Studies show strong link between engaged workers and a healthy bottom line
Successfully engaging employees is, perhaps, one of the greatest challenges facing organizations. The concept of engagement, like many abstract concepts, is simple to understand yet difficult to define and measure.
Some definitions of engagement include emotional and behavioural components, such as how employees feel about their employer, its leaders and working conditions. More important than agreeing on a definition for engagement, however, is understanding the significance of employee engagement.
Employee engagement is tied directly to performance and profitability. In a 2003 study conducted by the Institute for Social Research at the University of Michigan, using data from more than 360,000 employees from 41 companies, companies described as having low overall engagement lost 2.01 per cent operating margin and were down 1.38 per cent in net profit margin over a three-year period.
During that same period, high engagement companies gained 3.74 per cent operating margin and 2.06 per cent net profit margin. Engaged employees, the study argued, clearly contributed to the bottom line.
More engagement, more high performers
In early 2008, Maitland, Fla.-based TalentKeepers conducted a retail industry study linking employee engagement and satisfaction to store results in a large North American chain. Stores with highly engaged employees had more high performers (34 per cent versus 24 per cent), fewer low performers (40 per cent versus 50 per cent) and a monthly average revenue increase of $11,242 over the low engagement stores.
Employee engagement is also linked directly to employee retention. It seems quite obvious that highly engaged employees are more likely to stay with an organization than those who are moderately engaged or not engaged at all. But how important is retaining employees to the success of an organization?
Look at an example from the health-care industry in the United States, in which turnover has been increasing over the last few years. While the estimated costs associated with turnover vary, results from TalentKeepers’ 2008 Employee Turnover Trends study show the direct costs, including recruitment, onboarding, training and uniforms, of losing a front-line employee in the health-care industry exceeds $5,000 for 49 per cent of health-care providers. Add in the indirect costs of turnover, such as lost productivity, poor service and low employee morale (those things often linked to low engagement), the costs increase to more than $15,000.
Cutting employee turnover is just one defence against low engagement, but it can be an important one, particularly for Generation Y workers who value the social relationships associated with work.
Tactics for improving engagement
Employers should be concerned about engaging their employees, but the bigger challenge is figuring out how. An organization’s culture, the nature of the work employees perform, the strength of its leaders and the diversity of workers must all be considered.
One fundamental component is the role of the front-line leader. Several leadership behaviours are important when it comes to boosting engagement:
• building trust between themselves and their team members — a trusting relationship frees employees to be more creative, more open to coaching and feedback and more comfortable offering ideas;
• focusing on building esteem and pride in team members;
• being flexible in recognizing, understanding and adapting to individual needs and views;
• providing training and coaching that allows employees to develop new skills;
• conducting performance building exercises to reinforce high levels of team performance;
• gathering information from employees about what skills and behaviours they value most in a leader and using this information to coach leaders in developing positive working relationships;
• conducting commitment-building meetings between team members and their leader, in which all parties indicate what they will do to foster a positive working relationship;
• ensuring employees are given the opportunities to use their talents by giving them varied and challenging work, as well as additional responsibilities and projects; and
• recognizing the need for greater flexibility in the workplace, such as offering flexible work schedules or allowing employees to work from home.
These practices all contribute to creating an environment in which employees see the value of their work and a connection between their ¬success and the success of the organization. For employees, recognizing that their performance and contributions really matter to the organization is paramount when it comes to creating a culture of engagement.
Engagement involves all levels
Retention and engagement should also be viewed as a broad organizational and cultural strategy involving all levels of the organization. Leaders at all levels in the organization must become trust-builders in order to combat employee disengagement and unwanted turnover. They must be equipped with the leadership retention and engagement competencies critical for creating committed workforces. They must also be held accountable and given incentives for this responsibility.
But retention and engagement are not solely the domain of leaders. All employees, including front-line employees, need to be retention and engagement advocates, encouraging colleagues to remain with the organization, communicating frustrations to their leaders and helping to build a strong climate of trust and performance.
Keeping ahead of demographic trends and generational differences will require new and imaginative ideas, as well as a strong commitment to making retention and engagement a top priority. Employers must be innovative. They cannot expect to continue using the same methods with a changing workforce and achieve the same positive results. The future will require creativity and inventiveness to combat the ever-present concerns of turnover and lack of engagement.
Craig R. Taylor is a senior vice-president at TalentKeepers, a Maitland, Fla.-based employee retention research firm that provides web-based solutions to organizations. Mara Schwartz is a marketing manager at TalentKeepers. For more information, call (407) 660-6041 ext. 117, e-mail [email protected]. or visit www.talentkeepers.com.
