White Paper Series Solutions Increasing Engagement
Increasing Engagement The term "engagement" as it refers to employees, says Jennifer Glueck of Towers Perrin, probably came out of academic literature about ten years ago; but corporations have only been using it for the last five years or so. The study of engagement and how to get it is an extension of the study of employee motivation, which has been an important area of workplace study for at least fifty years, since the inception of organizational/ applied psychology and organizational behavior. In the last few years the term has leaped to the forefront. Several researchers have been working on defining it, determining the payoff for having engaged workers and the penalty for disengagement, and figuring out what we need to do to increase engagement. What is engagement? Webster now tells us that engagement can be "the degree to which employees identify with, are motivated by, and are willing to expend extra effort for their employers." But about a year ago, The Conference Board convened a group of 24 Fortune 500 companies to look at the term, and realized, they said, that there was a giant elephant in the room. There was no real agreement on what engagement actually meant. Studies differed widely on how it fit with commitment and satisfaction, for instance, and different definitions created different research approaches, different measures and a variety of conclusions. When firms like Gallup, Hewitt, Watson Wyatt, Towers Perrin and the rest surveyed, they built their questions around the concepts they had already developed, which drove the results. This group wanted to make some sense out of it all. The Conference Board examined 12 major studies on employee engagement published in the 5- year period from 2001 to 2006. They reviewed the content of books and major journal articles dating back to 1999. And they examined 28 additional trade publication articles that included commentary, insights, and advice for enhancing employee engagement. They found the definitions of engagement could be broken down into three different areas: cognitive, which included satisfaction and commitment; emotional, meaning feelings about the company, attachment to managers, pride, etc.; and behavioral discretionary effort and retention. Each researcher seemed to focus on a different one of the three. The Conference Board s own definition: Engagement is a heightened emotional and cognitive connection that a person has with their job, coworkers, manager or the organization as a whole that influences them to apply additional effort on the job. We want people who are intellectually or cognitively engaged," they said, "but at the end of the day, we re business leaders and we need some form of outcome that s measurable. 2
A few definitions from a variety of researchers International Survey Research (ISR) offers this definition: "Engagement is a positive attitude held by the employee towards the organization and its values. An engaged employee is aware of business context and works with colleagues to improve performance within the job for the benefit of the organization." ISR adds that an engaged worker is someone who feels a bond or attachment to the organization, who supports the strategy and values that leaders have communicated, who is aligned with the company s direction and is motivated to work hard toward its success. Towers Perrin says engagement "involves both emotional and rational factors relating to work and the overall work experience. The emotional factors relate to people's personal satisfaction and the sense of inspiration and affirmation they get from their work, and come from being part of the organization." The Institute of Employment Studies (IES), a research and consultancy organization based in Britain, surveyed more than 10,000 employees and tested twelve attitude statements representing engagement. Their definition: Engaged workers are those who demonstrate a positive attitude towards, and pride in, the organization belief in the organization s products/services the perception that the organization enables the employee to perform well a willingness to behave altruistically and be a good team player an understanding of the bigger picture and a willingness to go beyond the requirements of the job. Engaged employees, they say, believe in the organization, want to make things better, understand the "big picture," are respectful of and helpful to colleagues, willing to go the extra mile and keep up to date with developments in their field. IES also found that engagement levels can vary, as experiences, personal and job characteristics change, until they reach the oldest group (60 plus), where levels suddenly rise. Their research shows this oldest group to be the most engaged of all. Gallup defines engagement this way: Engaged employees, they say, work with passion and feel a profound connection to the company. Not-engaged employees are essentially "checked out," sleepwalking through their workday. And actively disengaged employees aren t just unhappy, they re acting out their unhappiness and undermining what their engaged coworkers accomplish. What drives engagement? Here's where it gets more complex, with more researchers entering the fray. The Entec Corporation in Ontario assembled what they refer to as "an eclectic team of experts in both business management and psychology and asked them to develop a model of employee engagement. They determined that there were five factors that are primary drivers of employee engagement: employee emotional wellness department practices leadership behaviors corporate practices vision and values 3
