HR’s Greatest Challenge

Driving the C-Suite to Improve Employee Engagement and Retention

By Richard P. Finnegan

Society For Human Resource Management

Copyright © 2015 Richard P. Finnegan
All rights reserved.
ISBN: 978-1-58644-379-5

Contents

Dedication,
Introduction: A C-Word Lesson from China,
Part I: Challenges,
Chapter 1. The Dollar Values of Engagement and Retention Merit Top-5 Metric Status,
Chapter 2. Two Broken Models: Why Engagement Surveys and Exit Surveys Fail,
Part II: Solutions,
Chapter 3. Think Like Your CEO: Drive Engagement and Retention Like You Drive Sales and Service,
Chapter 4. Convert Engagement Scores and Turnover Percentages to Dollars,
Chapter 5. Establish Engagement and Retention Goals for Leaders,
Chapter 6. The Power of Stay Interviews,
Chapter 7. Forecasting: The Lock-Down Engagement and Retention Tool.,
Chapter 8. Real Accountability,
Chapter 9. Innovation from 10,000 Feet,
Appendix A: The Best Engagement and Retention Job Description,
Appendix B: How to Solve Health Care’s Unique Engagement and Retention Challenges with Doctors and Nurses,
Appendix C: In 30 Words or Less … The 30 Best Finnegan Quotes,
Endnotes,
About the Author,
Additional SHRM-Published Books,

CHAPTER 1

The Dollar Values of Engagement and Retention Merit Top-5 Metric Status

True story. Not long ago I met with the recruiting manager for a global engineering company in the lobby of a Walt Disney World hotel. Every reader of this book would immediately recognize this company’s name. This gentleman’s responsibility is to locate and hire talent for 57,000 positions across the U.S., and most of these jobs require technical skills.

Let’s call this man William. William said he brought his recruiting team to Florida to strategize hiring for the next five years, to align it with his company’s strategic plan. Acknowledging that I was there to talk about retention, our discussion flowed like this:

Me: I’m surprised you have enough internal talent to fill your expected openings, given your company’s size as well as expansion and normal attrition.

William: Oh, we don’t for sure, especially for expansion.

Me: So how can you plan a full five years out? How many blank spots are on your future organizational chart?

William: We have no blank spots, Dick. Our reason for coming here was to identify who will fill every spot.

Me: How can you identify enough specific talent to do that?

William: When you add the tools headhunters have used for years to the advantages offered by LinkedIn and other social media sites, it’s quite easy. We’ve identified exactly who we intend to hire and have even moved their names onto our future charts.

Me: You’ve placed names of people who work for competitors onto your organizational charts?

William (laughing): Remember, we’re a technology company, so that’s easy. We spent most of our time identifying who we want, when we want them, and how we will take them.

Me: Are you sure you can “take them?”

William: Yes, we will take them.

This tale reinforces that sharks are circling your technology talent by the hour. If you have courage, ask your best performers how many headhunter calls they receive in a month, or even in a week.

This tale also reflects how engagement and retention drive profitability in ways that are both direct and indirect, obvious and subtle, and more visible to those who have either great vision or convincing data.

When I think about the my discussion with William, I stumble on this question: How many total dollars will be gained and lost as a result of this one meeting in a Disney World hotel? This company will now raid competing companies for specifically targeted talent over the next five years, and, assuming success, those companies will then raid other companies, and so on and so on. Consideration must be given to the big numbers, the ones exponentially larger than recruiting and replacement costs on both sides. How many dollars in profitability will be increased and decreased as these mountains of technical talent relocate? How many new products will be rushed to market while others lag due to unfilled technology positions? The total price tag will likely reach one billion dollars or more. And there will be winners and losers.

And all of this is because of one company’s workforce planning meeting. How many other meetings are happening identical to this one across our world?

Imperfect Metrics

Turnover and engagement are, for sure, imperfect metrics. Leaders who must clear out deadwood will have high turnover rates for the good of their companies. Some employees quit for totally uncontrollable reasons such as when a parent becomes ill, and they must relocate to their home towns. Engagement tanks at times due to major layoffs when surviving employees wonder if any achievements can save their jobs. But though imperfect, engagement and retention join productivity outcomes as the best metrics for gauging how effectively leaders manage their talent — and thus the future of their businesses. A good comparison is the blood tests we all take as part of routine physical exams. When compared to baseline data, these tests tell our doctors how healthy we appear compared to the standards for good health. Sometimes doctors ask for additional tests, or data, because they spot an initial negative outcome. That is how engagement and retention data need to be managed. If you see a bad trend, investigate to learn more.