Some definitions of engagement include emotional and behavioural components, such as how employees feel about their employer, its leaders and working conditions. More important than agreeing on a definition for engagement, however, is understanding the significance of employee engagement.
Employee engagement is tied directly to performance and profitability. In a 2003 study conducted by the Institute for Social Research at the University of Michigan, using data from more than 360,000 employees from 41 companies, companies described as having low overall engagement lost 2.01 per cent operating margin and were down 1.38 per cent in net profit margin over a three-year period.
During that same period, high engagement companies gained 3.74 per cent operating margin and 2.06 per cent net profit margin. Engaged employees, the study argued, clearly contributed to the bottom line.
More engagement, more high performers
In early 2008, Maitland, Fla.-based TalentKeepers conducted a retail industry study linking employee engagement and satisfaction to store results in a large North American chain. Stores with highly engaged employees had more high performers (34 per cent versus 24 per cent), fewer low performers (40 per cent versus 50 per cent) and a monthly average revenue increase of $11,242 over the low engagement stores.
Employee engagement is also linked directly to employee retention. It seems quite obvious that highly engaged employees are more likely to stay with an organization than those who are moderately engaged or not engaged at all. But how important is retaining employees to the success of an organization?
Look at an example from the health-care industry in the United States, in which turnover has been increasing over the last few years. While the estimated costs associated with turnover vary, results from TalentKeepers’ 2008 Employee Turnover Trends study show the direct costs, including recruitment, onboarding, training and uniforms, of losing a front-line employee in the health-care industry exceeds $5,000 for 49 per cent of health-care providers. Add in the indirect costs of turnover, such as lost productivity, poor service and low employee morale (those things often linked to low engagement), the costs increase to more than $15,000.
Cutting employee turnover is just one defence against low engagement, but it can be an important one, particularly for Generation Y workers who value the social relationships associated with work.
Tactics for improving engagement
Employers should be concerned about engaging their employees, but the bigger challenge is figuring out how. An organization’s culture, the nature of the work employees perform, the strength of its leaders and the diversity of workers must all be considered.
One fundamental component is the role of the front-line leader. Several leadership behaviours are important when it comes to boosting engagement:
• building trust between themselves and their team members — a trusting relationship frees employees to be more creative, more open to coaching and feedback and more comfortable offering ideas;
• focusing on building esteem and pride in team members;
• being flexible in recognizing, understanding and adapting to individual needs and views;
• providing training and coaching that allows employees to develop new skills;
• conducting performance building exercises to reinforce high levels of team performance;
• gathering information from employees about what skills and behaviours they value most in a leader and using this information to coach leaders in developing positive working relationships;
• conducting commitment-building meetings between team members and their leader, in which all parties indicate what they will do to foster a positive working relationship;
• ensuring employees are given the opportunities to use their talents by giving them varied and challenging work, as well as additional responsibilities and projects; and
• recognizing the need for greater flexibility in the workplace, such as offering flexible work schedules or allowing employees to work from home.
These practices all contribute to creating an environment in which employees see the value of their work and a connection between their ¬success and the success of the organization. For employees, recognizing that their performance and contributions really matter to the organization is paramount when it comes to creating a culture of engagement.
Engagement involves all levels
Retention and engagement should also be viewed as a broad organizational and cultural strategy involving all levels of the organization. Leaders at all levels in the organization must become trust-builders in order to combat employee disengagement and unwanted turnover. They must be equipped with the leadership retention and engagement competencies critical for creating committed workforces. They must also be held accountable and given incentives for this responsibility.
But retention and engagement are not solely the domain of leaders. All employees, including front-line employees, need to be retention and engagement advocates, encouraging colleagues to remain with the organization, communicating frustrations to their leaders and helping to build a strong climate of trust and performance.
Keeping ahead of demographic trends and generational differences will require new and imaginative ideas, as well as a strong commitment to making retention and engagement a top priority. Employers must be innovative. They cannot expect to continue using the same methods with a changing workforce and achieve the same positive results. The future will require creativity and inventiveness to combat the ever-present concerns of turnover and lack of engagement.
Craig R. Taylor is a senior vice-president at TalentKeepers, a Maitland, Fla.-based employee retention research firm that provides web-based solutions to organizations. Mara Schwartz is a marketing manager at TalentKeepers. For more information, call (407) 660-6041 ext. 117, e-mail [email protected]. or visit www.talentkeepers.com.