They say organizational factors contribute 80% and emotional factors are related to 20% of the overall employee engagement score. Here are a few more of their conclusions. Minority ethnic respondents have higher engagement levels than their white colleagues. Managers and professionals tend to have higher engagement levels than their colleagues in supporting roles, although professionals, they say, seem to show greater loyalty to their profession than to the organization in which they practice their craft. And engagement levels decline, they said, as length of service increases. Having an accident or an injury at work has a big negative impact on engagement, as does experiencing harassment (particularly if the manager is the source of the harassment). And employees who have a personal development plan, and who have received a formal performance appraisal within the past year, have significantly higher engagement levels than those who have not. These researchers believe the strongest driver of all is a sense of feeling valued and involved. That gives new importance to involvement in decision making, the extent to which employees feel able to voice their ideas, the extent to which managers listen to these views, and value employees contributions, the opportunities employees have to develop their jobs, and the extent to which the organization is concerned for employees health and wellbeing. All of the resources we found agree that the line manager has a very important role in fostering employees sense of involvement and value and engagement. The employee-manager role is critically important. Hewitt Associates' Ray Baumruk says their research seem to counter the popular notion that business success breeds employee engagement. To some extent it s more engaging to be part of a winner than part of a loser, but we also have quite a few cases in which companies with poor business results saw their results improve after taking action to improve engagement. Another Hewitt study, this one of Canadian employers, found that those who made Canada s "50 Best Employers" list had a workforce that was significantly more engaged than that of other organizations, indicating that good human resource practices drive engagement. Employees in the "Best" companies had an average engagement score of 80%, vs. 59% in the others. The Conference Board carefully examined research by 15 different players to cull out the drivers. Their "condensed list' finally identified about 26 drivers. They included these 12, not in this order... work conditions goals job roles safety and security decision making authority diversity resources trust career growth opportunities compensation competence of manager team work life balance 4
When they narrowed it down to a list of eight, trust was number one, the thing on which most researchers 12 out of the 15 could agree. Do I trust my senior management to guide this ship through rough waters, and are they going to act in my best interest? Second was the nature of the work. Is it interesting and stimulating? And do I have sufficient control or am I helpless? Line of sight impact was third. Is it clear how I impact the company as a whole? ( It s incredibly important, they said, for people to see what kind of contribution they re making. Is this a cool place to work? Career growth was fourth. Do I have a clear career path, do I have visibility and can I get promoted? Overall pride was fifth (is this a cool place to work? Can I take pride in our product, our reputation, our culture?) Relationships with coworkers and teammates were sixth on the list, surprisingly higher than the relationship with the immediate manager. Employee development was seventh. Do I have the opportunity to expand my basic knowledge? Do I have learning opportunities (as opposed to the ability to get promoted to a better job). And last but not least: the relationship with the immediate manager. While this driver surprised everyone by being last, the Conference Board hastened to point out that the manager is clearly the key leverage point for all of the drivers. If you want to make change happen, you must impact the manager. Drivers are different at different stages A Blessing White study found a link between strong manager-employee partnerships and more engaged employees. And the Hewitt study of Canadian's "Best" employers found they had several things in common that were drivers of engagement. Leaders charted a clear course for the future and got employees excited about it Employees saw the future, believed in it, understood what it meant for them and their work Leaders said they expected to grow and were well positioned for growth HR provided direction in preparing for and leading change There was consistent focus on getting the right people in the right roles led by the right leaders HR and leadership actively managed the talent pipeline together Leaders and managers paid attention to the day-to-day details of managing people effectively and consistently, supported by HR As a result, said the Hewitt report, Best Employers were able to create a unified work environment that felt the same to all employees, regardless of their status. 5
