New year, same old problem: Low reward, engagement and productivity

Blog posts

26 Jan 2016

Duncan BrownDuncan Brown, Head of HR Consultancy

We all know that in our knowledge- and service-based economy, our human capital (that is, our people) and how they are managed is a, probably the, critical determinant of sustained organisation survival and success.

Therefore, employee engagement needs to be at the centre of HR and senior management attention. Dozens of pieces of research from all over the world demonstrate the positive relationships between HR and reward policies, employee and customer engagement levels, and financial results (see for example, Combs et al, 2006, a meta-analysis that covers 92 such studies).

So why is the UK’s current major productivity deficit underpinned by a crisis in employee engagement, with these relationships working in the opposite, downwards direction?

2016 has started with a wobbling, worrying set of economic statistics and share price falls, described by the Chancellor of the Exchequer himself as a ‘dangerous cocktail of threats.’ But even more worrying is the data behind this, on the predominantly demotivated and disengaged UK workforce:

  • In its annual survey tracking employee attitudes, Investors in People (IIP) reported earlier this month that 60 per cent of people are not happy in their current roles, leading to a 10 per cent increase in people considering moving jobs since the start of 2014, with 57 per cent of the UK workforce – 17.4 million people - considering moving jobs in the year ahead.
  • Aon Hewitt’s annual roundup of their clients’ engagement survey data shows that the UK’s engagement levels are lower than our OECD competitors and flat-lining, but with a remarkable 28 per cent year-on-year decline in perceptions of the workplace experience, along with five per cent and six per cent falls respectively in perceptions of employer’s customer and employee focus.

And this in turn is underpinned by negative perceptions of pay and rewards. Forget the ‘total rewards’ proclaimed in the HR propaganda on corporate intranets; in reality the bulk of employees feel anything but totally rewarded, with:

  • pay settlements, as People Management reported this month, failing to recover in line with government forecasts and (despite the impending introduction of the National Living Wage) remaining flat at two per cent in the private and one per cent in the public sectors, with average weekly earnings data from the ONS even lower, as overtime and other pay add-ons are reduced and removed;
  • around 1.3 million UK employees now on zero hours contracts; and
  • the Health, Wellbeing and Productivity in the Workplace report by RAND Europe and the University of Cambridge showing that stress-related issues and musculoskeletal conditions were the top factors causing staff to take days off last year, costing the UK economy an estimated £6.5bn.

Pay is a significant driver of dissatisfaction in the employee engagement, or perhaps dis-engagement, data from IIP, Aon Hewitt and IES, along with a lack of progression and dissatisfaction at management, particularly senior management. Seventy-one per cent of UK employees now feel that CEO pay is too high. The CIPD’s Charles Cotton summarised the employee message from this recent ‘The View from Below’ pulse research on executive pay as ‘the more you take, the less we’ll give’.

As Wharton professor Peter Cappelli puts it, we have seen a marked shift in the pay and  benefits arena ‘from a paternalistic model, where the goal was to look after employees and to treat them more or less equally, toward a more market-based approach, where the purpose is to help the company improve its financial performance.’

But if you really want to understand the UK’s productivity and engagement problems, go and spend a morning with a fast-food worker on a zero hours contract; or a hotel cleaner who has to finish a room every 22 minutes; or a major retailer’s warehouse worker with a ‘voice-directed application’ in their ear, giving them step-by-step instructions on what to pick, how, and to get a move on with it.

How has this engagement crisis happened? Has HR been ‘asleep at the wheel’? The CIPD’s fascinating recent research on the future of the profession highlights the growing sense of conflict between HR professionals’ personal principles and their corporate actions.

The main concern, they report, is that ‘while HR might want to create “win-win” solutions for people and organisations,’ they can lack the skills and power to influence business leaders, leading a quarter to feel they have to compromise on their principles. And what stronger principle should HR professionals share than investing in their people and paying them what they are worth?

So what can be done? IES’s review of the academic literature and our experience suggests taking the following practical steps:

  • Do your annual engagement survey (as most UK employers do).
  • But don’t then fail to do anything with the results (with only a fifth actually taking action in response).
  • Drop the automatic, meaningless ‘total rewards’ terminology and instead create and deliver a rewards strategy which differentiates you from, rather than copies your competitors, and aligns what your business needs with what your employees want and receive.
  • Understand how this rewards and engagement model varies for different groups in your workforce and provide the ability to flex and vary your rewards deal accordingly.
  • Measure the impact of your reward policies and any changes to them on employee engagement and adjust your rewards strategy accordingly over time.
  • Given that it’s the overall ‘bundle’ of HR practices which impacts on employee engagement and performance, integrate your reward policies with your overall HR strategy, particularly the development and talent management aspects. Only then can we address our generally ‘low-skill, low-pay, low-productivity’ workforce and economy.

Perhaps most of all, as Investors in People warns, whilst the UK’s economic and jobs recovery continues, if stutteringly, British businesses need to invest in their people or face a potential exodus of talented staff and continued low productivity from those remaining.

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.