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The Loyalty Factor

September 1, 1992
Related Topics: Motivating Employees, Retention, Featured Article
Joan McGuigan has a tough job. As a registered nurse in the emergency room of Children's Medical Center of Dallas, her daily experiences include children who are having seizures, hemorrhaging or are experiencing a diabetic coma. Their parents may be drunk, prostitutes or teenagers themselves. It's a high-stress job that many people, even nurses, wouldn't be able to handle. But she loves it.

McGuigan has worked at this job for more than eight years. She knows she can make more money elsewhere, but every weekend, she drives almost an hour, past other hospitals, to get to the inner-city medical center in which she works two 24-hour shifts. "I've worked at smaller hospitals in which the people were friendlier and the place was cozier, but I also felt I was working beneath what I could do," says McGuigan. "The people were good, but they weren't the front runners; they weren't the ones who were going to try something new. I'd always be thinking, 'I bet they do it better at Children's.' If you're really into something, you want to be in the forefront."

McGuigan is one of the crucial employees in corporate America: a high performer with enormous loyalty to her company. Her top-notch skills aside, it's McGuigan's remarkable commitment that sets her apart. Years back, such fidelity and commitment to a company would have been taken for granted. But as human resources professionals know now more than ever, loyalty is a precious commodity.

The age-old adage that if you work hard, if you're skilled, and if you're devoted, you'll be rewarded with money, benefits, promotion and a secure retirement no longer is a truism. The psychological contract between employee and employer now includes the caveats—as long as the company remains profitable and doesn't get acquired, and the overall economy doesn't get too bad. In other words, there are no guarantees.

Companies no longer are able to give absolutes to their employees. Indeed, no matter how well-intentioned senior management is, the figures speak for themselves. According to a 1991 survey by the American Management Association, work-force reductions skyrocketed to 55% of surveyed companies in the 12 months preceding June 1991 (up from 35% the preceding year).

To further complicate the relationship between employee and employer, downsizing, and the increasingly competitive nature of business, compels organizations to be more dependent on their employees to perform well. They expect more of them. At a time when companies have fewer financial resources to entice them, businesses need to attract and retain top talent.

On the other hand, American workers have changed their attitudes toward the "contract." Employees are looking out more for their own well-being, and the reasons are numerous: Perhaps their own jobs are in jeopardy and they've witnessed massive layoffs; or they've become disenchanted because they feel the nature of executive compensation is out of line. In addition, their priorities regarding their families are higher, and they have multiple and sometimes competing loyalties.

Although sweeping generalizations usually are dangerous, it's safe to say that the definition of loyalty and the expectation of commitment between employer and employee are in transition. The rules have changed for both sides.

"I wouldn't say it has disappeared, but there's a different kind of loyalty," says Suzanne Kenney, manager of the Employee Listening Practice for Hewitt Associates, an employee benefits and compensation firm based in Lincolnshire, Illinois. "It's earned loyalty—in both directions. Employees are now asking, 'Is my company loyal to me?' "

What are the implications for human resources professionals who have to manage this ever-changing work environment? How can they engender trust and hold on to high performers? In the absence of some of the extrinsic rewards, such as promotions, what kinds of intrinsic compensation can organizations offer employees to foster loyalty?

The company's loyalty to the employee takes several forms, but is shown most often in three ways: through the organization's commitment to employees that they're partners; through benefits, both financial and work- and family-related; and through jobs that offer professional and personal development for employees.

Making employees partners.
According to Kenney, who facilitates communication groups, companies that want to hold on to valued employees are approaching them proactively. Because these companies are attempting to be more competitive, many are trying to build more efficient, effective partnerships with employees.

Children's Medical Center of Dallas is a good example. In the health care arena, turnover in professional ranks (particularly registered nurses) is one of the most talked-about issues. The shortage of nurses is only one reason. Other reasons include: Nursing has a high burn-out rate; technological advances occur at quantum rates, so nurses who have been out of the work force for a while may need to retrain before they return; and because the work force is largely female, nurses leave because of child care considerations.

As a result, the HR staff at the Dallas children's hospital has been making enormous efforts to motivate its staff to remain. As do many other health institutions, it has a high turnover rate for nurses (23.5% for nurses, but only 8.5% for the rest of the staff). When the hospital began to build a new tower, it was critical that it expand its number of registered nurses from 200 to 500 while retaining its current ones. Although all professionals are necessary, it's the lack of registered nurses that can prevent a hospital from opening a unit or can cause it to close one down.

