Effective employee communication linked to lower turnover, increased shareholder value: study

Watson Wyatt study finds employee communication is a business function that drives performance and contributes to the bottom line
|hrreporter.com|Last Updated: 11/18/2003


mployers looking to reduce employee turnover — and increase shareholder returns — might want to look at how effectively they are communicating with workers, according to a new study.

The study, by consulting firm Watson Wyatt, shows U.S. companies with the most effective employee communication programs provided a 26 per cent total return to shareholders from 1998 to 2002 compared to minus 15 per cent by firms that communicated the least effectively. It also found that a significant improvement in communication to employees is associated with a nearly 30 per cent increase in market value.

“The survey results clearly demonstrate that the better a company has communicated with its workers, the better its shareholder returns have been,” said Kathryn Yates, global practice director at Watson Wyatt and one of the study’s authors. “The bottom line is that employee communication is no longer a soft function but rather a business function that drives performance and contributes to a company’s financial success.”

A total of 267 American companies participated in the

Watson Wyatt Communication ROI Study

, which took a look at the return-on-investment for employee communication.

It also found that high levels of effective communication have a positive influence on employee turnover. Companies that communicate most effectively are more likely to report turnover rates below those of their industry peers than companies that communicate less effectively (51.6 per cent versus 33.3 per cent.)

The study identified nine communication practices that are directly linked to an increase in shareholder value. The three practices associated with the largest increase in shareholder value are driving managers’ commitment to effective communication, having a formal communication process in place (including a documented communication strategy and implementation plan) and creating a clear line of sight between business objectives and employees’ jobs. (see chart below for a list of the nine practices and the impact on shareholder value.)

“While these activities are crucial to enhancing communication, each alone does not guarantee a successful communication program,” said Yates. “Instead, the most successful organizations structure these initiatives in an integrated way to deliver a results-oriented and effective program. The right kind of communication at the right time not only drives behaviour change but also offers tremendous potential for creating shareholder value and generating significant return-on-investment.”

Another interesting finding from the study is the impact measuring communication has when it comes to the success of the program. Companies that use hard measures — such as productivity, behaviour change and achievement of business goals — to measure their communication effectiveness show a positive impact on return-on-investment. Companies that use only soft measures — such as awareness, understanding or satisfaction — actually show a negative impact on return-on-investment.

Communication practiceEstimated change in market value (%)
Drive supervisory/ managerial behaviour7.3
Follow a formal process5.0
Create employee line of sight4.8
Facilitate change4.3
Focus on continuous improvement2.8
Connect to the business strategy2.1
Use employee feedback1.4
Integrate total rewards1.3
Leverage technology0.5

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