The Consequences of the Sharp Decline in Employee Loyalty

When the modern workplace is increasingly transactional, is employee loyalty just outdated? Explore the meaning of employee loyalty in the workplace and what’s truly needed to keep valuable employees.

Organizations depend on employees’ loyalty as it’s vital for organizational success. In the post-war era, there was a concept of “lifetime employment,” where employers offered the stability of a job in exchange for loyalty and commitment.

However, over the last year, more than 47 million Americans voluntarily left their jobs during the Great Resignation, sparking a global debate around the dwindling loyalty and unattachment of white- and blue-collar workers.

When the modern workplace is increasingly transactional, is employee loyalty just outdated?

This article explores the meaning of employee loyalty in the workplace and what’s truly needed to keep valuable employees.

What is Employee Loyalty?

Many company leaders talk about building employee loyalty but have differing views on what loyalty actually means. For some, employee loyalty means complete and utter devotion to one company. Other employers may describe a “loyal” employee as one who doesn’t speak negatively about the company or team. For many, it simply means turning down other job opportunities or a long tenure at one company.

Clearly, the employee loyalty definition is very broad, ambiguous, and complex.

Most people would agree with the definition that a loyal employee is devoted to their role in the organization and remain committed because they believe in the company’s work. To a certain degree, they are willing to make a personal sacrifice for the benefit of the organization and the desire to see its growth.

Some characteristics of loyal employees are:

Genuinely dedicated to the organization’s success and prepared to invest their time and energy to see it grow.
Show perseverance and dedication; they don’t need to be micro-managed and never slack off.
See challenges and obstacles as opportunities to find creative solutions or innovate existing processes.
Follow ethics in the workplace; they have professional working relationships with other coworkers, avoid “office politics,” and don’t badmouth their team or company.
A personal sense of fulfillment that loyal employees find in their work makes them less likely to switch jobs.

Employees’ unwavering commitment creates a positive work culture and increases company pride. By boosting loyalty benefits and increasing employee engagement, companies can reduce costs associated with high employee turnover.

One effective strategy for raising an organization’s commitment levels is introducing an employee loyalty program.

What’s an Employee Loyalty Program?

The financial performance of companies, regardless of the industry, is highly dependent on their employees’ participation, commitment, and loyalty. Employers finally realize that workers are more productive when the company continuously acknowledges their efforts and needs instead of ignoring them. Employees who don’t feel treated fairly are less inclined to commit to their positions.

As a result, well-thought-out recognition programs have become increasingly popular.

Employee loyalty programs refer to rewards systems set in place by a company to recognize employee performance and to increase extrinsic motivation. Many companies utilize a combination of employee rewards platforms, performance management software, and employee recognition software to properly acknowledge an employee’s dedication.

In terms of design, rewards and recognition programs often have similar elements as they provide psychological rewards and financial benefits.

Traditional incentive schemes are less effective than employee-based programs as they are solely based on periodic achievements and reviews. Loyalty programs offer consistent and on-the-spot recognition of employees’ efforts and actions from managers, HR, and coworkers.

The Importance of Employee Loyalty

Employees are an essential resource for any business. Businesses spend a considerable amount of money and time on recruiting and training, as well as salaries and benefits. However, when an employee needs to be replaced, they incur a huge expense.

According to Gallup, U.S. businesses lose one trillion dollars annually due to voluntary turnover. Other statistics show that Millennials are three times more likely than non-millennials to switch jobs.

Generation	2022 Median Years of Tenure
Millennial: 1982-2002	3.75
Gen X: 1965-1981	6.9
Baby Boomer: 1946-1964	9.9

Source: Bureau of Labor Statistics

Undoubtedly, employees’ dedication to their job, their emotional investment, and their commitment to the organization can significantly affect the performance of organizations.

When companies nurture loyalty in people that work for them, they can see incredible benefits for everyone involved. When employees are loyal to their workplace, they are willing to invest in their work and go the extra mile. Dedicated employees are happy at work and spread a positive work culture.

The importance of employee loyalty is evident, and businesses should continue to focus on it and attempt to increase it. However, one big misconception in the corporate world is that if you pay your workers a good salary, they will be loyal to the company, but that isn’t the case.

