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Employee Satisfaction and Company Results

By most accounts, SAS Institute, the privately owned software company, is a successful company and a great place to work. Over the last couple of decades, SAS has experienced steady growth and remains very profitable. The company's founder and CEO, Jim Goodnight, is renowned for taking care of his employees with a number of perks such as subsidized child care and 35-hour work weeks—the firm was featured by 60 Minutes in 20031 for its unique "royal" treatment of employees. Not surprisingly the company has very low turnover. Another example of happy employees being productive ones...right?

Well, maybe, but this relationship is misinterpreted by both researchers and managers. While a lot of research has confirmed a correlation between employee attitudes and company results, a causal relationship between these two factors cannot be assumed. The distinction between correlation and causation is important. For instance, there is a correlation between sleeping with one's shoes on and waking up with a hangover. This relationship, however, does not lead to a logical conclusion that sleeping with your shoes on causes hangovers.

Recently, research has sought to clarify the causal relationship between employee attitudes and company results by comparing the data over time (i.e., longitudinally). That is, when two factors are related at a single point at time, it is impossible to determine causality, but relationships compared over a period of time allows for more robust analysis of possible causes and effects.

A recent longitudinal study2 looked at a large pool of employee attitude data (from a consortium of Fortune's most admired companies) covering a period of 9 years (1987-1995). The authors used these data to evaluate causal effects in both directions of the two variables, not just from attitudes causing results.

The findings showed that company results (as measured by earnings per share and return on assets) is more likely to cause employee satisfaction. That is, "in stark contrast to the presumption in the literature," employee satisfaction (especially that relating to overall job satisfaction) is more likely caused by company results than vice versa. Specifically, a period of strong company results was more likely to precede employee satisfaction than the reverse. So what does this mean for managers?

First, these results indicate that managers should stop spending a lot of time on satisfaction factors like gifts, praise, and awards. The study authors suggest that other longitudinal studies that have looked at the effect of high performance work practices found a causal relationship between these practices and performance. This would seem to be the most effective place for managerial efforts. The diagram below captures LeaderPoint's basic managerial model overlaid to these research results.

Managerial focus is best spent on developing processes and systems that achieve determined outcomes. These lead to intended results; as shown in the diagram, satisfaction is a result— not a cause of results. Attempts to increase morale by addressing satisfaction factors does not usually lead to where the work gets done (the top left of the diagram).

In fact, Jim Goodnight's success at SAS Institute was more likely caused by effective work practices such as creating big jobs with defined accountabilities, and building organizational processes that created cooperation around clear common ends. His royal treatment of employees by offering generous health care, extensive daycare, and luxurious work amenities were made possible by achieving great results—not the other way around.

1Shown as a 20-minute segment on 60 Minutes, April 20, 2003.
2"Which comes first: Employee attitudes or organizational financial and market performance?" by Schneider, Hanges, Smith and Salvaggio, Journal of Applied Psychology, 88(5), 2003.

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