You’ve probably heard the statistic: Just one-third of American employees are engaged at work.
What’s more, this rate of engagement has been relatively flat since the turn of century, according to Gallup’s annual surveys, and it’s costing employers. In its 2017 “State of the American Workplace” report, Gallup estimated disengaged employees cost companies up to $605 billion in lost productivity each year. The report urges leaders to “take employee engagement from a survey to a cultural pillar that improves performance.” But how are we supposed to do that?
I’ve learned that turning a questionnaire into business impact is less about figuring out if your employees are engaged and more about figuring out why they aren’t — and how you can continue to improve their experience. If you want to design a better employment engagement strategy, then you need to collect data you can regularly and consistently act upon.
What Data Do You Need?
The concept of “organizational climate,” based on psychological insights into human motivation, provides a helpful formula for measuring engagement. The concept started with late psychologist David McClelland, who studied how patterns of behavior and feelings shaped employee experiences. Over the past 60 years, research shows that monitoring these feelings and patterns, which fall into six main elements, can help leaders improve engagement.
Here’s what a healthy climate looks like:
- Low Conformity: The existence of unnecessary obstacles to employee productivity. Do employees feel responsible for seemingly pointless processes and policies, such as sending a weekly summary of tasks to their middle-manager?
- High Ownership: A sense of empowerment, driven by leadership. Do employees feel like they have a stake in your organization’s success?
- High Standards: Defined individual and team responsibilities with stretch goals. Are goals communicated clearly? Do they also present a reasonable challenge for your employees?
- High Recognition: A healthy balance of positive and negative feedback. Do managers regularly communicate with employees when they’re doing well and point out how they could be doing better?
- High Clarity. An understanding of your current role and potential career trajectory. Are job descriptions clearly defined? Are there opportunities for growth and mobility — either laterally or horizontally — within your organization?
- High Team Spirit. Strong and supportive community. Do the people on your team have each other’s back through success and adversity?
If you use the above as a template for a survey, you’ll have more actionable data on how to improve engagement. And this is not the type of “engagement” that’s used interchangeably with employee happiness — truly engaged employees are not simply satisfied with their jobs, but fully invested in the organization’s success.
How to Turn Survey Analysis into Action
Unlike “culture,” which is rooted deeply in your company’s values, traditions and language, the elements of organizational climate can easily shift and are often different across teams. This is both promising and challenging. It’s easier to monitor and change, but must be monitored frequently and thoroughly.
This doesn’t mean the annual survey is dead — it just means you need to follow up. At the company I work for, we send a survey every year, followed by in-person focus groups and monthly mini questionnaires. Armed with historical data and a comprehensive understanding of company climate, you’ll be able to address gaps in engagement and anticipate trends. Let’s say junior-level employees consistently demonstrated low clarity after a year at your company. You could not only create a dedicated solution for these employees, but also proactively address future issues through better defined entry-level job descriptions and frequent career pathing conversations with new employees.
Your solutions to improving climate should be achievable and scalable: One great quarter won’t transform your business for the better. Instead, focus on consistently improving climate. According to a report from advisory firm Willis Towers Watson, companies with high and sustainable levels of engagement have operating margins up to three times higher than companies with unsustainable levels of engagement (low or high).
By building an engagement strategy based on the elements of organizational climate, you’ll naturally find yourself improving results at every turn. Most organizations sit back when things are going in a positive direction and wait until engagement rates plateau. But the best companies know that the secret to success is to recognize when you’re doing well, and then ask: “How can we do even better?”
Jeff Miller is senior director of talent management at Cornerstone OnDemand. To comment, email firstname.lastname@example.org.
A few early adopters of the 401(k) plan design for retirement savings recently told the Wall Street Journal that the platform was always intended to be a supplement to traditional defined benefit pension programs and social security. Instead, the tax-deferred 401(k) savings plan has replaced pensions almost entirely in an effort by employers to reduce the increasing risk, cost and regulation associated with maintaining a defined benefit pension plan.
In other words, the 401(k) was never intended to be a retirement plan but a savings plan. Because money saved for retirement is not automatically annuitized when the time comes, retirees must somehow manage their extremely volatile longevity risk, requiring them to decide how much to spend each year without having any indication of how long they need their money to last. With that in mind, there is a growing consensus among retirement industry experts that guaranteed income in the form of annuities needs to be part of the retirement equation.
To illustrate how unstable retirement benefits can be with a defined contribution strategy such as a 401(k) plan, the chart below defines the expected balance that an employee would have with annual deposits of $1,000 over a 40-year career. For simplicity, we assume that 100 percent of the money is invested in an S&P Index fund for the entire period.
First, we should take a pause and bask in the glory of compound interest. If an employee contributed only $1,000 per year, even the worst 40-year period in history would provide an account balance of $423,000. However, this pales in comparison to the $1.25 million that this employee would have received had he or she been fortunate enough to retire in 1999. This brings us to the point of this illustration: two people could have identical contributions for the same duration with identical long-term investment strategies, with one person receiving three times the benefit as the other due entirely to the dumb luck of the year they were born.
This multiple can exceed 20 times or more when we factor in the myriad ways people can enter and exit the equity market, which is very often poorly timed. The final amount of employer provided income is chaotic and unpredictable, which brings us to a very unsettling truth about the billions of dollars that employers have poured into 401(k) plans over the years:
Employers have no idea how much retirement income they have provided for any 401(k) plan participant.
The most effective retirement savings plans balance risk and cost along three legs of a stool: social security, pensions and savings. The ideal plan embraces the desired elements of a defined benefit plan without the risk and cost to the plan sponsor that drove them away from defined benefit plans in the first place.
Fortunately, there is a way to deliver such a benefit: create a new, stand-alone, qualified defined contribution plan that consists solely of employer contributions, which are used to purchase deferred annuities during the employee’s working life.
This 401(a) type plan would be structured as a profit sharing plan with the following design features:
- Employer makes contributions to the plan on behalf of each employee, which can vary based on salary, position, years of service, etc.
- Each contribution purchases a piece of deferred annuity based on the age of the participant.
- Upon separation of service, the participant receives an annuity certificate for their accrued benefit payable at the plan’s retirement age.
- There are no other distribution options, other than at death.
By channeling a portion of the current 401(k) match into this new plan, employers would be reinstating that missing third leg of the stool and delivering affordable, equitable and more secure retirement benefits to their participants. Moreover, employers will once again know exactly how much retirement income they are providing for their employees.
Jack Abraham is a principal at professional services firm PwC. Matthew Kasper is a retirement director at the firm. To comment, email email@example.com.