In 1995, a fellow named Chris Klebba launched 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. But the problem with gyms is that they can be intimidating. It’s the ultimate irony – you go to the gym to get in shape, but if you’re out of shape, it feels like you need to get in shape just to show up. That’s why 50% of customers typically leave within a 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.
Lots of gyms try to solve this problem by making it hard to quit. Now, not only do you feel guilty about not going to the gym, but you’re stuck paying $100 a month, and you’re still not getting any thinner. But Chris decided to do something different – he decided to invest in his workers. He hired overly friendly, overly helpful employees – who at any moment were eager to step in and show you how to use a piece of equipment – without making you feel like you’re being judged. The goal was for 55-year-old moms and dads who’d never been to a gym in their lives to feel welcome and comfortable immediately. My question, as a private equity investor, is: is this profitable?
There’s an old joke about a person who has had too much to drink, looking for his house keys under a streetlight. A cop comes by and offers to help – and asks where he lost them. “In the park,” comes the response, “but I’m looking here because the light’s better.” That’s how we investors evaluate companies today. We know that success 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 6 continents, and I’ve seen this error in thinking again and again and again. In private equity, we buy companies and try to improve them before selling them at a profit. But that “improvement” often means cutting costs – especially labor costs. Private equity employs roughly 9m people but has cut over 1m jobs in the past decade. Too often, we ask companies for an org chart just to figure out who’s getting fired. We investors take justifiable pride in having helped make companies lean, but I worry we’ve done our job too well – and we’re now at risk of starving companies of the employees they need to function.
So today, the big opportunity for investors, for business leaders, and for you, is creating, rather than cutting, good jobs. Creating good jobs is now the focus of my work as a social impact investor. But to do this, you need a definition of what a good job is – and that was surprisingly hard to find. Spreadsheets and numbers are comforting; people, on the other hand, are complicated. That’s why impact investing can sometimes feel squishy. Good for the soul 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 reviewing all the academic research and 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. Here it is. A good job is one where a worker: 1. Is Fairly Treated 2. Has a Promising Future 3. Feels Psychologically Safe, and 4. Has a Sense of Purpose
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 to get a baseline. And then, take action to improve the number of good jobs. So, let’s go through each one of these four conditions, and as we do, think about the place 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.
So here we go, number one: Workers are fairly treated. About one-third of our lives is spent working. Whether you work at Marshall’s or Microsoft, you want your employer to pay you fairly. Many investors assume worker pay is a zero-sum game – that whatever we give to workers must come at our expense. So, when Home Depot announced early in COVID that they would offer danger pay and make investments in worker safety, they saw their market value drop by billions of dollars. But our research turned up over 100 studies showing that appropriate incentives, attractive benefits like healthcare and retirement accounts, and flexible schedules more than pay for themselves through improved productivity, higher employee retention, and lower hiring costs. Home Depot itself operates in a thin-margin retail business. But it’s also a company built on providing great service to customers by employing experts on its shop floors – people who’ve worked in construction or home repair, who know how to fix your problem because they’ve seen it before. The company is thriving today thanks to its investment in people. Fair pay is important, but it isn’t the only thing that matters.
Which brings us to our second condition – a promising future. Most convenience stores and fast-food restaurants not only pay low wages, but they also offer little hope for learning or growth. So employees quit after six-to-twelve months on average – think about that the next time you get rude service at the drive-through window. But investments in training and career path can help solve this riddle. Restaurants like Tender Greens in California and Boloco in Boston offer their low-wage workers training programs that qualify them for management roles. Imagine you’re a dishwasher making $12 an hour – with the right training, you can become a restaurant manager in a matter of months, making nearly three times that much. The prospect of tripling your pay ought to be a great motivator to work hard and stay at your company longer. And the data shows this stuff work – for example, we know from Harvard’s case study on Unilever that training and career support is great for motivation and retention.
Our third condition – Psychological Safety – should be an 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. The modern workplace is increasingly a place of collaboration and communication. But most workers find speaking up difficult or risky. Professor Amy Edmondson has studied this issue across government, corporations, and nonprofits and finds that most people’s first instinct is to self-protect; life’s too short to correct your boss’s mistake if you feel you might get fired as a result. Not speaking up is invisible, but it means the company is missing out on valuable ideas, squandering employee talent and expertise, or worse – putting their customers and employees at risk. Google learned from its quest to create the perfect team that the most important element was not the individuals involved, but the team’s overall willingness to share and listen. Their research also shows that great teams don’t hide from their failures but instead use them to learn and increase the overall IQ of the company.
Which brings us to Purpose. Sharing and listening to others is a lot easier when you and your colleagues feel passionately about your work. But do you feel passionately about 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. Unlike machines, humans want to feel connected to a higher purpose. They want to feel useful and proud. Happily, most companies out there do exist for a reason. But it’s hard to tell when so many corporate mission statements read like they were written by a robot. I actually tried out an online mission statement generator for this talk, and this is what I got back: “The mission of my TED talk is to offer smart insights with empathy, care, and thoughtfulness.” Not bad for a computer.
But a good mission statement is more than just nice words on a PowerPoint – done properly, it can be the most distilled form of strategy – the guiding light for a company and its employees. The fitness chain I mentioned earlier, Impact Fitness, has a clear mission to bring health through fitness to underserved communities. And they are dead serious about it. The founder is known for reciting the mission at the start of company meetings. Many gym owners would be thrilled if their customers never showed up – so long as they pay the monthly fee. But Chris wants people there, working out and getting fit. And that’s why, at Impact Fitness, gym usage is tracked and tied to executive pay. The company has gone from strength to strength – growing from that single gym in Northville into over three dozen gyms across small-town Michigan, Indiana, and now Canada. And it’s done so in a way their employees have every reason to be proud of.
It’s an old corporate chestnut that “employees are our most valuable asset.” Today those words feel as empty as the automated voice telling us how important our call is when we’ve been on hold for 10 minutes. But 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 they offer a place to get started for any enterprise – if a company can’t offer a higher wage right now, it can offer training programs and a career path.
But this does require investors and executives to work together. Too often, well-meaning CEOs are shut down by short-term-oriented investors and the boards that represent them. But with a better way to measure good jobs and the associated benefits, I believe that investors will support greater investment in people. Who wouldn’t want to create good jobs if it means you’re creating more valuable companies? Our research shows that companies with a higher proportion of good jobs are more profitable and innovative. They grow faster and attract better talent. We, investors, ignore this issue at our peril. Because in today’s economy, good jobs aren’t just good for society – they’re good business.