The Evidence is in – Employee Engagement Does Impact the Bottom Line

 

“Employee engagement” is the new buzzword in management-speak today. No management journal, website, blog, newspaper article or magazine, (including this one) is without something on the topic. But is it just the latest HR “flavour of the month”? Or does it have some traction? Does employee engagement really make a difference in today’s business environment?

 

What is Employee Engagement Anyway?

There are probably as many definitions of employee engagement as there are people talking about it. We define it in terms of four Ss: three Ss we have borrowed from the international consulting firm Aon Hewitt, and one S we’ve added. Before they were acquired by Aon plc, Hewitt Associates, an American consulting firm, defined employee engagement in the following terms:

  • Say: the extent to which employees are willing to say positive things about their organization to co-workers, customers, friends and relatives, and to recommend it as a great place to work.
  • Stay: the extent to which employees are willing to remain with their organization, even if offered opportunities to work elsewhere.
  • Strive: the extent to which employees are willing to exert extra effort, go the extra mile for their

organization and exhibit behaviours that contribute to its success.
To these three Ss we add our own S – Satisfaction. We believe that employees can only be engaged if they are satisfied with their physical and emotional working conditions, their organization’s leadership, its strategic direction, its people management practices, its management style and their immediate supervisor. We propose that satisfaction is a necessary, but not a sufficient condition for employee engagement. And so, we measure employee engagement in terms of whether employees “say,” “stay,” “strive,” and are “satisfied.”

Intuitively, a person who is willing to say good things about their organization, to stay with it through thick and thin, to work hard for it and are satisfied working with it, such a person should be more productive, more motivated and more committed to the organization. And more and more research is connecting the dots between employee engagement and the bottom line. Simply put, people perform better when they are engaged, and organizations do better when people perform better. In other words, employee engagement makes organizational performance happen.

 

Linking Employee Engagement to Organizational Performance

A 2013 study conducted by the Harvard Business Review Analytic Services sought to find out the impact of employee engagement on organizational performance. The study surveyed over 500 senior level executives from North America, Asia, Europe the Middle East and South/Central
America, representing several industries. The top four factors identified by these business leaders as critical to their organization’s success were customer service, effective communication, employee engagement and leadership. Specifically, 71% of the business leaders ranked employee engagement as very important to achieving overall organizational success; and 72% ranked recognition given to high performers as having a significant impact on employee engagement.

The Harvard study discovered a group of companies the authors call “high prioritizers,” who see employee engagement as an extremely important priority and use a range of metrics and analytics to tie engagement to business performance. These organizations measure their engagement data against customer satisfaction survey results, customer retention and referral numbers, net promoter scores (NPS), increased market share; and a range of organizational metrics, including absenteeism, talent retention, lost-time injuries and productivity.

American best-selling author and “engagement guru” Kevin Kruse concludes from his study of employee engagement and organizational performance that, given the impact that engagement has on the bottom line, companies that ignore employee engagement are at risk of putting themselves at a competitive disadvantage.

 

The Empirical Evidence

A lot of the empirical evidence that links employee engagement to the bottom line comes from the work of global consulting firms like Gallup, Towers Watson, BlessingWhite and Aon Hewitt, among others, who track employee engagement and organizational performance among their clients. Kruse sites a 2012 study by Aon Hewitt, which looked at the relationship between employee engagement and financial performance using data from 94 global companies representing nearly 9 million employees. The study revealed a strong relationship between employee engagement and sales growth, with sales increasing by 0.6% after every one percent increase in employee engagement. The study also found that top quartile companies, which the authors defined as having a 72% and higher employee engagement level, produced Total Shareholder Return (TSR) 50% higher than companies with average engagement levels. And bottom quartile companies – those with engagement levels of 46% and lower, produced TSR 50% lower than the average companies.

In another study, a billion-dollar US company increased its operating income by $20 million with just a 1% improvement in employee engagement, and to $102 million with a 5% improvement.

In research prepared for the UK government, the researchers found that companies with low engagement scores earned an operating income 33% lower than companies with more engaged employees. Similarly, companies with a highly engaged workforce experienced a 19% growth in operating income over a 12-month period.

