Illustration by: iStock.com/Pubmanhero
Accounting is considered the language of business, but too few people can speak it. That’s according to Ed deHaan, a professor of accounting at Stanford Graduate School of Business who researches financial reporting, corporate governance, and household accounting and finance. If your organization has designated accountants, though, why would you need to keep other employees in the financial loop?
A greater fluency in basic accounting principles throughout the company helps both individuals and businesses succeed financially, deHaan says — it can keep employees happier and more engaged, impact retention, and empower leaders to make more informed decisions. In an episode of the If/Then podcast, he discusses how to help employees increase their financial savvy and why that matters for your business.
A Financial Disconnect
Accounting is the recording, analyzing, and communicating of a company’s finances, and deHaan’s research indicates that the average employee cares more deeply about it than many managers realize. Information from earnings reports can greatly impact which job offer they might accept, their decision to stay at a company, or how happy they are at work.
The problem? Most people struggle to understand earnings statements, and organization leaders may not communicate much about the greater financial picture. In fact, the primary way employees learn about a company’s financial performance is from media coverage. And while some sources — The Wall Street Journal, for example — may provide accurate data, people also rely on social media, which is rife with inaccuracies and rumors.
Beyond the Bottom Line
What kinds of financial information are employees most interested in? Obviously they want to know whether the company is doing well; beyond that, stability is important. Is the organization following a consistent long-term plan, or is it constantly pivoting to new goals and strategies, creating financial volatility? Can employees imagine themselves working there for the next five years, or is the organization’s future uncertain?
They’re also interested in the company’s “résumé value,” which deHaan explains can have a counterintuitive effect on retention. Most leaders assume some employees will leave if the organization’s financial health is suffering, but a particularly good quarter might motivate others to look for a new job because having a high-performing company on their résumé can make them more valuable in the job market. It may also lead them to believe that they’re not sharing in the firm’s success, for example, if profits are up by 10 percent but employee salaries are only up by 3 percent. A timely bonus or other incentives, opportunities for career advancement, or recognition of the employee’s achievements could counteract that impulse.
Deciphering the Numbers
To help educate employees, start by making financial reporting accessible to them. Then, help them make sense of it, possibly by offering a quarterly internal conference call to help employees understand the firm. “We think a lot about how to communicate financial information to our investors and lenders,” deHaan points out. “We should think more about how we communicate it to our employees so that they understand it.” Don’t underestimate how much of this information they’re capable of grasping, deHaan says.
Additionally, keep informed about the company’s benefits packages and retirement plans, and advocate for options that will increase employee satisfaction. Have appropriate personnel review plans regularly to compare fees or stipulations that might lower their value. New staff members might need help understanding terms like “restricted stock units” or “diversification,” and they may be unfamiliar with stock options or 401(k) plans. With education and clear communication, employees can become better versed in accounting — and more invested in the organization as a whole.
Putting Insights into Action
Helping employees increase their financial literacy at work not only creates a more engaged and informed workforce, it might also help them recognize and avoid money pitfalls in their personal lives. Here are some best practices to empower employees financially:
- Recognize that employees are sensitive to the organization’s financial situation, and give them access to accurate information and ways to make sense of it. This could mean offering sessions to explain the basics, presenting earnings reports in easy-to-understand formats, or having an approachable point of contact to answer questions.
- Make sure new employees get a thorough explanation of financial benefits, and don’t assume they understand financial terms or different types of retirement plans. Consider offering a vetted list of resources to anyone who wants to learn more.
- Think about which benefits will attract and retain employees. Have retirement and health insurance plans reviewed regularly to make sure they continue to be the best choices, factoring in fees and other expenses that subtract from their value. Be prepared to offer retention incentives when necessary.
- Keep lines of communication open to quickly address any employee concerns or rumors, and to acknowledge the stake employees have in the company’s financial performance. Regular updates keep staff informed and should be more frequent during times of change.