Fortunately, for Children's Medical Center, many nurses have been there 15 and 20 years. "What inspires fierce loyalty is a sense of purpose and the recognition of their contribution," says Shirley Lopez, VP of HR for the medical center. "They [employees] need to be treated fairly and be allowed to develop and participate. They need to believe that their leaders know where they're going and know what their individual place is—where they fit-in in that progress."

Loyalty is earned both ways. Employees are now asking, 'Is my company loyal to me?'
Suzanne L\Kenny
Hewitt Associates

To address the issue of making employees partners and letting them know where they fit in, Children's Medical Center contracted with a consulting firm to help define the organization's mission and begin to help in the process of communicating it to the workers. A key element is the employee's role.

"If I work for a company that knows where it's going and can share that with me, then I'm going to be more committed to that as a direction," says Lopez. "Getting it down to strategic objectives that can be communicated and shared is important. I need to realize that my leaders know where they're going. People need a sense of purpose. Loyalty to the hospital (or any organization) should be a fallout of that."

Apple Computer Inc. in Cupertino, California, is another company that has made an effort to make employees partners in the business. And for good reason—since June 1991, Apple has undertaken unpopular and severe cost-cutting measures as well as reducing its work force. Of the 12,000 employees worldwide, Apple will cut its work force by 10% within an 18-month period.

The computer company at one time had an extremely generous profit-sharing program, recognition bonus programs, and, according to Adelle Di Giorgio, corporate employee relations manager, a base compensation program in which employees were paid at the 90th percentile. Apple held staff meetings in exotic places and threw lavish company parties. All that has been pared down. For starters, management moved salaries to a more competitive place in the market, altered the profit-sharing program (so that the company doesn't pay profits if it doesn't make a profit in a quarter), and limited the stock programs and recognition bonus programs.

"That [the financial changes], coupled with the downsizing, has made people wary. They wonder, 'Why should we continue to work all the long hours? What do I tell my family if I work a 70-hour week, and I can't even be sure I necessarily have a secure future?' " says Di Giorgio.

The executive staff at Apple takes these concerns seriously and has acted on them. First, John Sculley, the company's chairman and CEO, took a reduction in salary and bonus; the salary cut was 15%. All people at the director level and above took a 5% to 15% cut in salary. Apple's major strategy, however, has been to communicate with its employees. "You can't make people feel good about downsizing or about bringing compensation more in line with market or whatever you're doing to keep the company healthy," says Di Giorgio, "but we treat our work force like partners and adults, which they are. We have to help them understand the bigger picture so they don't feel management is acting capriciously or out of its own self-interest."

One way Apple has accomplished this is through companywide meetings in which Sculley and Michael Spindler, president and COO, talk with employees. These forums are sometimes televised throughout Apple internationally. The company also has an employee executive forum in which 12 employees, selected by a lottery, come to company headquarters and discuss ideas with top management. They hold a dialogue, which is videotaped and sent to all employees companywide, to illustrate that there's candor and concern on the part of Sculley, Spindler and other top people.

In fact, part of Apple's business plan calls for developing more one-on-one communication between management and employees. The employee communications department publishes a quarterly newsletter for managers. In it, these employees are given in-depth information about the business, as well as the technical and product side.

Di Giorgio sees a range of reactions by employees to the changes. There's a less-negative reaction the more they understand the business issues and what the company is trying to achieve. She admits that although people aren't standing in the aisles clapping, and a few employees have chosen to leave, the company isn't experiencing dramatic turnover.

Fostering loyalty through benefits.
There are a number of efforts in the benefits area, particularly financial and work- and family-related, that are designed to reinforce and earn employee loyalty. For starters, there's a trend toward a greater relationship between individuals' earnings and the degree and quality of their efforts. Incentive pay is a common example.

"We're beginning to see some of our clients talk about stock options and stock purchase plans for broad employee groups," says Kenney. Employers are looking at profit sharing and incentive pay programs in which the average employee has the same format of pay that senior executives do. Aside from whatever the plan may be, Kenney says that employees are appreciative that they'll be in the same plan as the executives. This tends to lessen displeasure and perception of a disparity of executive pay, a sore issue with employees, especially when a company is downsizing.

