Driving Performance And Retention Through Employee Engagement

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Corporate Leadership CouncilExecutive SummaryDriving Performanceand Retention ThroughEmployee EngagementKey Questions AddressedRecognizing an increased need to protect against unwanted attrition andsafeguard productivity, senior executives seek renewed understandingof “the voice of the workforce” and its implications for the organization.This executive summary highlights insights to the following concerns: How Engaged Is the Workforce? What Is the Business Impact of High Engagement?KEY AUDIENCESHeads of HRHR LeadershipSenior Executive TeamLine Unit ManagersRESEARCH CONTENTSurvey of more than 50,000employees at 59 globalorganizations What Drives Employees’ Decisions to Commit to Staying withthe Organization and Volunteer Extra Effort on the Job?Identification of the highest impactdrivers of employee engagement How Does Engagement Differ by Employee Segment and byOrganization?Employee engagement tools andstrategies from best practiceorganizations How Can Organizations Establish a High-PerformanceRelationship with Employees in Support of Business Needs? 2004 Corporate Executive Board

Council StaffCorporate Leadership CouncilCorporate Executive Board2000 Pennsylvania Avenue NWWashington, DC 20006Telephone: 1-202-777-5000Facsimile: 1-202-777-5100The Corporate Executive Board Company (UK) Ltd.Victoria HouseFourth Floor37–63 Southampton RowBloomsbury SquareLondon WC1B 4DRUnited KingdomTelephone: 44-(0)20-7632-6000Fax: omConsultantsChristoffer EllehuusPiers HudsonContributing AnalystsThomas BedingtonDamian SmithJiyoung ChungContributing AssociateKate ElsamProject ManagersBruce RebhanEarl PotterPractice ManagersGwendolen SheridanCarl RhodesManaging DirectorJean Martin-WeinsteinExecutive DirectorMichael KleinGeneral ManagerPeter FreireCreative Solutions GroupGraphic DesignerChristina LynnProofreaderTracy BanghartNote to Members on Confidentiality of FindingsThis document has been prepared by the Corporate Executive Board for the exclusive use of its members. It contains valuable proprietaryinformation belonging to the Corporate Executive Board and each member should make it available only to those employees who requiresuch access in order to learn from the material provided herein and who undertake not to disclose it to third parties. In the event that you areunwilling to assume this confidentiality obligation, please return this document and all copies in your possession promptly to the CorporateExecutive Board. 2004 Corporate Executive BoardCatalog no.: CLC12PD3N8

2004 Corporate Executive Board4Driving Performance and Retention Through Employee EngagementDriving Performance and RetentionThrough Employee EngagementTop 10 Findings1. The Corporate Leadership Council has completed a global study of the engagement level of 50,000employees around the world, based on a new, more precise definition of engagement and its direct impacton both employee performance and retention.2. Those employees who are most committed perform 20% better and are 87% less likely to leave theorganization—indicating the significance of engagement to organizational performance.3. While the majority of employees are neither highly committed nor uncommitted, more than 1 in 10employees are fully disengaged—actively opposed to something or someone in their organizations.4. There is no high-engagement or low-engagement “group”—commonly used segmentation techniquesbased on tenure, gender, or function do not predict engagement.5. Instead, dramatic differences between companies suggest that engagement levels are determined more bycompany strategies and policies than any characteristics regarding the employee segments themselves.6. An analysis of both rational and emotional forms of engagement reveals that emotional engagement is fourtimes more valuable than rational engagement in driving employee effort.7.Employee retention, on the other hand, depends more on a balance between rational and emotionalengagement—as illustrated by the importance of compensation and benefits in driving employees’ intentto stay.8. While employees’ commitment to their manager is crucial to engagement, the manager is most importantas the enabler of employees’ commitment to their jobs, organizations, and teams.9. Among the top 25 drivers of employee engagement identified by the Council, the most important driveris a connection between an employee’s job and organizational strategy.10. To create and sustain a high-engagement workforce, best practice organizations effectively manage fourcritical leverage points: Leverage Point #1: Business RisksLeverage Point #2: Key ContributorsLeverage Point #3: Engagement BarriersLeverage Point #4: CultureThe Corporate Leadership Council Engagement Survey and Analysis Tool (CLC ESAT) allowsCouncil members to survey their staff and receive an automated report defining their levels of engagement.Available at www.corporateleadershipcouncil.comSource: Corporate Leadership Council research.

