Engage them or lose them

Employee engagement and enablement critical as new research suggests companies face mass employee exodus over the next year

Following two bleak years for the job market which saw employees grateful to avoid redundancies and many employers putting a freeze on recruitment, recent research from Hay Group, the global management consulting firm, reveals that the tide has turned with 59 per cent of employees in the United Kingdom starting the year with a firm resolution to look for a new job.

Loss of talent delivers a hefty blow to a business’s bottom line, and Hay Group studies estimate the cost of replacing employees to be between 50 per cent and 150 per cent of salary. With businesses potentially facing a significant ‘brain drain’ in 2010, the pressure is on to find effective ways and means of preventing mass exodus of talent as market conditions improve.

• 59 per cent of employees in the United Kingdom started 2010 with the firm resolution to look for a new job
• Cost of replacing employees can be between 50 per cent and 150 per cent of salary
• Employee engagement and talent retention cited as the first and second most important issues respectively by CEOs and HRDs going into 2010
• Organisations that engage and enable employees demonstrate a total reduction in voluntary turnover of 54 per cent
• Companies in the top quartile on both engagement and enablement achieve revenue growth 4.5 times greater than their industry peers who focus on engagement alone
• Employees who are both highly engaged and enabled are 50 per cent more likely to outperform expectations

Many top-performing businesses across Europe and the United States are already deploying effective employee engagement and enablement programmes as a business priority, to mitigate against staff turnover and drive performance and revenue as the global business community continues on its path to recovery. In fact employee engagement and retaining talent were cited as the first and second most important issues respectively by CEOs and HRDs going into 2010.

Hay Group defines an enabling work environment as one which empowers employees to ‘go the extra mile’ and provides the tools and processes to actively deal with employee frustrations. Companies effectively combining employee engagement and enablement report significantly improved revenue growth, staff retention and employee performance. The top organisations on both engagement and enablement achieve revenue growth 4.5 times greater than their industry peers who ranked lowest in the study.

Similarly companies with high levels of engagement show turnover rates at 40 per cent lower than companies with low levels of engagement. However, companies that both engage and enable employees demonstrate a total reduction in voluntary turnover of 54 per cent. Hay Group’s research also reveals that engaged employees are 10 per cent more likely to exceed performance expectations. Employees who are both highly engaged and enabled, however, are 50 per cent more likely to outperform expectations. Past studies have shown that the difference in productivity between superior and typical performers is 35 per cent on average, depending on job complexity.

Revenue:

A typical company with $5 billion in revenues in an industry with average revenue growth of eight per cent would see revenues increase by $400 million. A company with top quartile levels of employee engagement could expect an increase of $1 billion. And a company in the top quartile on both engagement and enablement could anticipate an increase of a full $1.8 billion.

Turnover:

For an organization with 20,000 employees and an annual voluntary turnover rate of eight per cent, the cost of turnover is approximately $56 million (assuming an average salary of $35,000). Reducing the voluntary turnover rate by 40 per cent would yield annual savings of $22.4 million. But reductions in turnover through higher levels of engagement and enablement would yield savings of over $30 million annually, a difference of more than $7.5 million.

Employee Performance:

For an organization producing $10 billion of product with 20 per cent of employees exceeding performance expectations, increasing the percentage of high performers by 1.5 times (by transforming average performers into superior performers) would increase output by $350 million (i.e., if 10 per cent of population improves performance by 35 per cent, overall performance improvement across entire population is 3.5 per cent).

William Werhane, managing director from Hay Group Insight commented: “The workplace landscape has changed; workers who, last year, were grateful to hold on to employment are sticking their heads above the parapet and gauging what the recovery means for their career prospects. This could spell particularly bad news for those companies who have failed to take necessary steps to implement effective enablement and engagement programmes during the tough times.

“Looking back to the last downturn in 2001/02 Hay Group studies then saw that companies that kept a focus on employee engagement came out of the recession with better levels of motivation and loyalty, and a greater ability to attract and retain top talent, and this recession is no different. Highly engaged and enabled workers undoubtedly create dramatically better business outputs, more loyal customers, and better financial performance during good times and bad. An enabling workplace can also actively deal with employee concerns rather than allowing them to continue unnoticed, which could subsequently result in demotivated and frustrated staff who may start to feel the grass in greener elsewhere.”

Werhane concludes: “Our Insight surveys are proving a vital tool in helping executives to listen to the voice of their people, providing intelligence to inform how businesses can best engage and enable their staff. The results identify the most pressing business and human capital issues which can then be actioned swiftly, allowing companies to be in a stronger position to take advantage of the upturn.”