How Employee Engagement Can Pay Off, and Why It Often Doesn’t


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Presentation from the TLNT Transform 2012 conference in Austin, presented by Gerry Ledford.

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How Employee Engagement Can Pay Off, and Why It Often Doesn’t

  1. 1. How Employee EngagementCan Pay Off – And Why ItOften Doesn’tGerald Ledford, Ph.D.TLNT Transform Conference, AustinFebruary 2012
  2. 2. The Concept of Engagement is Everywhere  The concept of engagement has generated a mountain of literature in the past 20 years  Every major HR consulting firm has: • An engagement offering • Studies showing engagement’s value  The phrase “employee engagement” gets: • 4,040,000 hits on a Google search • 2,489 publications in a WorldatWork database searchLedford Consulting Network LLC 2
  3. 3. Stunning Claims For The Value Of Engagement and Better employee attitudes! Better productivity, cost, quality, safety, and customer service! But wait! Higher profitsThere’s more! and total return to shareholders!Ledford Consulting Network LLC 3
  4. 4. Key Points 1. Engagement is not what you think it is 2. Engagement research: User beware 3. Motivation: The missing concept in engagement 4. Where engagement matters most 5. How to we get high performance AND engagement?Ledford Consulting Network LLC 4
  5. 5. The Consulting Literature Says: Engagement is New and Different Satisfaction Engagement • Meets job expectations • Self-motivated • Content with current job • Committed to the organization; strong loyalty • Comfortable with organiza- tion’s rewards, recognition • Supportive of co-workers • Content with organization’s • Voluntarily takes on tasks strategy and mission • Role model • Tends not to go above and • Consistent goes above and beyond / exert discretionary beyond effort • Passionate about their job Which one do you think is supposed to lead to performance?Source: Savitt, M.P. (2011, October). Boost organizational value with engagement-focused talent management, Workspan, 52-58.Ledford Consulting Network LLC 5
  6. 6. Employee Outcome Measures Through Time Employee Morale Job Satisfaction Job Involvement (and Burnout) Organization Commitment Engagement1930 1940 1950 1960 1970 1980 1990 2000 2010Ledford Consulting Network LLC 6
  7. 7. Test: Match the Survey Item To The Concept Survey Item Concept 1. For me, mornings at work fly by A. Employee Engagement 2. This organization really inspires B. Job Satisfaction the best of me in the way of job performance C. Job Involvement 3. I find real enjoyment in my work D. Organizational 4. I am enthusiastic about my job CommitmentLedford Consulting Network LLC 7
  8. 8. Old Wine In New Bottles  All attitudinal outcomes measures are highly correlated and they tend to load on one factor • Newman & Harrison (2008, p.32): “…the overwhelming empirical evidence supports a single, underlying attitude construct (or ‘A- factor’), representing a broad and fundamental evaluation of one’s work experiences.” • Gallup researchers Harter, Schmidt, & Hayes (2002): The correlation between satisfaction and engagement as measured by the Gallup Q12 is .91 You may wish to think engagement captures something new and different, but it doesn’tLedford Consulting Network LLC 8
  9. 9. Confessions of a Survey Researcher  All attitude measurement is filled with “halo” • All responses tend to be intercorrelated – meaning whatever you ask, people tend to answer everything favorably or unfavorably • Today’s survey practices make this problem worse  No negatively worded items  Single item measures of complex concepts  Response scale starts with the most positive response  Supervisors (like car dealers) tell people to rate everything highly  The Gallup Q12 engagement measure is brilliant marketing, but would any 12 items work just as well?  We can predict many patterns before we see the dataLedford Consulting Network LLC 9
  10. 10. What I’m NOT Saying About Surveys  Surveys are useless  It doesn’t matter what surveys ask  People give the same answers to every item My points: Employees don’t make fine distinctions based on our concepts; engagement is just the newest version of “morale”Ledford Consulting Network LLC 10
  11. 11. Key Points 1. Engagement is not what you think it is 2. Engagement research: User beware 3. Motivation: The missing concept in engagement 4. Where engagement matters most 5. How to we get high performance AND engagement?Ledford Consulting Network LLC 11
  12. 12. Three Key Problems With Research On Engagement • Opinion polls about engagement are weak evidence • Correlational studies don’t prove causality • Engagement causes performance – or performance causes engagement?Ledford Consulting Network LLC 12
  13. 13. Opinion Polls On The Importance Of Engagement Have Limited Value  Consultants love polls – a.k.a., market research!  Polls tell you what people think, not the truth • Harris Poll 2009: Only 45% of Americans accept the theory of evolution; yet 26% believe in astrology and 23% believe in witches • Russian poll 2011: 32% believe the sun revolves around the earth We need a higher standard of evidence after 20 yearsLedford Consulting Network LLC 13
  14. 14. Correlation and Causality  99% of research showing a relationship between engagement and performance is correlational • “High performing firms have higher engagement, therefore . . .”  So, what is a correlation? • A correlation coefficient is measure from 0 to 1.0 of covariation • The correlation squared is amount of shared variance, e.g.:  A correlation of .50: 25% of the variance is shared  A correlation of .20: 4% of the variance is shared • Correlation does not prove causality  Many things are correlated with performance but are irrelevant to (or actually inhibit) performanceLedford Consulting Network LLC 14
