Justifying Your Investment in Employee Engagement

Employee Engagement: The Business Case

There is a large body of evidence demonstrating the need for organisations large and small to invest time, effort and money into improving the levels of engagement within their workforce. This includes a number of surveys and statistics that have been produced by various bodies over recent years.

Here, we have collated much of this evidence into one place with the aim of helping you justify to senior managers the need to invest in employee engagement initiatives and the bottom line benefits for your organisation.

Why should your organisation invest in employee engagement?

Research has shown that engagement is related to bottom line outcomes such as:

1. Job performance
2. Customer satisfaction
3. Financial returns

1. Improved job performance

Gallup found that engagement levels can be predictors of sickness absence, with more highly engaged employees taking an average of 2.7 days per year, compared with disengaged employees taking an average of 6.2 days per year.

A second Gallup study 52 of the same year on earnings per share in 89 organisations found that growth rates of those units with engagement scores in the top quartile were 2.6 times those of units with below average engagement scores. Those in the top quartile averaged 12 per cent higher profitability.

The Corporate Leadership Council report that highly engaged organisations have the potential to reduce staff turnover by 87 per cent and improve performance by 20 per cent.

CLC’s 2004 Driving Performance and Retention through Employee Engagement report, found that companies with above average employee commitment were in 71 per cent of cases achieving above average company performance for their sectors. Companies with below average employee commitment found only 40 per cent of their organisations achieving above average company performance.

The Chartered Management Institute Quality of Working Life 2007 research programme found a significant association and influence between employee engagement and innovation.

A Watson Wyatt study reported in 2008/9 that the highly engaged are more than twice as likely to be top performers – almost 60 per cent of them exceed or far exceed expectations for performance. Moreover the highly engaged missed 43 per cent fewer days of work due to illness.

Development Dimension International (DDI) reported that in a Fortune 100 manufacturing company, turnover in low engagement teams averaged 14.5 per cent, compared with 4.8 per cent in high engagement teams. Absenteeism in low engagement teams hovered around 8 per cent, but was down to 4.1 per cent in high engagement teams. Quality errors were significantly higher for poorly engaged teams.

Towers Perrin found that broadly three-quarters of the highly engaged believe they can impact costs, quality and customer service; and only 25 per cent of the disengaged believe they can.

2. Customer satisfaction

PricewaterhouseCoopers, who use staff and customer engagement levels as one of their four Key Performance Indicators (KPIs) have found a strong correlation between highly engaged staff and client satisfaction.

IES in their 1999 study From People to Profits found a link between employee satisfaction, customer satisfaction and increases in sales, based on a study of 65,000 employees and 25,000 customers from 100 stores, over two years. Employee commitment acted on sales through three routes: directly on sales, mediated through customer satisfaction, and through reduction in staff absence. They concluded a one per cent increase in employee commitment (using a five point scale) can lead to a monthly increase of nine per cent in sales.

A study conducted by NBRI at a large Financial Service organisation found that a five point improvement in employee attitudes led to a 1.6% rise in customer satisfaction.

3. Financial returns

The Corporate Leadership Council reported that engaged organisations grew profits as much as three times faster than their competitors.

A global study carried out by Towers Perrin-ISR 50 compared the financial performance of organisations with a more engaged workforce to their peers with a less engaged workforce over a period of 12 months. The data comprised of 664,000 employees from 50 companies, of all sizes, around the world, representing a range of different industries. Engagement was measured alongside more traditional business performance measures such as operating income, net income and earnings per share. Towers Perrin-ISR’s findings included the following:

  • Those companies with a highly engaged workforce improved operating income by 19.2 per cent over a period of 12 months, whilst those companies with low engagement scores saw operating income decline by 32.7 per cent over the same period.
  • Those companies with high engagement scores demonstrated a 13.7 per cent improvement in net income growth whilst those with low engagement saw net income growth decline by 3.8 per cent.

Gallup research for a UK retailer with 174 stores in a study over two years concluded that stores that improved engagement year on year grew their profits by 3.8 per cent. Stores that did not improve their engagement saw their profits decrease by 2 per cent.

The 2006 Meta-Analysis by Gallup 51 looked at 23,910 business units and compared units with engagement scores in the top quartile with those who had below average engagement scores.

Those business units in the top half of engagement scores had 27 per cent higher profitability than those in the bottom half.

The Institute of Work Psychology at Sheffield University in 2001 demonstrated that among manufacturing companies in their study, people management practices were a better predictor of company performance than strategy, technology, research and development.

A paper by Harter et al in the Harvard Business Review found that customer and employee engagement augment each other at the local level, creating an opportunity for accelerated improvement and growth of overall financial performance. Analysis of the performance of 1,979 business units in ten companies revealed that those units that scored above the median on both employee and customer engagement were on average 3.4 times more effective financially (in terms of total sales and revenue performance to target and year over year gain in sales and revenue) than units in the bottom half of both measures.

Hay Group in their publication Engage Employees and Boost Performance 2001 conclude that engaged employees generate 43 per cent more revenue than disengaged ones.

Justifying Your Engagement SpendCompanies in the Best Companies to Work for in the period 2004 – 2008 increased their turn-over by 94 per cent and their profits by 315 per cent.

A Watson Wyatt study of 115 companies suggested that a company with highly engaged employees achieves a financial performance four times greater than companies with poor engagement.

Hewitt reported that companies with a greater than 10 per cent profit growth had 39 per cent more engaged employees and 45 per cent fewer disengaged employees than those with less than 10 per cent growth.

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