Authored by Shonna Waters, PhD and Erin Eatough, PhD
There has long been a prevailing assumption, especially in American business culture, that employee well-being and organizational performance are competing priorities - that focusing on one necessarily comes at the expense of the other. The conventional mindset is that maximizing performance requires pushing employees to their limits, even if it harms their well-being. And investing in employee well-being is seen as a nice-to-have that detracts from bottom-line results.
However, an emerging body of research challenges this traditional trade-off thinking. Recent research by De Neve, Kaats, and Ward (2023) studied the relationship between workplace well-being and firm performance for over 1,600 listed companies in the United States using large-scale data from job website, Indeed. The study found that companies with higher levels of employee well-being, as measured by self-reported job satisfaction, purpose, happiness, and stress, consistently outperformed their peers in terms of profitability and stock market performance.
These findings align with previous research that has identified positive links between employee well-being and various indicators of organizational success, such as productivity, customer satisfaction, and employee retention (Krekel et al., 2019; Edmans, 2011, 2012; Chamberlain, 2015; Huang et al., 2015). The growing body of evidence suggests that investing in employee well-being is not only compatible with business success but may be a key driver of it.
Yet, traditionally, company performance and organizational health have been measured primarily through financial metrics such as revenue growth, profitability, return on investment (ROI), market share, and stock price. These metrics are often used as the primary indicators of a company's success and are heavily relied upon by investors, analysts, and executives to assess the health and performance of an organization. As the old adage says, “what’s measured is what matters.” In the case of organizational management, focusing solely on financial metrics at the expense of human capital metrics can be detrimental to long-term business success.
A recent article by Tay et al. (2023) proposes that the organizational sciences need to move beyond job performance as the ultimate outcome and instead adopt a broader conception of well-being as the ultimate criterion. Well-being in this context refers to optimal functioning – sustainable, holistic thriving across domains – financial, emotional, physical, spiritual, social – at the individual, team, and organizational levels.
We argue that well-being and performance are not antithetical, but in fact are mutually reinforcing when viewed from a more holistic perspective. At the individual level, research shows that employee well-being - in the form of physical and mental health, positive emotions, strong relationships, and a sense of meaning and purpose - facilitates higher engagement, creativity, and productivity (Diener et al., 2020).
This well-being-performance link scales up to the team and organizational levels as well. Studies find that work groups with higher collective well-being exhibit superior coordination, collaboration and innovation (Gil et al., 2005). And companies that make systematic investments in employee well-being show not only better financial performance but also higher customer satisfaction and retention, pointing to positive spillover effects (Harter et al., 2010).
Looking beyond organizational boundaries, the well-being lens highlights how business practices impact larger societal outcomes. Do a company's products and services enhance customer welfare and quality of life? Do its supplier relationships and community initiatives contribute to collective thriving? These questions represent an expanded definition of organizational success.
A key insight is that the synergies between well-being and performance play out over time. In the short run, exploitative practices that undermine well-being may indeed boost output. But in the long run, sustainable high performance depends on renewing human capacity - it requires practices that allow people to thrive, not just survive. Elite athletes and military units recognize this principle, periodically restoring energy levels so they can operate at peak when it matters most. Progressive organizations are instituting similar rhythms, with benefits for both well-being and results.
Importantly, contextual and timeline constraints may create different approaches to balancing well-being and performance. Often, we see compressed timelines or urgency creating an artificial dichotomy between wellbeing and performance. For instance, a start-up in its early stages, a company preparing for an initial public offering (IPO), or a business under private equity ownership may face intense pressure to prioritize short-term financial performance over employee well-being. These organizations often operate under tight timelines and resource constraints, which can lead to a more aggressive push for results at the expense of employee welfare. In contrast, more established companies with longer time horizons and greater financial stability may invest in employee well-being and development initiatives that yield benefits to organizational performance over time. One thing we believe companies get wrong, though, is overestimating how long employees can operate at peak performance without recovery. Unfortunately, when pressures are high, creating artificial distinction between performance and well-being where one is sacrificed in service of the other will only work if that performance does not need to be sustainable.
To be sure, tensions can arise between different elements of well-being, and across different stakeholders. Increasing pay lifts financial well-being and raises costs. Investing in community well-being doesn't always maximize shareholder returns. Further research is needed to understand how to optimize well-being outcomes given inherent constraints and trade-offs. Organizations would benefit from configural methodologies that examine how different components of well-being and performance fit together, at different levels and time scales (Tay et al., 2023).
The implications of this shift towards a well-being-centric approach to organizational performance are far-reaching. At the board and investor level, it may require changes to the metrics and scorecards used to assess organizational success, incorporating measures of employee well-being, customer satisfaction, and societal impact alongside traditional financial indicators. At the team and individual levels, performance metrics may need to be expanded to include dimensions of well-being, such as engagement, relationships, and personal growth.
