Entrepreneurs

A Yale Professor Outlines All the Research Showing Cut Throat Cultures Cost Companies a Bucketload of Money

Most bosses aren’t monsters. Almost no one wakes up in the morning cackling to themselves like a cartoon villain and vowing to make their employees miserable and terrified that day. Yet many companies end up with cultures so competitive and high pressure that employees suffer from sky-high stress levels. Why? 

Simple incompetence on the part of managers plays a role, but the biggest driver of cutthroat environments is likely an unstated belief that fear makes you money. Leaders might be shy about admitting it (even to themselves), but deep down many believe that driving your team harder and pitting them against each other leads to greater performance and a healthier bottom line. 

The only trouble with that understanding, according to a pair of business school professors, is that a small mountain of studies suggest it just isn’t true. Recently on HBR, Yale’s Emma Seppälä and the University of Michigan’s Kim Cameron ran down a long list of studies showing high-pressure workplace cultures actually cost businesses a boatload of money. 

Health care costs 

Can terrorizing your people into working longer and harder appear to make you money in the short term? Sure, sometimes. But as an accountant will tell you there’s no point looking only at revenue without also looking at costs. You need to subtract how much your employees’ stress costs you from how much it makes you, and these costs, Seppälä and Cameron assert, are considerable. 

Studies show that health care costs at high-pressure companies are a whopping 50 percent higher than those at less cutthroat companies. So, yes, you can bully your people into higher productivity for a while, but those same employees will be calling in sick and using their company-sponsored health insurance a whole lot more. 

Disengagement 

A frantic scramble to close a particular deal is a normal part of doing business, but when a culture of high pressure and long hours drags on, the likelihood of employees growing disengaged from their jobs climbs steadily, according to research. The professors point out just how costly that disengagement can be using a flurry of statistics. 

“In studies by the Queens School of Business and by the Gallup Organization, disengaged workers had 37 percent higher absenteeism, 49 percent more accidents, and 60 percent more errors and defects. In organizations with low employee engagement scores, they experienced 18 percent lower productivity, 16 percent lower profitability, 37 percent lower job growth, and 65 percent lower share price over time. Importantly, businesses with highly engaged employees enjoyed 100 percent more job applications,” they write. 

Or, to summarize, you really really don’t want to drive your team to mentally check out from their jobs, and that’s likely just what you’re doing when you crank up the competitive pressure. 

Higher turnover 

It’s probably not a huge shock to anyone that employees are more likely to leave cutthroat companies. The scale of the problem might surprise you, though. “Research shows that workplace stress leads to an increase of almost 50 percent in voluntary turnover,” note the professors. Keep in mind it costs, on average, 20 percent of a person’s salary to replace them when they leave. 

Pair this roll call of convincing research with other studies showing that happiness at work boosts employee productivity and research showing just how much more profitable companies become when they fire toxic high performers, and the case is pretty much closed. Driving your people hard isn’t actually a very good business strategy at all. 

What’s a better alternative? Check out Seppälä and Cameron’s complete article for their recommendations on how to balance high performance with a healthy company culture. 

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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