How Employee Happiness Affects Organizational Performance & Bottom-Line Profits

Nothing shapes a workplace environment quite like employee happiness. A positive and enthusiastic staff can consistently influence the ambiance of any office. If the majority of your employees feel happy about their current jobs, it can have an exponential impact on your business.

What are the things that affect employee happiness?

This month’s issue of the Society for Human Resource Management’s (SHRM) HR Magazine addresses this question. It investigates the linkages between employee engagement, satisfaction and happiness. Interestingly enough, author Nancy Hatch Woodward writes “the results of employee engagement and satisfaction often don’t correlate.” She proposes that “engagement seems to be more closely linked to happiness than satisfaction.” Hence, employers may be better off concentrating on employee engagement activities.

You might ask yourself, what will keep my employees engaged in their work?

In her article, Woodward references research conducted last year by SHRM that helps to answer this question. The SHRM’s 2014 Employee Job Satisfaction and Engagement Survey, which canvassed 600 employees, measured the top engagement factors for respondents based on two separate categories. The two categories were workplace conditions “(the environment and the work itself)” and “workers’ opinions and behaviors (how the employees perceive their relationship with their work, as well as how they view others around them).”

Surveyed employees selected their relationships with their co-workers as their top factor for engagement under the conditions category. There was a tie for the second most cited factor for engagement within this category. Respondents equally cited both their relationship with their immediate supervisor, and opportunities to use their skills and abilities, as factors for engagement. The top engagement factor within the opinions and behaviors category turned out to be whether employees felt both determined to accomplish their work goals, and confident that they could meet them.

So what steps should employers take to further engage their employees?

Aside from recognizing which factors will make employees feel more engaged, employers also need to identify who should be executing engagement initiatives. Bain & Company’s Jon Kaufman and Rob Markey proposed in a Human Resource Executive editorial that there needs to be a shift from “a survey-dominated, HR-led engagement approach to one that emphasizes supervisor-team dialogues.” Kaufman and Markey came to this conclusion based off of a study that Bain conducted in collaboration with Netsurvey. The global survey required participants to think about whether their supervisors took responsibility for engagement, instead of just exclusively relying on HR. It deduced that “line supervisors, not HR, should lead the charge” on engagement initiatives. It is also interesting to note how this correlated with SHRM’s aforementioned findings that showed employees place a lot of importance on their relationships with their immediate supervisors.

Furthermore, a recent Gallup Web study of more than 8,000 employees advanced this theory. The study showed that managers who created engaging working environments actually catalyzed peak performance from their employees. The study found that, “workgroups with high levels of employee engagement experience[d] … 21 percent higher productivity compared with workgroups with low levels of engagement.”

In addition to job satisfaction and engagement, are there other variables that impact employee happiness?

In her article, Woodward suggests that employers consider approaching this issue from a more comprehensive perspective. She quotes a management research consultant who emphasizes the utility of “Maslow’s hierarchy of needs.” Psychologist Abraham Maslow’s theory is often illustrated in the form of a pyramid that portrays people’s level of needs. The highest level, or top of the pyramid, is what Maslow defined as “self-actualization.” This level represents a person’s full potential and their fulfillment of that potential. The act of “problem-solving” is listed as an important component to achieving “self-actualization.” Based on this notion, Woodward explores the idea that employees need to feel like they are applying their skills and abilities towards solving a problem that affects many people. She interviews a labor and employment lawyer who reinforces this notion by explaining he feels most happy when working on “an important and urgent matter with serious consequences.” This innate desire for “self-actualization” is what may definitively determine just how happy an employee can feel about their job.

How does employee happiness impact an organization’s bottom-line?

Employers around the world have increasingly become interested in trying to determine how employee happiness affects their organization’s productivity and earnings. Earlier this year, a team of economists from both the University of Warwick and the Institute for the Study of Labor (IZA) published a study titled Happiness and Productivity that aimed to measure this interrelationship. Their study, which included more than 700 participants involved in four different experiments, found that workers are 12 percent more productive when they are feeling happy. It also discovered that the subjects who were noticeably less happy were also less productive.

Ultimately, decreased levels of productivity lead to significant financial losses for employers. In 2013, Gallup’s State of the Global Workforce report found that “active disengagement costs the U.S. [economy] $450 billion to $550 per year.” In some cases, employee satisfaction and happiness can even influence a company’s stock performance. In July, Alex Edmans, a finance professor at both the London School of Business and University of Pennsylvania’s Wharton School, and two other professors from the Warwick Business School, produced a National Bureau of Economic Research (NBER) working paper that proved this premise. Their research showed that “employee satisfaction is associated with positive abnormal returns in countries with high labor market flexibility, such as the U.S. and U.K.”

If you take the right steps to immerse your front-line supervisors in engagement operations, your employees are more likely to feel consistently happy. In addition, it is incumbent upon employers to place employees in roles that will make them feel like they are achieving “self-actualization.” In turn, a happy workforce increases your organization’s chances of improving its workflow, production and profits.