Emotional Intelligence in Business Increases ROI

The Value of Emotional Intelligence for Managers and Leaders

Research shows over 80% of the skills that separate top performers from others are in the domain of Emotional Intelligence (EQ). Emotions in the workplace can be greatly misunderstood; EQ can sound woo-woo and not of high value. According to Harvard Business Review, managing emotions is anything but woo-woo.

A person’s Emotional EQ  is a more significant determining factor in business and career success than IQ, education, and experience combined. Careers, especially at senior levels, don’t just depend on intellect, experience type, or school chosen. The determining factors usually have to do with EQ-related traits such as self-worth, integrity, empathy, and emotional stability.

Unlike IQ, which is set at birth, EQ can be increased during a person’s lifetime with proper training.

General Electric reportedly spends over $1 billion per year on social and emotional skills in leadership programs (Cherniss & Adler). Cherniss and Goleman estimate that EQ-based training can result in 8x ROI when compared to non–EQ training. Cherniss estimates that US businesses lose between $5.6 and 16.8 billion by not having appropriate EQ training.

Calculating Return On Investment for EQ

To calculate ROI for EQ, look at the average effect size between the top 10 percent and the lower 75 percent of leaders. The ‘effect size’ metric is a standardized method for calculating the size of the difference between the two groups. The difference between high and lower EQ leaders is 0.72, which is a statistically relevant difference.

Assuming an average leader salary of $75,000 per year, the difference between a high and average EQ leader equates to $21,600 per year. For an organization with 2,000 leaders this figure multiplies to $43.2 million in human capital asset value per year. While this is a large number, it still doesn’t account for the human capital asset value improvement experienced by leaders’ direct reports.

A leader’s value extends far beyond their individual contributions. Even a slight improvement in EQ would lead to large benefits for an organization. For example, a program yielding a one-percentage-point improvement in leader EQ would provide an incremental human capital value of $2,160. Even if this program cost the organization $500 per person, the ROI would be 332%.

Investing in Emotional Intelligence

Clearly, investments in improving EQ have the potential to dramatically improve the productivity and value of leaders in organizations. A Bloomberg BusinessWeek and Hay Group study showed Companies ranked in the top 20 for leadership acumen significantly outperformed the S&P 500 in the short and long term.

• In UK’s Whitbread group, high EQ resturaunt managers had higher guest satisfaction, lower turnover, and 34% greater profit growth. (Bar-On and Orme)
• 75% of careers are derailed for reasons related to emotional skills. This includes the inability to handle interpersonal problems; unsatisfactory team leadership during times of conflict; or the inability to adapt to change or elicit trust. (The Center for Creative Leadership).
• People who accurately perceive others’ emotions are better at handling changes and building stronger social networks. (Salovey, Bedell, Detweiller, & Mayer, 199 cited in Cherniss)
• The reason for losing customers and clients are 70% EQ-related. (e.g., didn’t like that company’s customer service) (Forum Corporation on Manufacturing and Service Companies)
• In one year, the US Airforce invested less than $10,000 for emotional skills testing, saving $2,760,000 in recruitment. (FastCompany “How Do You Feel”)
• In a multinational consulting firm, partners who showed high EQ reported significant improvements in their sales performance. Now all incoming advisors receive four days of emotional competence training (FastCompany “How Do You Feel”)
• After supervisors in a manufacturing plant received training in EQ, lost-time accidents were reduced by 50 percent. Formal grievances were reduced from an average of 15 per year to 3 per year, and the plant exceeded productivity goals by $250,000. (Pesuric & Byham).
• Top-performing sales clerks are 12 times more productive than those at the bottom. They are 85 percent more productive than an average performer. About one-third of this difference is due to technical skill and cognitive ability while two-thirds is due to emotional competence. (Goleman)
• At L’Oreal, sales agents selected on the basis of certain emotional skills significantly outsold salespeople selected using the company’s old selection procedure by $9,370, for a net revenue increase of $2,558,360. Salespeople selected on the basis of emotional competence also had 63% less turnover during the first year (Spencer & Spencer; Spencer, McClelland, & Kelner, cited in skills earned 139% more than the lower EQ partners (Boyatzis).
• Emotions and reason are intertwined, and both are critical to problem-solving (Damasio). Social and emotional abilities were four times more important than IQ in determining professional success and prestige. (Feist & Barron, cited in Cherniss).
• American Express tested emotional skills training with Financial Advisors; trained advisors increased business by 18.1%. (Cherniss)

Emotionality: Personal and Professional Development Coaching is an invaluable resource for managers and leaders in today’s competitive world. By growing EQ skills with our range of coaching services, you will be better equipped to handle any situation.