Why workforce sustainability has become a board-level financial metric

Twenty years into the corporate ESG movement, we finally have the evidence base to support board-level metrics on human sustainability. Boards must now invest in climate stewardship. But new, definitive scientific studies reveal that high-performing companies are differentiated by 'workforce sustainability.'

Workforce sustainability is the ability of an employee base to deliver value year after year through all of the uncertainty and constant change that characterizes the modern workplace. A variety of metrics can be used to measure it. Conceptually, it's about 'fuel in the tank.' How much energy does a company's employee base have to give?

Psychological well-being is a construct that captures this. Employees with high psychological well-being can cope with stress, recharge and show up with their full productivity levels. Two critical psychological studies in the last two years definitively establish that this metric predicts financial and individual corporate performance.

In Spring 2023, Oxford University's Jan-Emmanuel De Neve and colleagues demonstrated that companies whose employees have strong well-being have higher financial and stock performance. More importantly, they showed that employee well-being levels predict financial and stock performance six and twelve months ahead. This study spanned 1,600 publicly traded companies and data from 15 million employees. For the first time, we can say with scientific confidence that workforce sustainability predicts financial performance and the stock market's willingness to value that performance highly.

De Neve's work came 18 months after the groundbreaking study by Martin Seligman, the late Ed Diener and others, on nearly one million U.S. Department of Defense employees, showing that higher well-being strongly predicts performance awards. They studied almost 1 million department employees and found those with increased well-being four times more likely to win performance awards across all functions and levels of tenure.

Wall Street is taking note. Given this new reality, the S&P adjusted its metrics for global corporate sustainability to include an assessment of employee well-being across all 62 industries it assesses. In addition, a major leading investment management firm has begun piloting a stock portfolio based on employee well-being scores.

The emerging research and corresponding shifts signal a significant rise in the importance of and visibility of workforce sustainability. If people are the power behind every successful organization, powering your people's well-being gives you a competitive advantage. Here's what the continuum of employee well-being looks like today and what your organization can do about it.

At any given time, some of your employees may be doing great and some are in crisis. At one extreme, their well-being is low and they struggle to function. At the other extreme, people are super-functional. We've studied this spectrum extensively and found that at any given time, about 55% of your employees will be low on well-being or languishing. This doesn’t mean a person needs clinical support, it’s the normal feeling of 'blah' we’ve all experienced, that corresponds to low-performance sustainability.

We know that people can improve their well-being. Personal growth focused on developing core psychological skills and mindsets can stop the downward slide and create performance momentum. Organizations that invest in strengthening psychological resources and developing mental fitness for the middle, rather than just interventions for those in crisis, can shift the massive middle to the right, unlocking that human and economic potential.

At BetterUp, for example, we found that organizations that took a personalized approach to building agility, resilience and well-being saw a 30-40% improvement within a month. Sustaining impact also requires ongoing support, as well-being needs can and will shift over time. A global Fortune 500, where we deployed this approach to 75,000 workers, has seen a 75% increase in its employee population thriving.

If organizations intend to treat well-being as a vital business metric that will help forecast financial performance, someone within the organization must own it. For years, the status quo for employee well-being has been a scattered and siloed responsibility across a few different areas – with learning and development, HR, benefit teams and managers all playing bit parts. However, without a centralized owner and strategy to measure the influence and impact of well-being initiatives, they lack the accountability and transparency needed to succeed.

As more organizations take the financial implications of well-being seriously, the role of the Chief Human Resources Officer (CHRO) becomes even more vital. As an executive reporting to the CEO, a CHRO’s purview has the opportunity to become increasingly accountable to shareholders, leaders and employees to ensure well-being investments move the needle to get desired results.

The remit of the CHRO is clear – they should own the number that represents the overall level of employees' well-being. They are responsible for tracking it at each level, predicting dips and calling out the performance dips that will follow from there. They also need the power to change how organizations invest in sustainable performance to be most effective. In some cases, this means consolidating existing branches of the organization focused on well-being and performance under their leadership. In others, it may work better as a matrix with shared KPIs.

What matters most is bringing greater corporate visibility to the workforce sustainability metrics that matter. Include well-being metrics in management dashboards. Boards of directors should expect to see this number in their board packets, alongside other workforce metrics.

Increasing the wellbeing of an existing workforce requires modeling by leaders. Eighty-four percent of the C-suite agree that employees are more likely to be healthy if their executives are healthy, however, just 16% of workers say they see this level of transparency from their leaders.

Your people managers can and should play an active role in helping promote these behaviours. People managers are your culture keepers and are also responsible for your team's workload, careers and welfare. Managers impact employees' mental health more than doctors or therapists — and even the same as a spouse or partner. Yet one in three employees say their manager fails to recognize the impact they have on their team's mental well-being.

Building more resilient teams should be on every people manager's to-do list. Whether that looks like leading teams through a resilience workshop, 1:1 coaching or modelling what resilience can and should look like, these skills will help employees bounce back from setbacks and difficulties and learn how to adapt to whatever challenges or changes come their way.

While everyone's path to well-being looks and feels a little different, every organization can create a practical roadmap for change by investing in well-being initiatives that promote sustainability, accountability and lasting behaviour change. It is about investing in a company’s most important asset, its people.