UK: Embedding Employee Engagement

Imagine, for a moment, trying to run your business without any people. You can't, can you? That is because people are an essential component of any organisation or business. It is impossible to deliver any product or service without involving people. So you have to agree that the attitude of your people to their work must affect the way they work and hence the way your business performs.

A historical imbalance

Yet for the past two decades or more, technology and process improvement have been your primary business focus. You may not have done it consciously, but your people have generally come a poor second in your management priorities. Inevitably, this has not been good for people's attitudes and so has not been good for business.

Even worse, you justified most of your investment in technology and process improvement by a reduction in employee numbers. This, of course, has compounded the problem. So if the returns on your investment were less than they should have been, you can now see why. To rectify the situation and achieve the returns you originally expected, you have to redress the past imbalance.

The present imperative

Are you suffering from declining growth and/or diminishing returns on your technology and process improvement investment? You can hardly be surprised after more than two decades of investment. You will inevitably be feeling the effects of the law of diminishing returns. Plus, that past investment needs time to bed in for you to consolidate your returns.

So what can you do now to keep growing and improve your returns?

Well, in your shoes, we would be thinking that now was the time to invest in people management. This is the only viable option, as well as being necessary to redress that past imbalance.

And if that isn't enough, then the high profile discussion raging on the subject of employee engagement should be more than enough to convince you. Not just because your people are important, but because you now also understand better why employees are so disengaged.

Of course it is easy to get caught up in the hot issues of the moment. Perhaps you are uncomfortable with the rather ambiguous, not-easily-quantified nature of employee engagement and you are uncertain of what it really means in practical terms.

Or maybe you are concerned because you have already invested a great deal of time and effort and money in trying to win the hearts and minds of your people, and you feel you don't have any tangible results to show for your efforts.

But you are not alone.

The surveys that show such high levels of employee disengagement clearly reveal that efforts to engage employees are not proving wildly successful. If anything, the situation seems to be deteriorating. Yet you cannot afford to do nothing.

The challenge

If current methods are not working, and stopping altogether is not an option – and it obviously isn't in this case – you clearly need to rethink what you are doing. The prevailing situation suggests that either:

• your approach to the subject is wrong, or
• you are unaware of factors that are working against you.

Your good intentions make the latter more likely.

In any case, this seems almost self-evident in light of the worsening employee engagement trend despite all the efforts to improve it. Clearly something is working against you. And once again there are two possibilities. The factors working against you are:

• inherent in your organisation and its culture and the way it operates, and/or
• inherent in your methods to improve performance.

Either way, if you are unaware of what is sabotaging your efforts, you are never going to make the progress you want, are you? So bear with us while we give you a fresh insight.

The threat

Let's start with a quick look at the changing nature of business and what drives commercial success.

The 19th century economist Adam Smith identified land, labour and capital as the three primary "factors of production". However, in today's global economy, land appears almost incidental and is barely relevant. Similarly, you will surely agree that access to capital is no longer the barrier to entry that it once was. If you have a reasonable business plan, you can access all the funding you need for your business – and sometimes even if you don't!

That leaves you with labour – the people. (So there you have it: further justification for the cliché that your people are your most important asset.)

In the 21st century, therefore, it is reasonable to argue that the three primary "factors of production" are people, technology and process. But it is people who link it all together. Thus your people are the nervous system of your organisation.

For this reason, anything that erodes employee engagement is a threat to your business.

Toxins of employee engagement

There are a number of "toxins" that attack employee engagement. Their paralysing poison slows performance and reduces results and puts your whole operation at risk. They are particularly dangerous because they are invisible parasites, carried by the very tools you use to enhance performance.

1. Regimentation

One key consequence of the technological progress has been the development of automated workflows. In fact, these have themselves been a major factor in driving process improvement. Their integrated rules engines have led to increased standardisation and the removal of most – if not all – of the decision making from the systems' users.

This has contributed to a massive erosion of job satisfaction and/or the status of a role. The net result has been to turn service and support functions into a modern equivalent of the manufacturing assembly line. So you should not be surprised if it has the same negative long-term effects on your business.

 The banks provide a perfect example of this. Whereas the local branch manager was once a powerful and revered figure in the community, they now have virtually no power at all.

For instance, when a customer approaches their bank manager for an increase in their mortgage, the entire process will likely be controlled by head office and the manager's authority may be severely limited.

Such erosion of authority may make perfect sense for the bank's management, with their focus on reducing costs and maximising profits. However, for the rest of us, it reveals:

• a lack of understanding of the total business
• an insensitivity to customer needs
• a complete unawareness of the human aspect of business.