Towers Perrin looks at these statements to measure levels of engagement: I am proud to tell others I work for my company; My job provides me with a sense of personal accomplishment I am willing to put in a great deal of effort beyond what is normally expected to help my company succeed I understand how my role is related to my company s overall goals, objectives and direction. Towers Perrin also found that engagement drivers may shift as one moves through their career. What drives a fresh 22 year old may not do the trick at 55 when she s thinking of retiring. A study by Northwestern University study found the key organizational characteristic for explaining employee satisfaction to be organizational communication (a measure of the downward and upward communication in an organization). That satisfaction, said the report, is a key antecedent to employee engagement. Interaction between managers and employees with regard to supportiveness and goal setting, as well as job design were also key drivers of employee engagement. "Organizational culture was another significant driver of employee engagement," said the report, "where employees must be expected to cooperate and work together, but also to take charge and provide a voice for the customer within the organization." One of the things researchers have found that creates engagement in a workforce is that employees and leaders are aligned on goals and values. And that works two ways it means not only is everyone aligned on where the organization is going and what s important to it. It also means employees know that what s important to them is also important to their management. Tougher to engage in big organizations A Harris Interactive study in 2005 found that the larger your company, the tougher it is to have engagement; companies with 5,000 or more employees generally had significantly lower levels of engagement. One reason, it was suggested, may be line of sight. In a larger company it s harder to see the impact of what we do each day, and senior management may not be as visible. And unless they aggressively try to communicate issues of integrity and trust, employees may be depending on rumor and reputation to help them form opinions. High-level jobs, higher levels of engagement Several researchers agreed that employees who had higher level jobs had significantly higher levels of engagement than those who were individual contributors or held entry-level jobs. One Towers Perrin study found that while more than half of senior executives were actively engaged and 4% actively disengaged, just 12% of non-management hourly employees were engaged and 25% were actively disengaged. It may be a matter of control, and a clearer line of sight to the impact of their work. And here s another interesting thought suggested by the Conference Board: Instead of having jobs that lend themselves to highly engaged people, maybe these were people that were highly engaged when they got there, and because of that they moved up in the organization. 6
The link between employee engagement and tenure was confirmed by three different studies, said the Conference Board. Engagement, they found, starts out high and remains high for the first two years, then tapers off for the next four. But after six years it starts to swing back up again. It makes sense, since the first couple of years are stimulating, with new things to learn, new relationships and affiliations, etc. And after six years, an employee may begin to see career development opportunities. One school of thought believes engagement has a life cycle, and another is that people may look elsewhere when and if their engagement begins to drop off. Perhaps, they say, the six-year rebound refers to the people who were left, those who were engaged all along. The larger the organization, the tougher it is to have engagement. Companies with 5,000 or more employees had significantly lower levels of engagement. The Conference Board explains that one reason is "line of sight." It's harder to see the impact of one's actions in a larger organization, and senior management may not be visible unless they aggressively try to communicate issues of integrity and trust. Employees must depend on rumor and reputation to help them form their opinions. Several researchers have found that employees with higher level jobs had higher levels of engagement than those who were individual contributors or had entry level jobs, possibly because they have more control and a clear line of sight to their impact on the organization. More than half of senior executives were actively engaged and just 4% were actively disengaged; the engagement level for non-management was just 12%, with one-fourth actively disengaged. A minority opinion holds that some employees are simply hardwired to be more engaged than others, than instead of having jobs that lend themselves to highly engaged people, these were people that were highly engaged when they got there and because of that moved up in the organization. Another study, this one by Canadian EAP firm Warren-Shepell has identified "the seven top indicators" of employee engagement and retention. Their research shows links between those seven factors and positive employee mental health, says CEO Rod Phillips, plus a lower rate of turnover and higher satisfaction. These indicators are both definitions and drivers: employees trust senior management employees are asked for their ideas and opinions on important matters employees clearly understand the organization s vision and strategic direction employees trust their supervisors employees receive recognition and praise for good work employees have a clear say in decisions that affect their work employees perceive their supervisors as caring and considerate of their wellbeing The relationship between intrinsic rewards and employee mental health is twice that of extrinsic rewards, says the report. The year-long research project was a collaborative effort between the EAP firm and Canadian HR Reporter, a national journal of HR management. Once the factors were identified, Canadian companies were polled to determine their progress with the seven indicators. Says the report, there was "a large gap between what employees need and what is being provided." 7
