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Happy workers give firms a competitive advantage

I once worked for a company where the CEO glibly responded to a question from an older employee about the value of long-tenured employees to the organization with these words: "Old employees are like old equipment. They should be replaced."

Companies often seem to view labor as just another cost to be controlled — a necessary expense to deliver their product or service. The truth is quite the opposite. If a business can successfully capture the minds, the hearts, the energy, the talent and devotion of its employees, it has a powerful competitive advantage in any industry.

Businesspeople often say that the most critical element for enterprise success is a devoted and happy customer. I wouldn't disagree with that. But the best businesses recognize that a delighted customer won't consistently be found without committed, competent and happy employees.

Much has been written about the recipe for creating an employee-friendly workplace. Schedule flexibility, recognition programs, competitive pay and benefits all probably play a role in helping a person to find satisfaction in their daily work.

But psychic income is more important than them all. I define "psychic income" as an overall work environment that consistently provides a sense of emotional well-being and value to employees. The key value that provides the psychic income employees need to feel secure, happy and productive in their work is honest and heart-felt respect toward all workers from those in authority.

In late 1996, I ran a regional telecommunications company that was sold to an upstart national firm. Less than a year later, the firm successfully completed an initial public offering followed by several rounds of financing that brought in more than $8.5 billion of capital within a few short years. Shortly after the acquisition, the new company gave my former employees raises averaging something like 23 percent.

However, in the spirit of the go-go Internet boom, those employees were not so subtly required to work 10- to 12-hour days for weeks at a time. Family and personal needs were expected to be dealt with later ... whatever that meant.

The predictable result? Many left the company within months of receiving the lucrative pay packages because they (and their families) were unhappy and burned out. In 2002, the company filed a petition for bankruptcy.

Genuine respect is shown less by grand programs than by simple, daily patterns: New employees are hired very carefully. Bosses solicit, listen to, and adopt feedback from those who are qualified to give it. Office criticism, back-biting and gossip are not tolerated. Employees are given meaningful responsibility matched to their capacity. A spirit of egalitarianism is fostered throughout all levels of the organization. Honest (not pre-scripted) personal recognition is given for meaningful achievements. Credit is given to employees who deserve it; not to their bosses. Employers share meaningful financial and operating data with employees who will benefit from it. Company financial success is shared as well.

So how can an employer measure success in this area? Let me suggest five metrics: employee turnover and longevity, direct feedback from employees, employee productivity, new-hire referrals of friends and family and customer satisfaction.

Entrepreneurs who master the ability to provide consistent psychic income to their employees will find their companies outpacing competitors simply because the strength of the many outperforms the strength of the few. One of the most rewarding (financially and personally) experiences an entrepreneur can have is to witness the power of a truly committed, truly capable, truly united team of employees working toward a common goal. Employees will know they are participating in something unique, visitors will feel electricity in the air, customers will be served in a more genuine way and lofty business goals will be achieved.

Ironically, the CEO who made the comment about old employees being replaced was the oldest employee in the company at the time. His words proved prophetic; within a year or two he was replaced by a younger, newer model — just as he had suggested.

Andy Barfuss is affiliated with the BYU Center for Entrepreneurship. He can be reached via e-mail at