Georgia Employers Association WHITE PAPER. Employee Engagement: The Facts that Every Leader Needs to Know

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1 Georgia Employers Association WHITE PAPER Employee Engagement: The Facts that Every Leader Needs to Know

2 Employee Engagement: Facts Every Leader Needs to Know Overview/Executive Summary The residual effects of the 2008 economic downturn continue to impact companies and organizations of every size. Most business enterprises reacted to the recession by scaling back and taking a hard look at variable costs, including their labor costs. They focused on doing more with less or from a human resources perspective, achieving more with fewer. Workforces were reduced, recruiting and hiring slowed, and investments in existing talent decreased. The lingering recession and slow recovery have had a predictable effect on employees. Benefit cuts, the potential of layoffs, and stagnant or declining real income levels have created stress and uncertainty. It s not surprising that employee engagement remains low almost five years after the beginning of the recession. Employee engagement, by definition, represents much more than just an employee s interest in his or her work. Engaged employees are motivated and invested in their own success and the success of their organization. They take pride in their work and they do more than is asked of them. They understand their job performance, it s impact on their co-workers, and the importance of their contribution to their department and to the organization s success. Current low levels of employee engagement represent both a problem and an opportunity for organizations. The problem is significant. A long running survey by the Gallup organization 1 indicates that the level of highly engaged employees is only 30% and that this measurement has not changed much in the past decade. Other studies substantiate this conclusion. What does this mean for businesses? Gallup research estimates that the annual cost of employee disengagement in the U.S. is between $450 and $550 billion dollars. 3 Disengaged employees have a negative impact. Comparing the top and bottom quartiles in their research, Gallup found a direct relationship between employee engagement and performance. In specific, disengaged employees incurred: 50% more accidents than engaged employees. 41% more quality defects than engaged employees. More overall healthcare costs than engaged employees 2. Low engagement can also be related to inventory shrink, poor morale, and customer dissatisfaction. Gallup s estimate of the total cost of employee disengagement to the U.S. economy is significant: between $450 and $550 billion dollars 3. Opportunities While the costs are high, the opportunity to benefit from improvement is greater. The studies indicate a clear relationship between 1

3 high levels of employee engagement... and improved financial and operational results 4. At the individual level, engaged employees produce. They are the idea generators and internal entrepreneurs. They re also the ones most likely to engage the customer. Here s the key point: Engaged employees are a necessary prerequisite for optimum performance, both at the enterprise and local level. Gallup s upside measure is significant: When organizations successfully engage their customers and their employees, they experience a 240% boost in performancerelated business outcomes compared with an organization with neither engaged employees nor engaged customers 5. What are the implications for our business? Of course, the important questions have to do with application at the company or operational level. Specifically, they apply to the downside and upside impact of employee engagement on the business. Here are some questions that are worth asking: Does low employee engagement affect our company, my costs, our ability to produce a profit? What benefits would we enjoy from increased employee engagement? What matters to our employees? What do they need to become more engaged? In what behaviors are we asking employees to become engaged? What are we actually asking employees to do? What vision and leadership need to be provided by executives and managers? How does engagement become a part of our core values? How does continual improvement in employee engagement become an actionable priority? Georgia Employers Association (GEA) provides assistance that helps to answer these and other questions. The remainder of this white paper includes data and results from ongoing studies that describe both the problems associated with low employee engagement and the positive results that can come from improvement. The research suggests specific areas of focus that can improve levels of employee engagement and a chain of benefits that apply from the executive level downward through the organization to the company s customers. The paper concludes with a description of GEA s Employee Engagement and Union Vulnerability Survey, the association s training and consulting resources, and a very general framework for assisting individual organizations to develop an ongoing employee engagement effort. The upside measure is significant:... a 240% boost in performance -related business outcomes for organizations with engaged employees. 5 2

