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

How Employee Engagement Can Pay Off – And Why It Often Doesn’t

Gerald Ledford, Ph.D.

TLNT Transform Conference, Austin February 2012

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 search

2 Ledford Consulting Network LLC

The Concept of Engagement is Everywhere


Stunning Claims For The Value Of Engagement

Better employee attitudes!

Better productivity, cost, quality, safety,

and customer service!

Higher profits and total return to shareholders!

and

But wait! There’s more!

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?


Key Points

Satisfaction

• Meets job expectations

• Content with current job

• Comfortable with organiza-tion’s rewards, recognition

• Content with organization’s strategy and mission

• Tends not to go above and beyond / exert discretionary effort

Engagement

• Self-motivated

• Committed to the organization; strong loyalty

• Supportive of co-workers

• Voluntarily takes on tasks

• Role model

• Consistent goes above and beyond

• Passionate about their job


The Consulting Literature Says: Engagement is New and Different

Source: Savitt, M.P. (2011, October). Boost organizational value with engagement-focused talent management, Workspan, 52-58.

Which one do you think is supposed to lead to performance?


Employee Outcome Measures Through Time

1930 1940 1950 1960 1970 1980 1990 2000 2010

Employee Morale

Job Satisfaction

Job Involvement (and Burnout)

Organization Commitment

Engagement

Survey Item

1. For me, mornings at work fly by

2. This organization really inspires the best of me in the way of job performance

3. I find real enjoyment in my work

4. I am enthusiastic about my job

Concept

A. Employee Engagement

B. Job Satisfaction

C. Job Involvement

D. Organizational Commitment


Test: Match the Survey Item To The Concept

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


Old Wine In New Bottles

You may wish to think engagement captures something new and different, but it doesn’t

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 data


Confessions of a Survey Researcher

Surveys are useless

It doesn’t matter what surveys ask

People give the same answers to every item


What I’m NOT Saying About Surveys

My points: Employees don’t make fine distinctions based on our concepts; engagement is just the newest version of “morale”







Key Points

• Opinion polls about engagement are weak evidence

• Correlational studies don’t prove causality

• Engagement causes performance – or performance causes engagement?


Three Key Problems With Research On Engagement

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


Opinion Polls On The Importance Of Engagement Have Limited Value

We need a higher standard of evidence after 20 years

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) performance 14 Ledford Consulting Network LLC

Correlation and Causality

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)?


Is Engagement A Cause Or Effect Of Performance?

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 directions


Very Limited Research On Causality







Key Points

Underlying: “A happy worker is a productive worker”

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 problem 18 Ledford Consulting Network LLC

The Common Wisdom

Engagement (Happiness)

Performance Intrinsic and

Extrinsic Rewards Retention


Engagement Thinking Usually Ignores Employee Motivation

Effort Performance Intrinsic and

Extrinsic Rewards

Retention

Engagement

We would expect a small correlation between performance and engagement in this model

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


Why Keep High Performers In Mind?

Source: Ledford & Lucy (2003) – Sibson Rewards of Work Study

Engagement reduces turnover but does not drive performance

Motivated employees perform more effectively; engagement is a result of success, not a cause


Summary: Motivation and Engagement







Key Points

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 solutions


Highly Competitive Labor Markets


Is Turnover A Major Business Issue Today?

As unemployment doubled, quits dropped in half

Source: U.S. BLS

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)


Does Engagement Matter In Customer Service Positions?

Service Climate Job design Technology Selection Development Rewards

Internal Service Quality

Employee Retention

Employee Productivity

ExternalService Value







Key Points


Engagement Levers Are Familiar and Numerous

Compensation - Salary - Incentives - Pay admin.

Benefits - Health Insurance - Retirement - Recognition - Work-life

Performance Management

- Purposes - Linkages - Integrity

Development - Training - Careers - Job security

Work Design - Motivating characteristics - Performance feedback

Affiliation - Values, vision, culture - Supervisors - Work groups

Selection - Skills - Organization fit

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”)


Where Not To 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 firm


So, How Do We Begin?


Performance-Driven Engagement (PDE) Model

Technology Structure

Desired Culture

Organizational Context

Business Strategy

Human Capital Practices

Work Design Development

Affiliation Compensation

Benefits Performance Management

Selection

Perfor-mance

Engage-ment

Outcomes

• Embodies choice

• Cost-effective

• Different

• Difficult (hard to imitate)


What Makes A Good Performance-Based Engagement Strategy?

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 engagement


Seven Observations About PDE Levers

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 PM


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 incentives


Seven Observations About PDE Levers (Cont’d)

Benefits: $8.33

(29.5%)Pay: $19.91 (70.5%)


Compensation and Benefits Mix (2011, Private Sector)

Benefits (no longer “fringe”) on average are 30% of total rewards, 42% of pay, and about 20 times as large as incentives

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 advantage


Summary: Key points


Questions?

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 [email protected] www.LedfordConsultingNetwork.com


Gerald E. Ledford, Jr., Ph.D

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

Business

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