Tuesday, November 26, 2013

Why should we take employee engagement seriously?

There are lots of surveys showing that employees are not engaged at work. It varies a bit by country, but as a rough guide only a third of employees are fully engaged.  So what?

The consultancy Blessing White regularly surveys 30,000 people across the world and measures levels of engagement from fully engaged to fully disengaged. The figures for Europe show that 31% are engaged and a further 24% are almost engaged.  But that means that just under half the workforce are not even ‘almost engaged’.

Should we care? Does some theoretical measure of engagement actually matter to employers? Are we aiming to keep people happy or do we have a business to run? Why should leaders worry about this when there are more pressing issues to manage?

To answer these questions it’s worth taking a moment to look at the relationship between engagement and business results.

One example is is employee turnover. 81% of engaged employees definitely intend to stay with their employer for the next 12 months compared with 23% of the disengaged. Plus a mere 2% of the engaged are definitely planning to leave compared with 32% of the disengaged.  So an employer with a demotivated workforce is likely to have an employee turnover 16 times that of a fully satisfied one.

Measurement of the cost of employee turnover is an inexact science. Because it’s not as visible as a direct expense it tends to be underrated. And it varies a lot between jobs, depending on the ease of replacement. But if you make a very conservative assumption that people take three months to get up the full productivity, during which time they are at an average of 80% of output we can work out some figures.

In this case the engaged organisation loses 20% of productivity for a quarter of the year on 2% of the workforce; a hit of 0.1% on output. However, the same calculation for the disengaged workforce at 32% turnover gives a 1.6% hit. That doesn’t look like much until you consider that a labour-intensive business with a 5% profit margin is potentially putting a third of the profit at risk just through high turnover.

But the real problem with disengaged employees is not the ones that leave, it’s the ones that stay. They are not just going to be below average performers for a few moths they are likely to be permanently low performers. And they are also quite likely to bring others down as well. It’s interesting to see from the Blessing White data that 34% of engaged employees stay in the job because they like the work they do, compared with 16% of the disengaged.  But in contrast, 11% of the disengaged stay because they are ‘comfortable’ compared with just 7% of the engaged.
So however you measure it, engagement is likely to result in higher performance for the business. It’s not just some arbitrary concept invented by HR; it’s a real business measure. It should be right at the top of the priority list for senior management. But because it’s not as tangible as the financial results it rarely is.

If leaders actually cost the impact of low engagement they will take it much more seriously. They will reduce the need to replace talent and get more out of the people who stay. It will directly improve output, value for money and profits. So they should all remember– A COMPANY IS ONLY AS GOOD AS THE PEOPLE IT KEEPS.

Monday, November 04, 2013

Productivity and Pay

A new report has just hit the media in the UK defining the level of pay that constitutes a 'living wage'. Below this people are deemed to be living in poverty, so the idea is that employers should adopt this instead of the minimum wage already in force.
It would be great to have everyone paid more but I can't quite see how this will add up. If we increase the hourly rate of pay and people continue doing the same job then whatever they produce has to increase in price. I'm no economist, but it seems to me that if goods cost more then fewer get sold, or customers simply go to a cheaper source. Or if there is a fixed amount of money to pay wages (as in the public sector) then there are less jobs to go around and services have to be cut.
Worse still, many of our jobs are competing with low wage economies around the world. If we increase pay in the UK then work will be transferred overseas and we have lost the job forever. This is clearly what has happened in manufacturing and as more and more of our services are delivered remotely they are also vulnerable.
In order for the UK to maintain the standard of living we have come to expect, we have to increase productivity. We have to remain competitive in international markets for goods and services so our cost of production and delivery must be kept to a minimum. If we want to increase the rate per hour we pay people to a minimum wage that reflects an acceptable standard of living, we have to find the money somewhere. There is no point in pricing ourselves out of work as a nation.
So, how do we make a step change in productivity? We have to look at the way we get work done and find smarter ways of doing it. The whole idea of breaking down work into jobs and then employing people on a fixed salary in exchange for their time has to change. We have to pay for output not input. If you are paid by the hour the slower you work the longer it takes to get a result. The longer it takes, the more you are paid. So the least productive person is rewarded the most. If my lawyer is being paid by the hour to represent me (probably actually billing me by the minute) then he/she will get paid more for taking longer to sort out my case. The bad plumber who takes 2 hours to fix my leaking tap gets paid twice as much as the good one who fixes it in an hour.
If we encourage people to find smarter ways of doing their jobs we should let them share in the reward. Here's a simple way. Instead of encouraging people to work long hours we should have competitions to see who can go home earliest. If people can get their week's work done by Thursday they should be able to take Friday off. They should then be given the freedom to come up with smarter ways to get the work done. I bet a high percentage would find very inventive ways of increasing their productivity because they would have a reason for doing it. Then we could get better at rewarding results and people would be getting paid more per hour for the time they are working. That way we can afford the living wage; otherwise it remains a pipe dream.