Is Loyalty Dead? : Downsizing Has Left Workers Demoralized, but Some Companies Are Finding New Ways to Reward Dedication

Intel Corp. would make anybody’s short list of the world’s best-performing companies. And by most accounts, the pioneering Silicon Valley chip giant is a decent place to work.

But these days, with the hot competition for brainy programmers and other high-tech talent, even Intel’s success isn’t always enough to keep the best employees from straying to the highest bidder.

So the Santa Clara-based manufacturer took a step recently to bolster the loyalty of its 48,500 employees worldwide: On top of paying a hefty $820 million in 1996 profit-sharing and retirement contributions, Intel promised that all employees, not just top managers, will be eligible for its stock option plan. The company’s message: Stick around, help make the company more successful, and you’ll reap a bigger reward down the road.

“Obviously, we take the issue of our employee commitment very seriously,” said Patty Murray, Intel’s vice president of human resources.

Companies these days are finding that they must go to unusual lengths to instill loyalty in their workers.

It’s not surprising.

After a decade of corporate downsizing and cost cutting, loyalty has been in short supply. Companies have exhibited little remorse in chopping payroll at the first sign of trouble, and traumatized employees--feeling like expendable cogs--have in return demonstrated little or no fidelity.

That, in turn, has led to a free-agency approach to work, with many highly skilled employees hop-scotching from job to job, carrying their knowledge with them.

Suddenly, however, even those companies that have relied on the frequent quick fix of mass layoffs are beginning to realize that a lack of loyalty can stunt productivity and growth. Downsizing continues to be a fact of life, but companies are simultaneously spouting the notion that employees are “our most valuable asset.”

To some spurned and skeptical employees, the words ring hollow.

“Loyalty is based on trust, and it takes time to build,” said Karen Stephenson, a “corporate anthropologist” who teaches at UCLA’s Anderson Graduate School of Management and consults with companies about workplace hierarchies and networks. “When the ground rules change, the trust has been betrayed. Once there’s betrayal, it’s very hard to reconstitute. You have a damaged work force.”

Indeed, one of the key victims of the layoff-plagued 1990s has been the old employment contract under which many of today’s workers began their careers--a lifetime job in exchange for loyalty. A recent survey by Angus Reid Group, an opinion research firm in Minneapolis, revealed that half of American workers believe that their employers are less committed to keeping workers employed than in years past. The price employers are paying, Angus Reid concluded, is declining employee confidence and diminished loyalty.

“The whole loyalty bargain now is untenable,” said Charles Heckscher, a professor of management and labor relations at Rutgers University and author of “White-Collar Blues: Management Loyalties in an Age of Corporate Restructuring”(BasicBooks).

What Heckscher describes as “an extraordinary culture of paranoia” now pervades corporate America, as gun-shy workers lie constantly in wait “for the other shoe to drop.”

Rebuilding loyalty in this environment will require a change in attitudes on both sides, Heckscher and other management experts say. Rather than have workers subordinate themselves to a paternalistic company that then takes care of them, a new order is called for. One way of looking at it is that the relationship between worker and employer will take on a more professional tone.

Employees will understand the competitive challenge the company faces. They will be committed to meeting that challenge in exchange for an appropriate reward, but they will no longer be faithful for a lifetime.

“Loyalty is not dead,” said Jim Harris, a consultant on high-performance workplaces who is based in Indian Rocks Beach, Fla. “Loyalty is simply being redefined.”

Reciprocity will be key to making this new arrangement work, said Jean Lipman-Blumen, a professor of organizational behavior at Claremont McKenna College. Companies will have to meet employees more than halfway or face the prospect of a sour, uninspired work force.

“I have a hard time in terms of what I teach my MBA students,” Lipman-Blumen said. “I don’t think it’s ethical for me to prepare students to be loyal over the long term to an organization if it’s not going to treat them that way.”

A good strategy for today’s workers, she said, is to be loyal and realistic. In some cases, that will mean remaining committed to an organization for a short-term project and then moving on.

Good things can come to employees who adjust to this new order, Lipman-Blumen said. Frequent change will make them more self-reliant and ever alert to new opportunities. As employers realize that their workers have other options, they will be forced to treat them better.

But such an approach can also promote a two-tier work force. Increasingly, companies are relying on independent contractors or freelancers, whose loyalty to an organization is tenuous.

Smart companies have already learned that one way to keep employees engaged is to provide a steady diet of training and challenge. Intel, an industry pacesetter, spends 6% to 7% of its annual payroll on training, at least four times the typical amount for its industry. By retraining staffers working in flagging businesses, the company is able to redeploy them to areas of high return. That helps the company avoid layoffs.

Software juggernaut Microsoft Corp. also hones its edge by keeping its employees up-to-date.

Sabina Nawaz, 31, started working at Microsoft in Redmond, Wash., 6 1/2 years ago, straight out of college. She can’t imagine working anywhere else as long as she remains in the computer industry, she said.

“I feel I get everything I need for my career,” she said. “You can try your hand at anything here.” So far, she has been a programmer, a test manager and a group program manager at the company’s Microsoft Network online service.

Nawaz notes that pay is fine and that benefits are great. But “what excites me about coming to work is not the paycheck but the . . . work day to day,” she said. “There is a sense of ownership that is driven down to the lowest levels. I’ve always felt I had authority to make decisions.”

Bain & Co., a consulting firm based in Boston, is seeking to capitalize on companies’ new focus on loyalty. Ten years ago, the firm started a “loyalty practice” to help companies improve the faithfulness of customers and suppliers. Since then, Bain has also begun consulting on ways to strengthen loyalty among employees and shareholders.

Employee loyalty “is as important as the others,” said Vincent Tobkin, who directs the loyalty practice from the firm’s San Francisco office. “It can create just as much value for a company.”

In fact, the best bottom lines tend to be generated at companies that put loyalty first, writes Frederick F. Reichheld, a Bain director, in his 1996 book, “The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value” (Harvard Business School Press).

Federal Express and UPS, for example, understand that experienced drivers, far from being a costly onus, know how to generate productivity by doing their jobs more efficiently.

Similarly, Chick-fil-A, an Atlanta-based chain of chicken sandwich shops, strikes a mutually beneficial partnership deal with its store managers, offering them an astonishing 50% of store profits. The lucrative arrangement, Reichheld wrote, encourages managers to stick around, so that the company’s turnover is a mere 5% or so, versus the industry’s 30% to 40%.

Stockbroker A.G. Edwards also strives to earn employee loyalty by following the Golden Rule. The firm seeks out individuals who share its philosophy and will fit into the culture. More than 90% of promotions come from within the company, further strengthening the bond.

Ultimately, building loyalty might come down to making employees feel important and giving them the chance to grow.

“People want to feel that they make a difference,” said Lipman-Blumen of Claremont. “Creativity and innovation don’t flow from bored, angry and resentful workers.”