  15. 15. Is Engagement A Cause Or Effect Of Performance?  High performing organizations offer many benefits to employees: • More job security • Higher pay • Faster promotions • Feeling of success  Which organizations have higher engagement? • Apple (iPhone) or Research in Motion (Blackberry)? • UPS (package delivery) or US Postal Service (mail)?Ledford Consulting Network LLC 15
  16. 16. Very Limited Research On Causality  It is extremely difficult to do – you need survey and performance data at multiple points in time  Current methods really can’t address circular causality (vicious cycles and virtuous cycles)  Best research is from Gallup • E.g., Harter, Schmidt, Asplund, Killham, & Agrawal (2010):  Massive database (2178 business units in 10 firms); linkage of attitudes to performance was stronger than reverse • These studies have limitations (as do all studies); e.g. time intervals used, specific models tested, sample, etc. • Results indicate that causality runs in both directionsLedford Consulting Network LLC 16
  17. 17. Key Points 1. Engagement is not what you think it is 2. Engagement research: User beware 3. Motivation: The missing concept in engagement 4. Where engagement matters most 5. How to we get high performance AND engagement?Ledford Consulting Network LLC 17
  18. 18. The Common Wisdom  Underlying: “A happy worker is a productive worker” Performance Intrinsic and Engagement Extrinsic (Happiness) Rewards Retention  The ever-popular Santa Claus theory of management! • Employees (and unions) want to believe it • Management wants to believe it – it’s easy!  Unfortunately, it’s only true sometimes • Let’s try two thought experiments • The government worker problemLedford Consulting Network LLC 18
  19. 19. Engagement Thinking Usually Ignores Employee Motivation Intrinsic and Effort Performance Extrinsic Rewards Engagement Retention We would expect a small correlation between performance and engagement in this modelLedford Consulting Network LLC 19
  20. 20. Why Keep High Performers In Mind?  They are less satisfied than others on many measures • Including engagement, pay, pay raises, performance management, and trust in management  They are less happy with their employment deal • Employee value proposition is rated highly by 60% of the top 10%, but 90% of the bottom 10% • High performers are 2x as likely to be negative as low performers  They want real rewards for high performance • They prefer cash and career opportunities, not “trinkets and trash” • They don’t like poor performers getting the same rewards they do Source: Ledford & Lucy (2003) – Sibson Rewards of Work StudyLedford Consulting Network LLC 20
  21. 21. Summary: Motivation and Engagement  Engagement reduces turnover but does not drive performance  Motivated employees perform more effectively; engagement is a result of success, not a causeLedford Consulting Network LLC 21
  22. 22. Key Points 1. Engagement is not what you think it is 2. Engagement research: User beware 3. Motivation: The missing concept in engagement 4. Where engagement matters most 5. How to we get high performance AND engagement?Ledford Consulting Network LLC 22
  23. 23. Highly Competitive Labor Markets  These make attraction and retention very challenging • Employers need to go all out for talent – and engagement helps  But: Labor markets aren’t that competitive for all jobs • Silicon Valley is not representative of the U.S. labor market • Most labor markets are occupation- or location-specific  So, target engagement practices – avoiding costly and unnecessary across-the-board practices  Labor market competitiveness ebbs and flows based on the economy, education/training inflows, etc. • Don’t lock yourself into overly expensive solutionsLedford Consulting Network LLC 23
  24. 24. Is Turnover A Major Business Issue Today? Source: U.S. BLS As unemployment doubled, quits dropped in halfLedford Consulting Network LLC 24
  25. 25. Does Engagement Matter In Customer Service Positions?  Part of good customer service is employee’s attitude  However, service research is often misrepresented • The pitch: Engagement causes customer satisfaction and profits • The data: A customer service climate causes engagement • E.g. Service profit chain (Heskett et al., 1994, 1997) Service Climate Employee  Job design Retention Internal External  Technology Service Service  Selection Value Quality  Development Employee  Rewards ProductivityLedford Consulting Network LLC 25
  26. 26. Key Points 1. Engagement is not what you think it is 2. Engagement research: User beware 3. Motivation: The missing concept in engagement 4. Where engagement matters most 5. How to we get high performance AND engagement?Ledford Consulting Network LLC 26
  27. 27. Engagement Levers Are Familiar and Numerous Work Design - Motivating Development characteristics - Training - Performance - Careers feedback - Job security Affiliation Benefits - Values, vision, Compensation - Salary - Health Insurance culture - Retirement - Supervisors - Incentives - Pay admin. - Recognition - Work groups - Work-life Performance Management Selection - Purposes - Skills - Linkages - Organization fit - IntegrityLedford Consulting Network LLC 27
  28. 28. Where Not To Begin 1. Looking to research for “the answer” • All these levers improve performance, retention, and attitudes • Research will never prove that one lever is best for you  Massive simultaneous controlled experiments are unthinkable; survey studies don’t help because all these practices are highly correlated  Context is critical but it is impossible to disentangle from main effects 2. Doing everything – and so doing nothing well 3. Doing what everyone else is doing • Surveys of current practice • Mythical “best practices” (e.g., “Best Places to Work”)Ledford Consulting Network LLC 28