Disengagement: a global epidemic A major global study conducted in 2005 found only one out of every seven employees was fully engaged with their jobs, willing to go the extra mile. Towers Perrin questioned 85,000 people working for large and midsize companies in 16 countries on four continents, and found just 14% of workers who were engaged willing and able to give discretionary effort at work; a fourth were actively disengaged. The highest levels were in Mexico (40%) and Brazil (31%); the lowest were in the four Asian countries in the study only 8% of Chinese workers were found to be fully engaged. In the U.S., the number was 21%. Mexico and Brazil s high scores may have been skewed, said Towers Perrin s Emmett Seaborne, because the survey focused on large and mid-size companies, which hire the cream of the crop in those countries and treat them extremely well. India and Japan were last, and India s low score may have reflected what Seaborne said was a "grueling work environment" and enormous stress, and in Japan, engagement is not the model yet, although the next generation is saying they do want worklife balance, and do want to be engaged. Even though the U.S. was third, just one out of five American respondents said they felt highly engaged. Most said senior management s interest in their well-being would make a difference, but less than a third believed their top management was aware of the issues they face. Generally, said the report, employees were frustrated and skeptical about both senior leadership and their own "employment deal," both of which, said the authors, have a major influence on engagement. Worldwide, just 40% thought their senior management acted in a way that was consistent with their values, and only a third believed they communicated openly and honestly. Why aren't employees engaged? People want to contribute more, said Towers Perrin director Donald Lowman. "But they say their leaders and supervisors unintentionally put obstacles in their paths." Lack of alignment is a primary reason why just one-fifth of employees are fully engaged, said an Employee Engagement Report by BlessingWhite. Their survey was completed by 990 respondents, and only one-fifth said they believed their daily work priorities were linked to their employers "clearly communicated strategy." And Gallup concluded that the reason just 29% of workers are engaged is that companies misread what makes employees happy at work, thinking it to be pay and benefits. Instead, it s a supportive boss and a strong relationship with coworkers (a positive response to "I have a best friend at work" is a powerful predictor for profitability The payoff for having engaged workers Burke, Inc. an Ohio marketing research firm, says their research shows that engaged employees are more likely to stay with the company, be an advocate of the company and its products and services, and contribute to the bottom-line business success. They have found a significant link between employee engagement, customer loyalty, and profitability. 8
A Watson Wyatt Worldwide study found companies with highly committed and engaged employees had a 112% return to shareholders over three years, vs. a 76% return for companies whose employees scored low. Said one Watson Wyatt report, "business success requires employees to not only understand the organizational strategy but they also must know how to execute it, possess the tools necessary to achieve it, and have the desire to do so. When this happens, employees are not only engaged, they are enabled. An engaged and enabled employee is positioned to succeed." Hewitt Associates analyzed its "Employee Engagement and Best Employer Database" of 1,500 companies over a four-year period and found that companies with high engagement levels had significantly higher total shareholder return than those with low employee engagement. Specifically, companies with 60% to 100% employee engagement achieved an average shareholder return of 24.2%. With engagement scores of 49% to 60%, the return dropped off to 9.1%. Companies with engagement below 25% suffered negative shareholder return. Commitment and engagement, they say, are key drivers of a company's financial performance. Research has linked engagement directly by the Conference Board and others to higher levels of customer satisfaction and loyalty, and a 2004 study by Bates linked it also to customer engagement. When employees are engaged, customers will go out of their way to buy your product or recommend you. And Oakley, in 2005, confirmed that even when employees don't have direct contact with customers, engagement is linked to customer satisfaction. Research (see below) has also found links between engagement and productivity, and a collective impact between engagement and team productivity. Towers Perrin and ISR both reported links to overall company performance, operating margin and profits. And in 2004, Hewitt reported that they had been able to look at engagement longitudinally and document a "lead-lag" relationship, meaning they went back and looked at engagement levels as long as ten years back, and found that when they went up, performance increased down the