How Much Does Employee Engagement Correlate With Profitability?

Transcription

1 Hw Much Des Emplyee Engagement Crrelate With Prfitability? A Partial Summary f Dick Finnegan s presentatin at the SHRM Annual Cnference in Orland, Flrida, June 24 th, 2014 Perhaps the greatest challenge fr Chief Human Resurces Officers, r CHROs ging frward, is t cnvince their executive teams and especially their CEOs that emplyee engagement scres really matter. Matter in a way that the frnt-line supervisr is the majr driver f these scres and thse managers wh cannt increase their scres ver time are likely in the wrng chair. Data has been presented in previus white papers regarding this individual leader pwer. This pwer trumps any activity that HR can d including pay, benefits, r my favrite punching bag example which is emplyee appreciatin week. It is prfundly clear that the primary reasn emplyees engage r disgengage and stay r leave is their relatinships with their direct supervisrs. Many executives, thugh, have difficulty seeing bth this cnclusin and als the immense pwer f emplyee engagement. This paper has been develped t summarize majr studies that crrelate engagement t varius metrics f prfitability. Examples f studies fllw. Gallup Mst f us see Gallup as the wrld s survey leader, having gathered emplyee survey data frm mre than 25 millin respndents in 189 cuntries and in 69 languages. In their State f the American Wrkplace reprt, Gallup tells us the fllwing abut engagement data and crrelatins t thse same metrics yur CEO checks each mrning. When cmparing engagement levels fr the tp 25% f Gallup s survey database t the bttm 25%, the mre engaged grups shwed the fllwing imprvements: 22% in prfitability 21% in prductivity 10% in custmer ratings 41% in quality defects 48% in safety incidents

2 41% in patient safety incidents 37% in absenteeism 28% in shrinkage I sequenced these data based n my estimates f which are mst imprtant t yur CEO. But if the data nly tld us that prfitability increased by 22%, shuldn t that be sufficient evidence t cnvince? The remaining findings all cntribute t that prfitability increase. As imprtantly, Gallup tells us that thse with high engagement have much higher sticking pwer, t. Turnver was lwer by 65% in what Gallup classified as lw-turnver rganizatins and 25% in highturnver rganizatins. And Gallup ges n t say that all f these abve crrelatins are highly cnsistent acrss different rganizatins frm diverse industries and regins f the wrld. But mre imprtantly, Gallup reprts that cmpanies with engaged wrkfrces have higher earnings per share, r EPS, and seem t have recvered frm the recessin at a faster rate. Specifically, rganizatins with an average f 9.3 engaged emplyees fr every actively disengaged emplyee experienced a 147% higher EPS cmpared with their cmpetitin. In cntrast, thse with an average f 2.6 engaged emplyees fr every actively disengaged emplyee experienced 2% lwer EPS cmpared with their cmpetitin during that same perid. Gallup segments surveyed emplyees int engaged, nt engaged, and actively disengaged, and summarizes with the fllwing: Engaged emplyees are the nes wh are the mst likely t drive the innvatin, grwth, and revenue that their cmpanies desperately need. These engaged wrkers build new prducts and services, generate new ideas, create new custmers, and ultimately help spur the ecnmy t create mre gd jbs. Actively disengaged emplyees cst the U.S. between $450 billin and $550 billin each year in lst prductivity. They are mre likely t steal frm their cmpanies, negatively influence their cwrkers, miss wrkdays, and drive custmers away. Based n these definitins, is it any surprise, then, that clusters f engaged emplyees create mre prfitability than actively disengaged emplyees? Great Place t Wrk Institute The Great Place t Wrk Institute is the survey cmpany that drives the Frtune Tp 100 Cmpanies t Wrk Fr alng with similar best place t wrk lists acrss 45 cuntries. Studying their database f ver 10 millin emplyee vices, the Institute reprts the fllwing: Cmmitted and engaged emplyees wh trust their management perfrm 20% better than ther emplyees Cmpanies with cmmitted and engaged emplyees have half the vluntary turnver rates f their cmpetitrs

