November 30, 2005

Research Shows that Involved Employees Are Loyal, More Effective


  Research by Dr. Christine Riordan

A recent study shows that firms with high employee involvement tend to see benefits to their bottom line financial performance, and their employees have better morale.

So say management researchers from Texas Christian University (TCU), the University of Georgia and Louisiana State University, who surveyed more than 4,800 employees at 92 insurance companies and published the results in the Winter 2005 issue of Human Resource Management, a scholarly journal.

Dr. Chris Riordan of the Neeley School of Business at TCU, Robert J. Vandenberg of the University of Georgia and Hettie A. Richardson of Louisiana State University, looked at the relationship between employee involvement and three measures of financial performance at the firms they studied: return on assets, return on income, and how well the companies extracted returns on income compared to other companies with similar asset levels. Additionally, they examined the relationship between employee involvement and employee morale.

They received information on employee turnover rates from the companies' human resource offices. They measured perceptions of employee involvement via answers to 18 questions asked of respondents. The questions covered: levels of participative decision making, information sharing, performance-based rewards and job training. The researchers also gauged workforce morale through questions designed to measure organizational commitment and job satisfaction.

Overall, they found a strong relationship between perceived high levels of employee involvement and good financial performance. They also tracked a statistically significant relationship between high employee involvement and loyalty to the firm. But they did not confirm that high employee morale by itself led to a better bottom line.

"For years there has been debate about the relationship between morale and financial performance," says Dr. Riordan, holder of the Luther Henderson Chair in Leadership at TCU's Neeley School of Business. "Our study (Employee Involvement Climate and Organizational Effectiveness) confirms that while higher morale may be only indirectly related to financial performance, it does appear to be related to decreased employee turnover, which in turn appears to have a positive impact on the bottom line."

When workers stay in their jobs longer, the company reaps the benefits in terms of less time devoted to training new staffers and more people knowing how to do their jobs effectively, Dr. Riordan suggests. That translates into improved financial performance.

"Overall, results indicate that a perceived climate of employee involvement within an organization is related to high levels of organizational effectiveness," says Dr. Riordan. "More specifically, results indicate that it is related to increased financial performance and reduced turnover.

"Additionally, employee involvement is related to increased employee loyalty or organizational commitment. Such a combination of effects implies that creating an environment where employees are involved in business decisions could provide the competitive advantage to a firm."

Elaine Cole
External Relations Neeley School of Business