Productivity Is Declining: What CEOs Can Do to Reverse the Trend

Business leaders expected a productivity downturn when the pandemic forced millions to work from home. However, many were surprised and relieved when their employees’ output remained steady or even increased during the lockdown. Remote work proponents used the promising statistics to advocate for permanent telecommuting and hybrid work options. And for a while, their argument held water.

But new data shows that employee productivity is now on the decline. According to a recent report by the Institute for Corporate Productivity (i4cp), worker output in the US is dropping at the fastest rate in 75 years. Now, some organizations are counterpunching by claiming that flexible work arrangements are the reason why.

Why Productivity is Slipping

Gregory Daco, chief economist at EY Parthenon, told Fortune that many of his clients across all industries blame remote and hybrid jobs for the productivity slump. However, he disagrees that the new work models are the sole or even a significant cause of the problem. He cites the considerable labor churn over the past two years as a major factor. The massive turnover rate has made it very difficult for employers to train staff and get them to a pre-pandemic productivity rate.

And there’s another, broader reason behind the low output trend: employee engagement is also sagging. Besides being one of the driving forces behind the Great Resignation, weak engagement contributes significantly to the lack of effort remaining employees put into their jobs.

Remote and hybrid workers often have difficulty feeling engaged with their organization—especially now that many employers aren’t trying to form genuine connections with off-site staff as they did during the pandemic. And back-to-office mandates caused morale to slump for numerous employees forced to return to the workplace.

Trust is eroding on all sides. Employers are increasingly suspicious of how much, how hard, and how often their remote team members work. Their attitude, along with the surveillance technology many put into play, has caused lots of remote team members to lose confidence in their organizations.

Additionally, many workers forced to return to the office have lost faith in bosses who reeled back remote options and demanded they appear in person. And remote workers citing proximity bias mistrust employers who seem to favor on-site colleagues.

Less dramatically, engagement and productivity suffer when people simply aren’t interested in their work. For example, apathy can grow when employees don’t feel a sense of purpose because their jobs seem boring or meaningless. Workers also disengage when their employers fail to outline expectations effectively, causing mistakes and sparking a blame game. And employees who don’t feel recognized or valued feel less motivated to excel.

Across the board, disintegrating engagement is tanking productivity.

Reversing the Trend

“Employees seem to be following a pattern of professional detachment,” Eric Watkins observed in Entrepreneur. The president of Abstrackt Marketing Group noted that since early 2020, worker engagement surveys have shown a steady decline in employees’ emotional investment in their jobs. But organizations that understand the vital link between productivity and engagement can turn things around.

RECOMMENDATIONS TO ENGAGE ALL WORKERS

In a recent Forbes article, Jack Kelly, Founder and CEO of the Compliance Search Group, offers leaders a strategic list of recommendations to engage all workers better. Financial security contributes to employee engagement, so he begins his list with keeping pay in line with inflation and offering financial assistance programs. But the rest of his suggestions dovetail into organizational culture.

Kelly advises leaders to:

• Create a positive and supportive work environment.
  Kelly notes that a healthy workplace culture helps employees feel valued and appreciated. Leaders who set the tone for behaviors reinforcing respect, inclusion, psychological safety, and trust will cultivate an enthusiastic team with more commitment to their employer.
  
  
• Offer opportunities for professional development.
  People who feel like they are in dead-end jobs often don’t make an effort at work. And the lack of career growth options is a leading contributor to turnover. Employees are more likely to produce at a higher level in organizations that offer them a chance to upskill, allow them to take on new challenges, and provide educational options.
  
  
• Offer flexible work arrangements.
  The struggle to manage personal responsibilities can impact employees’ productivity at work. Leaders can facilitate a better work-life balance by offering flexible scheduling that allows staff to meet all their obligations effectively. Even companies enforcing a back-to-office protocol can earn more employee buy-in by collaborating with them to create schedules that serve both parties’ needs.
  
  
• Provide mental health resources.
  The American Psychological Association reports that 43 percent of workers believe they would suffer negative consequences if they told their employer about a mental health condition. Consequently, stress and burnout run rampant in many companies, which directly impacts motivation and productivity. Employers can empower their staff to be their best by offering mental health resources and destigmatizing reaching out for help.
• Be transparent about company plans and finances.
  Employees who don’t trust their organizations are unlikely to perform at a high level. One of the best ways for companies to build trust is by making transparency part of their culture. When leaders are open and honest about all aspects of their businesses, their people feel more included in critical conversations and vested in the company’s success.
  
