The Scrooge epiphany: Why great company culture really does have an ROI (and you can measure it)

The Scrooge epiphany: Why great company culture really does have an ROI (and you can measure it)
Sure, having a strong brand as a great employer is good for the odd bit of PR (just ask Google), but does it actually translate into dollars and cents? Idealog decided to find out.

It’s the classic company line—“Our employees are our greatest asset”—and most of us, on a gut level at least, can agree with the sentiment. Somewhere, deep down, most of us feel that happy employees simply must be better employees, at least in some ways. That idea—that when we feel our best we work our best—something about it just rings true.

But is it actually true?

Popular commentators on such things, like the brilliant and hilariously eccentric corporate trainer and positive psychology advocate Shawn Achor, says that yes, it is absolutely true. He says that happy, positively-focused employees are indeed the most valuable asset a company has. Not only that, he says that happiness comes before success. Don’t wait for achievement to make create a positive mind set, says Achor, rather, make your employees happy now, and success will follow.

Check out this fast moving and unusually amusing Ted Talk to get a sense of the corporate trainer’s feel-good shtick:

And this idea, that happiness breeds success, not the other way around, isn’t just coming from motivational speakers, either. Employers, in this country especially, are making real efforts to walk the talk of being a great employer, viewing the happiness of employees as an asset in and of itself.  

Corporate mentality

Frucor Beverages NZ, the people behind some of New Zealand’s most successful drink brands, has just been awarded the Aon Hewitt Best Employer accreditation for the fourth time since 2011.

They must doing something right—20% of their employees have been with the company for over ten years, plus they give their employees their birthdays off—so, convinced, Idealog asked CEO Mark Callaghan for some advice on creating a culture that focuses on worker happiness (and makes money in the process).

Callaghan says that having strong leaders that “really give a damn about their people” and have a strong personal connection to the purpose and the direction of the company is where being a great employer starts.

“We have a ‘non-hierarchical’ communication approach with our people so that every person feels valued and a contributing part of the company,” he says. “We don’t have a ‘rights of entitlement’ mentality here.”

“We believe everybody deserves a great boss and to be a great boss, and we highly value integrity….It’s about being up front with people and being authentic and not hiding behind corporate policies."

“This is not a ‘project’,” he says. “This is how we are and how we show up every day.”

Image: Frucor Beverages NZ CEO Mark Callaghan

And while there’s a definite comfort in working in a happy, positive environment, Callaghan says the results play out in the bottom line as well.

“The positive culture can be noticeably ‘felt’ by people who come into the Frucor businesses,” he says. “From a business perspective, factors such as improved productivity, low consumer complaints, low absenteeism, and return on investment to our shareholders are by-products of an everyday fun and self-actualizing environment.”

“This hasn’t happened overnight and we constantly strive to keep our people engaged with our values by having a genuine care for everyone here at Frucor.”

Image: A happy shop floor starts at the top, says Callaghan.

So passion obviously counts for something, but the bottom line still counts for a lot too.

But can human resource managers actually quantify their company’s ‘employer brand’? How can you measure something as abstract as human happiness?

Crunching the numbers

To figure out the ROI of employee happiness, you first have to look at the way happy, and unhappy, employees behave.

To put it simply, unhappy employees leave their jobs, and happy employees don’t. Furthermore, happy employees will recommend their place of employment to others and unhappy employees won’t. Measure those two elements and you’ve got a great indication of just what the employee experience at your company is, and how it’s affecting your bottom line.

Here’s how you break down those two key metrics.

Employee retention rate

Simply put, if your staff like your company they will stay. This is important because hiring staff is time consuming and expensive, high turnover rates create knowledge gaps in your workforce and constant staff replacements are a major cause of disruption in the day-to-day running of a business. 

So here’s the formula (in its simplest form): Divide the number of employees who left during a certain interval by the total number of employees remaining by the end of that period. The figure you’re left with is your employee retention rate.

For example:

If an employer had 100 employees at the beginning of the year, and, over the course of that year 20 left…

100 – 20 = 80

80 / 100 = 0.8

0.8 x 100 = 80%

Retention rate for that period is 80%.

While retention rates of 75% to 80% are a useful average (and bear in mind that retention rates vary wildly from industry to industry) the above measurement is useful for setting a benchmark and comparing retention success over time.  

Employee referrals

As with so many things in life, it’s not what you know, it’s who you know, and that’s especially true when it comes to hiring new staff. There’s plenty of research that shows that employee referral programs are the single most cost effective way of hiring new staff and that an employee referral program leads to higher candidate quality, quicker hires, better fitting candidates and, again, improved employee retention.

So how to actually calculate your ROI for employee referrals? There’s a few more figures to crunch here, so this handy employee referral calculator might make life a little easier. 

Practical advice

So you’ve done the math and the result isn’t great. What to do? How does a company actually build a great employer brand up from scratch and maintain it on a day-to-day basis?

1. Positivity

While trickle down theories of economics are rapidly going the way of the dinosaur, there’s little doubt that a good vibe in the office starts at the top and works its way down. While we’re all only human and bad days are bound to happen, there’s nothing to stop company leader’s from putting on a brave, positive face for the greater good, even when things are turning to custard.

2. Feedback

Too many companies only provide feedback to employees when there’s something negative to be reported, creating an environment of confrontation, defensiveness and mistrust. Be open (but always scrupulously honest) with your compliments, and when it comes time for criticism, the old three-to-one rule (three positive comments for every one negative one) is still a gem.

3. Perks

Small perks can go a long way to making employees feel valued and that, in turn, creates a sense of wellbeing. Such perks don’t have to be expensive either: put on a lunch once in a while, let them cut out early on a Friday, or even just a basket of muffins in the morning can provide enough acknowledgement and positive reinforcement to improve morale.

4. Goals

Clearly defined, achievable goals are a vital part of office culture, and not just for salespeople. Goals create a sense of purpose and optimism in employees. Having everyone in the office, from the lunch lady to the CEO, working on measurable, relevant goals makes everyone feel as if they are part of the big picture and working towards a shared common goal.