What is loyalty?
Loyalty (derived from the French "loyal") - a favorable attitude towards someone or something. An employee can be loyal to a manager, colleagues, or the company as a whole.
People are social by nature, they need to feel they are part of society, therefore they are continuously searching for a group of people that matches their aspirations. Loyalty is an instinctive human need.
Employees have two types of loyalty: affective and normative.
Affective loyalty is emotional attachment. An employee with affective loyalty is emotionally attached to the company, identifies with it.
With affective loyalty, the employee is proud of the organization they work for, associates it with their the future, recommends as a place to work at, generally supports changes.
Normative loyalty is a rational attachment. The nature of its formation is becoming used to the standard of living provided by working at the organisation; an unwillingness to leave due to the difficulties in finding a new job; a sense of duty towards a leader or team.
Such an employee usually does not feel genuine pride in the company and often wouldn't recommend it as a place of work.
Why a low level of loyalty is dangerous for a company
Low loyalty carries many financial risks for the company. Let's look at the main six.
1. Costs of valuable employee turnover
The departure of a valuable employee from the company is always associated with high costs. They consist of:
- The costs associated with replacing an employee who resigns.
- The cost of recruiting a new employee (when contacting a recruiting agency, this expense can amount to three salaries for the one position).
- The cost of training and onboarding a new employee. This also includes the time spent by the manager and colleagues in charge of training a new arrival.
- Loss of accumulated experience and expertise, which is difficult to put a figure on.
- Expenses associated with downtime or the provision of substandard services to clients while replacing an employee or training a newcomer.
The direct damage from the departure of an employee amounts to six times his salary. Plus six more times for hidden losses. For example, an employee with a salary of 70,000 rubles (960 dollars) leaves the company. Business losses will amount to over 800,000 roubles (11,000 dollars).
Imagine the scale of the loss if an average of 20% of employees leave the company every year.
(This rule does not apply to companies where high turnover is the norm and is taken into account in business processes.)
2. High Recruitment Costs
High loyalty of employees is expressed in their readiness to recommend their company as an employer to friends and acquaintances. Positive testimonials in personal conversations, social media posts can strengthen a company's HR brand. As a result, the cost of recruiting new employees will decrease. On the contrary, negative recommendations will worsen the company's HR brand and make it difficult to hire employees.
Recommendations work for employees of all levels and professions. This is especially important for industries and regions with intense competition for talent, where a professional can choose between 3-4 companies.
3. Salary expenses increase by 30% or more
One of the most important facets of loyalty is pride in the company. Love for a brand is not based on reason and suggests that employees want to be part of a large well-known company, to contribute to an important, useful product. Factors like satisfaction with salary or terms take second place.
Thus, high loyalty allows employees to pay lower salaries compared to competitors. Disloyal employees, in turn, will need to be retained with high salaries - higher than those of competitors, by 30% or more.
4. Inefficient Spending of Investment Money
Loyal employees are ready to support changes in the company, disloyal employees are not. Employees' unwillingness to change is difficult to spot until changes are implemented. This is the main danger of disregarding a loyalty evaluation.
If there are more or as many disloyal employees as there are loyal ones, a company can expect the following:
- All proposals and initiatives will be secretly or openly undermined.
- Calls to take the initiative to improve processes will be ignored.
- Consent to the changes will only be superficial. Strict control over implement all stages of the project will be required.
5. High Costs of Restoring the Work of Key Departments
Low loyalty leads to high turnover, changes being rejected by employees, workers going through the motions. If low loyalty is inherent in employees of key departments, the company can suffer serious losses - due to poor quality of products or services it can lose its reputation and customers. Also, rectifying the situation will be very expensive for the company.
6. Loss of Revenue
Highly loyal salesmen close 37% more deals than disloyal salesmen, according to research. This stems from belief in the company's product and a better understanding of its advantages and how it differs from those of competitors.
We studied Russian companies from 17 industries and found a pattern: high loyalty of staff ensures leading positions in their industry.
Loyalty has five facets. Let's consider each facet and the factors that affect it.
Typically, pride arises when an organisation has a strong HR brand, plays a significant role in society, or produces quality products.
This aspect of loyalty is the most important - it demonstrates the employee's emotional attachment to the company. An employee who truly loves the brand will see rational factors, such as the level of salary or the quality of the working environment, as secondary.
