies are keenly interested in learning about employee loyalty. The reason is simple.
When employees perceive that they're being treated fairly and with genuine concern, they are more likely to be loyal and behave in ways that benefit the company.
Employees who are loyal to their organization, for example, are much more likely to work harder; to meet and exceed customer requirements; to recommend the company as a good place to work; and to stay with the organization longer and resist other job offers. Employee loyalty pays off in a number of important ways. Employees should actually work and contribute and not to simply go through motions of work. Most customers (as many as 60%) leave due to employee apathy is a well-known finding.

These findings are strongly supported by data from our national studies on employee loyalty:

*  Nine in ten loyal employees will recommend their organization as a good place to work, compared to three in ten who do not fall into the "loyal" category.
*  Nine in ten loyal employees will "go the extra mile" for customers, compared to six in ten non-loyal employees.
*  Ninety seven percent of loyal employees are highly motivated to do their work well, compared to 57 percent of non-loyal employees.

Loyal employees decrease an organization's costs through reduced turnover and recruiting expenses, and they increase revenues through enhanced productivity and customer service. Clearly, then, it pays to know what drives employee loyalty. The fact is a variety of things drive loyalty, including providing ongoing training and development opportunities, fostering open and honest communication, and addressing employees' personal and family needs.
In a recent national study conducted by Walker Information, employees identified the top five reasons they voluntarily left their jobs:

*  Limited career options/training (22%)
*  Better pay/benefits elsewhere (15%)
*  Unethical business practices (9%)
*  Conflict with supervisor (9%)
*  Caring for loved one (8%)

Companies should recognize and quantify the costs of not doing the "right things" for employees. One of the ultimate costs, of course, is turnover. A recent study by the Hay Group showed that the cost of replacing hourly employees is about six months of their earnings, while the cost of replacing salaried employees can be as high as 18 months of their salary. An average size hospital, for example, will spend nearly $5,000,000 (Five Millions) every year replacing the one in five nurses that will leave voluntarily on an annual basis. That's $18,000 every business day! And when hospitals don't have enough nurses to take care of patients, they turn away business, close down critical care and specialty units, and see a decrease in both customer satisfaction and positive patient outcomes.
Taking steps to improve employee loyalty is not only the right thing to do; it's the smart thing to do.

Bibliography and acknowledgements

2. 12 Ways to Keep Good People." Training, April 1999, p. 19
3. American Management Association. "Retention: Challenges and Solutions." On Internet :  [www.]. 1999
4. Aon Consulting. "Employee Loyalty Surprisingly Strong Despite Tight Job Market." Press release. Internet: []. 1999
5. "Attracting and Retaining Talent Is a Global Concern." Compensation & Benefits Review, May/June 2000, p. 10
6. "Computing the Cost of Turnover." The Advantage Newsletter. The Management Advantage Inc. Internet []. January 2000
7. Cook, Julie. "Upwardly Mobile." Human Resource Executive, August 2001, pp. 53-55
8. Larmen, R.A., Whistle-blowing and Employee Loyalty, Journal of Business Ethics, (February 1992), 125-128
9. Satisfaction: The False path to Employee Loyalty Federick F. Reichheld Harvard Management Update Article No. U0110C

Prof R K Gupta
BE (Hons), MBA, FIE
Aravali Institute of Management
Jodhpur (Rajasthan)
E-mail : /

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