Enabling, Engaging, & Rewarding EmployeesA Study of Most Admired Companies
Mexico City (April 6, 2011)
Tom McMullen
Fortune survey of World’s Most Admired Companies
What is it?
� Fortune has combined the America's Most Admired Company (AMAC) survey and the World's Most Admired Company (WMAC) survey to generate one global ranking
� Candidate companies: Fortune 1,000 companies; non-US Global 500
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Candidate companies: Fortune 1,000 companies; non-US Global 500 companies of $10 billion+ and top foreign companies operating in the US
� Companies rated both overall and relative their industry peers by executives, directors and analysts
� A total of 667 companies from 33 countries were surveyed
� Industry rankings generated for 55 industries
‘All stars’ for 2010
1 Apple
2 Google
3 Berkshire Hathaway
4 Johnson & Johnson
11 Microsoft
12 Southwest Airlines
13 FedEx
14 McDonald's
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4
5 Amazon.com
6 Procter & Gamble
7 Toyota Motor
8 Goldman Sachs Group
9 Wal-Mart Stores
10 Coca-Cola
14
15 IBM
16 General Electric
17 3M
18 JP Morgan Chase
19 Walt Disney
20 Cisco Systems
The value of reputation
WMACs outperform industry peers and the market as a whole
Total shareholder returns
WMAC S&P 500
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One year 42.3% 26.5%
Three year 0.1% (5.6)%
Five year 5.5% 0.4%
Ten year 4.0% (0.9)%
This year’s research
Our focus
� This year, our research focused on employee engagement issues
� Explore organization approaches to retain and motivate employees in a tough economic environment – and how they can reengage and reenergize their workforces as they prepare for recovery-related growth
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workforces as they prepare for recovery-related growth
02The business case for engaging and enabling employees
02
Engaging and enabling employees to drive performance
Work environments have to turn motivation into productivity
Engagement
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Str
ate
gic
inte
nt
Busin
ess r
esults
Enablement
Engagement
Employee effectiveness
The business case for engaging andenabling employees
Increase in employees above performance expectations
Reduction in turnover rates
Customer satisfaction rates
Revenue growth
Employee retention
Employee performance
Customer satisfaction
Financial success
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expectations
10% -40% 71% x2.5High engagement only
50% -54% 89% x4.5High engagement +high enablement
Based on linkage case studies using Hay Group’s global normative database
03Lessons Learned from WMACs
03
Lessons learned from WMACs
Key themes
� Linking employee engagement to organizational objectives
� Employee engagement in a downturn
� Employee surveys and other approaches to measuring and monitoring employee engagement
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employee engagement
� Ensuring line manager involvement in and attention to engagement initiatives
� ROI on engagement efforts
� Communicating employee engagement levels externally
Weaving employee engagement into organizational fabric
81
94
Most Admired Peer group
Our company has a specific definition of employee engagement
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% Favorable
67
79
88
88
0 20 40 60 80 100
Our company has developed an explicit employer brand
HR staff across our company have a good understanding of what
employee engagement is
WMACs made less extensive use of …
WMACs were able to take less severe actions amid the downturn
Hiring freezes30
14
Most Admired Peer group
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Compensation freezes
% Very great extent / great extent
Layoffs23
36
10
19
0 10 20 30 40 50
WMACs are emerging from the recession with more engaged and enabled people
Rate now as compared with two years ago...
Employees’ loyaltyto the organization
49
69
Most Admired Peer group
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Ease of recruiting talentto fill key positions
Frustration among employeesover work conditions
not conducive to their success
% Greatly improved / improved
31
57
44
73
0 20 40 60 80 100
Ongoing measurement and monitoring
How would you rate the effectiveness of your employee
survey program in generating action
87
Most Admired Peer group
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survey program in generating action and change?
% Favorable
58
69
71
0 20 40 60 80 100
How successful has your company been in linking employee engagement to customer
satisfaction?