On the Happy Job platform, this facet of employee loyalty is measured by the "Proud of the Company" metric.
Plans to work for the company for the next few years
An employee will be ready to associate his future with the organisation on two conditions - if he sees career prospects for himself and if the company and its activities make him proud.
On the Happy Job platform, the metric "Staying for the Future" is provided for this facet of loyalty.
Willingness to recommend the company as an employer to friends
Several factors affect willingness to recommend. First, the company has a satisfactory salary and working conditions. Secondly, the line manager has sufficiently developed managerial competencies. In particular, the ability to give feedback and recognise the merits of employees.
On the Happy Job platform, this facet of loyalty is measured by the “Recommends Company” metric.
No Desire to Change Jobs Now
An employee will rarely think about leaving the company if they are currently satisfied with the level of remuneration and benefits, and are also aware of career prospects.
On the Happy Job platform, this facet of loyalty is measured by the "Will Stay Now" metric.
Striving to do more than is required
For employees to be motivated to do more than is required, the company must be able to build horizontal or vertical careers.
On the Happy Job platform, this loyalty aspect is measured by the “Striving to do More” metric.
Employee Loyalty Analysis
On the Happy Job platform, loyalty research is carried out according to five metrics - "Proud of the Company", "Staying for the Future", "Recommends Company", "Will Stay Now" and "Strives to do More". Each satisfaction metric has its own question. Employee responses create a score from 1 to 10. The arithmetic mean for all metrics is an indicator of employee loyalty.
How to get accurate data when interviewing employees
Employees are often afraid that honest answers will negatively affect their future with the company. Anonymity eliminates such fears - you can express your opinion, criticisms, ideas and suggestions without fear. Managers do not see who has written the answers, but they receive honest and truthful information. For this reason, the Happy Job platform places great emphasis on ensuring the privacy of survey participation.
Loyalty research allows us to divide employees into three groups - loyal, less-loyal, and disloyal.
The loyal group includes employees with an average score for metrics of 9 or more.
Loyal employees take pride in the company and recommend it, support change, and rarely think about changing jobs.
The more loyal workers there are in the team, the stronger the company and the greater the chances of it expanding and being highly competitive.
This group includes employees whose average score was 7 or more, but less than 9.
Such employees do their job efficiently, but have no desire to do more than is required; they will only support change if the manager convinces them.
The disloyal group includes employees with an average score of less than 7.
Disloyal employees will slow down any changes, go through the motions and, most likely, actively seek a new place of work.
How to work with each loyalty group
Work on loyalty should begin with the disloyal employees group. The manager can place the disloyal in the loyal category if they pay attention to their problems and suggestions. Questions must be asked about what causes discontent among the disloyal employees and how the situation can be remedied, and suggestions that can be useful to the team should be implemented.
The less-loyal is often the largest group, and working with them should be your next priority. The working algorithm is the same as with the disloyal group - to find out the reasons for dissatisfaction, collect proposals for improving the situation and to implement interesting solutions.
Loyal employees can provide insights into what drives high loyalty. Organise this group to collect feedback on the company's strengths as an employer. The answers will help to build effective work on loyalty with the other groups of employees.
What is eNPS
Information about how many employees are ready to recommend a company, and how many are not, allows you to calculate not only the “Recommends Company” metric, but also the eNPS index.
The eNPS index (an abbreviation for employee Net Promoter Score) is the difference between employees who are ready to recommend the company (promoters) and those who are not ready (detractors).
When calculating it, passives are not taken into account - those who are doubtful about recommending the company - therefore eNPS is called the “pure” loyalty index.
ENPS Index Formula:
eNPS = % of promoters - % of detractors
The eNPS index is the reciprocal of the “Recommends Company” metric. Unlike eNPS, the “Recommends Company” metric is calculated by summing promoters and passives (that is, summing employees who gave 7 or more points).
Depending on the answer to the question about the company's recommendation, employees fall into one of the eNPS groups - promoters, passives or detractors.
Promoters — employees who gave 9 and 10 points.
As a rule, promoters are ready to support any changes, are open to new experiences, projects, and are ready to grow professionally.
Recognition is important for this category of employees.
Passives are employees who give 7 and 8 points.