The implicit lack of trust in their people illustrates the point perfectly.

2. Performance measurement

The technological advances and the automated workflows have led to a massive growth in measurement capabilities. This in turn has fed a new industry in benchmarking and analytics. Undoubtedly, this has merits, but it does sometimes seem that it may almost have led to an "if-it-moves-measure-it" mentality.

The adage that "You cannot manage it if you cannot measure it" does not necessarily mean that you have to manage everything you can measure. You need to evaluate measures very carefully for relevance and value. If you cannot make a case then you should dispense with the measure.

You may think that any tendency to over-measure is simply inefficient and creates work for people who might not otherwise have jobs. However, it has other, more serious, implications as well.

For starters, it would be interesting to research whether increasing organisational dysfunction is the result of widely disparate measures that are cascaded down through the organisation. You have to wonder if it is possible that complaints about the difficulty of finding "good people" is simply one result of different levels each being obsessed with their own performance measures. Could this be the primary source of strategic non-alignment? It is not inconceivable.

Another concern is the validity of the measures themselves. There are two reasons for this.

First, you need to be sure that you are using the right measures. For example, there is a big difference between measuring the number of invoices captured by a data entry clerk and measuring the number of invoice lines captured. Get that wrong and you dismiss the wrong person. Many a business has failed because the measures have been wrong.

Second, the measures can become goals in themselves. This can lead to an over-emphasis on the measures to the point where they become an obsession and you lose sight of the big picture. Perhaps the Deep Horizon oil well disaster in the Gulf of Mexico is an example of this.

These, however, only begin to hint at a more serious issue. This is the link between performance and measurement. The continued monitoring of everything they do puts people under pressure and is a major cause of stress.

This is even more likely when the measures are benchmarked and people find themselves constantly being compared with others. It may inspire the most competitive of people, but is unquestionably subject to the law of diminishing returns. As a result, people are likely to become less productive and less engaged in their work. For those who are less competitive, it is likely to be counter-productive from the start.

You may doubt this, but think about it for a moment. It is a slightly different take on the old adage, "a watched pot never boils". But the thing here is that most people are their own worst critics. This means that they don't really need – or want – other people telling them that they could be doing better.

Remember, too, the other factors we have touched on compound the situation, especially:

• the sense of playing second fiddle to technology
• the change and pace of change that technology has brought
• the threat of job loss.

All these factors combine to undermine your employee engagement and, unless you are aware of them, you will find that your efforts to improve things will not work.

3. Incentive remuneration

Nor do your problems end there. You should not be surprised to learn that incentive remuneration exacerbates all these issues. Its alternative title of performance-related pay gives you a clue as to why not. If performance measurement causes stress, when you link pay to performance you inevitably create more stress. In fact, you could say that incentive remuneration is the flip side of the performance measurement problem. The two things are inextricably linked.

Incentive remuneration, however, causes additional problems of its own. These can be deadly, and you need to be aware of them.

The first of these is the notorious "law of unintended consequences". As you know. this law comes into effect whenever you try to make a simple change to a complex system or in a complex environment. This is almost inevitable, as it is impossible to cover every eventuality. Certainly there have been examples where the wrong performance measures have had an adverse effect on an organisation. And, of course, such problems are made worse when incentive remuneration is involved.

Probably the most frequent occurrence is when commissioned sales people either oversell to their customers or sell beyond the company's capability to deliver. A major retail financial services company provides a good example. This company paid commission for mutual fund sales, even when this simply entailed a transfer of money from current or savings accounts. Thus the company incurred an expense even when there was no direct benefit to the company itself. It is not surprising that the company subsequently failed!

This leads nicely into the next point, which is that incentive remuneration is proven to be inefficient.

Some highly acclaimed research by Dan Pink, presented in a YouTube video which you can see at www.youtube.com/watch?v=u6XAPnuFjJc, shows that incentive remuneration is only effective for simple tasks or manual labour.

Yet the really surprising thing about these findings is not the conclusion itself, but rather the fact that it should be obvious. Why? Because, when you think about it, success is never personal. You see, no matter what the environment or what the field, personal achievement stems as much from the contribution of others as from an individual's own efforts. And this is particularly true in an organisational or team environment.

Consequently, incentive remuneration makes no sense at all in a team environment or within a large organisation. A focus on personal performance inevitably creates a self-centred or "me" focus that undermines a team ethos and erodes team spirit. This is exacerbated when personal earnings are involved. Therefore it can only be counter-productive.

And that is not all.

