The advantages of retaining loyal employees

When 54-year-old Pratik Sharma, a senior manager at a European cutting tool company, was told that he was being “let go of”, his world came crashing down.

Pratik joined the company in his early 20s and had worked for over three decades in the company. His daughter was to get married in a few months and here he was, without a job.

“It was not a question of the company losing money so they have to let go of people. This was, ‘the company is doing fine, but we’re able to make more money by letting people go,’” says Pratik.

Relevance of loyalty

Pratik is not alone. Major tech companies are cutting thousands of jobs worldwide in an effort to boost profitability.

Is loyalty even relevant in today’s work culture? “Loyalty will always be an asset for the employer. I am not sure it’s any longer an advantage for the employee. Family businesses still place a value on loyalty, as do perhaps legacy companies in manufacturing. In the knowledge and technology space, I don’t see loyalty being a value either way, in fact, employees have more options to choose from nowadays than the other way around. This leads to an emphasis on people engagement to keep employees satisfied,” says Ram S Ramanathan, former president of an engineering conglomerate.

Loyalty between the employer and employee in India has eroded today. “Employers were the first to break this emotional bond of loyalty for short-term profitability. I saw this trend increasing in the nineties. Multinationals led the way following the American pattern,” says Ramanathan.

Cost of attrition

What many companies overlook is that there is a cost to employee turnover that does not reflect in the balance sheet—skill, knowledge and experience.

Even in professions that employ low-skilled workers, companies tried to mitigate employee attrition by “de-skilling” jobs as much as possible, with automation. But the math shows that this is still not enough to offset the money saved by retaining an experienced employee.

Data drawn from 30 case studies taken from 11 research papers on the costs of employee attrition found that on average, it costs the company at least 20% of the employee’s salary when an employee leaves. These costs arise from a wide range of issues from loss of productivity, the cost of finding a new replacement, reduced productivity while the new employee gets up to speed, training costs etc.

Beyond the more tangible losses, it affects the team’s stability and causes other employees to also reconsider their loyalty towards the organisation. Poor employee loyalty can also negatively impact a company’s image.

“The biggest cost to a company when an employee is “let go of” is morale, trust and safety which Google, Amazon, Microsoft etc are facing now. This doesn’t go away with those who leave but it also demotivates the ones who are left behind,” says Ramanathan.

An invaluable asset

A survey of employees in 13 industries across 16 countries done in 2022 by management consulting firm Mercer’s Global Talent found that 39% of employees globally and 43% of US workers say their current company is not meeting their needs in the workplace.

A monthly paycheck alone is not enough. Most people have a need to feel valued and respected; they need to feel that they can make a difference. In a survey by Georgetown University’s Christine Porath of nearly 20,000 employees worldwide, respondents ranked respect as the most important leadership behaviour.

When people feel undervalued, they leave at the first opportunity that comes their way. The ones with the most marketable skills and talents—often the company’s best people—are the ones that exit first, and these are exactly the employees that companies can least afford to lose.

“Although the success of an organisation is the foremost priority, a company’s employees are its valuable assets and an integral part of the ecosystem. Years of experience are hard to replace by any means. Employees are the best brand ambassadors of the organisation to drive the value and growth of the organisation. One can’t buy loyalty, but we can certainly foster and nurture it by genuinely taking care of the employees,” says Pradeep Patil, managing director of the Indian arm of a German machine tool company.

Despite the post-pandemic era in workplaces weighing down with newly minted terms like “Great Resignation”, “Quiet Quitting” etc, having loyal employees who are eager to contribute and work with passion and love, is an invaluable asset for a company. Companies should treasure them and nurture them because as the saying goes, “the most precious jewels are not made of stone—but of flesh.”

(The author is the managing director of a Chennai-based fixture-building company)