Financial Transparency is Vital
Most business owners understand that retaining skilled employees is a priority in today’s competitive market. Hiring and onboarding new people can cost your company twice as much as keeping your current workforce, and frequent turnover disrupts operations. Survey after survey shows the vital role engagement plays in employee retention. But what drives engagement? In a word, trust. They trust that you—their employer—have good intentions toward them and their career aspirations, that you’re being open and honest with them, and that you have faith in their judgment and abilities in return.
Unfortunately, many construction firm owners are reluctant to be fully trusting and transparent with their workforce—particularly when it comes to finances. As I tell my consulting clients, however, human beings don’t simply ignore information voids. It goes against our nature. So, when leadership isn’t sharing what’s happening with a company’s financials, it’s all but guaranteed employees are filling that gap with their own narratives. This creates an environment ripe for misunderstandings and misconceptions—an environment that, over time, will lead your best and brightest workers to head for the exits.
WHY THE SECRECY?
There are two “camps” when it comes to why business owners keep their firm’s finances a secret:
Those in the first camp don’t think the information matters to anyone other than themselves—or are embarrassed by the numbers because the company isn’t making as much money as they think it should.
Those in the second camp are worried about workers demanding better pay or that educating their workforce about the business will lead people to question their decision-making.
If you’re in the second camp, let me say this: If you’re hoarding profits rather than paying your people fairly, it’s just a matter of time before your company starts to flounder. You’ll never keep good workers or get the most from your people if you’re lying to them—even just by omission.
I once consulted with a large construction firm that experienced significant revenue growth—from $50 million to $60 million—from one year to the next. Despite this impressive increase, the business owner announced there would be no bonuses that year.
Suffice it to say, his management team was not happy. They knew how much the company had earned that year and how hard they’d worked to make it happen. So why weren’t they seeing any reward for their efforts? Absent any explanation, they drew their own uncomplimentary conclusions about where that money had gone.
When the rumors reached the business owner, he was livid. “I’m not pocketing anything extra!” he exclaimed. “We underbid on too many projects and couldn’t find enough onsite workers. We had to pay a ton of overtime to keep up with the workload. I can’t pay out what I don’t have. Why don’t they get that?”
“Because,” I responded frankly, “they don’t have the data you do.”
Financial transparency within an organization means more than just sharing numbers. It involves educating employees about the company’s financial health, the rationale behind crucial business decisions, and how these factors affect—and are affected by—their roles and the overall company performance. These practices help your employees understand the bigger picture of the business’s activities, fostering trust and bolstering employee retention in three important ways:
REDUCING MISCONCEPTIONS
A lack of information breeds speculation and distrust, leading to disengagement and employee turnover. With my encouragement, that business owner took an anonymous survey of his management team, asking them how much net profit they thought the company made that year. Their answers—to the owner’s shock and dismay—ranged from a low of $10 to $30 million. The actual number was a mere $7,000.
Setting his pride aside, the owner called a meeting and walked the team through a comprehensive profit and loss statement. The data transformed the team’s perspective. Armed with a clear picture of the company’s financial challenges, any sense that the owner was cheating them of the compensation vanished.
ENHANCING EMPLOYEE ENGAGEMENT
When employees understand the financial dynamics of the business, they feel more ownership over their roles in contributing to the company’s success. Your best workers crave that sense of ownership: It tells them that you believe in their abilities and are interested in giving them opportunities to grow.
In the case mentioned above, after the financial transparency session, the managers rallied their respective teams, improved project selection and related processes, and significantly increased profits the following year.
COLLABORATIVE PROBLEM-SOLVING
Financial transparency also promotes a culture of collaborative problem-solving. When employees know financial targets and challenges, they are more likely to support changes to the operational status quo and can contribute ideas and solutions to improve performance. Leaders should make a point of celebrating when workers generate these sorts of wins for the organization. Doing so helps people in less visible roles feel appreciated.
While the finer details of financial transparency may differ somewhat from one company to the next, there are certain best practices all firms can employ:
Regular communication and education lie at the heart of successful financial transparency. Companies might set up regular momentum meetings during which department heads review key financial metrics with their teams. They can discuss performance issues that contribute to budget overruns, unusual amounts of overtime, and so forth and collectively brainstorm solutions.
Tailor the information to the audience. Front-line employees might only need to understand key performance indicators relevant to their jobs. For instance, a laborer on a building site might not need to know the details of a company’s cash flow statement but should understand how their productivity affects project profitability.
Companies should also invest in training and tools that provide context for financial data to ensure that employees can fully understand and engage with it. This might include user-friendly dashboards that track key metrics and regular updates that explain financial results in simple terms.
Embracing financial transparency is about creating a culture of openness and trust. That kind of change starts at the top. The rewards in terms of employee loyalty and business success are well worth the effort.
This article was originally written for Modern Contractor Solutions.
The Spark Notes:
Trust is the foundation of employee engagement, and without it, misunderstandings can lead to high turnover, especially when transparency about financials is lacking.
Many business owners withhold financial information due to embarrassment over earnings or fear that employees will demand higher pay, but this secrecy often results in disengagement and resentment.
Financial transparency fosters trust, helps employees feel more invested in the company’s success and encourages collaborative problem-solving by aligning workers with business challenges and goals.
Regular, tailored communication and education about financial health can reduce misconceptions, boost employee ownership, and ultimately lead to increased loyalty and improved business performance.