4. Inequity

You saw earlier that the correlation between effort and performance was difficult, if not impossible, to assess. This becomes even more significant when a person's earnings are tied in to that performance. Now perceptions begin to play an even greater role, particularly when employees start comparing their earnings and performance to those of their colleagues. And you can't prevent comparisons, because they are part of human nature.

Comparisons are always odious and that is particularly true here, because your employees have so many bases for comparison:

• performance (very few people see others as working harder than them!)
• measurement criteria (my criteria are much more stringent!)
• earnings (always a potential can of worms!).

Consequently the deck is stacked against you and the most likely effect is going to be a negative one. In other words, your incentive remuneration scheme is more likely to be demotivating than motivational.

With a large school of thought arguing that people are not money motivated and therefore that – at best – incentive remuneration only has a very short‑term effect, this is even more likely. In fact, if this is true it creates a real problem, because it means that incentive remuneration only has a downside potential.

So, if you operate any sort of incentive remuneration scheme you need to be very careful how you manage it to avoid these pitfalls. You will, however, find it easier said than done, because you are dealing with perceptions. And perceptions are always more difficult to manage than facts.

Even worse ...

You can virtually guarantee your employees have solid grounds for their perceptions.

The three factors outlined above all provide plenty of scope for your employees to cultivate perceptions. But there is one circumstance that acts as a multiplier for all the others and is so prevalent that it inevitably spreads the poison of employee disengagement. Of course we're talking here about the different rates on which incentive remuneration can be based.

Your employees will quite happily accept the disparity in base rates of pay as a fundamental part of life. A disparity in the rates of incentive pay, however, is cause for real dissatisfaction and a breeding ground for discontent. It was all very well for you to earn double what your employees earn, but when you earn a bonus of 50% while they only earn a bonus of 10% they will seethe with righteous indignation at the injustice.

Now you may think that this doesn't happen, but the widening earnings gap is clear evidence that it does and is prevalent. On 16 September 2009 The Guardian, quoting research from the Compass Think Tank, reported that the average ratio of chief executive pay to employee pay rose from 47 to 128 times in the decade to 2009. More recently, Will Hutton in his interim report on fair pay indicated that boardroom pay had increased from 43 to 87 times average employee pay over the last 10 years.

The issue is perhaps more clearly highlighted by a report on the BBC late night news in July 2010. This described how the chief executive of Network Rail received a £600,000 bonus, equivalent to 100% of his base salary, despite having not met all his performance targets. How many of your employees receive a 100% bonus? Even more significantly, how many of your employees receive any bonus when they have not met their agreed targets?

You have to agree that all this makes it look as if there are completely different rules for executives. It contravenes all innate sense of justice. So you can hardly blame your employees if such inequity makes them feel disengaged. You would also resent all efforts to improve performance when someone else gets a disproportionate reward for your efforts. In such circumstances it is unrealistic to expect any employee engagement initiative to work.

Now ask yourself if you have any such inequity? If you do, then you need to recognise that you are sabotaging your own efforts to redress employee disengagement.

Of course there is an irony here. By perpetuating employee disengagement, this inequity effectively guarantees sub-optimal performance and thus reduces your potential earnings. So, while you may benefit in the short term from performance targets that are less of a stretch, your long-term leadership shortcomings will ultimately be found out.

5. Me-centricity

This inequity has a by-product of its own that is equally toxic. It reinforces the natural human tendency to focus on one's own interests and so magnifies the "what's in it for me?" perspective. After all, if you are an employee and see managers putting their own interests first, why would you not do the same?

And of course this is in any case only building on the personal focus created by the incentive remuneration and performance measures that underpin it.

If you are struggling to create a sense of strategic alignment and/or to introduce change or new strategies, the chances are that you have a me-centric organisation with rampant employee disengagement. Even silo thinking can indicate this, because, even when you are able to create some kind of team focus, it is only for your employees' immediate team rather than for the organisation as a whole.

Your entire organisation is ultimately a team. You need to remember this, and that the best teams are those with strong shared values. These create the "we" mentality that outmuscles a "me" mentality. And, as a leader, you are responsible for developing and maintaining them.

Consequently, you should never forget that anything that works against this is counter-productive. It reduces the ultimate efficiency, effectiveness and organisational integrity of your business. And all the toxins we are talking about here do this – big-time! To reverse their effects you have to replace the me‑centricity with a we-centricity.

You will never in a month of Sundays achieve this as long as your people are not engaged. And you'll certainly never achieve employee engagement until you have removed all the toxins that cause and perpetuate disengagement.