The challenge for this chapter is, how do we convince your C-suite executives that engagement and retention represent such substantial power in our organizations that they deserve top-5 metric status? That engagement and retention drive profitability, revenue, service levels, and safety levels? That engagement and retention merit serious and urgent rather than passive discussion during executive meetings and board meetings? That our CFOs should begin connecting the dots between these metrics and the metrics they consider to be most critical, so they can report engagement and retention as contributing factors or even cause-and-effect when describing financial trends and potential solutions? And most importantly, that executives can hold managers accountable in meaningful ways for engaging and retaining their teams? With real accountability?

I suspect that a few HR executives need convincing, too. We have been raised for decades conducting hamster-on-wheel activities like annual engagement surveys, resulting manager action plans, “survey-results” e-mails to employees, and exit surveys that yield questionable data and rarely any action. Many have watched their executives say lip-service phrases about how important their employees are to the company but who 30 days later disregard engagement survey results and give little thought to following up on managers’ action plans. Living these activities year to year can easily cause us to reduce our own expectations and to fall in line with those who lack clear vision. Then as a result we see disengagement and turnover as rush-hour traffic, something we must accept and try to find ways to work around rather than to actually solve.

So you be the CEO, or, in this case, the jury. I will show you evidence — exhibits — to convince you that engagement and retention merit top-5 metric status.

Exhibit A: Let’s Call Them Driving-Force Metrics

Let’s concede from the start that we cannot compete with first-thing-CEOs-look-at-each-morning metrics. These are the traditional bottom-line numbers that CEOs check with coffee in hand, such as sales numbers in product companies, revenue and quality metrics in service companies, census in hospitals, and production in manufacturing. We are also severely handicapped because engagement and retention are not measured daily like other key metrics. So our goal becomes convincing our CEOs that employee engagement and retention drive these bottom-line numbers.

Before racing on to correlative data, though, let’s make one simple appeal for common sense. Studies tell us that on average nearly 70 percent of all operating expenses go to paying and supporting our workforces. Doesn’t it seem right, then, that retaining and getting the most work out of this huge expense warrants top-5 attention? And if not, then why not?

But let us proceed to identify the numbers of dollars on the table rather than to ask our CEOs to put their full faith behind what we intuitively know, that engagement and retention drive those other metrics that our CEOs see as most important.

Fortunately, much work is available to solve this challenge. Most of us see Gallup as the world’s survey leader, having gathered employee survey data from more than 25 million respondents in 189 countries and in 69 languages. In its State of the American Workplace report, Gallup shared the following about engagement data and correlations to those same metrics your CEO checks each morning.

When comparing companies’ engagement levels for the top 25 percent of Gallup’s survey database to the bottom 25 percent, the more engaged groups showed the following improvements:

» Profitability, 22 percent.

» Productivity, 21 percent.

» Customer ratings, 10 percent.

» Quality defects, 41 percent.

» Safety incidents, 48 percent.

» Patient safety incidents, 41 percent.

» Absenteeism, 37 percent.

» Shrinkage, 28 percent.

I sequenced these data based on my estimates of which are most valuable to your CEO. But if the data told us only that profitability increased by 22 percent, shouldn’t that be sufficient evidence to convince? The remaining findings all contribute to that profitability increase.

As importantly, Gallup observed that employers with high engagement have much higher sticking power too. Turnover was lower by 65 percent in what Gallup classified as low-turnover organizations and 25 percent in high-turnover organizations. And Gallup went on to say that all of these correlations are highly consistent across different organizations from diverse industries and regions of the world.

But more importantly, Gallup reported that companies with engaged workforces have higher earnings per share, or EPS, and seem to have recovered from the recession at a faster rate. Specifically, organizations with an average of 9.3 engaged employees for every actively disengaged employee experienced a 147 percent higher EPS compared with their competition. This is one of those “wow” metrics that should resound around every C-suite! In contrast, organizations with an average of 2.6 engaged employees for every actively disengaged employee experienced 2 percent lower EPS compared with their competition during that same period.

Gallup segmented surveyed employees into “engaged,” “not engaged,” and “actively disengaged,” and summarized with the following:

Engaged employees are the ones who are the most likely to drive the innovation, growth, and revenue that their companies desperately need. These engaged workers build new products and services, generate new ideas, create new customers, and ultimately help spur the economy to create more good jobs.

Actively disengaged employees cost the U.S. between $450 billion and $550 billion each year in lost productivity. They are more likely to steal from their companies, negatively influence their coworkers, miss workdays, and drive customers away.

Based on these definitions, is it any surprise, then, that clusters of engaged employees create more profitability than actively disengaged employees?

Exhibit B: Fortune][Top 100

The Great Place to Work Institute is the survey company that drives the Fortune magazine’s “100 Best Companies to Work For®” lists along with similar “best places to work” lists across 45 countries. A review of the institute’s database of “over 10 million employee voices” revealed the following:

» Committed and engaged employees who trust their management perform 20 percent better than other employees.

