The Happiness Index: Why Most Firms Get Employee Joy Wrong

The average person spends 90,000 hours at work – roughly one-third of their life. 

As careers claim such a massive share of our time, being happy in the workplace is one of the greatest investments individuals can make to their overall wellbeing.

But employees aren’t getting their emotional needs met at work, and it’s costing both businesses and the workforce alike. As a result, a clear disconnect has emerged between what organisations can deliver and what actually makes employees feel happy and engaged at work. 

Employee engagement has fallen by 20% in 2025, according to Gallup's 2026 State of the Global Workplace report, marking the lowest levels of employee engagement since 2020. But how have employees entered this slump?

HR leaders who look beyond the surface will see more than just a few grumpy faces; they will see a significant impact on the bottom line. The study highlighted that low engagement and unhappiness go hand-in-hand, costing the global economy an estimated US$10tn in lost productivity annually – roughly 9% of global GDP.

For Matt Phelan, Co-Founder, The Happiness Index, the business case for happiness is “grounded in hard data” rather than being in “abstract concepts”. 

“Irrational Capital developed the Human Capital Factor to quantify this, demonstrating that public companies with high employee sentiment have beaten the S&P 500 in 16 of the 19 years tracked,” he explains. “Their research index has posted a 12.5% annualised return since 2006, which is a 2.5% excess return over the S&P 500 equal-weighted benchmark.”

So it’s clear: happy employees = successful businesses. But what do HR leaders need to do to ensure that their employees are truly happy?

HR leaders: give the people what they want

Inspiration. If employees feel inspired and experience a genuine sense of belonging, the Global Workplace Happiness Report stated that overall happiness was found to be higher. These are emotional, cultural qualities that reflect how people feel about their organisation and their place within it.

In fact, Matt says that the “emotional dimensions” that strongly predict happiness, “specifically inspiration and a sense of belonging”, are “at or near the bottom of global rankings.”

Yet despite their importance, employees ranked inspiration near the bottom of all measured dimensions – revealing a significant gap between what matters most and what organisations are currently delivering.

Perhaps most tellingly, the study uncovered something unexpected – where employees worked had far greater influence on their happiness and engagement than any other single factor.

“Remote workers report the highest scores across nearly every dimension, with hybrid workers close behind,” the study states. “Field-based employees score lowest, particularly on belonging and work-life balance, with office workers sitting in between.” 

Younger employees are also giving important signals about the future of work: hybrid models offer career advantages that fully remote setups can’t quite match.

While remote work still edges out hybrid arrangements on most overall measures, workers aged 19-29 report meaningfully better experiences in two areas that matter most early in a career: learning opportunities and the chance to progress.

In other words, hybrid working is not seen as a compromise for young professionals –  but rather as a catalyst for growth. The blend of flexibility and in‑person exposure appears to give them access to mentorship, visibility and informal learning that remote work alone struggles to replicate.

To capitalise on the data, HR leaders should “move beyond gut feeling,” Matt says, as they should instead focus on applying “evidence-based decision-making.” But translating culture insights into action requires shifting how organisations think about culture itself.

“Tony Latter, my co-founder at The Happiness Index, suggests that organisations must link culture data to the specific commercial outcomes that matter most beyond the people function, such as transaction value in retail or productivity in warehouse teams,” he says.

“Tony recommends asking: What specific business outcome are we trying to improve through our culture?”

Supporting this, Kate Thompson, Board Member at Wellbeing World Movement, advises building a “commercial story” rather than an HR one. 

This involves drawing a "clear red thread" from organisational purpose and strategic priorities through to operational plans, quantifying how a sustainable workforce creates an outsized advantage in delivering those plans.

Little vs. large 

Organisational context matters too, as company size dramatically shapes how culture translates into happiness – and where benchmarking efforts should focus. 

Employees who have spent more than five years at the same company were found to be unhappier than those who have shorter tenures. 

The happiest employees were those in their first two years at a company, with rates declining between years 5 and 10. However, after the decade milestone, scores “stabilise or recover modestly”.

Members of the older generation expressed the greatest dissatisfaction with the level of feedback they receive. As a result, they were the generation least willing to advocate for the business. 

“The youngest workers are the happiest with the amount of feedback they receive, before scores steadily decline to their lowest point for those between 50-59, with a partial recovery at 60+,” the report highlights. 

“Employers aren’t necessarily aware that some older workers want more formal interaction; 50-year-olds are less likely to flag the absence of feedback than younger workers.”

Likewise, micro‑businesses were shown to be much more successful when it comes to culture. Teams of 10 employees or fewer consistently outperform on belonging and collaboration, benefiting from the intimacy and immediacy that small groups naturally create. 

Larger organisations – those with more than 1,000 employees – fell at the other end of the spectrum, as they reported the strongest scores across almost every dimension, buoyed by mature systems, resources, and well‑established structures.

Mid‑size firms with 51-250 employees were caught between the two. These businesses had workforces that had outgrown the closeness of a small team, but they hadn’t yet built the organisational scaffolding of a large enterprise. 

How can HR really improve employee happiness?

For leaders looking to bridge the inspiration gap, the most effective first step is benchmarking, according to Matt. By comparing this process to a popular fitness tool, Matt illustrates why data-driven clarity is the catalyst for change.

“I often use the analogy of Strava,” he explains. “The reason it's so effective isn't just because you can see how others are performing; it’s because it allows you to benchmark yourself.”

By measuring their organisation against global standards, HR leaders can move beyond guesswork. Just as an athlete uses data to identify where they are lagging, businesses must use these benchmarks to pinpoint exactly where their culture is failing to provide the sense of belonging and inspiration that employees clearly crave.

"While systems, processes, and technology are undeniably vital to organisational success, the Global Workplace Happiness Report reveals a deeper truth: employees view employment as a relationship,” Matt concludes. 

“To get the best from their people, CHROs must begin by viewing employment through a relationship lens."