6. Lack of self-worth

One of life's great paradoxes is that the more a person focuses on themselves, the more they erode their sense of self-worth. Consequently, by stimulating the kind of me-centricity just described, you are actually helping to reduce the sense of self-worth of your employees.

The regimentation described earlier, and the limited opportunity it creates for your employees to use their own initiative, will exacerbate this. So will their constant fear of being replaced by a computer or a computerised process. How can you expect your employees to feel valued if everything you do conveys a hidden message that you do not really value them? This is a vicious circle that you have to find a way of breaking.

7. Insecurity

A feature of history has been the tendency of people to identify themselves by their work or job. For the last century or two particularly, our self-worth and social status have both been defined by this. You might think, then, that the threat of losing one's job makes your employees work harder. This, however, is not the case, and such fear actually inhibits performance. After all, their work is their livelihood and their primary means of meeting their most basic needs. You cannot expect your employees to give 100% to their work if they are worried.

This means that all your efforts to improve productivity, with their associated consequence of reducing headcount, have contained a built-in brake that has inhibited your prospects for future efficiency gains. You cannot continue to do this indefinitely. This brings us back full circle to our opening position – that the time has truly come to focus on your people.

So, with that in mind, let's now take a look at what people want.

The seven basic human needs

No, this is not just another chance to run through Maslow's Hierarchy of Needs. Apart from anything else, Maslow may not have been completely right when he described his list as a hierarchy. The truth is that our human needs are all inextricably linked, and our well-being depends on our ability to satisfy them all.

Rather, it is simply a fresh take on what Tony Robbins identified as the six basic human needs. It includes one that we think he either omitted or combined with one of the others, rather than giving it its own place, which it merits. The list is as follows.

1. Certainty/security

Certainty is what gives us our grounding. It is our springboard for everything we do and the atmosphere of our comfort zone. It is all you take for granted without conscious thought. Uncertainty is an integral part of life, but in order to live with it you need a modicum of certainty.

In a work context, certainty is not just having a job, but knowing that you have the ability to do it and the tools with which to do it, and that you will get paid to do it.

2. Variety

 "All work and no play makes Jack a dull boy." This old proverb epitomises the necessity for variety. No matter how much we enjoy the certainty of having work and what we are doing, and appreciate our routine, we still need variety to inspire us, to invigorate us and to re-energise us. It was this lack of variety that proved to be the weakness of the production line and it continues to be what undermines employee morale even today.

3. Freedom/independence

We all value our independence. You only have to think of a small child and the satisfaction they derive from doing something on their own. From the moment we can walk we resent constraints. We are happy to hold our parents' hands or to find comfort and rest, but only when it is on our own terms. (The knowledge that they are there is our security.)

Just as a child resists constant supervision, so we as adults detest having our work constantly supervised and monitored. And, just as a child relishes the opportunity to meet new challenges, so we as adults get satisfaction from our own opportunities and endeavours.

4. Significance/appreciation

Once again you have only to think of small children and their constant calls for you to "Look!" to appreciate the innate drive for significance that we all have. It is this force that makes appreciation such a powerful tool. Nobody likes to be taken for granted, and we all enjoy the feelings that we derive from people acknowledging our efforts. If "I love you" are the three most powerful words in the English language, then "thank you" are the two most powerful words. And as a manager you should never forget that.

5. Connection/belonging

 "No man is an island." This is another old proverb that, notwithstanding our desire for independence, accurately depicts our interdependence. Man is by nature an essentially gregarious animal, and the need to fit in and belong is one of our most primal needs. You need to look no further than teenage peer pressure for evidence of this.

The work environment does not change things. Even in the workplace, your people will be more effective when they have a sense of belonging. This grows from a sense of shared values. As you saw earlier, it is your role as a leader to create this.

6. Growth/progress

Progress is a fundamental law of life, and growth is an essential part of progress. Once again this is an innate force that pits us against ourselves and against others, and effectively underpins all competition. Continuous improvement is not just a recent management concept but an intrinsic part of evolution. You will do well to remember this and, rather than trying to impose it upon your employees, build it in by inspiring them to be the best they can.

Performance measures remain a good tool for this. However, they need less emphasis and a lighter touch. Your people will be the best judges of their own performance when they are engaged and committed.

7. Contribution/purpose

Contribution ties in closely with all the last three points and is best depicted by the popular phrase of "making a difference." In fact, at the highest level it boils down to justifying our very existence, and so defines the purpose for everything that we do. This is no less important at work than it is in any other part of our lives. Indeed, given the proportion of our lives we spend at work, you could say it is the most important aspect of our lives.

A new perspective

This simple outline provides you with a new barometer for gauging your employee needs.