road. Multiple studies have connected engagement to retention; both Towers Perrin and the Conference Board found links between engagement and both intent to stay and actual retention. At least two studies have found that an engaged workforce definitely improves performance. One was a 2004 Hewitt Associates study that found companies with the highest employee engagement levels had nearly triple the total shareholder return when compared with those that have lower levels. Hewitt also discovered that double-digit growth companies had engagement levels that exceeded competitors by more than 20%, and they put more energy into making sure employees are engaged. The IES conducted a three-year study of 41 companies with a total of 363,000 employees. They found those with high levels of engagement increased operating margins by 3.74%; in those with low levels, margins declined by 2.01%. Research shows that committed employees perform better, says the IES report. If we accept the fact that engagement, as many believe, is one step up from commitment, it is clearly in the organization s interests to understand the drivers of engagement. 9
In June of 2005, a study by Northwestern University found a direct link between employee satisfaction and customer satisfaction, and between customer satisfaction and improved financial performance. That study also found organizations with engaged employees have customers who use their products more. And increased customer usage, said the study, leads to higher levels of customer satisfaction. It is an organization s employees who influence the behavior and attitudes of customers, said the study, and it is customers who drive an organization s profitability through the purchase and use of its products. Finally, the Government of Singapore Ministry of Manpower found increased employee engagement not only improved performance but increased customer satisfaction. Engagement is linked to health The extent to which employees feel they are engaged at work has a dramatic impact on both their mental and physical health, said a Gallup Employee Engagement Index. More than half (54%) of employees who said they were actively disengaged also said their work lives were having a negative effect on their physical health. Among engaged employees, a clear majority 62% felt their work lives positively affected their physical health. That number plummeted to 39% among "not-engaged" employees and went down to 22% for those who were "actively disengaged." There is, of course, no question about the payoff for engaged workers, and this Webcast put any final doubts to rest. The studies they investigated showed it to be directly linked to higher levels of customer satisfaction and loyalty, customer engagement (going out of their way to buy your product and recommend you). The research has linked it with both performance and productivity, overall company performance, operating margin and profits. They ve connected it to retention, not only the intent to stay but the behavior of staying. And work-life people, take notice: two studies found that the emotional factors, which would include whether one feels supported, tend to trump the cognitive ones. Employee engagement lives locally The Conference Board will continue to work on the subject. There s more to learn about drivers of engagement among women, racial and ethnic minorities and the aging workforce. And more needs to be done globally; are the drivers for North America different than they are for India or South Africa or Russia? Is there a point of diminishing return, a point at which your investment outpaces the payoff? And perhaps most important, what supervisory behaviors lead to disengagement? What they do know is that employee engagement lives locally. It s about me, my job, my relationships, my satisfaction, my emotional connection and devotion to the job on many different levels. That gives even more import to the local manager. Until they internalize it, no effort to increase engagement will succeed. 10
A look at past research Here's a quick review of some of the most important research findings in 2004 and 2005 regarding engagement. In 2004, Hewitt Associates reported research that found double-digit growth companies put more energy into employee engagement, and had engagement levels that exceed competitors by more than 20%. It could be seen as a chicken-egg issue; does strong financial performance drive greater engagement or does employee engagement drive performance? Hewitt believes it s the latter, says Ray Baumruk, Hewitt s talent and engagement practice leader. "Our research," he says, "found evidence that greater engagement in many cases actually precedes better business results." High growth companies create that engagement by communicating more, soliciting more employee feedback, providing more clarity about career paths, and making leaders more visible. These actions have as much impact on engagement as does financial growth. In double-digit growth companies leaders were not only 25% more engaged, they were enthusiastic in expressing their confidence in the company, and more likely to pass that confidence on to employees. They solicited feedback from employees nearly twice as often to identify their concerns, and thus were able to take action more quickly to remove problem situations. An ISR survey found workers in the U.S. were the most likely to go the extra mile for their employer and French employees were least likely. The research looked at how employees think, feel and act related to their companies, and found four