Engagement linked to profits: Report

Profit margins nearly 3 times higher at firms with engaged workers
By Amanda Silliker
|Canadian HR Reporter|Last Updated: 09/10/2012

An employer’s ability to keep its workforce fully engaged can help increase profits, according to a report by Towers Watson.

Companies with high engagement levels have profit margins almost three times larger than organizations with disengaged workers, found the Global Workforce Study, which surveyed 32,000 employees globally, including 1,000 from Canada.

“If you’ve got sustainable engagement sorted out, your operating margin is way higher than your peers… It’s almost a condition of success in an organization,” said Julie Naismith, director of consulting services at Towers Watson in Toronto. “There’s no doubt those two variables do exist together — high-performing organizations and high engagement go hand-in-hand.”

Employee engagement is linked to company profits because people work harder when they are engaged, said Mark Jackson, Vancouver-based managing director at Hay Group in Western Canada.

“If organizations have created the environment for people to feel personally committed to the organization, to their vision, mission and clients, they work to deliver quality service and quality products to their customers to a higher degree than employees who are disengaged,” he said.

Two-thirds (67 per cent) of Canadian employees are not fully engaged, found the Towers Watson report. After almost one decade of pressure to do more with less, workers are having difficulty maintaining the positive associations with their employers that lead to greater productivity, it said.

“The last downturn also had an impact on employees’ sense of engagement and sense of commitment as organizations also had to downsize or resize. And, every time that happens, it has an impact on the psychological contract between employers and organizations, and it takes a long time to rebuild that,” said Jackson.

When workers are not fully engaged, it leads to increased risk for employers, making them more vulnerable to lower productivity and increased inefficiency, absenteeism, turnover and costs for chronic illnesses, found the report.

“Virtually any measure that you apply can tie back to a person’s willingness and desire to make a commitment to the organization and contribute to the organization,” said Bill Hogg, owner of leadership consultancy Bill Hogg & Associates in Aurora, Ont.

The equation for sustainable engagement is the sum of three distinct elements — traditional engagement, enablement and energy, according to Towers Watson.

Traditional engagement

Traditional engagement refers to the willingness of employees to give effort to their employer. High traditional engagement is exhibited through employees who are highly committed, proud to work for the company, would recommend it as a place to work and express intention to stay, according to a report by Hay Group, which surveyed almost five million employees globally, including 220,000 from Canada.

Another key component of traditional engagement is discretionary effort.

“If people need to work hard on a particular project because there’s a deadline, (engaged workers) do that willingly,” said Jackson. “They are interested in contributing, they’re committed and enthusiastic. It’s more about going the extra mile when it’s needed.”

Traditional engagement is fostered when employees buy into the values, goals and objectives of an organization, said Naismith. Employers should make sure these components are well-communicated to employees in a clear manner, she said.

Traditional engagement is also affected by a combination of elements, including whether or not employees think reward, recognition and compensation practices are fair and if they think the organization cares about them, said Jackson.

Enablement

Enablement refers to employees’ access to the tools, resources and support needed to get work done efficiently.

Nearly all (97 per cent) highly engaged Canadian employees believe they have the work tools and resources they need to achieve exceptional performance, compared to only 20 per cent of disengaged employees, found the Towers Watson report.

“It’s some of the structural things you see in business, so, ‘I have the resources I need, the environment isn’t too political…’ and basic stuff like, ‘Does my computer work, is the line I work on always down?’” said Naismith.

Not having access to the proper tools, resources and support can leave employees frustrated, with 33 per cent of workers claiming barriers put in place by their employer are preventing them from excelling, according to the Hay Group report.

“How often do you talk to people and they’re using outdated computer technology? They’re using a POS (point-of-sale) system that doesn’t allow them to provide a great customer service experience and then they get frustrated because they don’t feel the organization is supporting their efforts to do a good job,” said Hogg.

Another component of enablement is role optimization. This is done through making good use of skills and abilities by matching the right person with the right job, properly designing jobs and offering challenging and interesting work, said Jackson.

Energy

Energy is defined as a work environment that actively supports physical, emotional and interpersonal well-being, according to the Towers Watson report.

Employers should strive to create a work environment that brings out the best in employees, said Hogg.

“(It’s) about respectful workplaces. There’s a series of things that happen when people feel they can be productive: We have trust in our co-workers, we treat each other with respect… and that happens in organizations that are well-functioning,” said Jackson.

Employers can foster a supportive environment by making sure managers offer feedback, coaching and clarity around roles and expectations, he said.

Senior leaders play important role

The number one driver of employee engagement in Canada is senior leadership, said Naismith.

“I have never, ever been phoned by a client that said, ‘We have a leadership problem.’ They say, ‘We have a customer service problem, an employee engagement problem.’ But the reality is it always comes back to a leadership issue,” said Hogg.

Only one-third (38 per cent) of Canadian employees believe their senior leaders encourage and support a healthy workforce, while 39 per cent think senior leaders have a sincere interest in their well-being, according to the Towers Watson report.

Senior leaders can improve this perception by having open communications with employees, networking, reaching out to them through all media available and really creating a presence, said Naismith.

“A lot of it with leadership is symbolic actions,” she said. “It’s often not the strategic things, the thought-through things, the things your communications and PR (public relations) team can help you with — it’s the symbolic things you do every day as a leader.”

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