How “Payback Effect” is Costing American Businesses $500B Annually


Ask just about any working person to sum up their relationship with their job and you’ll likely hear some version of: overworked, underpaid and unappreciated. There may be some bellyaching in that response, but based on our own work experiences we know that it’s usually more than a little accurate.

As co-founder & CEO of Fond, a leading employee engagement platform provider, I’ve had the chance to learn about and discuss the complexities of employee engagement with hundreds of HR leaders and CEOs. This has led me to develop the theory of “payback effect” and the detrimental role it plays in our labor ecosystem. Payback effect is an outcome of employee disengagement and is a behavior that occurs when employees believe they’re getting the raw end of the deal and use that as justification to get even. That’s the payback. In case you think that employee disengagement is an isolated problem, a study done several years ago by Gallup indicated that over two thirds of US employees feel somewhat or entirely disengaged in their work.

This payback behavior often occurs when three conditions are present: when employees are put under great pressure to perform at high levels; when they encounter an opportunity they can exploit; and most importantly, when they can rationalize away their behaviors. A common way to rationalize these actions is by casting themselves as victims who are owed restitution. Payback effect is how otherwise good people settle the score; it’s what motivates individuals to improperly take something of value to offset perceived losses in compensation, time or recognition. This manifests itself in poor work ethic and reduced productivity, and in some cases, employee theft and fraud. It is costing US businesses an estimated $450-$550 billion in losses annually.

Some of this loss is comprised of outright theft of company assets or funds – activities that only a small portion of employees engage in. Far more prevalent is when employees simply waste time at work or act against their employers’ interests in other ways. It can take many forms; some employees like to daydream and others may take out their frustrations on a customer not caring that it might cause the customer to attrite. Of course, in our connected world, whether it be on a laptop or mobile, the most tempting way to avoid work is to spend untold hours browsing the internet shopping, social networking, reading news or just about anything else.

Nearly all employees do this to some extent and that is to be expected. We are not machines and no one expects us to concentrate solely and diligently on work matters for 120,000 minutes a year. But quantity matters, and when nearly 90% of workers workers spend a meaningful portion of their time on these non-work activities, it becomes something different altogether. A Salary.com survey indicated that 57% of employees admit to wasting 1 hour or more per day with 26% reporting 2 or more hours per day. Imagine that! Nearly a quarter of employees don’t work for a quarter of the work day. This is self reported data so one could imagine that the actual time sink is even more extreme. Certainly not all of us are complicit, but the data shows that the majority of American workers are caught up in this dynamic.

Not surprisingly we – the perpetrators – don’t necessarily see it that way. We see this time and productivity appropriation not just as restitution that is owed to us, but as a victimless crime. If I spend 90 minutes a day reading news sites, that’s not really hurting anyone; after all, I’m getting my work done, my coworkers like me and I haven’t been fired yet – so it’s obviously not a problem. But consider it at scale with approximately 125 million people in the US workforce frittering away large swaths of work time and that’s how $500 billion is sucked out of the system. A productivity hit of that magnitude claims many victims in the form of job losses, higher priced goods and more work stress. The cycle feeds itself creating a perfect storm of cause and effect.

How does one combat payback effect? The answer, of course, is to create a workplace that is so exemplary that everyone is fully engaged and no one feels the need to settle the score. If only. Creating such a workplace environment is a long term process and requires an ongoing commitment to achieve it. At every point in this journey, however, companies can take actions to positively influence employee attitudes, increase engagement and minimize score settling. The calculus is simple; when employees have positive attitudes toward their employer, it enhances productivity. When they feel the opposite, it feeds the downward spiral of disengagement and payback behaviors.

The most powerful lever that employers have to minimize score settling is to improve employee engagement. Engagement is the degree to which an employee feels connected to and cares about an institution. Engagement or the lack thereof is not a marginal issue; Gallup reports that approximately 70% of all US workers describe themselves as not engaged at work, with nearly 20% classifying themselves as actively disengaged. This is meaningful because the more engaged employees are the more diligent they are in furthering the institution’s goals. This is true regardless of the institution’s size or mission; whether it’s a multinational corporation or the family that lives next door. The commonality between the two is that when people feel connected, they care.

Fortunately, employers can take steps to improve employee engagement and significantly reduce the costs of disengagement. In recent years, employee engagement platforms have gained popularity and have proven to be effective in increasing productivity and job satisfaction. There are three interrelated components that comprise a modern employee engagement platform:

1) Give recognition: Implement a system that gives employees recognition and appreciation (with or without rewards) for exemplary performance or significant milestone achievement. The key success factor is to avoid the temptation to do this on an ad hoc or departmental basis. Recognition and reward systems, both management-driven and peer-to-peer, work well when they are applied consistently, comprehensively and publicly. Recognition systems have been shown to be effective whether employees receive tangible rewards like gift cards or just the public recognition of their contribution to the company.

2) Offer employee rewards and corporate discounts: Enable employees to get special access to a wide range of perks, discounts and special deals that help them save money on products and services they want. Some of the most popular perks are discounted gym memberships and restaurant discounts that have been specially negotiated for the employee. The key, once again, is in providing a comprehensive system that aggregates the type of incentives that employees really value. It should be a robust offering that is regularly expanded and refreshed and easy for the employee to access and utilize.

3) Gauge and measure the results: Key to any employee engagement system is the ability to regularly measure employee satisfaction and engagement levels. Take time to understand the underlying trends and behaviors that are revealed in the employee usage data.

To succeed, an employee engagement program of this nature must be easy for employees and HR managers to use. That’s why it’s important to seek out a well-designed system that integrates the three functions – recognition, corporate discounts and rewards, and analytics – in one interface where each function reinforces the next.

Of course, there’s the question of pricing. How much should a company be willing to pay for a well-functioning engagement program? Based on the value it delivers and the potential it carries to return a portion of the purloined $500 billion, one may fear it carries a hefty price tag. In fact, quite the opposite is true; for about the cost of a cup of coffee per employee per month, many companies are reducing the negative effects of payback behavior as they build towards a more engaged workforce. In terms of ROI that’s a variety of payback that most HR leaders feel pretty good about.

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