For starters, these measures provide the context for the case that there are powerful toxins poisoning all your current efforts to get the best from your people. Now that you are aware of them they will lose their cloak of invisibility and you will be better placed to provide the antidote.

More than that, though, the list offers you a basic standard against which you can assess your situation. You can now understand the nature of these toxins and just why they are so dangerous. Now, too, you have the capability to assess your people management initiatives. You can judge the effectiveness of your efforts to inspire your people and start to develop the highest possible levels of employee engagement.

If you are still not convinced, perhaps the following table will help you see the links.

TOXIN	NEED/S POTENTIALLY POISONED
Regimentation	Security, variety, significance, independence
Performance measurement	Security, significance, independence, connection
Incentive remuneration	Security, significance, connection
Inequity	Connection
Me-centricity	Security, significance, connection, contribution
Self-worth	Independence, significance, growth
Insecurity	Security, significance, connection, contribution

(Please note: this is for illustrative purposes only and is not intended to be an exact representation of all the possible circumstances that may apply. In any case these may vary from organisation to organisation)

Of course the toxins may not attack every need listed against it, but the potential is there and you need to be aware of the possibility.

Yet, perhaps the worst thing about all this is the sheer frustration that it creates. You may recall the earlier point about performance measures causing stress. Well, how much stress do you think all these factors cause when combined?

And it isn't just your employees who are affected. They must surely cause you as much stress as anyone. Trying to run a business when the very tools you are using to improve things are actually working against you must be the height of frustration. It is rather like refuelling your car with a mixture of petrol and water instead of pure petrol, and then spending a fortune on tuning and retuning the engine because the performance isn't what you expected.

Of course, no-one suspects they are being poisoned when they first experience the symptoms. So why would you be any different, especially when you have no reason to suspect it? Depending on the severity of the symptoms, you might not even feel there is much wrong. If you do, you might just think it is nothing serious and that you can live with them and things will get better. So, until you get a proper diagnosis, you will continue to apply whatever remedy you can to fix the symptoms.

You will recognise that this is just a variation of Einstein's statement: "Problems cannot be solved at the same level of awareness that created them." You are sure you have done everything right, and the fact is you have done little wrong. So the question is what will it take to change your awareness?

Level of toxicity

Hopefully this guide will serve that purpose.

If, however, it does not, it will take one or other or both of the following:

• the effects of the toxins becoming so great that you are compelled to seek new antidotes
• the failure of your efforts to improve worsening symptoms.

The rising prominence of employee engagement as an issue suggests that the level of toxicity is rising. That is not to say that all the toxins in the table above are poisoning your organisation at any moment. But the symptoms are worsening. At last the poisonous effect of the toxins is becoming noticeable. Individually and collectively they pose a threat.

You need to understand this and bear these factors in mind at all times when you are dealing with your people. Failure to do so is to risk undermining all your efforts to optimise your effectiveness and efficiency, and will cost you. And no‑one has developed the serum to provide the antidote.

Until now! Here too this guide blazes a new trail and offers you just that.

A powerful antidote

The table above conveys the implicit complexity of the situation. You may be asking yourself: "How on earth can I be expected to remember and to manage all this? I have enough on my plate already!"

Well, the good news is that there is an antidote. There is a solution that can embed these principles into your organisational DNA. And while it may not be a total panacea, it offers a single remedy for all seven toxins. It is called Human Asset Accounting, and it starts from the very simple premise that your people are your greatest asset.

From this oft-stated comment, you can create a four-pronged solution:

• Value your people individually, aggregate their values and include this new figure as a separate asset category, called Human Assets on the balance sheet in your management accounts.
• Complete the accounting process by means of a journal entry that creates an equivalent liability account called Human Capital. Incorporate this as a separate but discrete element of Owner's Equity, thereby introducing a cooperative element to your organisational structure and making all your employees co-owners of the business with a stake equivalent to their personal asset value.
• Dispense with all incentive remuneration/performance related pay, and instead distribute profits between shareholders and employees using a two‑tier, single-rate dividend structure.
• Monitor your people management effectiveness by means of a new balanced scorecard measure of Return on Human Assets/Return on Human Capital.

This innovative solution is a powerful serum that neutralises the toxins because it addresses all the basic human needs. In doing so it changes the historic tradition of accounting for people solely as a cost. This works as a catalyst to reshape behaviour, and so provides a comprehensive platform for addressing employee engagement and creates just the antidote you need. It brings these hitherto invisible issues to the fore and creates an environment where this toxicity is neutralised and your efforts to improve performance are no longer poisoned by factors that you were not even aware of.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.