Employee Engagement Pays Dividends (Literally!)

When you’re a manager in the middle, and even when you’re the most senior executive, improving the performance of your organization can seem overwhelming. Yet there are simple things you can do every day that will draw outstanding performance from your team.

You can do the simple things it takes to create engagement. You don’t need complex project plans or big budgets. It’s as simple as building on the strengths of your organization: putting your staff to work doing the things they do best, ensuring they know what’s expected of them, and letting them know how they are making a difference.

There’s evidence that this is more than cosmetic. Creating a highly engaged workforce has a measurable impact on profitability. The Gallup Organization has run the numbers, comparing the results of organizations with top-quartile engagement to those in the bottom quartile in the same industry. In their most recent study, Gallup calculated that organizations with highly engaged employees produce 2.6 times the earnings per share (EPS) growth rate compared to organizations with lower engagement in their same industry.

What makes for engagement? Gallup’s research has identified 12 factors--factors that are highly consistent with the findings of the Corporate Leadership Council (see 2 Ways to Increase the Value of Your Human Capital Today). Here are three of the 12 factors that contribute to an employee feeling highly engaged—and acting highly productively:
• I know what is expected of me at work;
• At work, I have the opportunity to do what I do best every day;
• In the last seven days, I have received recognition or praise for doing good work.

Notice “in the last 7 days.” Not “at my annual review”, or “quarterly bonus update. “ In recent memory, in the last week. That’s a pretty tough standard, but the good news is, once you begin to focus on managing these factors, it can be habit-forming.

Ask yourself and your employees: do they really know what’s expected of them? Have you shaped their jobs so they’re able to play to their strengths? Have you recognized their contributions in the last 7 days? While we recommend Gallup’s Q-12 Survey, you don’t need to wait for a survey to get insight into these critical factors.

Because employee engagement is a leading indicator of strong business results, we believe you should measure it. Whether you purchase a survey from Gallup or another vendor, or create your own, measuring your employees’ engagement can make sure you get a realistic picture of their engagement today, learn what to do to enhance that engagement, and track your progress. Ultimately, you should be able to do the math yourself: follow the straight line between your employees’ engagement and your company’s earnings.

The value of stability

A businessman we respect owns a restaurant franchise. Even before we knew him, we loved his food and had worked our way through several “loyalty cards.” We should have guessed was that there was more than good cooking that earned our loyalty. There was good management—and a keen eye on the relationship between good management and profitability.

It turns out he has industry leading retention, of both employees and managers. And industry leading profitability and growth rates.

He would tell you the relationship is not coincidental. Like any business owner, he runs the numbers constantly, comparing the performance of each one of his restaurants. After several years of collecting an exhaustive list of metrics, he realized he could simplify his job; there was one measure that above all others predicted profitability. That metric was the tenure of the management team. Without exception, the restaurants with management teams who have worked together the longest are the most profitable. What he calls his “stability analysis” is the single strongest predictor of profitability in his business.

His conviction about the value of management stability drives his investment decisions. Going into the recession, he had an unusually high ratio of managers to employees. So, as consumers tightened their belts and reduced discretionary spending, it would have been understandable, in terms of “old math,” if he laid off some managers. His competitors did just that. But using his “new math,” he made a tough and bold decision: he decided to maintain his high level of management staffing. The results? In spite of the toughest economic environment in a generation, he has held his levels of profitability and has actually grown his corporate business as his competitors have faltered and retrenched.

We think every business should do this “new math.” In your business, what is the value of tenure? Find out by comparing the performance of like business units where there is a range of performance and analyzing the tenure of your managers and employees. We believe this new math will reveal some insights that will drive your investment decisions.

2 ways to increase the value of your human capital today

The basic unit of human capital is each employee’s performance—and the leader’s job is to create the conditions for employees to perform at their very best. But there are so many possible ways you can approach this job. In a workday that is long on tasks and short on time, what will make the most difference? What can you do today?

