Anytime the economy goes through a cycle where companies need to tighten their belt, layoffs are inevitable. But what is the long-term cost of cycling through employees? Is there value in employee tenure? It turns out the answer is yes, and it’s significant to financial performance and operational excellence.
This is according to a recent article in the Harvard Business Review, Don’t Underestimate the Value of Employee Tenure, that looks at an academic study by Richard A Guzzo, Haig R Nalbantian, and Nicholas L Anderson. They found that the age of an employee has no effect on the financial, operational, or customer outcomes of a business. They did find, however, that the tenure of an employee has a positive effect.
They highlight two types of experience employees offer. “General human capital” is what we all gain in our professional lives, including skills, knowledge, learned capabilities, and soft skills that encapsulate the behaviors we bring to our roles. This type of experience is not unique to one company, and it’s something that we can use when seeking promotions or new opportunities.
The other type of experience is “firm specific human capital,” often called institutional knowledge. Company-specific knowledge can include the history of how and why things are done the way they are, background on customers and vendors, and an understanding of the social dynamics of the organization. This type of capital can only be acquired through years of work with the same company.
Their paper looked at how these forms of capital impacted business performance. They looked at three metrics, financial, operational, and customer reactions. “Overall, the impact of age and tenure was assessed on the basis of nearly 1.25 million employee-years of performance in the workplace.”
The article states, “After statistically accounting for the correlation between age and tenure, age has no statistically significant effect on performance, but tenure does. The positive effects of tenure vary in size from organization to organization, with the implication that well-managed tenure can return greater-than-average value to the employer.”
The study noted three consequences that are important for leaders:
Ageism is a Fallacy
The unfortunate yet common perception that older workers are too expensive, less productive, or out of touch with recent advancements is false. As the article states, “Prejudices that devalue older workers and antagonisms that can isolate or drive them out are bad for business.”
Be Flexible with Work Practices
Companies that offer age-inclusive benefits can extend the time that older, tenured workers can stay active with the company. Allowing tenured employees to engage in corporate social responsibility (CSR) initiatives, providing them with flexible hours, or cutting back on hours without losing their benefits are a few options for companies to keep these valuable employees engaged and motivated.
Focus on Retention
Employees that feel valued will stay with their company. Build a culture that supports employees and rewards their loyalty. Many companies are using freelance, gig, and contract workers in an effort to save money. While they may recognize short-term benefits, they miss out on the long-term value that tenured employees provide to the business.
With the changes we’re seeing in remote work and the gig economy, this study reveals the benefits of building a strong employee culture that encourages and rewards employees who choose to stay with a company for an extended period of time. There are economic value and competitive advantages to fostering this type of culture. Finding the right mix is yet another opportunity for today’s leaders.
To learn more about HR, culture, and other C-suite topics, visit our blog.