4 Defining the Problem Over the half dozen years that GEA has been helping clients increase their levels of employee engagement, we have yet to encounter a manager who didn t agree that engaged employees are essential to achieving productivity, quality, customer satisfaction, and profits. The irony is that so many employees remain disengaged. Take a look at the graphs on this page. The measures of engagement differ from study to study, but the results are similar. Today, the number of highly engaged employees is low and the percentage of disengaged or partially disengaged workers is significant. The negative effects of disengaged workers are predictable higher absenteeism, increased employee turnover, decreased productivity, and higher accident rates. Worse yet, those at the bottom of the spectrum, the actively disengaged segment, may also be making life miserable for their co-workers. According to Towers Watson s 2012 Engagement Study, the low levels of employee engagement should represent a wake-up call for employers: Our data suggest that businesses appear to be at a critical tipping point in their ability to maintain engagement over time. While most are already running their businesses very diffently in today s highly interconnected global marketplace, a surprisingly large number don t appear to be keeping pace in terms of how they re managing and supporting the very people assigned to execute the work on the ground. Put starkly, they are running 21 st century businesses with 20 th century workplace practices and programs. And the cracks in the foundation are starting to show in both small and large ways. 6 3 Low Engagement Numbers Aon Hewitt % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Highly Engaged Moderately Engaged Passive Actively Disengaged 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 30% Engaged Gallup 2012 Survey 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Towers Watson 2012 Highly Engaged Unsupported Detached Engaged Disengaged Not Engaged 24% Highly Engaged Actively Disengaged 35% Highly Engaged Source Data Citation 7

5 Towers Watson goes on to question the commitment of senior management to change. Even if the executive staff is committed, employees may not recognize the emphasis. Less that 50% of their survey respondents agree that senior leaders are interested in employee well being, nor do they believe that their direct supervisors have enough time to handle the people aspects of their job. 8 The 2013 Gallup study lays the responsibility for employee disengagement directly in the laps of bad managers. In the introduction to the 2013 study, Gallup CEO Jim Clifton refers to managers from hell 9 and states unequivocally that poor managers are creating disengagement. Managers from hell? Finally, disengaged employees have a negative impact on customer relationships. The 2013 Gallup study finds that only 41% of employees feel that they know what their company s brand stands for or what makes it different from competitors brands. Citing this response and declining engagement levels among front-line service employees, the Gallup report questions whether employees are prepared to engage customers. 10 The Towers Watson report concurs, stating when engagement starts to decline, companies become vulnerable not only to a measurable drop in productivity, but also to poorer customer service The Flip Side: Positive Contributions from Engaged Employees As alarming as the cost of disengaged employees may be, the offsetting benefits of even incremental improvements in engagement are encouraging. Fully engaged employees are connected to their work and believe in company goals and objectives. They are energized and enthusiastic; enabled to meet challenges and accomplish their tasks and the goals of the organization. Many wellmanaged service and manufacturing companies are benefiting from enhanced employee engagement Ritz Carlton, Chickfil-A, GE, Campbell Soup, Baptist Hospital, Bayer, Caterpillar, Nestle, and Honeywell to name just a few. Gallup s research directly links engagement to successful business outcomes: Gallup s extensive research shows that engagement is strongly connected to business outcomes essential to an organization s financial success, including productivity, profitability, and customer satisfaction. And engaged employees are the ones who are the most likely to drive the innovation, growth and revenue that their companies desperately need. These engaged workers build new products and services, generate new ideas, create new customers, and ultimately help spur the economy to create more good jobs. 12 4

6 Gallup compared the results between the top and bottom 25% of companies in their survey, and found these results: 13 Performance Indicators 13 : Absenteeism -37% Turnover -25% to -65% Shrinkage -28% Safety Incidents -48% Quality Defects -41% Productivity +21% Profitability +22% Customer Ratings +10% The research shows a direct connection between engagement and profitability. Engaged employees are more productive, they re absent less, and they change jobs less frequently. They are healthier in general and they tend to be involved in fewer accidents. In short, the economic benefits of engaged employees are evident and measurable; and they can be directly linked to increased productivity, profitability, and customer satisfaction. It has been our experience at GEA that an active and ongoing effort to increase employee engagement is the most cost-effective and beneficial means of improving organizational performance. Towers Watson s 2012 study report states: In a recent analysis of 50 global companies, for which we had both sustainable engagement data and relevant financial data, we found striking differences at the organizational level in average operating margin relative to sustainable engagement levels.... Those companies with low traditional engagement had an average operating margin just under 10%. Among those with high traditional engagement, average operating margin was just over 14%. But among those with high sustainable engagement, average one-year operating margin was close to three times higher, at just over 27%. 14 5

