Why does reputation matter? Hiring and retention
Updated: Apr 29, 2020
As a reputation consultant, often I am brought into a boardroom or committee where not everyone is on the same page about whether reputation matters. Sometimes even my direct client is interested in measuring reputation not because they see it as a priority but because their boss asked for it. Scepticism abounds. This series is for you sceptics and for the people who need to convince them. In each blog, I will be explaining how reputation impacts one of your key stakeholder groups: employees, investors, consumers, regulators, and so on. Each of these provides compelling reasons to care about the reputation of your organisation; taken together it would be disastrous to ignore.
Let’s start with the humans who run our organisations…
Every organisation needs to hire and retain great people. If you run a small business then each hire represents not only a huge financial undertaking but also a substantial proportion of your team – the brains that run your company every day. For a big business, each individual hire might seem less monumental but the scale of the challenge has grown: you may now need hundreds of new hires every year and the leaders spend less time with each recruit so they have to be able to fit into the company culture from the start and channel the leaders’ vision for what their business looks like (while avoiding the dreaded ‘cultural fit’). Once you have found the right people then you need to keep them and help each one to perform at the top of their game. A happy productive team is good for business.
As if that wasn’t challenging enough, the external environment has been working against you. Unemployment in the UK (pre-Covid) was 3.8% - the lowest it has been since 1974. Leaving aside (for now) debates about under-employment and how life will change as lockdown begins to unwind, the fundamental truth of this statistic is that there are fewer people without a job. This situation has moved power in the labour market away from employers and towards candidates.
To make matters worse, Open University research published in 2018 found that skills shortages are also being felt in most organisations. 91% of companies have struggled to hire a role over the past 12 months. The skills that were most difficult to recruit were managerial, leadership, technical or operational, IT, industry-specific and soft skills. The hardest part of the business to hire into was the middle with senior and intermediate manager roles making up half (47%) of the roles that companies struggled to fill. The Open University’s work estimated that in 2017, “organisations spent a staggering £6.3 billion on temporary workers, recruitment fees, inflated salaries and training as a result of skills lacking in the UK labour market.”
In this environment, every business is competing for the most promising candidates and the prizes for having the most attractive employer proposition are fewer job vacancies in the first place (because you have lower staff turnover), faster recruitment, lower temp costs and lower salary costs. Unsurprisingly, corporate reputation has a big role to play in making your business a more desirable place to work.
Why does reputation impact recruitment? For two main reasons: one is about how our memories work, and the other relates to our anticipation of pleasure. A lot of the most detailed studies available focus on students or recent graduates – these are the lab rats that academics have the easiest access to – and what they find is that companies with good reputations (assessed via a third party such as Fortune’s annual reputation survey) are recalled more often and more fully by job seekers. This means that if jobseekers are looking at company websites directly, for example, they might only check those with better reputations. Furthermore, the study participants were better at remembering recruitment materials from companies with better reputations. So even if a ‘bad’ company manages to get a flyer or advert in front of the right graduate, those potential recruits are less likely to recollect the content later.
The second factor that influences graduate take-up of jobs at companies with poorer reputations is their predictions about the future. Students anticipate that they will experience a greater feeling of pride when working for a company with a stronger reputation and this leads to a proportionate decrease in the minimum salary that they are prepared to work for at that firm. When a company is perceived to have a good reputation, job seekers also assume that the job itself will be better – even if the job description is the same. So amongst workers new to the workforce, selective memory and predictions about the future use corporate reputation to influence decisions in a far-reaching manner.
If those studies are primarily conducted among twenty-somethings, can we really generalise from them to the broader jobs market – and to those middle-ranking jobs that are currently the hardest to fill? Well, while the constant coverage about demanding millennials might make you think otherwise, research conducted by Corporate Reputation Magazine in 2016, found that respondents aged 18-34, were actually the least concerned about the reputation of their employer, with 77% saying they would join a company with a tarnished name. For mid-career professionals it made a far bigger difference. Almost half (45%) of those aged 35-44 would leave for a company with an excellent reputation, whereas only 12% of the same group said they’d leave for one with a poor reputation. These 35-44-year olds are the very same mid-career professionals which businesses struggle the most to hire.
Social purpose and gender
While there is not a perfect relationship between social purpose and a good corporate reputation, multiple research studies have shown significant correlation. It should not be a surprise, therefore, to discover similar trends in recruitment. Rebecca Jewell, of B Lab, has spoken about the importance of communicating company values to enhance recruitment prospects and gives this example of the effect it can have joining a social responsibility scheme such as the global B Corp movement: “Kickstarter became both a B Corp and a benefit corporation at the same time. When they announced that new structure, the visits to their job page went up 33%. And Kickstarter is already a pretty attractive place to work, so that’s a lot.”
And for anyone out there thinking “this is all well and good but our current priority is improving our diversity statistics”, I have good and bad news. The good news is that improving your D&I is definitely important for strengthening corporate reputation (see our essay on that HERE) but the bad news is that corporate reputation is also a factor in ensuring diversity of hiring and especially gender diversity. That same Corporate Reputation Magazine research found a substantial gender differential: 67% of men who were unemployed said they would not join a company with a bad reputation compared to 86% of women. Researchers have repeatedly observed this effect and it is particularly strong when you look at the area of social purpose and social responsibility. When The Economist surveyed executives across the globe, they discovered that 70% agreed that ‘operating with social purpose’ was a factor to them personally when they choose where to work; amongst women the number was 87%.