Yes, employees need to be compensated fairly, but that’s not the only thing that keeps them returning to work every day. If employers want to increase employee loyalty, they should focus on creating a positive employee experience, emphasizing growth and well-being.

The Decline in Employee Loyalty

Walter Orthmann has worked in the same company in Brazil for more than 84 years, currently holding the Guinness World Record for the longest career in the same company. A sharp contrast to today’s reality, where the average tenure is only 4.1 years, according to the U.S. Bureau of Labor Statistics.

Employee loyalty has declined for two decades, even before the pandemic, and there are several reasons for it.

Rising Cost of Living

Looming recession, mass layoffs, and trends like “Quiet Quitting” signal a significant shift in employee engagement and a decreasing sense of commitment to organizations. The minimum wage hasn’t kept up with the rising cost of living or inflation, causing many employees to search for better-paying jobs or make cost-cutting efforts constantly.

According to a survey by Elevate, 80% of respondents believe benefits support their financial security, yet only 40% of employees have an HSA or an FSA. Moreover, the survey found that many employees had to reduce spending to focus on necessities. Often, healthcare is the first expense to get cut, with 28% of employees reporting they put off a screening or wellness check to save money.

When employers are laying off employees with little regard for loyalty or length of service and also whittling down benefits, it’s no surprise that employees feel disconnected from their work.

Evolving Employer-Employee Contract

The fundamental shift in the employee-employer relationship can explain the further decline in loyalty. Employers are under increasing pressure from shareholders to reach KPIs and perform well, and as a result, they cannot always provide job security.

Technological Advancements

On the other hand, switching jobs has never been easier due to technological innovations. Gone are the days when employees had to mail their resumes in or look for job openings in a newspaper. The internet and social media have given employees a larger platform to discuss their good and bad experiences.

As a result, the expectations of employees have changed. They are now more likely to switch jobs if they feel like their current role isn’t fulfilling or if they receive a better offer from another company.

Increased Retirement Mobility

Furthermore, transitioning from corporate pensions to 401k plans means employees aren’t tied down to a company and have greater mobility. For many employees, flexibility and mobility – rather than corporate allegiance – is the key to increasing pay and expanding opportunities.

The Consequences of Losing Employee Loyalty

Why should companies care about employee loyalty?

The answer is simple: companies that have employees with high levels of loyalty tend to be more successful than those who do not. In fact, there are some consequences of losing employee loyalty that can harm a company, including:

Decreased Productivity
Increased Employee Turnover
Higher Recruiting and Training Costs
Decreased Morale
Negative Publicity

On the other hand, companies that nurture loyalty among their workforce can experience the following:

Improved productivity: Loyal employees naturally seek improvement and success in the workplace. Loyal employees are natural leaders and spread positivity and motivation that can transfer to other employees.
Improved customer experience: Employees who value the company can pass those values to customers through daily interactions. If customers have a negative experience with the same employee, it can ruin the company’s reputation. It’s like a chain-link reaction – if an employee’s loyalty is damaged, it can damage the customer’s loyalty and, eventually, the entire company’s reputation.
Company and employee growth: High turnover is not only bad for company profits but also for company morale. If there is not a strong presence of employee loyalty in the company, employees won’t be interested in staying at their jobs long-term. One way to improve this is by adopting employee incentive programs and rewarding employee growth.
Easier recruitment: Employees who are treated well and feel valued in an organization might encourage other job seekers to apply for a position. This results in faster filling of positions and easier sourcing of company talent.

The price of losing loyalty is steep. Productivity plummets, training and recruiting costs skyrocket, and employees leave in droves—taking your company culture and valuable institutional knowledge.

Building Employee Loyalty

There are several things companies can do to build employee loyalty, but some of the most important include the following:

Creating a Positive Work Environment
Offering Competitive Benefits and Salaries
Promoting from Within
Recognizing and Rewarding Employee Achievements
Encouraging Employee Development
Building a Positive Company Culture

Employee loyalty will not improve overnight. It is a long-term connection that needs to be nurtured with time and effort.

On a Final Note 

The bottom line is that employee loyalty is essential for the success of any organization. By focusing on the factors that contribute to it, businesses can create a more positive work environment and a more successful company.

Written by Shortlister Editorial Team

Sources

Employee Incentive Programs

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