» Companies with committed and engaged employees have as much as 65 percent less voluntary turnover compared to their competitors.

» The financial performance of the publicly traded companies on the Fortune 100 Best Companies list consistently outperform major stock indices by 300 percent.

Pictures do speak louder than words when presenting evidence to our CEO jury. Figure 1.1 sits on the Great Place to Work’s website and represents the extreme earnings-per-share gap between companies that earn a place on the institute’s lists versus companies that do not. I will discuss the criteria for Great Place to Work’s lists later in Chapter 3.

Exhibit C: Engagement Drives Sales

Towers Perrin looked at engagement results for over 32,000 employees across dozens of companies and found a positive relationship between engagement and sales growth, lower cost of goods sold, customer focus, and reduced turnover.

Northwestern University professors researched the impact of sales personnel’s extra efforts on customer spending. They found when salespeople give just 10 percent more effort, customers tend to spend 22.7 percent more.

Exhibit D: Shareholder Returns Matter Most

Aon Hewitt studied engagement results for 1,500 companies and reported the following:

» Where 60 percent to 70 percent of employees were engaged, average total shareholder return, or TSR, was 24.2 percent.

» In companies with only 49 percent to 60 percent of employees engaged, TSR fell to 9.1 percent.

» And companies with 25 percent or fewer engaged employees reported a negative TSR.

Kenexa studied 64 organizations and found those in the top quartile for engagement achieved twice the annual net income of those in the bottom quartile. It conducted another, longer-term study of 39 organizations, and those with engagement in the top quartile had seven times greater five-year TSR than organizations in the bottom quartile.

Similarly, WorkUSA and Watson Wyatt surveyed 13,000 employees and found companies with highly engaged employees earn 26 percent more revenue per employee. And there are dozens of similar studies I have omitted here that conclude the same thing, that high employee engagement drives all other important metrics.

C-Suite Executives Must Know This!

Our jury must completely grasp what these studies have in common: (a) each study found that engaged employees do more things better that substantially drive your CEO’s primary metrics, and (b) each covered a broad range of industries and companies. Databases for the studies from Gallup and the Great Place to Work Institute cover millions of employees. Aon Hewitt drew conclusions from data that represent more than 1,500 companies. These rates eliminate potential queries from CEOs asking how do we know the same will be true for our companies. We all believe our companies have unique obstacles to engagement, the “you don’t understand how things work here” mantra, and it is likely that CEOs from all of Aon Hewitt’s 1,500 companies would have initially said the same. But the trend line for a total of 1,500 companies has proven that more engaged employees correlates with increases in shareholder returns across all companies.

Exhibit E: Getting to the All-In Costs of Turnover

What is your reaction when you hear an employee has decided to quit? Most of us would instinctively say, “It depends on who quits.” The data above regarding engagement make clear that some employees are more valuable than others because they perform better or bring rare skills. But in general we would rather keep all employees whom we genuinely rate good or better because recruiting, hiring, and training their replacements is such a time -consuming and expensive hassle. And post-hassle we risk getting a better employee or a worse one.

Several studies are available in the macro, from 30,000 feet, about the cost of turnover. These include:

» The Saratoga Institute observed that turnover costs organizations over 12 percent of pretax incomes, up to 40 percent for some.

» In 2012 the Bureau of National Affairs estimated that U.S. businesses lose $11 billion each year due to turnover.

» Kenexa reported turnover across the U.S. cost $25 billion annually just to train replacements.

Although these results give us massive numbers that imply turnover is costly, they provide little convincing power for our C-suite jury. Another batch of studies has produced easy-to-use formulas that connect the cost of losing an employee to 100 percent of that employee’s annual pay or a similar percentage.

I suspect that if your CEO read a report that said losing an employee costs 100 percent of that employee’s annual pay, he or she would immediately move onto something more interesting, something more relevant about productivity or cost. The macro data provided above and the simplistic “1-times-something” formulas just do not convince. They will never drive a passion to improve retention on their own. They do not pass the “it has to be about our company or industry” test.

Our company, C-Suite Analytics, helps organizations place dollar values on turnover, and below are five actual turnover costs for five different jobs. Most importantly, CFOs have endorsed these studies for their organizations, which brings needed credibility for the right retention actions:

» Health Partners of Western Ohio determined the cost of losing one physician was $225,808, which drove increased retention efforts.

» Bluegreen Corporation found the cost for losing one senior vacation specialist was $29,447. This cost was driven up by the average of 55 workdays to replace each leaving employee with a qualified replacement and then a strenuous learning curve of several months before that new hire could perform effectively on the phone.

(Continues…)Excerpted from HR’s Greatest Challenge by Richard P. Finnegan. Copyright © 2015 Richard P. Finnegan. Excerpted by permission of Society For Human Resource Management.
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