How creating a culture of trust & well-being among employees can spark profitability

The lightning speed of change from transformation brought about by generative artificial intelligence (GenAI) — restructuring businesses, driving efficiencies, and managing skills and labor shortages — unfortunately, is leading to more burnt-out of employees.

Half of employees now say all this change is too much, and a significant amount are saying that their well-being is at risk and could harm business performance, according to Bhushan Sethi, partner in PwC’s Strategy & Consulting business and adjunct professor at NYU Stern School of Business; and Stan Phelps, author and keynote speaker. The pair spoke together on a recent podcast.

Indeed, looking at these facts through a lens of environmental, social & governance (ESG) concerns emphasizes that employee well-being continues to be a material issue. And this puts the need for a new mindset around employee well-being as a key tactic of organization resilience. In fact, investing in employees must be at the front and center of corporate strategies to help employees thrive in business environments, which are experiencing an ever-increasing pace and level of change that is unlikely to subside any time soon.

To adapt to the far-reaching impact and accelerating rate of change, companies need to center tactics that build trust, which include a skills-first approach as well as upskilling leadership and management to better equip them to lead multi-generational teams working from many cultures and locations.

Demonstrating the alignment between well-being and profitability

It can be shown that there is a strong link between employee well-being and business profitability, and that investments in financial, emotional, and physical well-being are crucial for sustainable growth, according to Sethi and Phelps. This finding is also supported by a recent study at Oxford entitled Workplace Well-being and Firm Performance by Jan-Emmanuel De Neve, Micah Kaats, and George Ward. The study found that:

• • • There is a strong correlation between average levels of company happiness and key indicators of firm performance. For example, a one-point increase in the average employee happiness score (on a 1-to-5 response scale) is associated with an increase of 1 to 1.2 percentage points in Return on Assets (ROA), indicating higher profitability; and an increase of 0.30 to 0.34 in Tobin’s Q, which is a measure of firm value and underscores the relationship between market valuation and intrinsic value.
    • Longitudinal evidence also shows a positive correlation between employee happiness and financial performance. For example, pre-pandemic happiness levels are predictive of post-pandemic firm performance. Indeed, pre-pandemic happiness levels were significantly predictive of higher Tobin’s Q scores. These relationships continued to be significant in the following years, showing that higher levels of employee happiness are linked to ongoing positive financial performance over time.
    • Simulations in stock market performance conducted during the study also point to the same conclusion. The study simulated an investment strategy based on the top 100 companies with the highest workplace well-being scores. This portfolio outperformed standard stock market benchmarks such as the S&P 500, Nasdaq Composite, and Russell 3000. Over the 3.5-year period studied, the annualized return for the well-being portfolio was 14.84%, compared to 13.00% for the S&P 500.

Priority actions for company leadership to build trust

Trust is central to employee experience and business performance. Transparency, candor, and engaging employees are all essential for building trust, and human leadership and skills development remain critical as well. Practices like open dialogues, transparency on tough issues, and regular interactions between senior leaders and employees can foster a culture of trust and engagement. In addition, Sethi and Phelps recommend that executive leadership of organizations prioritize upskilling by:

• • • Leading across generations and locations — Companies need to revamp manager learning experiences to focus on how to engage different generations in the workforce — by, for example, creating initiatives in which younger and older employees learn from each other.
    • Demonstrating care regularly — Leaders who show a sincere interest in employee well-being can enhance engagement and trust, and by helping employees figure out how to use AI to improve their work-life balance can enhance that trust. AI can be used to make work more efficient and allow employees to focus on high-energy, impactful tasks. In fact, professionals surveyed in Thomson Reuters’ recent Future of Professionals report predicted that GenAI will free up four hours per week by this time next year.

A final related point that Sethi and Phelps make is the need to evolve the corporate mindset to look at employee hiring and training as investments rather than as expenses. Using a traditional financial lens, this involves reshaping the paradigm through which employee development, change management, and cultural transformation are viewed as a balance sheet item rather than an expense on the income statement.

To instigate this transition, Sethi highlights the need for engagement scores to be built into business cases for technology and transformation investments. Well-written business cases for technology investments should include considerations of employee engagement and skill-building, such as estimates of how fast or slow adoption rates might proceed and how making the investment will re-shape job functions and roles to better enhance employee satisfaction, happiness, and experience.

This paradigm already may be taking shaping. When asked to identify the top three expected outcomes of enhancing their company’s ESG reporting practices, 51% of respondents to a Deloitte survey said that both talent attraction and retention and brand reputation and enhancement could be positive outcomes of enhanced ESG reporting strategies, which is consuming most ESG-related capital investments at the moment.

As organizations navigate the rapidly evolving business landscape of 2024 and beyond, prioritizing employee well-being, fostering trust, and investing in skills development will not only enhance workforce resilience but also drive sustainable profitability, positioning companies for long-term success in an increasingly competitive global market.

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You can find more about the importance of fostering employee well-being here.