What makes a job "good" -- and the case for investing in people
Warren Valdmanis
00:00
In 1995, a fellow named Chris Klebba decided to open a gym in his hometown of Northville, Michigan. Fitness had changed his life, and he wanted others in small-town Michigan to have the same experience.
00:13
But the problem with gyms is they can be intimidating. It's the ultimate irony. You go to a gym to get in shape, but if you're out of shape, you feel like you need to get in shape just to show up. That's why as many as 50 percent of gym members quit within the first year, which is fine if you open a gym in New York or LA with millions of people. But in a small town, you might simply run out of customers. Now many gyms try to solve this problem by making it difficult to quit. So now not only am I feeling guilty about not going to the gym, but I’m stuck paying 100 dollars a month, and I’m still not getting any thinner.
00:50
But Chris decided to do something different. Chris decided to invest in his workers. He hired overly helpful, overly friendly employees who at any moment were eager to step in and help you learn how to use a piece of equipment without making you feel like you're being judged. The idea was for the 55-year-old mom or dad, who’d never been to a gym before in their lives, to feel welcome and comfortable immediately. Now my question as a private equity investor is: Could this really be profitable?
01:25
There's an old joke about a man who's had too much to drink looking for his keys under a streetlight. A cop comes by and offers to help and asks where he thinks he lost them. "In the park," comes the response, "but I'm looking here because the light's better." That's a little how we investors look at companies today. We know that value at companies is driven by people, but we focus on short-term profit because it's so much easier to measure. I’ve worked in and around private equity for 25 years on six continents, and I've seen this error in thinking again and again and again. In private equity, we buy companies and seek to improve them so we can sell them at a profit. But very often that improvement comes in the form of cutting costs, especially labor costs. Private equity employs roughly nine million people and has cut over a million jobs in the past decade. Too often we ask a company for their org chart just to figure out who is getting fired. Now I think investors should take pride for helping to make companies lean, but I'm worried that we may have done our job too well and are now at risk of starving companies of the people that they need to be successful.
02:44
So the big opportunity for investors, for executives and for you is to create rather than cut good jobs. Creating good jobs is now the focus of my work as a social impact investor. But to create good jobs, you first need a definition of a good job, which was surprisingly hard to find. Spreadsheets and numbers are comforting, but people are complicated, which is why impact investing can sometimes feel squishy. Good for the soul, perhaps, but risky for the pocketbook. But my partners and I work at a company that prides itself on using data to solve problems. So we spent the last two years looking at all the academic research, reading all the case studies. We interviewed human capital experts and surveyed workers across hundreds of companies. And from that work, we developed a common sense definition of a good job, one that correlates with worker productivity and helps us to build better companies.
03:46
So here it is. A good job is where a worker, one, is fairly treated. Two, has a promising future. Three, feels psychologically safe. And four, has a sense of purpose.
04:03
Now by this definition, only about a third of jobs today qualify as good jobs. But that's where data-driven impact investing can help. By putting hard numbers to each of these conditions, we can score each job at the companies we invest in and then work to improve the number of good jobs at these companies. So let's go through each of these four conditions in turn, and as we do, think about the place where you work. How does it measure up? If the answer is "not good," don't worry, you can help point your company in the right direction.
04:35
So here we go. Number one, a worker is fairly treated. Now we spend roughly a third of our adult lives working. So whether you work at Marshall's or Microsoft, you want your employer to pay you fairly for all that time. But many investors see worker pay as a zero-sum game. Whatever a company gives to workers must somehow come at our expense, which is why when Home Depot announced early in COVID that they would be offering danger pay and making investments in worker safety, they saw their market value crash by billions of dollars. But our research found over 100 studies that show that appropriate incentives, attractive benefits like retirement accounts and health care and things like flexible schedules more than pay for themselves through improved productivity, higher retention, lower hiring costs. Home Depot itself is a company that's built on the idea of providing better service to customers by employing experts on its shop floors. People who have seen your problem before because they've worked in home repair and construction, and they can help you to fix it better. Now Home Depot is thriving today thanks to its investment in workers.
