NPS (31) – Does employee happiness matter? – 31st article in a series on the Net Promoter System®

Welcome to the 31st article in my series on the Net Promoter Score and System. This time I dig into the question of the relationship between employee and customer satisfaction. The answer is not what most people believe. While this series is about the Net Promoter Score, I have used American Customer Satisfaction Index data for the analysis as I was able to study 398 companies. I have since been able to do the same type of study using Temkin NPS benchmarks for 223 companies, with very similar results. However, I still consider the ACSI-based study to be superior, just because of the number of companies and industries I was able to include.

You can read all of the prior articles in the NPS series on our blog page here.

Contrary to popular wisdom, happy employees are not terribly important to customers. My research shows that employee happiness contributes about 6% of customer happiness. This does vary by industry.

Source of data

In February 2019, I compared American Customer Satisfaction Index data with employee ratings for 398 large companies that sell to US consumers. The research has been described in detail in our companion book Customer Experience Strategy – Design and Implementation. Using linear regression, just 6.2% of the variability in customer satisfaction is due to employee satisfaction. For the stats experts, the number does not change with quadratic regression. This was our third annual study on the subject and prior results were similar.

Reasons for the surprise

There are a number of reasons the link between end customer and employee happiness is not as high as you might expect:

  • First and foremost, a happy employee is not necessarily an engaged employee. A person can be happy with their short commute to work, their pay, and the free food in the company restaurant. None of these involves doing anything positive for customers. Engagement is a more complex concept, with no standard definition. However, every study I have seen shows a positive relationship between employee engagement and a range of things, such as financial results and customer satisfaction.
  • Many brands do not actually interact directly with customers at all. This is the case for franchise businesses. The company grants a right to use a brand in a geographical area to a franchise operator and the franchisee is the one who interacts with the end customer. Even the largest corporations that deliver physical goods do this to an extent. Almost none cover every country in the world themselves, depending on local third-parties to cover their gaps. The happiness of the employees who have no interaction with the end customer is of course invisible to them and has no impact on their NPS scores received from those end customers. The parent companies should be more concerned with the happiness of franchisees. There is no easily-available public data on franchise operator NPS.
  • There are web-only brands where you are unlikely to come into contact with a human. Amazon is a company with a great ASCI score of 82, and a relatively ordinary Glassdoor score of 3.8.
  • Some brands have monopolies and can afford to treat customers poorly. This seems notably to be the case for many cable TV companies and Internet Service Providers. Their customer and employee satisfaction scores seem to be opposites. Who would have thought it possible? Happy employees and unhappy customers. I suppose another explanation is that these companies provide services that we only notice when they are not working. When everything is OK, we don’t think about them. When our internet access is down, we quickly get angry.

There may be sectors where it matters a lot

My research suggests there are high-touch industries where employee engagement makes a difference to customers. There were 17 supermarket chains in my study, and the variations in employee happiness explained 49.1% of the variations in ACSI scores, (as measured by the r-squared number.) For hotels, the number was highest of all, at 68.1%. However, those companies include hotels operated by franchisees, rather than employees of the parent company, and ten is not a great population for calculating correlation coefficients. Perhaps surprisingly, the number was just 7.2% for specialty retail stores. There were 25 companies in this category. I have to speculate that this may be due to the negative environment created by competition with eCommerce. Bearing all of these factors this in mind, I nevertheless selected 129 of the 398 companies covered as ‘High touch’ and found that variations in employee satisfaction explain 8.8% of the variations in customer satisfaction, using linear regression, and 16.8% using quadratic regression. Still quite low really.

Think about it

If you were to assemble a team of people and ask them to brainstorm potential factors that affect customer happiness and loyalty, I believe you would come up with a long list. Employee satisfaction would probably make the list, but I doubt it would be in the top five. Things like the reliability of your products would be higher up on the list. It is only when the question is asked in isolation that people say employee satisfaction is the most critical factor. It is a case of an intuitive reaction, rather than a rational one. It would be tempting to believe that employee satisfaction is a hygiene factor, meaning that unhappy employees do indeed have a negative effect on customers, and that there is a diminishing rate or return on improving happiness, making no difference at all above a certain point. However, the ACSI analysis does not support that theory either. The relationship is close to linear at the cross-industry level.

Full details

If you would like to read about this in far more detail the full blog posts, which are slightly-edited versions of chapters in our book Customer Experience Strategy – Design and Implementation are here and here.


Next time

The next article will be about one way of measuring employee satisfaction_ eNPS.


As is often the case, the above is a slightly-edited version of a chapter in one of our books; in this case Net Promoter – Implement the System All of our books are available in paperback and Kindle formats from Amazon stores worldwide, and from your better book retailers.