Companies & Industries

The Fraying Employment Contract


Layoffs, cuts in compensation, and lack of opportunity are creating a disgruntled workforce that's more likely to jump ship as soon as the economy rebounds, says research from the CEB

Over the last year the economic downturn has caused many employees to experience a high degree of uncertainty in their careers.And turmoil at work has left them with the sense that their employers don't care about them. A recent survey of 50,000 employees by the Corporate Leadership Council (CLC), a program of the Corporate Executive Board, indicates that 42% of employees don't believe their employer looks out for their best interests.

The downturn has fundamentally changed the employer-employee relationship for the worse. Layoffs, compensation cuts, rapidly contracting career opportunities, and dissolved pensions and retirement plans are only a few examples of what underlies the breakdown in the employment contract. Not surprisingly, employee engagement has suffered: The number of employees putting forth the highest levels of effort on the job has decreased by 50% since 2007, according to CEB research.

Rifts in the employer-employee relationship not only create employee performance issues but also increase an employee's likelihood of leaving an employer. Right now this might not seem like a problem because tightened labor markets discourage employees from quitting their jobs. However, recent evidence suggests that the economy is recovering, and economists predict that the labor market lags the broader economy by six to nine months. With recovery comes increased job opportunity that will lure disengaged employees into the labor market.

just waiting to jump

This presents organizations with a unique challenge??nd opportunity: how to ensure that the best employees don't leave when the job market improves. But more pressing is that high-potential employees, who do have job opportunities at other organizations, are twice as likely to be looking for a job at another company right now, compared to the broader workforce.

The employer-employee relationship is defined by the benefit(s) each receives from the employment contract. For the employee, this employment value proposition (EVP) is about the rewards, opportunities, and experience gained by working for a particular employer. Components of the EVP lost value with the economic downturn and in turn drove down employees' engagement at work. Improving engagement and preventing employee departure when the job market expands means rebuilding the value part of the EVP.

Most organizations have focused on what is commonly believed to be the two most important aspects of the EVP: the organization's stability or compensation. The focus on stability seems logical; turmoil within the organizations disenfranchises employees and thus managing perceptions of the organization's instability could solve the problem. But CLC data show that an organization's stability is not only one of the least powerful aspects of the EVP for improving employee engagement but is also difficult to manage.

Stability takes a long time to reestablish once it is lost, and an organization cannot hide its health from employees or job candidates, who have access to information about an organization's performance through numerous sources. The best an organization can do is set accurate expectations and avoid making promises about the organization's current and future stability. While compensation is certainly a driver of attraction, not suprisingly it is the most important thing that job candidates care about, it is less effective at driving the engagement levels of employees. Competitiveness on compensation is what matters at driving engagement, not simply increasing it.

rebuild peer networks

However, there are several areas that make sense for employers to focus on to improve employee engagement and the EVP overall. One is the employees' working environment. A collegial workplace and qualified coworkers are 22% and 17% more important, respectively, to improving employee engagement in 2009 than they were in 2006. When employees face an uncertain future with their employer and stress in their day-to-day work, they want to at least enjoy the environment they work within. Unfortunately, nearly 60% of employees indicate their relationships with colleagues have broken down across the past few months due to layoffs and restructuring. To ensure that employee engagement does not suffer, organizations must rebuild peer networks??specially across teams and departments??o increase employees' connection with their colleagues.

Whether an employee's job matches his or her personal interests has the greatest influence on engagement in comparison to all other aspects of the EVP. Unfortunately, employees who experience disruptive change in the workplace, such as reshuffled teams and revised responsibilities, which altered their day-today work, are 26% less likely to be satisfied with the match between their job and their interests compared with employees who did not experience change. Yet during the downturn, 82% of employees experienced these types of disruptions.

As a result, many employees have been left in unexpected roles they weren't interested in. To appease the dissatisfaction associated with this disruption, organizations can simply involve employees in defining their new day-to-day responsibilities. CEB survey results show that moderate (not high) involvement in defining roles improves employee satisfaction with alignment between the job and their interests by 50%.

provide opportunity

A key aspect of the EVP that is of greater importance to applicants rather than current employees is professional development. Development opportunites ranked No. 4 out of 38 attributes to job seekers but only 17 out of 30 for employees at improving their engagement. (For a more in-depth look at the CEB survey results on EVP, please see the Employee Preference by Geography Table.)

While opportunity for development doesn't improve employee engagement, that doesn't mean organizations should scale back on development. Organizations face serious workforce-capability issues right now. Only 22% of successor candidates are qualified for promotion to the next leadership role. And 75% of managers say their teams' skill development is insufficient to meet their objectives.

Typically, organizations address these challenges through the manager, who usually owns and ensures development of his or her direct reports. But as organizations struggle to stabilize, managers are not a reliable resource for building employees' skills. Compared with the past year, managers spend 16% fewer hours per week on people management so they can spend more time on activities that produce short-term business results. As a result, mangers' effectiveness at development decreased by seven percentage points. As managers' focus turns away from managing their employees, organizations need to shift responsibility for development to employees and help them become self-reliant in their career progression.

Organizations need to improve their employment value proposition??articularly by rebuilding social and working relationships within their workforces, providing employees with opportunities to define their roles, and enabling self-reliant development. This will not only avoid a potential turnover problem but also improve workforce performance. Organizations that accomplish this will be the industry leaders coming out of the downturn.


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