In addition, it also ties the employee to the long-term well-being of the company. "If you offer a stock plan as opposed to strict merit or pay increases, you're trying to have employees understand the team concept," says Kenney. "They begin to see that many different factors, steps and behaviors affect the performance of the company. You're more closely aligning the individual's personal goals with the company's goals. It also helps balance out potential conflict of each individual having his or her own incentive and saying, 'I'm not going to help you. That's not my job.' People also tend to work better as a team."

Work and family benefits also are related to the employee loyalty issue. The existence of these benefits in the work structure is important because without them, employees either quit their jobs or become unable to handle the responsibilities of their job if they can't arrange for day care or elder care providers. Thus, the lack of these programs may cause turnover problems. The presence of good programs helps companies with retention and recruitment.

Children's Medical Center is an organization that has used financial, work and family benefits to help win the loyalty of employees such as McGuigan.

For example, the medical center's turn-over report seemed to show that people were leaving at the three-year mark, as opposed to staying for five years. The human resources department began addressing that challenge in July 1990 (in anticipation of the hospital's expansion) through a pension program. The hospital matches pension contributions at 50 cents on-the-dollar for years one and two. For the third year, the match increases to 75 cents. Pension contributions are fully matched at the fifth year.

In the area of work and family benefits, the medical center went from a partial flex plan to a full-flexible benefits plan at the same time. The hospital has a strong commitment to personnel policies that will work for this particular population. "We have every kind of flexible schedule you could dream up," says Lopez. "We have made available—to the extent we can—a way to accommodate any schedule preference so that people can work 8-, 10-, or 12-hour days, weekends only, 1/2-days or middle of the day."

McGuigan's flexible schedule is one of the reasons that she enjoys working at the medical center. As a single mother of three children, ages 8, 10 and 11, she works from 7 p.m. to 7 a.m. on Saturday and Sunday and gets paid for 40 hours. "I'm home all week when my kids are in school. It makes my life so much easier," she says.

McGuigan says the flexibility Children's Medical Center offers makes a major difference in her life. She has worked this shift for four years—ever since the hospital offered it as an option. When she started with the medical center eight years ago, her youngest child was an infant and the others were toddlers. "I worked five days a week, and I was a basket case. I'd come home, nurse the baby and have two toddlers pulling at my pants. When the hospital opened up this scheduling, it was tremendous," she says.

Just as important as having these benefits to offer to employees is making sure that they're communicated to employees. As Kenney explains, simply having these benefits and communicating them illustrates that the employer cares about the employees; that they are treated well. More importantly, however, is how the company communicates these benefits.

For example, if the company is placing an emphasis on quality, and as part of that, is encouraging employees to have more control over their own work, the message can be stated, "We're trying, within the context of our quality program, to have decisions made in our work and operational areas in which the person who has the right amount of information and the person best-equipped to be making the decision is making the decision. We're doing the same thing with our benefit program. Why should we in the benefits area decide what kind of benefits employees should have? We're going to allow you input."

The underlying message is: Just as we care about your needs, we hope you'll care about us and your work environment. Other employers may communicate benefits programs as part of their being a premier employer who offers the best to its employees, just as it emphasizes quality in the workplace.

Kenney suggests to employers that they consider doing lifestyle and generational surveys that ask the employees what's important in their lives. How do they rank advancement opportunities, income, health benefits, time to spend with family? She says the information employers receive gives them data that gets directly at employee loyalty.

"It invites employers to use the same kind of analysis with their employees' needs as they do with their customers and clients," says Kenney. They are, in effect, selling themselves to their employees—trying to win them over with something attractive in return for something they'll give to the organization.

Offering professional and personal development.
Paula L. Goodman is a vice president of Citibank who specializes in college recruitment. She has worked at the bank in New York City for six years and is a good example of the positive effect that the feeling of professional and personal development can have in fostering employee loyalty.

During the worst of Citibank's layoffs, when almost half of Goodman's colleagues, mentors and friends were losing their jobs, she hung on. Even when the anxiety was palpable, even when her family and friends urged her to start looking for work elsewhere, she chose to stick it out with the bank.