core issues that were most likely to impact engagement in the ten countries studied: career development, leadership, image and empowerment. The importance of each issue differed from country to country, with career development long-term career opportunities having the most impact on engagement in the U.S. Having high ethical standards was next in both the U.S. and Canada, and third in the U.S. was the effort management made to get the opinions and thinking of employees. In 2005, a Mercer survey found that when employee surveys are poorly designed and implemented, and when there s no follow-up action, they can have the opposite effect from the one intended. For those companies that do take effective follow-up actions, 84% of employees report a high degree of engagement; for those that don t, the engagement percentage is just 39%. Also in 2005, ISR found alignment to be the key to engagement, and their research leads them to believe three things drive both alignment and engagement: perceptions of leaders sense of direction the degree to which they communicate that direction how much it correlates with the organization s values. They conducted a study of Guild Insurance & Financial Services Ltd., and when they began, the organization had declining net worth, failing profits and low employee morale. They set out to reenergize employees and reverse their financial fortunes, and ISR monitored their progress. Four years later there was a dramatic increase in employee engagement and an impressive record of how it all happened. The key, said ISR, was alignment. First Guild involved its leaders, giving them a role in setting goals and aligning culture and people practices with the new business strategy. Then the strategy was aggressively and clearly communicated to employees with the purpose of getting them on board. Senior managers were encouraged to communicate with their staff in a way that let them know they cared about their day-to-day challenges. Financial results were tracked each month and shown to employees. After four years, 90% of Guild s employees said they believed the 11
company was living its values, 82% saw a clear sense of direction and 97% said the company is doing an excellent job of keeping them informed. Also in 2005, WFD Consulting found a strong link between even a small amount of flexibility and significantly higher engagement levels. A related Gallup poll that year found only 29% saying they were engaged. The reason, said Gallup, is that companies misread what makes employees happy at work, thinking it s pay and benefits. Instead, it s a supportive boss and a strong relationship with coworkers (a positive response to "I have a best friend at work" is a powerful predictor for profitability). And a University of Nevada study has found that happy employees can mean as much as a 25% improvement. A Hewitt Associates study found that the employers who made Canada s "50 Best Employers" list had a workforce that was significantly more engaged than that of other organizations. Employees in the "Best" companies had an average engagement score of 80%, vs. 59% in the others. The best employers, they found, had several things in common that drove engagement. Leaders chart a clear course for the future and get employees excited about it. Employees see the future, believe in it and understand what it means for them and their work. Leaders also say they expect to grow and are well positioned for growth; and HR provides direction in preparing for and leading change. There is consistent focus on getting the right people in the right roles led by the right leaders. HR and leadership actively manage the talent pipeline together. And leaders and managers pay attention to the day-to-day details of managing people effectively and consistently, supported by HR. "As a result, Best Employers create a unified work environment that feels the same to all employees, regardless of their status." James Oakley, Purdue University business professor, found the organizational culture to be a significant driver of engagement. In the most successful cultures, employees were expected to cooperate and work together, but also to take charge and provide a voice for the customer within the organization. Organizations with engaged employees, said Oakley, had customers who used their products more. And increased customer usage led to higher levels of customer satisfaction. One thing, on which most researchers and practitioners agree is that employee engagement lives locally. It's about me, my job, relationships, satisfaction, the emotional connection and devotion I have to that job. Keep communication, management, autonomy local, he suggested, and the day to day routine stimulating and worthwhile. It requires partnership, including senior managers. Marketing has a role, and communication and branding have major roles. The good news, says Gallup Psychologist James Harter, is that it is possible to help employees become happier at work. It will come as no surprise to work-life professionals that the best way to do it is to become a more supportive workplace. Gallup's study of two million employees at 700 companies found employee productivity was determined by their relationship with their immediate supervisor. Ultimately, no strategy will be successful until local managers internalize it. This suggests that training managers to treat people respectfully, as people whose work will make a significant difference, and as human beings with important personal responsibilities, may be the real key to increasing engagement. 12