All Articles Leadership Management To cope with labor shortages, raise emotional compensation

To cope with labor shortages, raise emotional compensation

Compensation is top of mind as organizations try to retain employees. Along with pay and benefits, emotional compensation will mean the difference between retention and turnover.

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To cope with labor shortages, raise emotional compensation

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The current labor shortage and employee retention struggles are concerning issues for organizations. Many leaders are scrambling to attract and retain the workers they need.

A combination of factors has resulted in an insufficient number of workers to meet available jobs: job quits hitting historic highs, declining immigration, and fewer individuals who are of working age (ages 16-64). This labor shortage started before the COVID-19 pandemic and is expected to persist for some time.

And then there are those who have a job but are not happy with it. 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.

The most effective leaders know that high levels of emotional compensation benefit the individual as well as the organization. Leaders who cultivate a culture of connection through communicating an inspiring vision, valuing people, and giving them a voice will meet the seven needs. In turn, they’ll, unite employees, and foster a relational environment that helps people do their best work.

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 No. 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, a Costco co-founder, 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
  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.

I’ve written in this space about how Costco lives out its vision, which might help you on your organization’s journey.

Costco is just one example 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, Adm. Vernon Clark of the U.S. Navy, 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
  • 7 in 10 employees are presently struggling or suffering
  • 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, especially as we’ve learned from COVID-19 why relational connection is so important.

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 competitive advantage.  


Michael Lee Stallard, president and co-founder of Connection Culture Group, is a thought leader and speaker on how effective leaders boost human connection in team and organizational cultures to improve the health and performance of individuals and organizations. He is the author of “Connection Culture” and “Fired Up or Burned Out.”

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