Passives are generally satisfied with the conditions in the company, they do their job efficiently, but without striving to achieve the best results possible. Passives will support change if their boss convinces them of the need to innovate.
For this category of employees, training opportunities are important, as is proving themselves, etc.
Detractors — employees who gave 6 or less points.
Detractors are unhappy with the company's working conditions. As a rule, they openly criticise processes and the culture. Dissatisfaction can affect the quality of work - employees perform their duties only nominally. They do not want to change anything and will not support change.
It is important to establish contact with this category of employees: find out the cause of disappointment and try to improve the situation.
Detractors are an important company asset - they have the courage to point out real problems.
ENPS Index Values
The eNPS index values in theory can vary from –100 to +100, but in practice there are values from –46 to +80, therefore, on the index scale, the extreme values of the ranges are represented by these values.
How to analyse the eNPS index
The higher the index, the better for the company.
If the eNPS index is below zero or in the range of 0 to +10, changes, such as new technologies, cannot be introduced. The lower the value, the higher the risks of losing valuable employees, reducing the quality of products or services.
Loyalty to the company and loyalty to the line manager
The Happy Job platform has an additional metric - “Recommends Manager”. It calculates the number of employees who are ready to recommend their friends to work with their immediate manager.
The need for an additional metric arose for the following reason: the competence and personality of the immediate manager are out of the “Recommends Company” focus. In turn, according to statistics, the head is the reason for the layoff of 63% of employees. With their words and actions, they can suppress the initiative of employees, induce them to leave the company or poach them after changing jobs.
In order not to lose valuable employees, you need to compare the indicators of the “Recommends Company” and “Recommends Manager” metrics.
The company takes a risk if the difference is more than 1 point in absolute terms: for example, 7.3 and 8.4.
Or, as a percentage, the indicators differ by more than 10 percentage points: for example, 67% and 78%.
Also on the Happy Job platform, you can compare the company's eNPS index and the manager's eNPS index.
The company is taking a risk if the difference is 10 units or more: for example, +21.1 and +32.9.
The difference in performance arises as employees recommend the company and the manager for different reasons.
- satisfactory working conditions,
- corporate culture focused on the employee,
- high-quality, socially significant product.
- can build trusting relationships,
- gives high-quality feedback,
- has charisma,
- gives praise,
- is supportive.
Why loyalty to the company is greater than loyalty to the manager
Employees will be more active in recommending the company, rather than the manager, if the company has created a comfortable work environment, but the line manager has weak managerial competencies - they are inconsistent in their actions, have favourites among their subordinates, use double standards in the evaluation, give low quality feedback, etc.
Why loyalty to a leader is greater than that to a company
In this case, several options are possible. The first is that the organisation has unsatisfactory working conditions, there are no prospects for growth, only loyalty to the leader keeps employees them from leaving.
The second — the manager reduces the loyalty of their subordinates to the company through their words and deeds. This can happen if:
- The leader portrays senior management and its decisions in a negative light or publicly doubts its legitimacy.
- The leader does not talk about the goals and strategy of the company or relays them incorrectly.
- The leader does not talk about the importance of change in the organisation or speaks about it in a negative way.
- The manager does not convey information about career prospects and does not care about employees having resources available to them.
It is necessary to strive to ensure that employees are simultaneously loyal both to the company and to the manager.
How often should you conduct loyalty surveys and eNPS?
The frequency of the surveys depends on the size of the company and the objectives of the study.
There are several research formats:
- • Annual survey. This option involves a survey of 5 questions once or twice a year. A total of 5 loyalty questions will give an top cutoff of quantitative indicators; we recommend using a large engagement survey to build causal relationships.
- • Pulse survey. After the main survey, problematic metrics are identified and it is these that form the questions for the pulse measurement questionnaire between the big surveys. The format will allow you to be aware of employee sentiment and take action on improvements to yield excellent results in time for the next big survey. It has been recommended as the most effective model in terms of implementing change: a constant feedback channel and continuous development.
For customers to love a company, it should
be loved by the employees.
How to increase employee loyalty
The Happy Job platform provides recommendations for improving loyalty metrics.
Let's take the “Proud of the Company” metric as an example.
Happy Job platform offers at least six measures for its development. In particular, you can begin a tradition of celebrating employee successes or talking about company achievements.
If you implement the measures proposed by the platform, employee loyalty is guaranteed to increase.