Prioritizing employee wellbeing may help stem the tide of rising turnover

Voluntary turnover is creeping up across all sectors of the economy as more employees choose to leave their jobs and seek better opportunities elsewhere. That’s not good news for companies: Higher turnover results in increased costs for firms through decreased productivity, higher hiring and training spend and lower staff morale. The replacement cost is about 200% of salary for managers and 80% for professionals in technical roles, Gallup estimated in a July 2024 report. Research from the Wharton School found a direct correlation between employee turnover and lower manufacturing quality, ultimately leading to millions of dollars in higher costs. 

There are many reasons for high turnover, from heavy workloads and burnout to dissatisfaction with salary and company culture. Shifting attitudes toward work since the COVID-19 pandemic have also influenced turnover rates. According to consulting firm Gartner, employees are increasingly seeking a sense of purpose and personal value at work and are counting on their employers to deliver.

A growing body of research is making the business case for emphasizing employee happiness rather than only productivity or engagement and shows that a happier workforce can lead to improved productivity, lower turnover and greater collaboration and innovation. Research conducted by S&P Global Sustainable1 in 2023 showed how companies investing more in human capital management, including employee wellbeing, are able to report improved innovation with associated revenue benefits.

New data from the S&P Global Corporate Sustainability Assessment (CSA) shows that few companies are seeking to learn about their workers’ wellbeing by focusing their employee surveys on elements of mental health, such as happiness or stress levels. However, the companies that do so appear to have lower turnover and higher average results on these surveys, suggesting that a greater emphasis on wellbeing has tangible benefits.

Voluntary turnover is rising across all sectors

 An analysis of 2,731 companies assessed in the 2023 CSA shows that voluntary turnover has increased in all sectors over the past four years.   The consumer discretionary sector saw the highest rise in voluntary turnover, reaching 20.5% in 2023, up 4.7 percentage points from 2020. Real estate has the second-highest rise over the last four years. Voluntary turnover was 16.9% in 2023, up 3.9 percentage points. On the other end of the spectrum, voluntary turnover was 7.7% in the energy sector in 2023, up 1.3 percentage points over four years. Information technology has the second-lowest rise, with a voluntary turnover rate of 12.2% in 2023, an increase of 1.7 percentage points from 2020.

How changing attitudes to work are influencing the focus on employee wellbeing

Pinpointing the reasons why employees are leaving is key to increasing retention. Employee surveys are one tool for detecting this. Asking employees questions, usually anonymously, about how they feel about their workplace, their workload and their general satisfaction levels with their job can provide companies with key data on focus areas to lower turnover rates.

CSA data on employee surveys shows that the percentage of employees choosing the top level of engagement or satisfaction, such as "very satisfied" or a 5 on a 1-to-5 scale, has risen slightly or remained flat across most sectors, based on a universe of 2,915 companies assessed in the 2023 CSA that provided data covering the past four years. Average response results have risen by at least 3 percentage points in the communication services, healthcare and industrials sectors, while results have dropped the most for the information technology sector.

These surveys ask various questions to assess an employee’s satisfaction with their job or with the company. These can include questions on salary and other benefits. Surveys can include questions on employee engagement, which measures how dedicated an employee is to their job and how meaningful employees find their work. S&P Global Sustainable1 data shows that most companies focus predominantly on either engagement or satisfaction in their surveys. Out of a universe of 4,413 companies assessed in the 2023 CSA, 62.7% of companies focus on employee engagement, which refers to employees feeling involved, enthusiastic and committed to their company’s purpose; 27.2% focus on employee satisfaction, or whether employees are happy about the bonuses and benefits they receive; and 7.8% focus on net promoter score, which assesses how much an employee would recommend their company to others as a place to work. Only 2.2% of firms have employee wellbeing as the core focus in their employee surveys, which refers to physical and mental health overall.

This contrasts with growing momentum in the corporate world around creating a more satisfied and happier workforce. Global leaders from business, civil society and academia launched the World Wellbeing Movement in 2022 to help put wellbeing at the heart of decision-making in both business and public policy. The coalition was founded by major global businesses, including financial institution HSBC, technology giant Cisco and job site Indeed. S&P Global is also one of the founding members.

Certain companies are tweaking their business strategies to support employee wellbeing and tackling physical and mental health.  Salary increases and bonuses are being accompanied by extended leave, work-from-home options and family care benefits, as well as sport, health and stress management initiatives. A new generation entering the workforce is also leading to changing attitudes toward work. Research from Gallup and McKinsey has shown that members of Gen Z, born between 1995 and 2010, are seeking a greater sense of purpose in their professional lives, are less engaged at work and are more likely to report work-related stress and burnout.

