How eroding employee confidence may threaten economic recovery Featured

8:00pm EDT April 25, 2010

After years of cost shifting, pay cuts and layoffs, employees have accepted their new roles as chief overseers of their own careers and financial security, according to a Towers Watson study exploring the post-recession attitudes of employees. But the burden of these added responsibilities on top of a stressful work environment is taking an emotional toll as employees doubt their ability to handle their expanding responsibilities.

Executives should not ignore employee worries or overlook their unfulfilled expectations. Instead, company leaders should take steps to help employees be successful in the context of an evolving employment relationship.

“In reality, the cost-saving measures enacted by executives during the recession are not cost-free decisions because they add stress to employees,” says Tom Davenport, senior consultant with Towers Watson. “These changes have drained employee confidence with potentially damaging consequences.”

Smart Business spoke with Davenport about the threats to employee engagement and why executives should intercede before productivity suffers.

What did the study reveal about employee attitudes?

In our survey of 20,000 workers in midsize to large companies, employees expressed angst about their futures. They’re worried about saving enough money for retirement as companies retreat from defined benefit pension plans, and about affording health care coverage as employers shift costs. They crave an emotional connection with their leaders and support for their careers, yet they sense a growing gap between their expectations and leader behavior.

Employees also said that executives often bend to the demands of shareholders and Wall Street analysts at their expense. In fact, employees say they rank third on executives’ list of priorities after shareholders and customers.

Overall confidence in senior leadership was disturbingly low with only 50 percent of employees reporting a favorable view. It’s time for executives to rebuild trust and help employees manage their diverse responsibilities in order to bolster their confidence.

How can employers boost employee morale?

Start by selecting the right managers and empowering them to make a difference. Executives often believe that line managers need more technical expertise than relational skills because they wear many hats. They think middle managers create additional expense and impede the lines of communication. In reality, supervisors and middle managers play a vital role in implementing major initiatives like cost reductions. They can communicate the reasons for change and take action to reduce stress in the work environment. Promote managers who possess a full range of competencies, and don’t overload line managers so they can be thoughtful leaders who spend quality time with direct reports.

Has the role of human resources changed?

HR must enable employee self-reliance by providing the tools and resources they need to survive under post-recessionary employment relationships. This new role requires an HR organization that can adapt swiftly to change, one that uses a holistic approach and addresses employee needs via a comprehensive plan. Traditionally, HR has been structured in functional silos, which leads to disparate data collection and programs. When you break down the internal barriers, HR can respond to signs of dwindling employee engagement, like increasing absenteeism or declining productivity, with coordinated and connected wellness programs, incentives or training.

While many companies offer self-service financial management tools, employees also need stress management skills, health management resources and career planning strategies to be fully self-sufficient. This is the perfect time to connect with employees and offer new services to boost their confidence.

How can employers use compensation, given smaller annual raises?

Many companies are moving to larger performance-based incentives and smaller annual raises, but it is still possible to raise confidence and limit turnover by designing a flexible compensation system that rewards high achievers and affords every employee the opportunity to increase income. This is treacherous territory, however, because competitive base pay is still the primary attractor of new talent according to our survey, and 61 percent of employees said that making more money was very important after several years of limited promotional opportunities and small raises. The stakes are high, so HR needs to take the time to get it right.

How can executives rekindle employee trust and sustain engagement?

Now that the economy has improved, executives need to focus internally rather than externally; in fact, 44 percent of surveyed employees said that senior leaders should be more visible and were conspicuously absent during the recession. Simply spending time with employees and giving them a chance to voice their concerns can be therapeutic after the prolonged downturn. Leaders are expected to care about the well-being of others, so if morale seems low, it may be time to take a stand and declare an end to cost cutting. Some CEOs have recently declared their companies fat-free, such as Mark Hurd, president and CEO of Hewlett Packard. His bold actions received kudos from his employees. Rebuilding employee confidence takes time and a plan, but the key is trustworthy leaders who keep their promises and advocate for employees.

Tom Davenport is a senior consultant with Towers Watson. Reach him at (415) 836-1127 or