Employee Engagement Lifts Enterprise Value

As we discussed last month, satisfied employees within a settled team enable a cohesive workplace culture to flourish. A satisfied employee is contented with culture and values, opportunities, leadership, work-life balance and remuneration. A stayer. However, there is a level above this – that of an Engaged Employee.

An engaged employee is deeply involved and invested in the work. As Peter Beck of RocketLabs says, “We only hire employees who value Commitment over Compensation”. People who are enthusiastic, feel a stronger sense of purpose and contribute valuably to moving the organization forward.

An appealing Decision-wise chart of Engagement derives from MAGIC = Meaning, Autonomy, Growth, Impact and Connection.




Moving to the economics of the discussion, the main message is that fostering employee engagement is a sound business strategy. It pays! The research is convincing: –

  • 2013 Gallup report
    • 70% of engaged employees have a good understanding of how to meet customer needs; only 17% of non-engaged say the same;
    • 78% of engaged employees would recommend their company’s products, against 13% of the disengaged.
  • HR consultancy Tower Perrins (Global Report 2006), based on surveys of 600,000 staff: “Companies with high levels of employee engagement improved 19.2% in operating income while companies with low levels of engagement declined 32.7% over the study period”.
  • Glassdoor’s Andrew Chamberlain used 100,000 employees’ surveyed data to find a significant causal impact between a lift in employee satisfaction (1.0) and a correspondingly higher Return on Company Assets (0.524, based on Tobin’s q).
  • And most powerfully, Harvard Business Review (Alex Edmans 2016); 28 Years of Stock Market Data Shows a Link Between Employee Satisfaction and Long Term Value.
    In a very careful and detailed argument, Professor Edmans concludes that “firms with high employee satisfaction outperform their peers by 2.3% to 3.8% per year in long run stock returns, i.e. 89% to 184% cumulative”! He does however warn that it may take 4-5 years before a stock market to fully price the engagement intangible into the stock price.

While investing in employee engagement is a significant cost in time, effort and money, it seems to be a spend with a stronger and longer payback than many alternative business improvement initiatives.

Enjoy your Holiday break – more blog contact next year!



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