05:51
Now fair pay is a critical, critical thing, but it's not the only thing that matters. Which brings us to our second condition: a promising future. Fast food restaurants not only pay low wages, they also offer very little in terms of learning and growth, which is why their employees quit after six to 12 months on average. Think about that the next time you get rude service at the drive-thru window. But training and career path can help to solve this riddle. Restaurants like Tender Greens in California and Boloko in Boston offer training to their low-wage workers that qualifies them for management roles. So you might start out as a dishwasher earning 12 bucks an hour and then with the right training, you can become a restaurant manager in a matter of months, making nearly three times that much. Now the prospect of tripling your wage is a powerful motivator. And the data shows that workers are much more loyal and dedicated when they feel that their company is helping them to build a career.
06:51
Our third condition, psychological safety, should be a fairly obvious one. Think of the best boss you've ever had, the one that motivated you to go above and beyond at work. I bet that person was a listener. Because the modern workplace is increasingly a place of communication and collaboration. But many workers find it difficult or risky to speak up. Professor Amy Edmondson of Harvard has studied this issue in government, nonprofits and companies and found that most people's first instinct is to self-protect. Let's face it, life's too short to correct your boss's mistake if you think you might get fired as a result. Not speaking up is invisible, but it can cost the company valuable ideas. It can squander employee talent or worse, it can put customers or employees at physical risk. Google found from its quest to create the perfect team that the most important ingredient was not the people involved but rather the team's overall willingness to share and listen. It also found that great teams don't hide from their mistakes, but rather embrace them as opportunities for learning and to add to the overall IQ of their companies.
08:05
Which brings us to purpose. It's a lot easier to share and listen to others if you and your colleagues feel passionately about your work. But do you feel passionately about the idea of going to work each day for the sole purpose of maximizing shareholder value for investors you've never met? It's just not a very energizing idea. Humans, unlike machines, want to feel connected to a higher purpose. They want to feel proud and useful. And fortunately, most companies out there do exist for a reason. But it can be hard to tell when so many of their mission statements read like they were generated by a robot. I actually used an online mission statement generator for this talk to see what would come back. "The mission of my TED talk is to offer smart insights with empathy, care and thoughtfulness." Not bad for a computer.
09:00
But a good mission statement is more than just nice words on a PowerPoint. A good mission statement can be the most distilled form of strategy, the guiding light for a company and its employees. That fitness chain I mentioned earlier, Impact Fitness, has a very clear mission to offer health through fitness in underserved communities, and they're deadly serious about it. The founder, Chris, likes to repeat that mission at company meetings. Most gym owners would be thrilled if their customers never showed up, so long as they keep paying the monthly bill. But Chris wants people to show up at workout in his gyms and get healthier. That's why he not only tracked gym usage, but tied it to executive pay. The company has gone from strength to strength, growing from that single gym in Northville, Michigan, to now over three dozen gyms across small-town Michigan, Indiana and now Canada. And it's done so in a way that their employees have every reason to be proud of.
09:58
It's an old corporate chestnut that our employees are our most valuable asset. Today those words ring as hollow as the automated voice, telling us how important our call is when we've been on hold for 10 minutes.
10:12
(Laughter)
10:13
But fortunately, creating good jobs isn't rocket science. These four conditions: fair treatment, a promising future, psychological safety and purpose are relatively easy to track and improve. And to do that, though, requires investors and executives to work together. Because too often well-meaning CEOs are cut short by short-term oriented investors and the boards that represent them. But I believe with a better measure of good jobs and the associated benefits, investors will support more investments in workers. Because who wouldn’t want to create good jobs if you're creating more valuable companies at the same time? And our research shows that companies with a higher proportion of good jobs grow faster and are more profitable. They attract better talent and are more innovative.
11:09
Investors ignore this issue at their peril because in today's economy, good jobs aren't just good for society, they're good business.
11:18
Thank you.