How Managers Can Use the Science of Happiness

The Atlantic

2 days ago

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The world of management is always wide open for new ideas and perspectives to make companies more efficient and profitable. Most business schools have semi-academic journals dedicated to offering up buzzy techniques that promise to streamline operations, improve accountability, and raise productivity by establishing tightly circumscribed protocols for workers. Some recommendations have merit, but others are seen both inside and outside companies as gimmicks, fads to be endured until abandoned by managers when they move on to the Next Big Thing.
Take Six Sigma, the defect-minimization strategy that was all the rage in the 1980s: Its methodology involved certifying managers with progressively more prestigious colors to encourage their advance in skill level—rather as karate or judo belts do. (Even though these were color-coded paper certificates, I like to imagine the regional vice president for sales wearing a red belt over their suit.) No doubt, some firms found the exercise useful, but as the business writer Geoffrey James notes, employees typically found Six Sigma's implementation frustrating and confusing. And according to data from 2006, among the large companies that adopted the program, 91 percent wound up trailing the S&P 500 in stock performance.
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In place of such chimerical strategies, I want to introduce a management anti-fad. The idea will still raise business performance—by increasing happiness among the people doing the work. This idea is as old as humanity itself, you might correctly think, but if it were so obvious and simple to put into practice, then every company would be doing it. Recent research, including studies conducted both by independent academics and by firms themselves, show that understanding well-being and maximizing it through managerial practice can significantly increase productivity and profitability, as well as raise employees' quality of life. And this conclusion might just help us remember some old wisdom that modern life encourages us to forget.
The premise that workers would be more productive if they were happier makes intuitive sense, and many studies demonstrate that it is so. Some just look at variation in employee mood and then use clever statistical methods to link it to work outcomes. One example, a 2023 study on telesales workers, showed that when they felt happier, for whatever reason, it led to more calls an hour and a higher conversion of calls into sales. Another research approach involves experiments in which workers are exposed to a mood-raising experience, and their productivity afterward is compared with what it had been beforehand. During one such study in 2015, economists showed people clips of funny movies and found that doing so boosted their performance of tasks by about 12 percent.
All of that is interesting so far as it goes, but such experiments are not very practical for managers—after all, screening a lot of funny movies would significantly disrupt the office day. What leaders really need are data that break down the specific factors associated with employee happiness, translate them into management actions, measure these factors in actual companies, and link everything to the firm's performance. Only then could you devise a truly effective management strategy.
I know of one company that's trying to tie all that together: the investment-research firm Irrational Capital, founded in 2017. Using both public and private data sources on employee satisfaction, its researchers found that over an 11-year period ending in 2025, S&P 500 companies that scored in the top 20 percent on several key employee-happiness measures outperformed (in stock price) those in the bottom 20 percent by, as of the first quarter of this year, nearly six percentage points. Meanwhile, the top 20 percent in such extrinsic rewards as pay and benefits beat the bottom 20 percent by only two percentage points. These findings fluctuate according to market conditions, but across the whole period of the study, employee-happiness measures have consistently outperformed extrinsic rewards when boosting a company's stock price.
The happiness factors are not fixed characteristics of individual companies, because they move in and out of the top 20 percent depending on how satisfied employees are at any particular time. The researchers have precisely market-tested the effect of happiness factors on performance by fielding an electronically traded fund that buys and sells the companies' stock according to their current happiness ranking. Over the past five years, the fund's 'trailing returns'—a performance metric that provides a historical snapshot of a given period—were about 10 percent higher than the S&P average.
Irrational Capital researchers found six specific factors behind employee satisfaction. In order of their positive impact on a firm's performance, they are: innovation (managers' openness to input and ideas); direct management (clarity and truthfulness of communication); organizational effectiveness (non-bureaucratic, efficient processes); engagement (leadership that supports learning and growth); emotional connection (a culture that fosters friendships among colleagues); and organizational alignment (a good match between the company's external mission and its internal culture). For me, as a social scientist teaching business leaders, this suggests six corresponding goals for managers who want to raise employee satisfaction that translates into higher firm performance. Here they are, ordered by importance.
1. Listen for concerns and learn new ideas.
Nothing is more disempowering for an employee than a boss who doesn't want to hear an idea that could help the company. Managers should look for ways to get as much feedback as possible, and then show they've really heard it and thought about how to use it.
2. Act and speak with clarity and truth.
Particularly in times of uncertainty, employees are highly attuned to doublespeak and obfuscation. Always be frank and explicit about what they need to know for their job. People can handle I don't know what's going to happen, as long as this is the truth, not an evasion.
3. Ruthlessly cut red tape and unnecessary meetings.
Employees hate bureaucracy. Some procedural stuff is necessary to maintain systems and accountability, but nothing lowers workers' well-being faster than obliging them to waste productive time. This is especially true of meetings, which should be minimized whenever possible.
4. Look for ways to support learning and develop team members.
The employees you want to keep are the ones who love to learn new skills and grow in ability. Look for ways to create a culture of improvement through mentoring, training, and continuing education.
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5. Promote a culture of friendship.
This goal is easy to misunderstand: It does not entail making friends with the boss; on the contrary, as scholars found in 2004, the interlocutor who, on average, induces day to day the most negative emotion for an employee is their boss. As a boss, accept the loneliness of your role —but do whatever you can to realize the fact that the happiest employees are friends with one another.
6. Live up to the organization's external mission.
Many companies have high-minded ideals on paper and are dedicated in theory to making a better world. But, as they say, charity begins at home. If your mission is to uphold the dignity of all people, your employees should be first in line.
For more than a century, virtually every corporate-productivity fad has been based on the notion that employees can be managed as if they were machines. This highly instrumental, scientistic approach to human affairs was what the Russian novelist Fyodor Dostoyevsky mocked in Notes From the Underground as the 'palace of crystal.' What he meant by this was the delusion of technocrats' solutions to people's problems—'all ready-made and worked out with mathematical exactitude'—that were bound to fail and leave people feeling helpless, angry, and alienated.
If Dostoyevsky were alive today, the most obvious target for his derision would no doubt be the utter domination of tech in our daily life, intermediating friendship, dating, and work relationships. Just as the great novelist predicted, the technocratic delusion promises greater connection but leaves people lonelier and more depressed every passing year. Of a piece with this palace of digital crystal are the management fads that waste money and reduce people to productivity numbers.
The way out of the palace of crystal is surprisingly simple, in life and at work: Just treat people as people.