7 The Opportunity: Keys to Improving Employee Engagement There s an extensive body of research that has been conducted over the last decade to understand the causes and benefits of employee engagement. GEA cites several recent studies in this white paper, but additional research has been conducted by organizations like Hay Group, DDI, The Conference Board, HR Solutions, and World at Work. Leaders can rest assured that the economic payback from enhanced employee engagement has been well-researched and substantiated. Equally clear is the process for improving engagement. There is a chain reaction that can be created when leadership begins to truly focus on employee engagement. The impetus must come from leadership, but it includes all layers of the organization and ultimately also reaches out to customers through the company s employees. Considering the process from the end result backwards, the idea is that sustained profit and growth are the result of loyal customers. The customers become loyal as a result of great service and quality products. Quality products and service can only come from the employees increased engagement positively affects both quality and service. Immediate supervisors and managers have the greatest impact on employee engagement. These managers, in turn are influenced and directed by the course set by the organization s leadership. If only 30% of U.S. employees are highly engaged, it s a fair assumption that there are opportunities for improvement in most organizations. The motivation for improvement must come from executive management, but the real key to improvement lies with supervisors and managers. Managers have frequent opportunities to enhance engagement. Their relationships with employees are the most important gear in the chain. To improve these direct relationships requires that managers appreciate some basic concepts. The Chain of Engagement 6

8 What managers and supervisors need to know: What their employees need to succeed. What their employees expect of them and from the organization. How to communicate goals and objectives How to coach and connect with each individual employee What do Employees Need and Expect? The engagement needs of employees are not generally unreasonable. When employee engagement needs are introduced at GEA management training workshops, managers usually expect the list to be more involved. They acknowledge that the key needs are reasonable and that they can improve their efforts to better meet employee needs. Both the Towers Watson and Gallup studies describe employee needs in terms of the work environment and culture, stating that the goal of managers should be to create an environment that enhances employees sense of well-being. Specifically, this means that employees have a clear understanding of company expectations, they are provided with the materials and equipment they need to perform their jobs effectively, they feel that their manager wants to help them improve, and they are recognized when they do a good job. Employees expect a manageable workload that does not create stress. Both Towers Watson and Aon Hewitt emphasize that a strong and postitive company reputation also contributes to employee s sense of well-being and to their engagement. 15 Again, the manager s role is of critical importance: Managers who act in ways consistent with their own words and the organization s values and ethics set the right tone and shape a positive view of leadership overall. And managers who consistently coach their employees in ways to improve performance are not only more likely to become the goto individual for help with problem solving, but also provide reinforcement on career advancement and skill building, key drivers of sustainable engagement. 16 What are the other drivers of employee engagement? What do employees expect of their employer? Compensation would probably be the top-of-mind answer among HR managers, but surprisingly pay isn t a major influence on employee engagement. Aon-Hewitt lists 5 key drivers of employee engagement. Globally, compensation falls at #3 on the list, but it does not rank in the top 5 motivators in their survey of North American employees. 17 Key Engagement Drivers: 17 (in order of importance N. American Employees) 1. Career Opportunities 2. Manager s Performance 3. Reputation of the Employer 4. Quality of Communication 5. Recognition 7

