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To Cope with the Labor Shortage, Raise Emotional Compensation

People are longing for more positive workplace cultures. Coming out of the pandemic is a natural time to make improvements.

The labor shortage is a concerning issue for organizations and many are scrambling to attract and retain workers. A combination of factors has resulted in an insufficient number of workers to meet available jobs: the number of people quitting jobs is hitting historic highs, immigration is declining, and there are fewer individuals of working age (16-64 years old). This labor shortage started before the COVID-19 pandemic and is expected to persist for some time. 

And then there are those who have jobs but are not happy with them. A recent survey found more than 40% of people are considering leaving their current job this year. The pandemic has caused many people to re-evaluate their work lives and what they are willing to accept.

Raising wages and offering attractive benefit packages are the primary and traditional tools employers have used to attract and retain quality people. In this new environment, however, employers should not limit their thinking to compensation that is purely financial. Addressing “emotional compensation” will be increasingly important and valued by employees. 

Over the nearly 20 years that my colleagues and I have been studying and helping leaders, we’ve learned that boosting emotional compensation is based on meeting seven universal human needs to thrive at work: respect, recognition, belonging, autonomy, personal growth, meaning, and progress. The resulting sense of connection from having these needs met engenders positive emotions and makes us feel connected to our work and our colleagues. Leaders who cultivate a culture of connection through communicating an inspiring vision, valuing people, and giving them a voice will meet the seven needs, unite employees, and foster a relational environment that helps people do their best work. 

The most effective leaders know that high levels of emotional compensation benefit the individual as well as the organization. Here are two examples.

Costco’s “Do the Right Thing” 

Costco attracts, engages, and retains employees at levels that are the envy of its competitors. Not only does it pay workers on the higher end of wages and benefits for its industry sector, it also cultivates a culture of connection that produces positive emotions. I am not at all surprised that Costco ranked #4 on the Forbes / Statista “America’s Best Large Employers 2021” list and leads the retail and wholesale category. Costco has consistently been in the top five of the list for years. Costco’s leaders are clearly doing something right.

Jim Sinegal, Costco’s cofounder, once told me that Costco’s culture can be described as “do the right thing.” By this he means, Costco: 1) obeys the law; 2) takes care of its members (i.e., customers); 3) takes care of its employees; and 4) respects its suppliers. In adhering to these standards, Costco rewards its shareholders. It’s a win for all parties. 

Costco employees are proud to work for an organization that does the right thing. They know that Costco’s leaders value them as individuals and don’t think of or treat them as mere means to an end. Costco promotes from within and invests in apprentice-like training to develop employees and give them opportunities for advancement. In addition, it gives employees a voice to share their ideas. When I spoke at Costco’s annual managers conference one year, I witnessed video after video of employees from warehouse club locations all around the world who proudly shared ideas they came up with to improve efficiency, reduce costs, and improve member and employee experience. These aspects of Costco’s work culture boost employees’ positive emotions. 

U.S. Navy: Winning the War for Talent

A labor shortage issue in a branch of the military could have potential negative ramifications on national security. Not attracting and retaining enough qualified people would be a very big problem for the U.S. Navy, for example, given its sophisticated communications, reconnaissance, and weapons systems. When Admiral Vernon Clark took the helm as Chief of Naval Operations (CNO) in 2000 and served as a member of the Joint Chiefs of Staff, the Navy’s first-term reenlistment goal was 38% and at times reenlistment had fallen below 20%. 

Clark made people and “winning the war for talent” his No. 1 priority. He directed the Navy to invest heavily in training sailors to help them learn and grow. He worked to change the job assignment system to a job-bidding approach and, as a result, the percentage of sailors forced into positions or locations they didn’t want to be in was reduced from 30% to around 1.5%.

Recognizing that enlisted sailors did not always feel as valued as the officers, Clark asked the master chiefs—the leaders of the enlisted class—to mentor and encourage sailors under their command to become the sailors they were capable of becoming and improve their quality of service. Clark liked to tell them the story of the master chief who mentored him when he was a young officer on his first ship. He was so green that he hardly knew the pointy end of the ship from the blunt end, he would say, yet Master Chief Leedy saw the potential in him and helped him become a better sailor and a better officer. Clark asked the chiefs to do what Chief Leedy had done for him and said that if they did, the Navy would have the talent it needed. 

In speaking with Master Chief Petty Officer of the Navy Jim Herdt about Clark’s leadership, I learned that CNOs didn’t typically meet with the master chiefs when they toured bases and commands around the world but Admiral Clark always met with them. How he valued them and called upon them to lead made a difference. Herdt told me the chiefs had the attitude that they were not going to let “old Vern” down because he appreciated that they were on the frontlines leading the Navy and he was counting on them. 

Within 18 months of Clark’s becoming CNO, first-term reenlistment soared to nearly 60% and the Navy had the enlisted sailors that it needed. And this dramatic shift happened prior to the attacks on September 11, 2001. One of the longest-serving CNOs in U.S. Navy history, Clark is recognized for developing a faster, more agile, and more efficient Navy to cope with the challenges of the 21st century. Those accomplishments never would have happened without intentional steps taken to ensure that sailors were engaged and connected.  

Costco and the U.S. Navy are just two examples of leaders and organizations that are boosting emotional compensation through cultivating cultures of connection, as I've documented in my book Connection Culture. These include Oprah Winfrey as she led her media companies, Tricia Griffith of Progressive Insurance, Alan Mulally when he was CEO of Ford Motor, German Chancellor Angela Merkel, and Steph Curry and Steve Kerr of the Golden State Warriors NBA basketball team.

Positive Emotions at Work Are Especially Needed Today

The Gallup Organization’s State of the Global Workplace 2021 found that:

  • Negative emotions among employees across the world have been rising for years and reached record levels in 2020, 
  • Seven in 10 employees are presently struggling or suffering, and 
  • 80% of employees are not engaged or are actively disengaged at work. 

These statistics may sound bleak but leaders should consider it a major opportunity. 

People are longing for more positive workplace cultures. The signs are there that emotional compensation would be highly valued by employees. Coming out of the pandemic is a natural time to make improvements. 

Given the economic and emotional benefits of working for leaders and organizations that cultivate cultures of connection, it's no wonder that organizations that pay well and provide emotional compensation become the employers of choice in their industry sector. Connected, engaged employees are more collaborative, innovative, and productive. Leaders and organizations that get the emotional compensation piece right will gain a performance advantage.