The Sustainability Buzz

Engaging Employees: What’s Your Human Capital Worth?

Employee Engagement for SustainabilityCorporate sustainability is often defined by some version of the three-legged stool model and there is an alphabet soup of ways to define that model – 3 Es (economy/environment/equity), 3 Ps (people/planet/profits), CSR (corporate social responsibility), CR+Green, TBL (triple bottom line).  At iSpring we often use ESG for environmental, social and governance.  But to a data-focused business person, the most clear definition might be that corporate sustainability equals good asset management, if we think of assets in terms of economic, natural, and human capital.

Often our conversation focuses on the first two – economic and natural capital.  You know, water, waste, electricity, cost reduction, ROI.  It’s easier to measure and not as messy as dealing with human beings.  But the third kind of capital – human capital – is what we want to discuss this month, specifically the human capital within the company.

At the core of any business enterprise is its people.  No matter how automated the process, someone still has to reliably turn on the machines.  Of course most business enterprises are nowhere near that simple.  And while many businesses pay lip service to the need for engaged employees, far fewer quantify the value of an engaged workforce to the company.  A company seeking a well-rounded sustainable strategy needs to know what that value is.

Engaged employees deliver better business results.  A 2010 report from the World Business Council for Sustainable Development revealed these statistics:

  • Companies with engaged employees grew profits three times faster than competitors.
  • Highly engaged organizations have 87% less staff turnover and 20% better performance than average.
  • Operating income of companies with engaged employees improved by 19% in one year vs. a decline of 33% for companies with low levels of employee engagement.
  • 59% of engaged employees say their job brings out their most creative ideas vs. 3% of disengaged employees.

So what is an engaged employee?  The team-consulting company Belgard-Fisher-Rayner identified four factors that cause an employee to be committed to a project or overarching goal:  Clarity (an understanding of what the goal is), Relevance (an understanding of how it benefits the company and therefore the employee), Involvement (having a personal opportunity to shape and implement the initiative) and Meaning (the goal resonates with their personal values).    It is the Meaning component that drives the commitment because it is at this level that the employee becomes emotionally engaged.

Studies have shown that 60% to 70% of employee absenteeism is due to reasons other than illness.  Employers can influence that 60% number by implementing such programs as flexible work schedules, work-at-home options, and job-sharing opportunities.   A company focus on sustainability includes an understanding of the influence of the work environment, both physical and mental, on the employee, leading to programs that value the worker’s physical and emotional health.  And engaged and innovative employees can often come up with their own solutions, not readily apparent to management but equally workable.

Employee engagement is also enhanced by opportunities for volunteerism.  These sorts of programs need to be aligned with the Meaning component of the employees’ commitment.   Employers can run company-wide volunteer programs for specific organizations that align with the company’s passions, or they can support employees with paid time off to volunteer in employee-selected programs.  Programs can be ad hoc or ongoing, but they need to speak to the employee’s desire for meaning and involvement.

All this leads to several quantifiable changes.  Engaged employees are more innovative and productive—two of the things that a successful sustainability strategy requires.  If only 25% of employees become more engaged, it is a conservative estimate that the company will see a 10% increase in their productivity.  More engagement means more productivity and more innovative ideas.  These increases avoid the cost of hiring additional employees to produce the same amount of work and create employees who may just think up the company’s “next big thing.”

Having an engaged workforce also leads to a significant reduction in turnover.  While recent financial conditions have resulted in significant workforce reductions, during more normal economic times, turnover is a high cost item for any business.  Voluntary turnover rates in 2008 were 10.4% for the manufacturing sector, 14.9% for the distribution and warehousing sector, and 14% for the services sector with an average of 12.5% for all sectors.  Estimates of the total cost of a voluntary turnover range from 30% to 150% of the salary of the vacated position.  Reducing that turnover by the 87% cited above can have a significant bottom-line impact.

Most importantly, any company seeking to embed sustainability within its corporate DNA needs the buy-in of its people, a capital asset just as valuable as money or materials. Their innovation and creativity provide the greatest pool of resources to identify and implement sustainable change.  Engaging this most important asset unleashes those resources, creating benefits that flow directly to the bottom line.  Just remember, once those benefits reach the bottom line, share them with the folks who helped create them.  It’ll become a virtuous cycle that’s sure to return multiples of the investment.

One Comment

  1. Posted 24 May 2012 at 10:28 am | Permalink

    Good reminder. It’s a shame that there is still a need to remind people that engagement makes sense. Ah well. . .

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