The disconnect between C-suite and employee perceptions of workplace wellbeing

There is currently a disconnect between how companies view wellbeing and how they act on it, which could explain why so few companies are focusing on wellbeing in their employee surveys. The majority of company executives surveyed in a 2020 Harvard Business Review study agreed there was a business case for improving the wellbeing of their employees, but they had yet to make wellbeing a strategic priority. According to the report, 87% of 1,073 US executives surveyed believed workplace wellbeing could give their company a competitive advantage, 79% said that unhappiness was hurting productivity and 76% reported that expectations of workplace wellbeing were higher at the time than five years ago. Despite these findings, only a third of organizations had made it a strategic priority, and of that third, only half had a strategy in place to improve workplace wellbeing. 

Research shows that executives’ perception of employee wellbeing does not match that of their workforce. A report by consultancy Deloitte from June 2023 found that most employees felt their wellbeing worsened or stayed the same in 2022, while three out of four executives believed their workforce’s wellbeing improved. That difference in perception could help explain why turnover is rising despite an increased focus on wellbeing from the C-suite.

A paper by the University of Oxford’s Wellbeing Research Centre published in July 2024 suggested that the disconnect between recognizing the benefits of workplace wellbeing and implementing a strategy to boost wellbeing at work may be because executives are unconvinced of its impact on productivity and performance. The Centre is the academic partner of the World Wellbeing Movement. The paper demonstrated that companies with higher average levels of wellbeing are more valuable, have greater returns on assets and report higher annual profits. It also points to how wellbeing policies such as family support can reduce turnover.

Companies are more focused on job satisfaction than overall happiness at work

The CSA uses the Wellbeing Research Centre’s four wellbeing metrics — job satisfaction, purpose, happiness and stress — to assess how companies are measuring overall wellbeing in their employee surveys. Job satisfaction asks employees to what extent they are satisfied with their job; purpose considers whether employees feel if their work has a clear sense of purpose; happiness asks whether an employee feels happy at work most of the time; and stress measures for example whether an employee is stressed at work most of the time.

While few companies make wellbeing the core focus of their employee surveys, many do ask about wellbeing-related topics such as job satisfaction, purpose, happiness and stress. Based on a universe of 4,458 companies assessed in the CSA, 29% include job satisfaction as a metric to measure wellbeing, while 19% include purpose. When it comes to happiness and stress, which are more closely associated with mental health, only 14% of companies ask about happiness and 10% ask about stress levels.

Ensuring employees’ happiness can have a positive impact on a company’s bottom line. According to the Wellbeing Research Centre July 2024 study, which used data from 1,782 companies, a one-point increase in the average employee happiness score raises company return on assets by 1 to 1.2 percentage points and increases annual profits by $1.39 to $2.29 billion. The study concentrated on happiness because this is the metric for which it had the most data. When looking at purpose, satisfaction and management of stress levels, the study found a similar link between employee wellbeing and firm performance. The data also suggests that companies with higher rates of wellbeing outperform broader stock market indices.

Based on a universe of 4,413 companies assessed in the CSA, all sectors make job satisfaction the wellbeing metric they most frequently measure in employee surveys. Consumer discretionary companies rank the highest in tracking job satisfaction at 42%. The energy sector ranks the highest in terms of tracking happiness at 26%. The materials sector ranks the highest in measuring purpose at 29%. Utilities rank the highest for measuring stress levels at 18%.  

According to the CSA data, only 99 companies out of a universe of 4,413 make employee wellbeing the main focus of their employee surveys. The CSA data shows that those 99 companies have a higher percentage of top-level responses from employee surveys, with an average top-level survey response rate of 71%, compared to an average of 68% or those that focus on job satisfaction, employee engagement or net promoter score.

The CSA data also shows that companies that focus on wellbeing in their employee survey have relatively lower turnover rates than companies concentrating on employee satisfaction, engagement or net promoter score in their surveys. The average voluntary turnover rate for companies that focus on wellbeing is 11%, compared to 12% for other companies. This would indicate that companies taking a comprehensive approach to their employee wellbeing, looking at not just how satisfied and engaged a person is at their job but also measuring their mental and physical health, could produce better retention rates. Even a small improvement in retention is meaningful in an environment in which voluntary turnover is rising across sectors.

The business case for employee wellbeing is compelling

The CSA data demonstrates that wellbeing has yet to become a significant focus for companies, despite an increasing body of research showing the potential productivity gains, innovation and improved financial results that wellbeing programs can bring. Happier employees can produce higher-quality work and have lower voluntary turnover rates. Higher retention rates help lower costs for companies by reducing the need to rehire or train new workers. The business case for happiness at work is compelling: Investing in people and their wellbeing can result in benefits to employers and employees alike.