2004 Corporate Executive BoardExecutive Summary5Finding #1: The Corporate Leadership Council presents a new outcome-focusedmodel of engagement.The Corporate Leadership Council presents a new model of employee engagement emphasizingbusiness outcomes. The Council defines engagement as the extent to which employees commit tosomething or someone in their organization, how hard they work, and how long they stay as a resultof that commitment. By using this outcomes-focused definition, we can measure the tangible benefitsof engagement, as opposed to focusing on “engagement for engagement’s sake.”The Corporate LeadershipCouncil’s Model of EngagementEngagementdrivers determine rationaland emotional commitment Rational Commitment* Team Manager Organization which in turn lead to resulting in improvedeffort and intent to stay performance and retentionDiscretionary EffortPerformanceIntent to StayRetentionEngagement DriversEmotional Commitment Job Team Manager OrganizationCLC’s Employee Engagement Survey 50,000 employees 10 industries* Rational commitment to the job was not measured due to itssimilarity to rational commitment to the team, direct manager,and organization. 59 Organizations 27 countriesSource: Corporate Leadership Council research.

2004 Corporate Executive Board6Driving Performance and Retention Through Employee EngagementFinding #2: Engagement is critical to performance and retention.By increasing employees’ engagement levels, organizations can expect an increase in performance of upto 20 percentile points and an 87% reduction in employees’ probability of departure. The highly engagedoutperform the average by two deciles and are dramatically less likely to leave the organization.The Business Case for EngagementEmployee engagement drives performance Maximum Impact of Commitment on PerformanceMoving from low to highengagement levels canresult in an improvementin employee performanceof 20 percentile points.Numberof rformance and retentionMaximum Impact of Commitment on Probability of Departure9.2%Probabilityof Departurein Next 12MonthsMoving from strongdisengagement to strongengagement decreasesthe probability ofdeparture by 87%.( 87%)1.2%Strongly NoncommittedStrongly CommittedSource: Corporate Leadership Council 2004 Employee Engagement Survey.

2004 Corporate Executive BoardExecutive Summary7Finding #3: More than 1 in 10 employees are fully disengaged.While 11% of employees (the “True Believers”) demonstrate very strong commitment, 13% (the”Disaffected”) are actively opposed to someone or something in their organizations. The real opportunity lieswith the middle 76% of employees (the “Agnostics”) who are only modestly committed.The State of Workforce EngagementBased on a sample of 50,000 employees surveyed in 2004The “Disaffected”The “Agnostics”The “True sCharacteristics Exhibit very littlecommitment Exhibit moderatecommitment Exhibit very strongcommitment Poorer performerswho frequently put inminimal effort Employees neither goto great lengths in theirjobs nor do they shirktheir work Higher performers whofrequently help otherswith heavy workloads,volunteer for otherduties, and are constantlylooking for ways to dotheir jobs more effectively Four times morelikely to leave theorganization than theaverage employee Significant variation inintent to leave Half as likely to leavethe organization as theaverage employeeSource: Corporate Leadership Council 2004 Employee Engagement Survey.

2004 Corporate Executive Board8Driving Performance and Retention Through Employee EngagementFinding #4: There is no high-engagement or low-engagement “group.”There is no demographic group whose engagement is always high or always low. Rather, employeeengagement is a characteristic not of groups but of individual people to be won or lost, improved ordiminished, by their organization.No Easy Litmus TestsQuick “rules of thumb” will prove inadequate as a meansof identifying the committed and uncommittedGeneration X “Slackers”?12.0%Single Parents with Children?11.7%12.0%10.6%Percentageof Employeeswith Highest 6.0%CommitmentLevels10.8%11.4%Percentageof Employeeswith Highest 6.0%CommitmentLevels0.0%0.0%EmployeesOver 40EmployeesUnder 40SingleParentswith ThreeChildrenSinglePeoplewith NoChildren“Overworked” Managers?12.0%10.8%9.9%Percentageof Employeeswith Lowest kingFewer ThanMore Than60 Hours per 60 Hours perWeekWeekSource: Corporate Leadership Council 2004 Employee Engagement Survey.

2004 Corporate Executive BoardExecutive Summary9Finding #5: Dramatic differences exist in engagement levels between companies.While minimal differences in engagement exist across demographic segments, dramatic differencesexist across organizations. Organizations with a highly engaged workforce have almost 10 times as manycommitted, high-effort workers as those with a low-engaged workforce.Where Would You LikeYour Organization to Be?Organizations exhibit dramatic differencesin the discretionary effort of their employeesPercentage of Workforce Exhibiting Highest Effort Levels by Company25.0%Nearly 25% of the workforcein this organization exertmaximum effort while in this organization,less than 3% of theworkforce are willing to dothe same.Percentageof CompanyWorkforceExhibitingHighest 12.5%Level ofDiscretionaryEffort0.0%CompaniesSource: Corporate Leadership Council 2004 Employee Engagement Survey.