"I have a big investment in this place," says Goodman. "I decided I'd much rather sit with the anxiety and see what happens. Presuming things just keep getting better, I truly believe that this is a good time to be here. I have a sense that the whole bank is going to be better and it's going to be good for the people who stay."

In Goodman's case, because she's working harder than she's ever worked before (she has less staff than when she started with Citibank), the challenges are even greater. "The result is that I'm having to stretch myself more, and I'm learning more," she says. In addition, because Goodman's work is varied, she finds her job stimulating. "I believe the opportunities for future growth are enormous," she says.

Another way to generate loyalty among high-potential employees is to offer lateral moves that are challenging and satisfying. Even when an organization is downsizing, managers can give good people experience that will help them further their careers. If the downsizing takes a while, managers can give their employees skill-building opportunities and the chance to take on challenging new projects. It's important that employees have a sense of being treated fairly and feel that their careers are being supported.

Bruce Tucker, co-author of The New Individualist: The Generation After the Organization Man, agrees. He says that when you deal with the best and brightest, what you have to do is work with their commitment to their profession and to the substance of their work.

"Ironically, the more challenges that you give these people—[such as lateral promotions] that would prepare them to leave the company, stretch them in the kinds of things they can learn and the different responsibilities they have—the more likely they are to stay, even though all that stretching is preparing them to leave. That's the paradox," Tucker explains.

Loews Corp. is one company that offers such job enrichment and job rotation opportunities. When an employee leaves, at least part of that responsibility is given to someone else temporarily. If that person succeeds, it becomes part of his or her regular job. The company also compensates that individual, who now has a more interesting job.

"It's been great for me," says Alan Momeyer, director of personnel services for Loews, a 12,000-employee conglomerate based in New York City. "I've grown and learned. It keeps me interested. The company gives you a chance to grow beyond your level of competence. That's what has to be done to hold on to good people."

Momeyer believes that loyalty is tied to the health and quality of the corporate culture; the way in which the organization manages and treats its people. "If a company is healthy and stimulates people, if it doesn't narrow them or it's too highly charged politically, if it gives a person a meaningful job and pays them a decent wage to do it, I think people will hold on to the job because there are very few employers who have those basics down," Momeyer says.

Eleanor Haller-Jorden, founder of the Paradigm Group, an international HR research and consulting firm based in Zurich, Switzerland, points to the performance appraisal process as a way to create growth opportunities for employees. Haller-Jorden believes that when dealing with high-potential workers, human resources professionals should place great emphasis on this process as a way to help in career-pathing efforts. "There should be much more emphasis placed on future development and opportunities for growth instead of simply responding to past performance," says Haller-Jorden.

Don't make the assumption that the once-a-year performance appraisal conference is enough with these people. "Managers aren't as adept at coaching and working with high-potential employees on reasonable career expectations and knowing what skills to develop to increase the likelihood of their being considered for a specific opportunity," says Haller-Jorden.

The HR department at Children's Medical Center has incorporated many of these ideas into its programs. The "clinical ladder" is one example. Salaries increase based on how much an employee does. "If you want to give in-services on your unit or question/answer projects or do nursing research, you can earn more money," explains McGuigan. If a nurse has an interesting case or if she wants to research a new diagnosis, he or she can gather the data and present it. This not only encourages career development, but it also develops the entire staff. "If I weren't a single parent with two jobs, I'd do more," she says. "There are nurses who love it."

The medical center also has discovered that offering employees greater involvement in the decision-making process generates allegiance among high-potential workers. For example, the nursing department encourages independent work teams to try to get decision-making closer to the people who actually deliver the care.

They're encouraging what Lopez calls "independent practice." It's an attitude that encourages autonomy and creates an environment in which the nurses who care for the children use their expertise. In doing so, each nurse's contributions and skills are appreciated.

When it comes right down to it, employees are loyal to their companies and committed to their jobs for so many reasons: quality of the work environment, shared decision-making, flexible work arrangements, compensation and benefits. These are factors over which human resources professionals have some degree of control. In some cases, however, it comes down to intangibles; to a mix of all the right ingredients.

In McGuigan's case, it's the pioneering work being done at the medical center, the flexible job schedule and the top professionals the hospital continually attracts. "I just love my work," says McGuigan, who adds, "I want to be at the best place for it."

Personnel Journal, September 1992, Vol. 71, No. 9, pp. 52-62.

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