You can measurably improve performance today by doing 2 things 1) Make sure your employees understand what you expect of them, and 2) Tell them how they are doing.

An analysis by the Corporate Leadership Council** suggests that fair and accurate informal feedback can improve individual performance by nearly 40%. Ensuring employees understand performance standards can improve performance by 36%. And, based on their study, of the many things you can and should do to build a high performance organization, these are 2 of the 7 highest impact actions you can take.

We recommend a self-audit. In your next 1:1 meetings, ask your employees to articulate what’s expected of them—and see if you agree with their interpretation. You may need to clarify your expectations.

Set a goal of giving feedback to your staff each time to you have a 1:1 meeting, or after they’ve completed a task. This not only signals your assessment of their performance; your feedback will clarify and reinforce your expectations.

The head of institutional sales for a financial services organization spends 15 minutes immediately after each presentation by his staff providing them feedback. During their presentations, he makes notes on specific things they do well and jots down 1-2 specific suggestions for improving next time. He hands these notes to his staff after they’ve debriefed.

The president of a national retail organization, that has turned in year-after-year of unprecedented growth, has a reputation for providing feedback “early and often.” When he travels, the manager who meets him at the airport knows she’ll be asked about her people and get instant feedback on her management—before they get back to the car.

Employees who understand what’s expected of them, know what their manager thinks of their performance, and feel comfortable that their contributions are valued, perform measurably better. They are more confident, more committed and more likely to make effective discretionary efforts. In other words, they deliver more value. Value that you’ve created through your everyday management practices, at every level of the organization.


*And in case this sounds like advice targeted at first-time, first-line managers, consider this: the amount of feedback leaders receive is typically inversely related to their level in the organization. Ironically, the most senior leaders, with the biggest impact on their firms, typically get the least amount of feedback and coaching.

**Building the High-Performance Workforce, Corporate Executive Board, 2002.

Stop the Ratings Game

“This year, we couldn’t give any salary increases, so I was able to rate people the way I really thought they performed. It was the best review period I’ve had.”

“I do trades…I tell employees, this cycle, I’ll give you a “meets expectations (3)” rating and your neighbor an “exceeds expectations (4);” next time you’ll swap and she’ll get the lower grade.”

“I keep at least a 1-2 low performers on the team so they can take the hit at merit time. Otherwise, I have to punish some of my good performers with low ratings.”

These are not quotes from Dilbert. They are comments of managers who struggle to make the best of a bad system: annual performance ratings, accompanied in most firms by some sort of “forced curve.”

And the ratings trader? In one firm, fully 60% of employees had different ratings in the July cycle than in the same year’s December cycle. Could the performance of all those employees have significantly improved, or declined, in just 6 months?

Another firm knows that the absolute worst time to survey employees’ engagement is at merit review time. Calls to their employee relations department skyrocket, with managers calling for help in how to deliver bad news and employees calling to vent their frustration.

We believe rating systems, especially those that force ratings along a curve, are counter-productive. By distilling an entire year’s contribution to one letter grade and looking for 60 – 80 of your staff to be less than stellar, these systems end up de-motivating most of your workforce.

Here’s perhaps the biggest cost: these highly charged discussions become a “can I get through this without too much bloodshed” transaction, instead of an open, two-way discussion about performance and contribution and development and the future. With ratings and a curve hanging over the conversation like a dark cloud, these performance discussions become a lost opportunity.

How can this pattern be good for business?

Yes, absolutely, companies should pay for performance. The employees who contribute the most should receive the highest rewards. And yes, every employee needs, mostly wants and certainly deserves honest and specific feedback about what they contribute and how they need to raise their game.

But performance ratings systems do not ensure that the best get the most, nor do they lead to improved performance. And the kiss of death is a bell curve. Performance ratings, and the bell curves they almost inevitably lead to, cost companies time, morale and ultimately, money.

Our solution: establish clear performance standards, goals and measures and pay for those—or not, based on what the employee delivers. Cheer ALL your employees to outperform. Abandon performance ratings, and especially, do not look for a bell curve in your workforce.