2004 Corporate Executive Board10Driving Performance and Retention Through Employee EngagementFinding #6: Emotional engagement is four times more valuable than rational engagement indriving employee effort.Employees stay with their organizations when they believe it is in their self-interest, but they exertdiscretionary effort when they believe in the value of their job, their team, or their organization. In fact,emotional commitment is four times as valuable as rational commitment in increasing effort levels.Performance Dependson the Heart Over the MindEmployees try (or don’t try) as a result of emotionalcommitment, not rational commitmentMaximum Impact of Commitment Type on Discretionary Effort1A strong emotional commitment toone’s job and organization has thegreatest impact on discretionary effort.Emotional Commitment 2Rational Commitment55.9%43.2%The impact of rational commitmentis much smaller.38.9%34.0%Change mentto theJob1EmotionalCommitmentto theOrganizationEmotionalCommitmentto theTeamEmotionalCommitmentto theManagerCouncil research demonstrates that increased discretionary effort is a directpredictor of improved performance.2Emotional commitment is defined as the extent to which employees derivepride, enjoyment, inspiration, or meaning from something or someone inthe organization. While rational commitment is defined as the extent towhich employees feel that someone or something within their organizationsprovides financial, developmental, or professional rewards that are in theirbest interests.RationalCommitmentto theOrganizationRationalCommitmentto theTeamRationalCommitmentto theManagerSource: Corporate Leadership Council 2004Employee Engagement Survey.

2004 Corporate Executive BoardExecutive Summary11Finding #7: Compensation and benefits matter more to retention than effort.While competitive compensation and benefits packages are crucial to attract and retain talent, other drivers ofengagement are far more effective in driving discretionary effort.The Impact of Compensation and BenefitsCompensation has a much larger impact on retention than on performanceMaximum Impact on Discretionary Effort and RetentionDue to Satisfaction with Total Compensation Package*Increasing satisfaction withtotal compensation providesup to a 21% increase inemployees’ intent to stay butonly a 9% increase in effort.21.1%Change inDiscretionaryEffort orImprovementin Intent toStay9.1%Intent to Stay* Each bar represents a statistical estimate of the maximum totalimpact on discretionary effort or intent to stay each lever willproduce through its impact on rational and emotional commitment.The maximum total impact is calculated by comparing two statisticalestimates: the predicted discretionary effort or intent to stay foran employee who scores “high” on the lever and the predicteddiscretionary effort or intent to stay for an employee who scores“low” on the lever. The impact of each lever is modeled separately.Discretionary EffortSource: Corporate Leadership Council 2004 Employee Engagement Survey.

2004 Corporate Executive Board12Driving Performance and Retention Through Employee EngagementFinding #8: The manager is most important as the enabler of employees’ commitment to theirjobs, organizations, and teams.While commitment to the manager is often pointed out as the key driver of engagement, Councilresearch finds, surprisingly, that the manager actually plays a more important role as enabler of employeecommitment to the job and organization.Manager as Conduit for What MattersManagers enable other, more valuable, forms of commitmentImpact of Highest-Scoring Manager Activities and Attributes on Commitment Foci*ManagerActivities andAttributesEmotional Commitmentto Manager73%Emotional Commitmentto Team47%Emotional Commitmentto Organization38%Emotional Commitmentto Job34%A Means, Not an EndThough commitment to the manager is not itself the most powerful driver of effort,the manager has tremendous impact on employees’ level of commitment to the team,organization, and job.* Each value represents a statistical estimate of the maximum total impacton emotional commitment to the manager, team, organization, or jobas a result of the highest-scoring manager attribute. The maximum totalimpact is calculated by comparing two statistical estimates: the predictedemotional commitment to each foci for an employee who scores “high”on this manager attribute and the predicted emotional commitment toeach foci for an employee who scores “low” on this manager attribute.The impact on each foci is modeled separately.Source: Corporate Leadership Council 2004 EmployeeEngagement Survey.

