Profitability is linked to employee engagement

Companies with higher levels of employee engagement outperform their competitors in terms of profitability, according to research from consultancy Towers Perrin.

The data adds impetus to growing demands for effective human capital management (HCM).

From 1 April 2005, companies will have to include employee information in their operating financial reviews – a key recommendation of the Accounting for People Taskforce – or explain why they have not.

The research analyses the relationship between the engagement levels at companies and their impact on three financial indicators, and ultimately on operating margin.

Results show that companies with engagement levels above their industry sector’s average outperform their peer group, on aggregate, by 17 per cent in terms of operating margin.

While the report does not assert direct causality between engagement and profitability, because it says the number of variables is just too great , Towers Perrin claims the evidence of a significant relationship between employee engagement and financial performance is now undeniable.

Chris Charman, senior consultant at Towers Perrin, said: “All companies want to maximise their financial performance, and part of that process involves ensuring that staff are engaged and willing to make that extra effort.

“Managers must first understand what engages their employees and what factors are driving engagement,” he said.

A European-wide engagement study by Towers Perrin, published in the summer, found that the top five things affecting employee engagement in the UK are:

  • Senior managers having a sincere interest in employee well-being
  • Employees being able to improve their skills
  • Senior managers leading by example
  • Having challenging work to do
  • Employees having the appropriate authority to do a good job.

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