Employee engagement and productivity

A recent discussion on LinkedIn, started by the Australian Human Resources Institute, asked the question "Does employee engagement affect productivity?"

I responded as part of the LinkedIn discussion, but also thought I'd post my thoughts here and expand upon them slightly.

Back in my days at Macquarie University, my research provided some insight into this question. I found that 5% higher employee engagement was associated with benefits to the value of 10% of payroll (read my blog on Employee Engagement ROI). Of this 10%, approximately 6% comes from higher productivity.

This relationship is likely to vary based on level of staff, eg 3% of salary for low/semi-skilled staff, 5% for skilled staff, and 8% for managerial and professional staff). The reason for the difference between higher and lower level staff is that there is greater variation of productivity among more senior staff (Hunter et al., 1990), resulting in large part from a greater freedom of action and decision-making.

This link between employee attitudes and performance has been heavily researched. In a classic meta-analysis, pulling together results from over 312 studies involving over 54,000 employees, Judge et al. (2001) concluded that the correlation between job satisfaction and performance was .30. In another meta-analysis, this time using longitudinal data, Harter et al. (2010) reported correlations ranging from .19 to .31 between engagement and outcomes such as employee retention, customer loyalty and financial performance. These correlations closely reflect my research which showed correlations between engagement and productivity ranging from .26 to .36. In round numbers, I think we can safely assume a correlation of .30 between engagement and productivity.

To convert all these numbers into practical examples, 5% higher engagement for a process worker on $50,000 is associated with higher productivity to the value of $1500 per year. Whereas 5% higher engagement for a manager on $150,000 is associated with higher productivity to the value of $12,000 per year.

Now, if you're interested in the stats behind the dollar values I presented above, please read on, otherwise now's the time to find another blog! My calculations of dollar values are based on employee engagement data from over 14,000 employees across over 1400 teams (representing over 1100 different organisations), with productivity being rated by team leaders. The data is correlational, not causal. But I have not revised values upward to reflect measurement error, so statistically these are conservative estimates of the likely associations. The figures assume average output per employee is 150% of salary (eg, a worker earning $100,000 generates $150,000 in revenue - which is a very conservative estimate for many companies, so if your company's output per employee is a higher ratio you can adjust upwards the my estimated dollar values). The figures also assume the standard deviation of output per employee is 32% of average output per employee (as reported by Hunter et al, 1990, who also explored the differences between low-skilled, skilled and managerial/professional staff), and that the correlation between employee engagement and productivity is .31 (average of figures reported by Langford, 2009, 2010). Give me a yell if you're interested in these original references.

References:

Harter, J. K., Schmidt, F. L., Asplund, J. W., Killham, E. A., & Agrawal, S. (2010). Causal impact of employee work perceptions on the bottom line of organizations. Perspectives on Psychological Science, 5 (4), 378-389.

Hunter, J. E., Schmidt, F. L., & Judiesch, M. K. (1990). Individual differences in output variability as a function of job complexity. Journal of Applied Psychology, 75, 28-42.

Judge, T. A., Thoresen, C. J., Bono, J. E., & Patton, G., K. (2001). The job satisfaction - job performance relationship: A qualitative and quantitative review. Psychological Bulletin, 127, 376-407.

Langford, P. H. (2009). Measuring organisational climate and employee engagement: Evidence for a 7Ps model of work practices and outcomes. Australian Journal of Psychology, 61, 185-198.

Langford, P. H. (2010). The nature and consequences of employee engagement: Searching for a measure that maximizes the prediction of organizational outcomes. In S. Albrecht (Ed.), Handbook of Employee Engagement (pp. 375-384). London: Edward Elgar Publishing.