9 Communicating Clearly: The Manager as Coach How managers communicate with their employees is just as important as what they communicate. Managers are presented with multiple opportunities or touch points each day. These are occasions that afford a choice the manager has the option to view each touch point as either an interruption or an opportunity. A brusque answer does little to strengthen an employee s enthusiasm or engagement, but taking advantage of an opportunity to listen, learn and coach can have a very positive impact on individual performance. Managers are presented with multiple touch points each day. These are occasions that afford a choice the manager has the option to view them either as opportunities or interruptions. The Gallup study emphasizes the importance of recognizing each individual s differences and potential: The traditional approach to management suggests that leaders are better off treating all of their employees the same. However, this viewpoint ignores that as human beings, employees are profoundly different from one another. Factors such as age, generation, gender, education level, and tenure, for instance all relate to engagement, as do an employee s job category and industry. The best managers recognize and understand the fundamental differences among their team members and think about the implications for the workplace. These managers are energized by the potential these diverse individuals bring to the table. 18 Gallup also advises that managers focus on individual strengths, stating that people who use their strengths every day are six times more likely to be engaged on the job. 19 A Last Note: Finding the Right Managers and Employees The discussion above emphasizes actions that can impact an organization s existing management group and workforce, but many of the studies also note the key importance of hiring selectivity. Ultimately, engaged managers and employees produce other engaged managers and employees. A key aspect of an organization s engagement strategy should focus on hiring individuals with a high potential for engagement. GEA offers services to help our member companies find key executive and managerial staff. Also, GEA s consultants can assist companies to establish criteria that identify candidates most likely to become engaged employees. GEA Resources: Implementing Improvement in Your Organization Realizing the benefits of increased employee engagement requires that an engagement focus becomes part of organizational culture and is integrated into many areas of activity. For this to happen, employee engagement becomes part of the leadership and management mindset, not just the initiative of the month. The first step toward improvement is measuring the current situation how engaged are current employees and where are the opportunities for improvement?. 8

10 GEA provides a very reasonably priced employee engagement survey that can provide your management team with an assessment of the current level of employee engagement. The Employee Engagement and Union Vulnerability Study uses a standardized survey methodology with 30 closed questions. Completing the survey takes about 30 minutes of an employee s time. It can be administered onsite by an experienced HR professional or provided online. Results of the survey are provided in a Client Findings Report that provides a measure of your organization s current degree of Employee Engagement and Union Vulnerability, and segmented results for each supervisor and manager. After the survey is completed, GEA will schedule a meeting with you to review the report and to develop a plan of action to begin implementing improvements. At the leadership level, GEA can provide guidance that will help your company create an Employee Engagement strategy that is integrated throughout the organization, including measures of improvement and accountability. We ll work with your management team to put together an Employee Engagement Program that: Focuses on the business results that are most important to you. Shares responsibility between leadership, HR, and especially supervisors and managers. Maintains a bias towards specific, practical improvement; with steps tailored for each supervisor. The engagement chain illustration earlier in this white paper provides an indicator of the sequence of benefits and also a basic roadmap for implementation of a program to increase employee engagement. The initiative must start with organizational leadership, but front-line managers and supervisors are the key to measurable improvement. It s very important that they are involved in developing an improvement plan and that they are held accountable for the engagement levels of their teams. Top performing organizations integrate information into: 20 (Source: Gallup) Strategy and Leadership Philosophy Accountability and Performance Communication and Knowledge Management Ongoing Learning and Development Opportunities Managers and supervisors must understand the value of the concepts and practices that enhance engagement. Different individuals are motivated in different ways, and managers may need to learn new skills to help them connect with each employee. GEA can train your supervisors in Engagement Coaching practices and ways to put together improvement plans with their teams. Our consultants can help managers and supervisors with communications skills to assure that they are able to define goals and share information simply and clearly, helping them to understand engagement drivers for different individuals and groups. 9