None of this means that a company with a poor reputation will not be able to find any employees, but it may mean that you don’t get to pick from the best of the talent available, that you spend longer looking for the right person, and that you pay them more to join your organisation. Even if a major recession were to massively increase the job-seeker pool, these facts would still remain true – though possibly to a less pronounced extent. LinkedIn research found that employers with poor reputations had to pay at least 10% more per candidate. That worked out to $4,723 extra to hire the average American employee. Corporate Responsibility Magazine found that 84% of American adults would consider leaving their current job if they were offered another role by a business with an excellent reputation – even for a minimal salary increase (between 1 and 10%). In contrast, the 62% of Americans who would move from their current job to one at a company that had a bad reputation said they would require a 50 to 100% salary increase.
For anyone out there thinking that their reputation is so bad that there isn’t anything they can do to reduce the impact on recruitment, take heart: this isn’t a binary question. How much more you pay for talent is directly linked to a sliding scale of reputation. A team of Australian researchers gave their participants choices between pairs of credible job offers with varied salaries, locations, and company reputation that differed on three dimensions: corporate, workplace and social reputation. Using this, more rigorous approach, the researchers found a higher impact than LinkedIn, but also saw that it varied between different types of employee. On average, reputation accounted for 16.3% of the value of a contract. Corporate reputation alone was worth $12,388 (at the time, Australian dollars were roughly on par with US dollars), workplace reputation added another $9,249 and social reputation was worth $5,286. For non-MBA workers, the effect was slightly less but reputation still created 11.1% of the value of a contract (an average value of $7,056 per person). Lawyers valued reputation the most (19.8%) while manual workers thought it less important (7.4%). This direct and nuanced relationship means that even incremental improvements to your corporate relationship should make an impact on your recruitment costs.
As an example of what this looks like in practice, let’s compare three typical salaries in London for the accountancy job Financial Controller. This is a classic mid-career role requiring industry-specific expertise and management skills. Some professionals stay at this level but many have their eyes set on the prize of Head of Finance, Director of Finance or CFO. If you are applying for this role at an advertising agency, you can expect to be paid between £50,000 and £80,000 depending upon the size of the team and company. A charity would expect to hire a similar role for £40,000 - £60,000. To take this role at a tobacco company you would be paid £110,000 - £130,000 with a substantial bonus. This is reputation in action.
Throwing money at candidates is certainly one approach to solving your recruitment problem. Higher salaries will eventually win you across recruits but even these new employees will be negatively impacted by a poor corporate reputation. Management researcher Sabrina Helm found that:
“[O]utsiders' views of the organization are closely associated with employees' pride in organizational membership as well as job satisfaction. Both pride and job satisfaction mediate the relationship between perceived external reputation and turnover intentions. Hence, a favourable reputation matters in managing turnover intentions and is closely related to employee pride and satisfaction.”
Put simply: good corporate reputation makes employees feel proud and satisfied, and less likely to leave.
If you have a recruitment problem then one option, of course, is to invest a lot of money in employer branding, introducing additional perks for your workers and telling graduates marvellous tales about your company. The problem here is that you can’t entirely disconnect how the company acts as an employer from the other facets of your reputation. In fact, trying to do so can worsen your problems. Weber Shandwick conducted research amongst employees globally, asking them whether “what my employer portrays about itself publicly matches what it is like to work there”. Only 19% strongly agreed with this statement. Perhaps we shouldn’t worry too much – it sounds as if everyone is bad at this! But the organisations that get it right are gaining advantages that you definitely want: employees are more likely to recommend them as a place to work – which reduces recruitment costs; and more likely to advocate for their products or policies online and to their friends – increasing exposure and sales. These employees are less likely to look for another job and more likely to put in effort above and beyond their contractual obligations.
That increased engagement and motivation is no small benefit. Research company Gallup found in 2019 that business units in the top quartile of their global employee engagement database were 17% more productive and 21% more profitable than those in the bottom quartile. More engaged employees are also less prone to absenteeism and more likely to bring their best ideas to work. Currently only about one in 10 British workers (11%) classifies themselves as engaged (results for the EU are similar) so we have a lot to gain if we can help employees to find engagement and motivation in the workplace.
The Bottom Line
Alex Edmans, author of Grow the Pie, studied 28 years of data and found that firms with high employee satisfaction outperformed their peers by 2.3% to 3.8% per year in long-run stock returns – a cumulative 89% to 184% – even after controlling for other factors that drive returns. The results strongly suggest that employee satisfaction causes good performance, rather than good performance allowing a firm to invest in employee satisfaction but as is so often the case, a good reputation can also be the start of a virtuous circle: “Employees who feel more empowered in terms of perceived competence and decision‐making control have a more favorable evaluation of organizational reputation.”
On the flipside: what happens if you don’t manage to motivate your employees and they leave? According to research carried out by Oxford Economics, the average cost of hiring a new employee in the UK is more the £30,000 – once you take into account the cost of lost productivity, staff time required for the hiring process, and advertising or recruitment costs. This is a big incentive to hold onto employees and, as I have shown above, increasing corporate reputation can make a substantial contribution to that effort.
So why does reputation matter? In this context, reputation matters because a poor reputation increases your recruitment and salary costs, pushes up staff turnover and reduces productivity. Meanwhile, a good reputation saves you money on recruitment and salaries, boosts productivity and profit and makes you all happier.
Need help measuring or improving your reputation? Get in touch
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