(Would any firm ever impose a bell curve on their products? “No, I’m sorry, it can’t be a best seller; something has to be a dog.”)

Solutions Based Banking: The Key to Success for Webster Bank's Foray Into Boston

How can you be a leading New England bank without a presence in Boston? That's the question Connecticut based Webster Bank asked itself after years of building and acquiring branches elsewhere in New England. The conclusion it came to, apparently, is that you can't, which is why it recently opened a 15,000 square foot branch office in the old Boston Stock Exchange building on Franklin Street. The branch is the first of many that Webster Bank has said it will build or acquire in the Boston area over the next few years.

While from a consumer's perspective it's heartening to see banks actually expanding during a difficult economy (thanks in part due to $400M in TARP money and $115M from investment firm Warburg Pincus), Webster Bank's decision raises a question: does Boston really need another bank?

The answer, we think, is it depends.

If Webster Bank turns out to be yet another average bank promising not to be your average bank, the answer is no. Boston has plenty of banks promising good customer service, community involvement, and below average fees. In the end, most fall a bit short as they are still (despite what they say) very product rather than relationship driven.

If, however, Webster Bank is here to truly differentiate itself by offering financial solutions rather than financial products, then it will fill a large void in the banking community here.

What do we mean by financial solutions? We mean taking the time to understand the needs of business and consumer customers and helping them craft and execute on a strategy for meeting those needs.

For example, a friend of ours recently called local banks to deposit a large check she received from the sale of a home. The responses she got from bank representatives (one of whom took all day to call her back) were along the lines of "Are you interested in a savings account or a CD? I could also refer to you to someone in our investment department to discuss stocks and bonds if you want."

While our friend eventually chose a CD product from one of the banks, the respondents all made the same mistake: offering a solution before understanding her goals.

None of the representatives asked questions to build a relationship, gain trust and provide guidance. As a result, our friend chose a bank based on how quickly they answered the phone and their rates. Even the bank she chose may have left an opportunity slip by since it’s not clear that she will ever think of them as anything more than a place to put money in CDs—and that may mean moving her money when she finds better rates

How does this relate to Webster Bank? It illustrates that the biggest opportunity for Webster is not having a branch in downtown Boston, but in changing the way banks relate to customers and customers relate to banks. What would it take for Webster Bank to do this?

q Recognize that the only opportunity its staff has to offer a real solution may be the very first contact—and that very likely will be through their website or a conversation with a phone representative. Most banks’ salespeople are comfortably situated in branches—behind desks that some of their best prospects may never sit at.

q Hire front-line employees who are curious and interested in people.

q Train them in the art of consultative selling.

For Boston's sake as well as Webster Bank's, we hope Webster uses a solutions based approach to meeting the needs of customers in Boston. If it does, Webster has a bright future here. If it doesn't, Webster will have spent a lot of money getting into a city that already has plenty of places to bank.

Best practices in human capital management

Companies that invest wisely in their human capital use analytical tools to measure human capital performance, set targets and track progress.

Best Practices

• Tailor their people strategy to their business strategy
• Ensure the right people are doing the right work at the right price
• Design the most efficient possible organizational structure
• Invest in pivotal employees
• Develop outstanding leaders

Common Traps

• Jumping from one “quick fix” to another without stopping to understand what’s causing excess cost or slower growth
• Treating a workforce the same across the organization
• Failing to re-examine traditions and habits as the business grows and changes
• Trying to do too many things at once

Article from CFO Magazine: "The Metric System"

CFOs who want better workforce analytics should be prepared to put more "R" in "HR."

In 2002, when Lee Gelb advocated a rigorous productivity analysis of Starbucks employees, her belief in the value of metrics was regarded as quixotic or worse, by many people in human resources. True, F.W. Taylor had pioneered what came to be known as "scientific management" through detailed labor studies nearly 100 years before, but within HR the idea that productivity could be assessed as if workers were robots flew in the face of the department's ostensible people-first mission.

Click here to read the full article.