WorkUSA® 2002 - Weathering the Storm: A Study of Employee Attitudes and Opinions

Research Report — September 2002

Introduction

Corporate America has a problem.

Unless it can resolve the crisis of confidence among its employees, it has no hope of restoring the trust and confidence of investors that are so critical in these economic times. And if a company can't win its employees’ trust, how can it expect to win the trust of investors? Employees are, after all, companies’ most visible ambassadors to the outside world.

The crisis in confidence is not surprising given the economic instability of the past several years and the rash of corporate scandals. Layoffs, pay freezes, forced vacations, accounting scandals, insider trading, rising health care costs, reduced benefits, underwater stock options and relentless change have shaken both employees’ and investors’ faith in the ability of companies to thrive. New data from the Watson Wyatt WorkUSA® 2002 study underscore the severity of the problem. According to the study, a majority of U.S. employees:

lack confidence in senior management at their companies
are unclear about the link between their jobs and their companies’ objectives
rate their companies poorly when it comes to managing business change

No company can afford to ignore these issues. Three-year total returns to shareholders (TRS) rates are significantly higher at companies with high trust levels, clear linkages between jobs and objectives, and employees who believe the company manages change well. Consequently, failure to address the confidence problem may result in lower shareholder returns — an untenable outcome for companies struggling to improve investor relationships.

The WorkUSA® 2002 study results provide companies with a blueprint for responding to this crisis in confidence. To restore employee trust, the first step is knowing — and understanding — exactly what employees think. Armed with this information, companies can work to restore the employee — and investor — confidence necessary to successfully compete in an uncertain economic environment.

SURVEY HIGHLIGHTS

Never extraordinarily high, trust levels between employees and senior management are falling. Only 39 percent of employees at U.S. companies trust the senior leaders at their firms. In addition, the percentage of employees who say they have confidence in the job being done by senior management dropped five points between 2000 and 2002 to 45 percent.
Companies with HR functions that employees perceive as effective are more likely to have dramatically better trust levels, communication, commitment levels and lines of sight. Employees at these companies also are more likely to favorably view their companies’ ability to manage business change.
Only 43 percent of employees say their companies effectively manage business changes such as restructuring, downsizing, merging, expansion and growth. Improvements in this area are necessary since the difference in three-year TRS between companies that manage business change well and those that manage it poorly is dramatic.
There is considerable room for improvement when it comes to communication — only 31 percent of employees rate their companies well in this area. Communication about pay is particularly needed — the percentage of employees who say they understand how their pay is determined is at its lowest level in a decade.
Huge shifts in corporate strategy in the past two years have left employees confused about the link between their jobs and company objectives. The percentage of employees who say they have a clear “line of sight” between their jobs and company objectives dropped 13 points between 2000 and 2002 to 52 percent.
Managing and rewarding employees to encourage the behaviors necessary for achieving business goals is a challenge for companies. Only 25 percent of employees say their companies perform well in this area.

About the Survey

The findings in this report are based on Watson Wyatt’s latest WorkUSA research, conducted in early 2002.

In the seventh WorkUSA survey since 1987, Watson Wyatt surveyed 12,750 U.S. workers at all job levels and in all major industry sectors about their attitudes toward their workplace and their employers.

Total Return to Shareholders
Three-year Total Returns to Shareholders (TRS) is defined as the appreciation in stock price over three years, plus dividends. For this study, data from 1999, 2000 and 2001 were used to determine three-year TRS.

Employee Trust in Senior Management is Falling...

Never extraordinarily high, trust levels between employees and senior managers are falling. Only 39 percent of employees at U.S. companies say they trust the senior leaders at their firms.

Between 2000 and 2002, there was a five point drop in both the percentage of employees (45 percent) who say they have confidence in the job being done by senior management and the percentage of workers (63 percent) who believe their companies conduct business with honesty and integrity.

... Threatening Corporate Competitiveness

Companies cannot afford to ignore their trust problems — the association between trust and shareholder value creation is simply too strong.

The rate of three-year TRS is almost three times higher at companies with high trust levels than at companies with low trust levels.

There Will Be No Respite from Business Change...

In the past few years, virtually every company has been forced to alter its direction in order to boost competitiveness as a result of the constantly changing economic environment.

Looking forward, it’s clear no respite from change is coming. Shrinking labor pools, soaring benefits costs, sluggish economic growth and greater government scrutiny, among other issues, will force companies to develop new strategies. Hard decisions will need to be made about business changes such as restructuring, downsizing, merging, growth and expansion.

... So Companies Must Learn to Manage it Well

Companies must take steps to effectively manage these business changes given the substantial financial cost associated with managing them poorly.

The difference between the financial fortunes of companies that manage business changes well and those that do not is significant.

Unfortunately, in the past year, only two-fifths of companies managed their business changes well, according to their workers. Just over four out of ten employees (43 percent) participating in the study rated their companies favorably in terms of business change management.

Strategy Shifts Have Left Employees Without a Clear Line of Sight...

The huge shifts in corporate strategy that have occurred over the past several years have left many employees confused about the link between their jobs and company objectives.

When asked to rate their companies on their ability to help employees establish “line of sight,” or make connections between their jobs and business goals, only 52 percent gave their companies favorable marks, compared to 65 percent two years ago.

... Restoring Line of Sight Pays Off in Value Creation

This is unfortunate given the positive financial impact that can be realized by establishing line of sight for employees.

Effective HR Makes a Difference...

WorkUSA 2002 data shows that companies with HR functions that are perceived as effective by employees are more likely to have high trust levels, good communication, high employee commitment, clear lines of sight and to effectively manage change.

However, today only half (48 percent) of employees rate the effectiveness of their HR functions favorably.

Companies Must Keep Employees Better Informed...

WorkUSA data show that open communication has a significant impact on employee attitudes, but only one out of three employees rates their company favorably in this area.

While involving employees in decisions that affect them is critical to open communication, only 19 percent of WorkUSA participants said their companies do this well, down eight points since 2000. The percentage of employees who said senior management motivates employees to perform well also dropped eight points to 32 percent.

... To Improve Shareholder Value

Improving communication with employees can pay off in terms of TRS:

Managing and Rewarding Employees is a Challenge...

Managing and rewarding employees to encourage the behaviors necessary to achieve business goals is a challenge for many companies. Only 25 percent of employees say their companies manage employee performance well.

And, despite exhortations from experts to link pay to performance and weed out poor performers, WorkUSA 2002 data show that employees believe it doesn’t matter if they do a good job or a bad job — the rewards are about the same for both. Four out of ten employees say they see no clear link between their job performance and pay, and a similar number believe high performers go unrewarded.

Employee Commitment Remains Unchanged...

Despite the turmoil of the past two years, levels of employee commitment were little changed between 2000 and 2002. Given the data in this survey that show rising levels of doubt and confusion among employees, we believe the figures on commitment reflect, in large part, employees’ assessment that the risks associated with attempting to change jobs during an economic downturn outweigh any potential benefits.

... But Its Impact on Shareholder Value Has Grown

As in 2000, the data showed that strong employee commitment leads to higher shareholder returns. Even more important, it also suggests that employee commitment may pay off even more for companies in bad times than in good. High-commitment companies outperformed low-commitment companies by 47 percent in the 2000 study and by 200 percent in the 2002 study.

Conclusion

The WorkUSA 2002 study provides important insight into the factors contributing to the current crisis in confidence. The organizations best able to weather the ongoing economic storm will be those that take steps to address areas of weakness in the employer-employee relationship and put effective HR functions in place.