How Does Employee Satisfaction Affect Your Company’s Profitability?

If you want to increase your company’s bottom line, one of your best investments may be in the area of employee satisfaction. Although the definition may vary slightly between human resource (HR) professionals, employee satisfaction generally refers to how happy workers are with their job. At first glance, this may be viewed as a one-way street (what the business can do for the employee). However, smart companies realize that ultimately employee satisfaction results in workers who are less stressed and healthier, as well as more energetic, creative, and productive. All these facets play a vital role in profitability and success.

Employee satisfaction studies: past and present

The role that workplace environment plays in productivity has been studied since the early part of the twentieth century when the notable Hawthorne Studies were conducted in a Western Electric factory on Chicago’s south side. Researchers found that changes in the workplace, such as better lighting, work hours, and breaks, led to productivity gains and lower absenteeism.

Another leap ahead in this area of study was made with the development of the Job Descriptive Index (JDI) survey, created in 1969. The JDI is now a common tool used by HR professionals to measure employee satisfaction. Other popular methods include the Gallup Workplace Audit, employee interviews, and focus groups.

The Society for Human Resources Management (SHRM), a thought leader in the HR industry, began studying employee satisfaction on a large scale in 2002 when the organization issued its first nationwide Employee Job Satisfaction Survey. Within the last ten years, SHRM found a generally upward trend in job satisfaction from 2005 to 2009 (from 77 to 86 percent), a decrease between 2010 and 2013, and then a rise once more up through 2015. It’s theorized that as the economy bounced back, businesses have allocated more funds once again toward increasing employee satisfaction.

Data analysis of the 2015 Survey shows that, in general, 88 percent of U.S workers are at least somewhat content with their job. Additionally, the 2015 study notes that there is little variation in employee satisfaction among generations; last year it fluctuated only slightly between Millennials at 86 percent, Generation Xers at 88 percent, and Baby Boomers, who topped the list at 90 percent.

It’s not all about the money

Salary plays a role in employee satisfaction, of course, but it usually isn’t at the top of an employee’s list. Good management plays a crucial role, which includes respecting employees, sharing information with and listening to them, and giving workers greater autonomy. Additionally, the SHRM notes that job security is highly ranked. According to Forbes, workers also place value on generous benefit packages, incentive programs, and opportunities to advance within the company.

Satisfaction doesn’t equal retention

Even with high employee satisfaction numbers, a late 2015 U.S. News & World Report article warned that “2016 Could be the Year of the Job Hopper.” Although the SHRM report recorded a ten-year high in job satisfaction last year, 45 percent of those surveyed said that finding a position with a different employer was among their 2016 new year’s resolutions.

And turnover, when all factors are considered, can be a major hit to a company’s bottom line. Recent data analysis conducted by the Center for American Progress indicates that when a company loses an employee who makes less than $50,000 (which includes 75 percent of American workers) the organization spends approximately 21 percent of the vacant position’s annual salary to replace the employee. The cost, of course, is even higher for turnover in management; 2015 Gallup research finds that replacing individuals in high-ranking positions can range up to 150% of the employee’s yearly paycheck.

What’s the missing link?

Obviously, though job satisfaction seems important, this alone does not significantly contribute to job retention. So what’s going on here? It seems job satisfaction is one of the building blocks of job engagement – the degree to which an employee cares about the company and is willing to “go the extra mile.” Workers with a high degree of job engagement feel more commitment to their job and think less of leaving. This plays a huge role in what makes a business succeed. Charles Rogel of the business consulting firm DecisionWise puts it this way: “Employee satisfaction is the minimum entry fee that needs to be met in order for an employee to be fully engaged.”

Higher employee engagement = increased stock values

In a 2012 Forbes article, Kevin Kruse, author of the book Employee Engagement 2.0, cites over 20 studies that underscore the importance of workers feeling connected to their jobs: “Because they care more, they are more productive, give better service, and even stay in their jobs longer. All of that leads to happier customers, who buy more and refer more often, which drives sales and profits higher, finally resulting in an increase in stock price.” In fact, an analysis of 28 years of stock market statistics concludes that companies that invest in employee satisfaction yield higher returns than their competitors, by as much as 3.8 percent annually.

Tech companies lead the way

A recent study shows that technology companies in particular, such as Google, SuperMedia, Unisys, Rockwell Collins, and Applied Materials, are working hard to keep their employees happy. However, these organizations may be more the exception than the rule. The IT consulting firm Gartner forecasts that by 2020 only one in five businesses will make increased employee engagement a mutual goal for IT and HR departments.

Bottom line: high employee satisfaction should be an objective for every business. It’s a driving force behind retaining employees who work hard because they genuinely want to see your organization succeed. If employee satisfaction isn’t a top priority at your company, consider moving it up the list. Everyone from your entry-level employees to your shareholders will thank you.