In yet another survey, the Corporate Leadership Council studied the engagement level of 50,000 employees around the world to determine its direct impact on both employee performance and retention. This study found that companies with highly engaged employees grow profits as much as three times faster than their competitors and their employees are 87% less likely to leave the organization.
On the other hand, disengaged employees can also cost an organization quite a lot. A study by consulting firm McLean & Company found that disengaged employees can cost an organization approximately US$3,400 each for every $10,000 in annual salary; and cost the US economy up to US$350 billion per year due to lost productivity. Unfortunately, we don’t have the corresponding data for local and regional organizations and economies. But we can well imagine the impact that disengaged employees are having on our organizations and economies!

The bad news is that employee engagement tends to be the exception, rather than the rule. In the US, the numbers hover around 30%. That is, less than a third – one in three persons, are engaged in the US workforce. Our numbers are a bit better. We consistently find in our surveys that just over half – about 54% – of our workforce in Trinidad & Tobago and the region, are engaged. In fact, engagement levels tend to be higher in the rest of the region than in Trinidad & Tobago. But that’s for another discussion.

This can’t be good for our productivity and our economy. And when you look at the findings of the impact of employee engagement on organizational performance, it’s difficult to ignore the importance of focusing on employee engagement.

 

Creating an Engagement Culture

So how do we engage employees? Organizations need to create an engagement culture, where employees want to come to work, want to contribute to the organization’s success and therefore, choose to exert discretionary effort for the organization.

Employee engagement is not just an annual or biennial survey (although you can’t begin to improve employee engagement unless you know where it is in the first place). Employee engagement must be the way of life of the organization, how it does business, how it behaves toward its employees and how it expects its employees to behave toward it. It’s an employee value proposition that says “our employees are our most valuable resource” – and means what it says by its actions!

Employee engagement starts even before a prospective employee joins the organization. It begins with the employer brand: how the organization is seen in its environment. What does it stand for? What are its core values? Its principles? What is its customer value proposition? Is it an employer of choice? A great place to work? What do its employees –past and present – say about it? Your employer brand will attract the kind of talent you want to work in your organization.

The engagement culture continues with the recruitment process, ensuring fit with the organization’s culture and core values; and continues with the onboarding process, creating employee alignment with the organization’s vision, mission and strategy.

An engagement culture recognizes that engagement has to happen on three levels: the organization itself, the leadership of the organization and the employee. At the organizational level, an engagement culture manifests itself through its people management practices, by the physical and emotional environment that it creates for its people: an environment that people want to come to on a daily basis and give of their best, an environment that helps employees develop to their fullest potential. An essential part of an engagement culture is what we call the three Rs of employee engagement – Respect, Recognition and Reward. In an engagement culture, respect is a core value, and it is demonstrated by the leaders and employees at all levels. Engagement cultures also recognize and reward exemplary performance and top performers, something that we don’t seem to do very well, if we are to go by our survey results. An engagement culture also spends a lot of time communicating – open, frank, honest dialogue with employees, leveling with them and keeping them in the information loop about their organization and about matters affecting them. Open, clear, continuous communication increases trust, and trust is another very important characteristic of an engagement culture.

The three Rs and the three Cs – communicate, communicate, communicate – are crucial to an engagement culture. But, sadly, these are real areas of weakness in our organizations.

Also critical to an engagement culture is how the leaders behave, their style and practice of leadership and management. Do they demonstrate the core values on a daily basis? Do they lead by example? Are they open to constructive criticism from any level in the organization? Are they consistent in their behaviour? Do they communicate effectively? One of the interesting findings from our surveys is that, invariably, leaders don’t get high marks from their employees. In particular, employees seem to have a hard time trusting their leaders. Leadership is another area we need to work on.

But employees also have a role to play in creating an engagement culture. Employees need to take ownership of their own engagement. Engagement is a two-way street between the organization and the employee. The employee expects certain things from the organization: a decent salary, a comfortable physical and emotional working environment, respect from superiors and co-workers, recognition for work well done. But the organization also expects the employee to bring their best to work every day, to pull their weight, to go the extra mile, and to show commitment to the organization. The recruitment and onboarding processes are central to these employer expectations and employee responsibilities.

The following figure summarizes the link between an engagement culture and the bottom line.

It’s not rocket science to figure out that people who are excited by their job, feel a sense of commitment to their organization and to its success, feel good about the people who they work with and work for, would tend to be more productive, more inclined to remain with the organization, more willing to say good things about it, and more motivated to go the extra mile for it, and that this would lead to improved organizational performance and a better bottom line. So why aren’t more of our organizations making it happen?!

 

By Dr. Kwame R. Charles, Director,
Quality Consultants Limited