For organizational researchers, this paradigm shift may involve moving away from linear prediction models focused on a single performance outcome and towards approaches like Pareto optimization that can balance multiple, sometimes competing, objectives. Pareto optimization, also known as multi-objective optimization, is a concept from economics and engineering that involves finding solutions that optimize multiple, often competing, objectives simultaneously. In the context of organizational research, this means considering multiple outcomes or criteria when evaluating organizational performance, rather than focusing on a single outcome like financial performance. This shift could look similar to the shift that has been made in employee selection work to incorporate diversity as a valued outcome and reduce adverse impact.
Ultimately, though, resolving these tensions requires a shift in values - about what we see as the fundamental purpose of organizations in society. Is it to deliver financial profits, or to contribute to human and societal flourishing? Different cultural contexts strike this balance differently. In Nordic countries, for example, generous family leave and vacation policies reflect a societal prioritization of well-being; not coincidentally, these countries also top rankings of productivity and competitiveness (Kohll, 2018).
Moreover, the changes in the world and broader societal expectations are driving a re-evaluation of the role of organizations. The growing focus on environmental, social, and governance (ESG) issues, the rise of conscious consumerism, and the increasing demands for corporate social responsibility all point to a shift in how we define organizational success. In this context, a narrow focus on financial performance is no longer sufficient. Organizations are increasingly expected to contribute to the well-being of their employees, customers, communities, and the planet as a whole.
Traditional Perspective | Emerging Future of Work Perspective |
Employee well-being and organizational performance are competing priorities | Employee well-being and organizational performance are mutually reinforcing |
Focus on financial metrics as primary indicators of success | A broader conception of well-being is the ultimate criterion for success |
Short-term exploitative practices may boost output | Sustainable high performance depends on practices that allow people to thrive |
Prioritize timeline constraints at all costs | Approach to balancing well-being and performance accounts for sustainability needs |
Tensions exist between different elements of well-being and stakeholder interests | Configural methodologies that optimize well-being outcomes, given trade-offs |
Steps Needed to Move Toward the Emerging Perspective |
Changes to metrics and scorecards at the board and investor level to incorporate well-being, customer satisfaction, and societal impact |
Expansion of performance metrics at the team and individual levels to include dimensions of well-being |
Shift in organizational research from linear prediction models to approaches like Pareto optimization that balance multiple objectives |
Re-evaluate the fundamental purpose of organizations in society, from delivering financial profits to contributing to human and societal flourishing |
Alignment with broader societal expectations around corporate social responsibility, conscious consumerism, and ESG issues |
Update mental models and conceptual approaches among organizational leaders and professionals |
Urgently address stress, burnout, and mental illness by humanizing the view of success to encompass multidimensional well-being |
As organizational sciences and psychological research evolve, so too must the mental models of organizational leaders and professionals. Tay et al. (2023) outline three conceptual approaches - focused on multiple criteria, dynamic processes unfolding over time, and person-centric methods - that can guide this paradigm shift. The practical implications span domains from employee selection and performance management to leadership development and organizational design.
Importantly, this movement is more than an academic exercise - it has real human stakes. The growing epidemics of stress, burnout and mental illness point to the limits and costs of an unhealthy obsession with narrow metrics of performance (Gallup, 2022). Humanizing our view of success, to encompass multidimensional well-being, is an urgent imperative. By rethinking the relationship between well-being and performance - as enabling rather than opposing - organizational sciences can help lead the transition to a human-centered model of business and a more sustainable vision of prosperity.
References:
De Neve, J.-E., Kaats, M., & Ward, G. (2023). Workplace wellbeing and firm performance. Wellbeing Research Centre.
Diener, E., Thapa, S., & Tay, L. (2020). Positive emotions at work. Annual Review of Organizational Psychology and Organizational Behavior, 7, 451-477.
Gallup (2022). State of the Global Workplace 2022 Report. Available at: https://www.gallup.com/workplace/349484/state-of-the-global-workplace-2022-report.aspx
Gil, F., Rico, R., Alcover, C. M., & Barrasa, Á. (2005). Change-oriented leadership, satisfaction and performance in work groups. Journal of Managerial Psychology, 0(3-4), 312–328.
Harter, J. K., Schmidt, F. L., Asplund, J. W., Killham, E. A., & Agrawal, S. (2010). Causal impact of employee work perceptions on the bottom line of organizations. Perspectives on Psychological Science, 5(4), 378-389.
Kohll, A. (2018). The Evolving Definition of Work-Life Balance. Forbes. Available at: https://www.forbes.com/sites/alankohll/2018/03/27/the-evolving-definition-of-work-life-balance/?sh=6529caa99ed3
Tay, L., Batz-Barbarich, C., Yang, L. Q., & Wiese, C. (2023). Well-being: The ultimate criterion for organizational sciences. Journal of Business and Psychology, 1-17.
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