WMACs ensure line manager involvement
76
75
86
Most Admired Peer group
Line managers own engagement initiatives
Engagement levels fostered by line
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% Favorable
82
66
77
90
65
75
0 20 40 60 80 100
Engagement levels fostered by line managers are a factor in performance
evaluations
Employee engagement metrics are incorporated into variable pay programs
Employee engagement is incorporated into leadership or
management development programs
WMACs are realizing a greater ROI on engagement efforts
I believe our efforts to engage employee have:
69
82
83
94
Most Admired Peer group
Created a competitive advantage
Reduced complaints about pay fairness and equity
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% Strongly agree / agree
72
72
67
69
84
85
94
0 20 40 60 80 100
Reduced turnover
about pay fairness and equity
Strengthened customer relationships
Reduced employee performance problems
WMACs do more to communicate engagement levels to outside stakeholders
How frequently do you share information on employee engagement levels with...
33
45
Most Admired Peer group
Investors
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% Very frequently / frequently
30
56
51
65
0 20 40 60 80 100
Prospective hires
Current/prospective customers
04Perspectives from Reward Professionals
04
Research objectives
� Survey of over 650 WorldatWork members to:
− Identify reward practices impacting employee engagement
− Identify what works and what can
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− Identify what works and what can be improved in the reward space in engaging employees
− Identify reward and engagement attributes and activities that enhance organization performance
Reward professionals believe:
� Intangible rewards and leadership have more impact on engagement than base pay, benefits, and incentives
� Short term incentives are the tangible rewards that have the most impact on engagement
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impact on engagement
� Quality of work, work environment, career development, and senior leadership are the intangible rewards that have the most impact
Impact of financial rewards on engagement
Base salary level
Base salary increase
Benefits and perquisites programs
42%
41%
39%
44%
20%
15%
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Short-term incentives or bonus
programs
Benefits and perquisites programs
32%
32%
54%
48%
50%
44%
30%
37%
18%
24%
16%
14%
0% 20% 40% 60% 80% 100%
% High % Neither % Low
Long-term incentives or bonus
programs
Financial recognition programs
Impact of intangible rewards on engagement
Work environment or
organizational climate
The nature of the job or quality
of the work
61%
69%
28%
26%
10%
5%
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Career development
opportunities
organizational climate
Work-life balance
37%
55%
59%
47%
31%
29%
16%
14%
11%
0% 20% 40% 60% 80% 100%
% High % Neither % Low
Non-financial recognition
programs
Impact of leadership on engagement
Manager’s assessment of
employee performance
Coaching from managers or
supervisors55%
65%
36%
25%
9%
9%
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Organizational objectives
supervisors
Quality of senior leadership 49%
53%
55%
37%
34%
36%
14%
13%
9%
0% 20% 40% 60% 80% 100%
% High % Neither % Low
Why people leave organizations
From our employee opinion research database (4MM records), the factors that drive employees out of organizations include (in rank order)
1. Career development opportunities
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2. Compensation
3. Work climate
4. Manager/supervisory conflict
5. Lack of challenging work
6. Direction of organization
7. Lack of recognition
Impact of employee and manager involvement in reward design on engagement
� Conventional thinking and the research suggests that participation in program design builds ownership and commitment.
� And in this study we found reward program involvement is linked to more positive views of effectiveness of reward strategies in engaging
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more positive views of effectiveness of reward strategies in engaging employees (r ≥ .35)
� However, we found very low levels of employee and manager involvement in reward program design, implementation, and evaluation.
4%
4%
17%
16%
42%
40%
37%
40%
Employee involvement in reward programs
Design
Implementation
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3%
18%
17%
39%
42%
40%
37%
0% 20% 40% 60% 80% 100%
% Always % Often % Seldom % Never
Implementation
Evaluation
12%
8%
31%
29%
35%
40%
22%
23%
Manager involvement in reward programs
Design
Implementation
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6%
12%
27%
31%
37%
35%
39%
22%
0% 20% 40% 60% 80% 100%
% Always % Often % Seldom % Never
Implementation
Evaluation
Why is employee and management and management involvement so low?
05Recommendations
05
Our top ten list
Organizational Priorities
1. Make a business case for engaging employees
2. Measure and monitor engagement
Reward Priorities6. Go beyond comp & benefits to a
total rewards mindset
7. Include employees & managers in reward design and launch
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engagement
3. Take action on survey results
4. Make everyone responsible for engagement
5. Connect people with the future
8. Tailor total rewards to workforce segmentation
9. Use engagement metrics in performance criteria
10.Communicate the value of what you have
1. Make a business case for engaging employees
� Employee engagement should not be confused with employee satisfaction.