11 Ready to Make a Start? If you d like to find out more about Employee Engagement and how to take the first steps to begin improving engagement at your business, we encourage you to contact the Georgia Employers Association. We d be very pleased to provide information about our Employee Engagement Survey and discuss the specific needs of your organization. You can contact GEA by phone at or David Whitaker, our Executive Director, at david@georgiaemployers.org. Georgia Employers Association offers a wide range of resources and services to large and small Georgia businesses. To find out more about GEA and the benefits of membership in the association, visit our website at Endorsements: Nisshinbo Automotive Manufacturing, Inc. recently worked with the Georgia Employers Association to conduct an Employee Engagement & Union Vulnerability survey for the employees in our organization. We wanted to: Take pro-active steps to create a positive work environment enhance our levels of employee engagement and thus improve their productivity learn of any issues that might cause our employees to seek a third party instead of taking their issues directly to our management team. The survey (identified) the areas where we had high engagement and a positive work environment as well as those areas where we needed improvement. GEA then helped us develop tailored strategic improvement plans plant-wide and for each individual Supervisor. Candace Morris, HR Manager Bridgestone Golf, Inc./Nisshinbo Automotive We have utilized the Georgia Employers Association Employee Engagement & Union Vulnerability Survey since We have found that it provides succinct, pertinent and useful insight into our Associates level of Engagement as well as Union Vulnerability. We believe in order to stay competitive in today s economic climate, all employees must be engaged and have positive relationships with their managers. This survey has enabled us to do so. GEA has been a great resource in the rollout and administration process. They facilitated the survey within our multi-site locations. Results were analyzed and presented to the leadership team promptly and professionally. The survey results pinpointed items that were actionable and with GEA s assistance we were able to identify areas that needed correction. The survey confirmed some issues that we suspected needed improvement. I strongly recommend the survey and GEA s services. J. Luling, Pacor, Inc. 10

12 Endorsements (continued): Bard Manufacturing has been a member of the Georgia Employers Association for almost 20 years. We now use GEA to facilitate our employee opinion surveys. We used the traditional survey process until 2010 when GEA introduced us to the Employee Engagement & Union Vulnerability Survey. As they explained the process, there are only approximately 30 closed ended questions. However, you can include open ended questions as well, which we chose to do. The GEA staff has a great deal of experience in survey administration. It only takes a short time for employees to complete the survey and survey results were generated in a timely manner. They can also convert the employee questionnaire to languages other than English if necessary. Research has proven that engaged employees, among other things, generate higher profitability, are more productive and have fewer accidents. Available research also shows that employee engagement or non-engagement results to a large degree on how employees are treated by their supervisor and manager. Our survey is segmented by supervisor so that we can look at how our employees feel about their individual supervisor. In some cases the survey documented what we already knew. Once a supervisor s weaknesses are known, you can then implement development plans for improvement, with the intent of improving employee engagement. We used the Employee Engagement and Union Vulnerability Survey in 2010 and 2012 and have been very pleased with the results. We plan to continue this practice. Chris Anderson, Human Resources Manager Bard Manufacturing I first became aware of the Employee Engagement & Union Vulnerability Survey when it was recommended by the Georgia Employers Association several years ago. I looked into the process and liked what I saw. I spoke with my management team and the process and questionnaire they use made sense to them as well. We decided to try it at one of our plants in Georgia. GEA came on site, worked around our schedule, and administered the survey. After compiling the results, GEA provided a written report with the scores segmented by location, department and supervisor. They also worked with us to develop action plans for improvement. The survey was successful in providing what we needed and we decided in 2012 to do it again for several locations in the company. I can endorse the survey as being practical, cost effective, easy to administer, and getting the results we were looking for. Wayne Thompson, Regional HR Manager Active Minerals 11

13 Sources: Aon Hewitt, 2013 Trends in Global Employee Engagement, Blessing White, Employee Engagement Report Update, January com/eee r Gallup, 2013 State of the American Workplace Study, Employee Engagement Insights for U.S. Business Leaders. aspx Towers Watson, 2012 Global Workforce Study, Engagement at Risk: Driving Strong Performance in a Volatile Global Environment. Endnotes: 1 Gallup, p Gallup, p. 4 3 Gallup, p. 5 4 Towers Watson, p. 2 5 Gallup, p Towers Watson, p. 2 7 Charts: -Towers Watson, p. 4 -Aon Hewitt, p. 8 -Gallup, p Towers Watson, p. 3 9 Gallup, p Gallup, p Towers Watson, p Gallup, p Gallup, p Towers Watson, p Towers Watson, p. 7, Aon Hewitt, p Towers Watson, p Aon Hewitt, p Gallup, p Gallup, p Gallup, pp

14 Georgia Employers Association Contact Information: Georgia Employers Association 577 Mulberry Street Suite 710 Macon, GA Phone: Fax: , Georgia Employers Association