2004 Corporate Executive BoardExecutive Summary13Finding #9: The top 25 drivers of engagement point to the importance of employees’ connection tothe organization.Most important among the 25 highest-impact drivers of engagement are a connection between employees’job and organizational strategy and employee understanding of how important their job is to organizationalsuccess. Also critical for increasing engagement levels are numerous manager characteristics, as well ascultural traits—predominantly, good internal communication, a reputation of integrity, and a cultureof innovation.The Top 25 Levers of EngagementTop 25 Most Effective Levers of EffortImpactCategory1.Connection Between Work and Organizational StrategyLever32.8D2.Importance of Job to Organizational Success30.3D3.Understanding of How to Complete Work Projects29.8D4.Internal Communication29.2O5.Demonstrates Strong Commitment to Diversity28.5M6.Demonstrates Honesty and Integrity27.9M7.Reputation of Integrity27.6O8.Adapts to Changing Circumstances27.6M9.Clearly Articulates Organizational Goals27.6M10.Possesses Job Skills27.2M11.Sets Realistic Performance Expectations27.1M12.Puts the Right People in the Right Roles at the Right Time26.9M13.Helps Find Solutions to Problems26.8M14Breaks Down Projects into Manageable Components26.7M15.Accepts Responsibility for Successes and Failures26.6M16.Encourages and Manages Innovation26.5M17.Accurately Evaluates Employee Potential26.3M18.Respects Employees as Individuals26.1M19.Demonstrates Passion to Succeed26.0M20.Cares About Employees26.0M21.Has a Good Reputation Within the Organization26.0M22.Innovation26.0O23.Is Open to New Ideas25.9M24.Defends Direct Reports25.8M25.Analytical Thinking25.7MOOrganizational Culture and Performance TraitsDDay-to-Day Work CharacteristicMManager CharacteristicsSource: Corporate Leadership Council 2004 Employee Engagement Survey.

2004 Corporate Executive Board14Driving Performance and Retention Through Employee EngagementFinding #10: To create and sustain a high-engagement workforce, organizations must managefour critical leverage points.Council research reveals that best practice organizations sustain a high-engagement workforce by focusingon four critical leverage points: business risks, key contributors, drivers of disengagement, and culture.Engaging the WorkforceFocusing on critical leverage points to drive employee engagementLeverage Point #1Leverage Point #2Leverage Point #3Leverage Point #4Prioritizing EngagementDriven Business RisksEngaging KeyContributorsTargeting Driversof DisengagementBuilding a HighEngagement CultureThe 3 Cs of Culture: Connection Contribution Credibility*Strategic EngagementGap AnalysisSolid PerformerCareer PathingCultural AssessmentProcessLeader StorytellersCulture ChangeEngagement CascadeValues Realization SystemKey InsightReturns on engagementpractices require a linkbetween engagementand business outcomes.Organizations should relyon economics and businessstrategy when determiningwhom to engage and how toengage them in support ofbusiness outcomes.* Pseudonym.Key InsightKey InsightKey InsightOrganizations must targetinvestments to thoseindividuals who contributethe most to the business, whilerealizing that these people arenot all high performers or highpotentials as they have beentraditionally defined.Before any proactive organizationlevel engagement strategy willsucceed, organizations must firstidentify and remove the drivers ofdisengagement, many of which are“invisible” to traditional methodsof detection, such as employeeengagement surveys.The Council has identifiedthree essential components ofa high-engagement culture:connection, contribution,and credibility. A highengagement culture needsreliable mechanisms to ensureemployees are consistentlyexperiencing all three of theseelements.Source: Corporate Leadership Council 2004 Employee Engagement Survey.

2004 Corporate Executive BoardExecutive Summary15Leverage Point #1: Prioritizing Engagement-Driven Business RisksPractice #1Strategic Engagement Gap AnalysisIntuit ensures that all strategic planningincludes consideration of human capital riskIntuit Practice Features1Engagement data and strategicplanning are integratedStrategic PlanEngagement driver analysisprioritizes issues for managers2Required EngagementProfileSurvey Question 3Score—————Strategic Gap Follow UpGuided by strategic priorities,managers design and execute action plans2004 Action PlanOwner: Parker PritorType: Organizational Action PlanDesired Outcome: Better-defined career development paths that are more aligned to team members’ career aspirations.Engagement Drivers:My career goals can be met at IntuitMain points from the feedback session:Current car

of engagement, as opposed to focusing on “engagement for engagement’s sake.” Source: Corporate Leadership Council research. Engagement Drivers * Rational commitment to the job was not measured due to its similarity to rational commitment to the team, direct manager, and organization. CLC’s Employee Engagement Survey

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