� Organizations that manage employee engagement most successfully clearly articulate how high levels of employee motivation support core priorities (e.g., enhancing productivity and innovation, fostering and sustaining strong customer relationships, and retaining top talent)
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2. Measure and monitor engagement
� Employee opinion surveys are important tools for monitoring and managing employee engagement
� Surveys are two-way communication tools
− What is measured sends important signals to employees about values and priorities.
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employees about values and priorities.
− Sharing results and a plan for action demonstrates respect for employee input
3. Take action on survey results
� The best companies make more frequent use of surveys than their peers and they use the input more effectively
− They indicate employee surveys are more effective in generating action and change
− They report doing more to link employee survey results to performance
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− They report doing more to link employee survey results to performance outcomes, such as customer satisfaction
− They say their best managers are more likely to take action
4. Make everyone responsible for employee engagement
� Engagement should be a priority for managers and employees at all levels
Senior Leaders
• Share engagement index scores across functions
• Communicate expectations about engagement to
management team
• Model engaging leadership behaviors
Human Resources
• Align employer branding to key engagement drivers
• Measure engagement levels and consult on key
actions
• Coach and support people managers in engaging
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Model engaging leadership behaviors
• Hold engagement conversations with top talent
• Incorporate engagement into performance
evaluations
People Managers
• Understand and align with functional leaders’
expectations
• Examine personal engagement
• Build skill in management behaviors that impact
employee engagement
• Hold engagement conversations with top talent
Coach and support people managers in engaging
their teams
Employees
• Discuss individual engagement factors with manager
• Participate in the employee survey and other
feedback opportunities
• Provide feedback to managers about the
effectiveness of engagement efforts
5. Connect people with the future
� Maintaining high levels of engagement requires connecting people with jobs and organizations and helping them to see a positive future
for themselves and their
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for themselves and their organizations.
� Focus areas should include:
− Confidence in leadership
− Clear and promising direction
− Development opportunities
6. Go beyond compensation and benefits to a total reward mindset
� Help leaders and managers understand that rewards
go far beyond compensation and benefits
� Build the core organization messages (employment
value proposition) around what is meant by total
rewards
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rewards
� Develop tools for managers so they can effectively
reward employees beyond the confines of
compensation and benefits
� Develop and reinforce communications
around total rewards
7. Include employees and managers in reward design and launch
Intangible reward
Annual variable
Guaranteed cash
“We do employee surveys every
two years and make action plans
based upon the survey results.
One key finding is that we need to
do a better job at communicating
the total value of reward to our
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Benefits Long term incentives
reward variable
employees.”
Heineken
“The real power is when you actually start
talking with your employees. We design our
reward programs, invest in new programs,
and beef up current programs based upon
the feedback we receive from our
employees.”
McDonalds
8. Tailor total rewards to workforce segmentation
� Identify the most meaningful and valued ‘rewards’ in the organization: Do reward values vary across the organization and work units?
� Recognize that different employees value different rewards: What do your boomers, generation X and Ys value?
Build the manager’s reward tool kit based on this understanding
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� Build the manager’s reward tool kit based on this understanding
− How can they use
− career development
− organization and job design
− non-financial recognition programs
− organizational work climate
… to reward employees?
9. Use engagement metrics in performance criteria
� The Most Admired Companies have more balance performance scorecards
− Balances timeframes, measurement level and measurement types
− MACs using human capital measures are double their peer groups
� Recognition that financial performance is driven by engagement
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� Recognition that financial performance is driven by engagement
� Establish baseline measures so you can monitor trends Financial
Non-financial
Corporate
Individual
Short term
Long term
Financial
Non-financial
Corporate
Individual
Short term
Long termNon-financialNon-financial
FinancialFinancialCorporateCorporate
IndividualIndividual
Short term Short term
Long termLong term
CustomerHuman Capital
OperationalSocial
Responsibility
10. Communicate the value of what you offer
� ‘Best’ practices and sophisticated designs fail if they are not properly rolled out.
� Clarify and focus on a few direct messages and tools
� Use total reward statements
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� Use total reward statements
� Help line managers understand and use their tool kit to communicate reward value
What else is on your list?
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What else is on your list?
Contact us
Tom McMullen
Hay Group (Chicago)
312.228.1848
42© 2010 Hay Group. All rights reserved