3 The financial perfrmance f the publicly-traded cmpanies n their 100 Best Cmpany List cnsistently utperfrm majr stck indices by 300%. The graph abve sits n the Great Place t Wrk s website and represents the extreme earnings-pershare gap between cmpanies that earn a place n the Institute s lists versus cmpanies that d nt. Engagement Drives Sales Twers Perrin lked at engagement results fr ver 35,000 emplyees acrss dzens f cmpanies and fund a psitive relatinship between engagement and sales grwth, lwer cst f gds sld, custmer fcus, and reduced turnver. Nrthwestern University prfessrs researched the impact f sales persnnels extra effrts n custmer spending. They fund when salespeple give just 10% mre effrt, custmers tend t spend 22.7 percent mre. Sharehlder Returns Matter Mst Hewitt studied engagement results fr 1,500 cmpanies and reprted the fllwing: Where 60 t 70% f emplyees were engaged, average ttal sharehlder return, r TSR, was 24.2% In cmpanies with nly 49 t 60% f emplyees engaged, TSR fell t 9.1%

4 And cmpanies with 25% r fewer engaged emplyees reprted a negative TSR Kenexa studied 64 rganizatins and fund thse in the tp quartile fr engagement achieved twice the annual net incme f thse in the bttm quartile. They cnducted anther, lnger-term study f 39 rganizatins and thse with engagement in the tp quartile had seven times greater 5-year TSR than rganizatins in the bttm quartile. Similarly, WrkUSA and Watsn Wyatt surveyed 13,000 emplyees and fund cmpanies with highly engaged emplyees earn 26% mre revenue per emplyee. And there are dzens f similar studies I ve mitted here that all cnclude the same thing, that high emplyee engagement drives all ther imprtant metrics Clsing Argument Let us study what each f these research examples have in cmmn: (1) each tells that engaged emplyees d mre things better that substantially drive yur CEO s mst imprtant metrics and (2) each cvers a brad range f industries and cmpanies. Databases fr the studies frm Gallup and the Great Place t Wrk Institute cver millins f emplyees. Hewitt drew cnclusins frm data that represents mre than 1,500 cmpanies. This eliminates queries abut Hw d we knw the same will be true fr ur cmpany? We all believe ur cmpanies have unique bstacles t engagement, the yu dn t understand hw things wrk here mantra, and it is likely that CEOs frm all f Hewitt s 1,500 cmpanies wuld have initially said the same. But the trendline fr a ttal f 1,500 cmpanies has prven that mre engaged emplyees increases the amunt f sharehlder return acrss all cmpanies. This is required infrmatin fr every CEO t study, fully appreciate, and apply t their rganizatins. Each manager f peple n every level must cntribute t prfitability by increasing their emplyee engagement levels, just as sales peple must cntribute by increasing sales. Thse leaders wh achieve shuld be recgnized and rewarded, and thse wh fail must be addressed. Dick Finnegan has been cited by BusinessWeek, Chief Executive Magazine, and Cnsulting Magazine as the leading thinker n emplyee retentin. Dick is the CEO f C-Suite Analytics which helps rganizatins engage and retain their emplyees. He is the authr Rethinking Retentin in Gd Times and Bad as well as The Pwer f Stay Interviews fr Engagement and Retentin. The Stay Interviews bk has been the tp-selling SHRM-published bk fr the past tw years. BusinessWeek has referred t Dick s wrk as ffers fresh thinking fr slving the turnver prblem in any ecnmy. His U.S. clients have included the Adventist Healthcare System, Sprint, Hiltn, The Hartfrd, GE, and Jhnsn & Jhnsn, as well as the CIA. His internatinal wrk has spanned 6 cntinents and includes wrking with Siberian banks and African gld mines. He als partners with the Chinese HR Excellence Center t cnduct emplyee retentin prgrams acrss China.

5 Dick is a featured speaker fr SHRM, ICMI, and ther rganizatins. He hlds bachelrs and graduate degrees frm The Pennsylvania State University and lives in Orland, Flrida, where The Orland Sentinel newspaper published an editrial recgnizing him fr his extensive dnatins f prfessinal services t nn-prfit rganizatins. This paper is based n Dick s upcming bk which is tentatively titled, The CHROs Greatest Challenge: Driving the C-Suite t Imprve Emplyee Engagement & Retentin. Dick can be reached at [email protected]. Data references are available upn request.