Organizational leaders have long believed in the importance of listening to their employees and improving employee satisfaction
Leaders need to provide clear direction and generate excitement for the future
Neisha Lobo, Head - Leadership Development, Hewitt Associates India explores the association between employee engagement and company performance & further, between effective leadership and employee engagement
Much has been debated on the age-old question of what are the true traits of a good leader. One of the traits that often gets missed out is the ability of a good leader understand motivation drivers and drive high employee engagement levels.
People Performance is a Key Business Agenda
After having experienced the recessionary dip, most organizations are now increasingly focusing on productivity, profitability, growth, and competitiveness.
As organizations move towards the road to recovery, given the limited resources (both money and time), they need solid evidence that their actions will make a difference in enhancing the organization’s performance. While they intuitively sense that the combination of strong talent and their alignment and engagement with the business, can provide a powerful edge in the marketplace, they also need to know how to best enable this.
The linkage between Employee Engagement and Business Results
Organizational leaders have long believed in the importance of listening to their employees and improving employee satisfaction. Satisfaction data had some gaps, though. For one, the value of taking action on the survey results was unclear. Employees might be more satisfied if their suggestions were heeded, but would they be more motivated to perform? Would they be more dedicated to the organization? Perhaps even more importantly, satisfaction data didn’t provide enough information to guide organizations on which investments would have the highest impact on employee motivation and, ultimately, on business results.
In 1994, Hewitt Associates pioneered the shift from measuring employee satisfaction to measuring employee engagement. Since then, we have conducted studies with more than 2,000 companies. Engagement is the energy, passion, that employees have for their employer or, more specifically, with what their employer is trying to achieve in the market.
We observe three key behaviors in employees that indicate high levels of employee engagement.
Stay. They have an intense desire to be members of the organization, thus saving money by eliminating costly turnover.
Say. They are passionate advocates for their workplace and business. They refer potential employees and customers, thus reducing cost of hire and sale.
Strive. They go beyond what is minimally required to produce extraordinary services and results for customers and colleagues, thus creating competitive advantage for the company.
Hewitt Associates’ research suggests that while one out of every two employees is engaged at work, engagement levels vary enormously across organizations - from highs of nearly 100% to lows in the teens. The average engagement score among Indian companies is 67% (read on an average 67% employees are engaged or committed to their organizations), whereas at Best Employers, average engagement is 88%.
Most importantly, our findings show that employee engagement is highly correlated with critical business measures, including total shareholder return (TSR), sales growth, employee turnover and retention, and productivity. Our research also shows that extraordinary companies that have an engagement score of 60% or higher have an average five-year TSR of greater than 20%; companies whose engagement is between 40% and 60% have only a 5.6% average TSR, and those where engagement is below 40% having an average TSR of -9.6%.
In short, we have evidence to support that employee engagement does drive results. In fact, our data suggests that engagement levels need to be at least 60% or higher to drive superior business results.
Leadership Impact on Employee Engagement
While there are a number of reasons why employees are engaged or disengaged, one of the key factors is leadership. Effective Leadership styles have a positive impact on employee engagement and performance. Our research shows that 69% of variance in engagement is accounted for by effective leadership and 39% of variance in superior business results is accounted for by the level of employee engagement.
So what can leaders do to enhance employee engagement and performance? Our ‘Best Employers’ and ‘Top Companies for Leaders’ studies, as well as our deep understanding of what drives employee engagement, has thrown up some interesting insights.
Leaders at the Best Companies
Maintain high levels of personal engagement: Leaders need to be engaged for them to build engagement levels of their teams. At Hewitt Best Employers (hereafter referred to as The Best), the senior leadership engagement score is more than 95%.
Provide a clear and compelling future direction: Leaders need to provide clear direction and generate excitement for the future. 83% of employees at The Best believe that their leadership team provides a clear vision and creates excitement for changes as against 67% at the Rest.
Set high performance standards: Employees at Best Companies are more satisfied with their leaders, and it’s not because leaders are easier on employees or demand less. 75% of employees at The Best believe that their leaders set aggressive goals and address issues of poor performance as against 42% at the Rest.
Are open, honest, trustworthy, and deliver on promises: Decisions made by leaders need to be consistent with the organization’s mission and values. Leaders need to appropriately balance employee interests with those of the organization, and openly communicate decisions.
Treat employees as the most valued asset and invest in their development: The Board and leaders of The Best are significantly more engaged in and take ownership of talent and leadership issues. They take time out to assess and develop the next generation of leaders, to understand their personal goals and development. 92% of The Best assign a significant portion of their people managers rewards to their capability to develop people as compared to 59% of The Rest.
The Case for Leadership Development
Given that leaders play such an important role in impacting employee engagement, it becomes critical for organizations to ensure quality of their leadership talent. However leadership talent is scarce - most organizations today are experiencing a talent shortage in leadership skills, a gap which cannot be easily filled from the market. So the only option is for organizations to invest in developing and building a leadership pipeline from within.