Should companies have a happiness index?

The British government asked statisticians to measure the economically battered nation's well-being. Should businesses do the same with their employees?

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David Cameron probably isn’t happy about the primary reason he’s in the news these days. The British prime minister, who formerly employed News of the World ex-editor Andy Coulson, has had to explain his relationship with the Murdoch empire in light of the phone hacking scandal that has escalated in recent weeks.

But in other news, we at least now know what makes Cameron’s citizens happy. In late 2010, the prime minister ordered up a 2 million-pound-a-year survey (that’s $3.28 million) of what makes Britons content. The unsurprising results: The top five factors to Brits’ well-being, in their view, are health, family and relationships, work, the environment and education. Then, Wharton Business School published an interview with Nic Marks, the founder of the Centre for Well-Being at The New Economics Foundation in the U.K. and the author of the new treatise “The Happiness Manifesto: How Nations and People Can Nurture Well-Being.”

Both Marks and, one presumes, Prime Minister Cameron believe that measuring people’s levels of happiness, or well-being, should be considered when calculating a country’s economic progress, which is typically done via the purely economic metric of GDP. Cameron (who is not alone in such efforts–French President Nicolas Sarkozy also convened an all-star economic commission to look into a well-being index for France) plans to “frame future Coalition policies around a well-being index with the aim of improving the lives of people rather than just their incomes,” reports The Daily Mail. Or as Marks puts it, “we are going to have to get into the realm of actually asking people about their experience rather than just trying to measure it by how many things they have.” The big idea? You can’t really get a sense of whether a country is making real progress if you’re not measuring the things they care about.

I’m no economist, so I won’t weigh in on whether a metric of such an intangible as “happiness” is really possible, much less reliable for a group of people as diverse and large as an entire country’s citizens. Critics have pounced on Cameron’s effort, calling it a waste of resources amid the country’s severe economic issues and perhaps even an effort to distract people from the austere spending cuts that have been made.

Still, it left me wondering. What if leaders of smaller organizations–corporations, in particular, given their focus on external metrics like the stock market–tried to do the same? What if CEOs’ performance was measured by their employees’–or their customers’–overall well-being? What if business leaders made strategy decisions based on their employees’ happiness?

In a sense, they do to some extent. Employee satisfaction surveys and customer-service polls are taken all the time, and, at the best companies, they do play some small role in determining how a leader is rewarded. Customer satisfaction, in particular, often makes up some fraction of leader’s performance evaluation, and the best places to work regularly take the pulse of whether or not employees are really engaged in their jobs.

But mere satisfaction is not the same as overall well-being. People might be satisfied that they have a job, content that their employer is not going to screw them over, and relatively engaged in the work they do on a daily basis. But that hardly means they are happy, or that their overall well-being is getting enhanced. Leaders who want to get the absolute best out of their people think in this way–making sure their best talent sense that the company cares about their future, their careers and their families–and employee retention is often high as a result.

At the same time, customer satisfaction only measures so much. Someone can be satisfied that a product or service works well, but that doesn’t mean they necessarily feel their overall well-being has been considered. Studies have shown that companies that position themselves as a customer’s advocate, putting their best interests first–particularly banks that hold or invest clients’ money–are better at retaining customers.

Even if CEOs did try to turn such intangible ideas into metrics–and some do–it’s doubtful they’ll get much traction, and that’s for an obvious reason. Even if they’re baked into a minor part of executives’ performance evaluations, or even if the HR department sends out employee “engagement” surveys every year, most places aren’t likely to make them a priority, for one simple reason: Wall Street. Until the market starts caring about happiness indexes, most leaders aren’t likely to, either.

Author: Excerpt Jena McGregor, Washington Post blog