09 December 2019 by Anthony Hilton
A new study says that the superior financial performance of companies comes from employee engagement
Employees connect with other employees on a regular basis, they take direction from management, and they support colleagues to achieve work goals. But in addition the best of them make a contribution to the broader purpose of the organisation and are rewarded with salary and the opportunity to progress. It is the quality of this overall experience that Willis Towers Watson (WTW) sought to measure.
WTW has surveyed 500 companies with nearly 10 million employees. From this group of 500, WTW defines a smaller set of high performance companies - where for one and three years they measure return on assets, revenue growth, net profit margin and several other things. In addition, companies have to have a relatively strong culture but here many find it hard to do both. Indeed only about 30 of the 500 companies make it to the elite group.
In measuring financial performance WTW created a 34 point survey which tracked the scores of 120 out of the 500 companies, analysing the performance of each.
Return on equity showed laggards were six percentage points below the average whereas the elite were 3 percentage points above the benchmark. Over the one year, gross profit margins among the poorer companies were 10 points below the benchmark, whereas the elite were three above it. The three year revenue growth of the poorer companies were one percentage point below, while the strong were four above the index.
So what is the result in stock market terms? Well the Dow Jones and the S&P turned $1000 into roughly $3000 over 15 years from 2002 to 2017 with all income re-invested. The high performance companies, again with all income re-invested, turned $1000 into $9000, a hugely better performance.
“This confirmation that employee engagement sits at the heart of delivering long term exceptional experience and superior financial performance has profound implications for human capital strategy,” says WTW’s Stephen Young.
Most companies think they motivate their employees to some extent, but the fact is that there is little differentiation in what is done. As far as their employees are concerned all companies provide the basics of setting clear goals, organising work efficiently, compensation and local manager support and supervision. The fact is however that these are workplace essentials. They do not give the employee the hallmarks of excellence which include:
feeling inspired by the company’s mission and purpose being able to achieve one’s potential and career aspirations having a deep sense of trust in senior leadershiphaving a sense of drive through strong customer focus and innovation, and agility in meeting marketplace demands.
Young explains: “The most significant change comes through a transformation of leadership mindset- inspiring your organisation around your purpose; driving agility and innovation to be ahead of the market; helping your people achieve their potential; and building a culture of leadership trust”.
But he then warns: “The fact that so few organisations do this well suggests it is hard. But it is the ultimate magic key to unlocking high performance”.
So, says WTW, what are the practical implications?
EX (as it calls employee engagement) is a business issue and needs to be managed and that makes it a leadership responsibility
EX should be the guiding construct for human capital and no significant change should be made without considering the impact on the employee experience
EX can be assessed and this allows companies to look at themselves and establish priorities for change workplace essentials are not enough - doing the basics are just the table stakes freeing the spirit of employees is key because this allows them to have a voice, to bring their full selves to work, to build their capabilities and to work across boundaries.
Even though they accept the WTW analysis in theory, most leaders do not do it in practice. Some are taught in business schools where it is all about financial results which can be measured. Others believe in command and control. A third are so bogged down with detail that they do not think where the company is going in the longer term and a fourth only want their bonus; only a handful of chief executives are truly collaborative.
As they say, companies find it hard. But at least WTW’s analysis is something to aspire to.