  
• Establish clear goals and expectations for staff.
  People don’t perform well when they’re not sure about what they’re supposed to do. Leaders can develop a high-functioning team by establishing a culture that requires staff at all levels to specify expectations and gives them a safe space to ask questions to gain clarity.
  
  
• Show employees how their work contributes to the company’s mission.
  The era when employees worked purely in exchange for wages and benefits is over. Among other new priorities, today’s workers desire jobs that provide them with a sense of purpose. People want to feel like what they do every day matters. Employers can connect the dots for staff by regularly reinforcing how each of their roles helps the organization achieve its goals.
  
  
• Improve internal communications to create more open and honest dialogue.
  Leaders who coach and reinforce strong communication skills will generate more productive teams. Employees flourish in an environment where they feel comfortable speaking up. Teams collaborate more effectively when they fully listen to what others have to say. And people work more efficiently when information is freely shared.
  
  
• Provide regular feedback.
  Annual reviews do little to incentivize employees to be more productive. But leaders who regularly encourage their people, coach them to improve, listen to them, and give them constructive feedback to help them stay on track will build a more responsive and enthusiastic workforce.
  
  
• Recognize and reward employees for good work.
  Employees deeply appreciate sincere and timely acknowledgment of their achievements. This recognition not only boosts their self-confidence, it encourages them to continue doing good work and inspires those around them to do the same.
  
  
• Root out and eliminate causes of toxicity.
  “The culture of any organization is shaped by the worst behavior the leader is willing to tolerate.” This famous quote sums up why leaders must be vigilant about not letting toxicity germinate in their organizations. Everything from harassment or disrespect to thoughtless work habits can cause a downward spiral that saps productivity.  
  

RECOMMENDATIONS FOR REMOTE STAFF

Business advisor Tara Coomans’ 15-year-old PR agency has always been fully remote. In an article for Entrepreneur, she gives leaders specific advice on boosting off-site teams’ productivity. She cites studies showing remote workers put more hours in than their on-site counterparts, mainly because they don’t spend time commuting. However, more hours spent on the job can lead to employee burnout.

Coomans advises leaders to schedule one-on-one check-ins with remote team members to listen to their challenges and help them maintain a balanced work schedule. These meetings facilitate relationships and establish a sense of belonging for staff members. They allow both parties to know each other more personally, which helps build mutual trust.

Instead of investing in surveillance mechanisms to ensure remote staff are on the job, Coomans tells leaders to set clear goals and objectives and evaluate results. She explains:

“Rather than think of output in terms of hours worked, think about output in terms of contributions. What exactly should an employee be delivering? What KPIs should an employee be tracking for themselves? What is the contribution expected from their role?”

Because they don’t interact in person, remote workers are more at the mercy of endless technological interruptions than on-site employees. Coomans recommends setting up a “hierarchy of communication” to alleviate constant distractions that can prevent people from working more effectively. She also favors eliminating non-essential meetings to allow people more time to do their work.

Productivity’s Overarching Effect

Gregory Daco has studied and written extensively about the labor market. He points out that the drop in productivity is “exacerbating compensation pressures and pushing up unit labor costs.” People are working more hours, but their output is not measuring up. Ultimately, this trend is bad for everyone. He explains further in Fortune:

“One of the reasons sluggish productivity hurts the economy is not just that it limits supply; it leads to inflationary pressures. Think of it like: a working employee has a cost. They have to be paid. That wage is offset by their productivity. What matters to an employer is how much they’re paying per unit of output. That’s unit labor cost.”

Daco believes that employers who work with their teams to reinvigorate productivity, including offering more flexibility and building trust, will help relax inflationary pressures. He says the current economy is operating in an environment of constraint. But he notes, “Productivity is the key out of this mess we’ve been in.”

The US Bureau of Labor Statistics offers a simple outline of productivity’s effects on the economy.

“Historical or “time series” data on output and hours worked show the importance of increases in labor productivity to economic growth in the United States. With growth in productivity, an economy is able to produce—and consume—increasingly more goods and services for the same amount of work.”

On an individual level, Investopedia calls productivity “the most fundamental and important factor determining our standard of living.” Higher output leads to greater profitability for businesses, higher wages, increased supply, and lower costs for consumers.

And productive workers are happier on the job. Ironically, when leaders work to improve employee engagement to boost output, their staff’s elevated productivity leads to higher engagement. Workers feel more fulfilled, and they’re less stressed because they’re operating more efficiently. By increasing the employee value proposition, leaders build a cycle of productivity.