  29. 29. So, How Do We Begin?  Keep in mind the goal: Performance-Driven Engagement • If performance doesn’t increase, engagement won’t be sustained • Consider engagement is an indirect effect and a side benefit; engagement increases because we help employees and the organization be more successful  A Performance-Driven Engagement strategy is based on creative, thoughtful analysis • Carefully crafted to fit the unique organizational context • Capitalizes on changes that fit best the unique needs of your firmLedford Consulting Network LLC 29
  30. 30. Performance-Driven Engagement (PDE) Model Human Capital Organizational Context Practices Outcomes Work Design Business Strategy Development Affiliation Perfor- mance Structure Technology Compensation Benefits Performance Desired Management Culture Engage- Selection mentLedford Consulting Network LLC 30
  31. 31. What Makes A Good Performance- Based Engagement Strategy? • Embodies choice • Cost-effective • Different • Difficult (hard to imitate)Ledford Consulting Network LLC 31
  32. 32. Seven Observations About PDE Levers 1. Affiliation is the favorite lever in the engagement field, and the most often oversold 2. Selection is the most often ignored lever but one with huge potential for increasing PDE 3. Intrinsic rewards (work design, development) differentiate less than other levers • The rise of knowledge work is improving Work Design generally • Competitive changes have reduced investments in Development 4. Work-life benefits are the only “new” method of increasing engagement – and they create the opposite of performance-driven engagementLedford Consulting Network LLC 32
  33. 33. Seven Observations About PDE Levers (Cont’d) 5. The biggest opportunities lie in compensation, benefits, and performance management • These have great impact on performance and attitudes • They are hard for most companies to do well - which is helpful in creating a strategy with competitive advantage 6. Performance management is the most hated lever • Much discussion today of ending PM, but it’s difficult to replace • How else do you make personnel decisions transparently? • Differentiator because so many companies do it poorly • Note: 6 of the 12 Gallup Q12 measures are indicators of good PMLedford Consulting Network LLC 33
  34. 34. Seven Observations About PDE Levers (Cont’d) 7. The compensation – benefits mix is wrong; move at least 10% of total rewards from benefits to incentives • Incentives may include individual, unit, corporate incentives or some combination; designs must be customized • Incentives work and they improve employee attitudes, as research consistently shows  99% of claims that incentives don’t work or undermine intrinsic motivation come from non-academics (e.g., Pink, Kohn) • A review of 100 studies: money doesn’t diminish intrinsic rewards • Benefits have huge cost, but only health care is appreciated • Thought experiment: Imagine two competitors, one of which moves 10% of reward dollars from benefits to incentivesLedford Consulting Network LLC 34
  35. 35. Compensation and Benefits Mix (2011, Private Sector) Benefits: $8.33 Pay: (29.5%) $19.91 (70.5%) Benefits (no longer “fringe”) on average are 30% of total rewards, 42% of pay, and about 20 times as large as incentivesLedford Consulting Network LLC 35
  36. 36. Summary: Key points 1. Engagement is old wine in new bottles 2. Engagement research greatly overstates the case 3. Motivation research indicates that performance causes engagement more than the reverse 4. Engagement is more helpful in some situations than others – to a limited degree 5. Performance-Driven Engagement requires a sound strategy that helps gain competitive advantageLedford Consulting Network LLC 36
  37. 37. Questions?Ledford Consulting Network LLC 37
  38. 38. Gerald E. Ledford, Jr., Ph.D In Brief: Gerry Ledford is a nationally recognized authority on human capital issues, including compensation and total rewards, talent management, organization design, change management, and management of the HR function. He has devoted over 30 years to consulting and research on these topics. Gerry has consulted to dozens of Fortune 500 companies and has worked in many industries. Prior Positions: Previously, Gerry was a leader at Sibson Consulting from 1998-2003. He served as Senior Vice President and National Practice Leader for Employee Effectiveness, the largest Sibson practice. He was Research Professor at the Center for Effective Organizations, Marshall School of Business, University of Southern California, where he was a key contributor from 1982-1998. Education: Dr. Ledford received his Ph.D. and M.A. in Psychology from the University of Michigan. He received a B.A. in Psychology (with Distinction) from the George Washington University. Professional Activity: Gerry is active in several professional societies, including the HR People and Strategy (HRPS), WorldatWork, the Society for Industrial and Organizational Psychology, and the Academy of Management. His awards include the Society for Human Resource Management’s (SHRM’s) Yoder-Heneman Personnel Research Award. Publications, Presentation, and Media: Gerry is the author of over 100 articles and ten books, and he is a frequent speaker for major professional groups. His research and opinions have been cited in many print and broadcast media outlets, including the Wall Street Journal, Business Week, Fortune, the Los Angeles Times, the Washington Post, and PBS. Contact: 310-318-6405 www.LedfordConsultingNetwork.comLedford Consulting Network LLC 38