What is Employee Engagement and How Does it Affect My Company?

What is Employee Engagement?

“Employee engagement” is a term often thrown around as a key outcome of employee benefit programs. Everything from wellness programs1 to pet insurance2 to brain-training games3 are said to increase engagement. The term became popular over the last 15 years in consulting and HR circles, and there seem to be three main answers to the question, “what is employee engagement?”:4

  1. Participation. Sometimes “engagement” means simply participating in an employer program. Attending a seminar. Signing up for a wellness program. This is a low bar, that doesn’t necessarily imply that the program is impactful or that employees value it.
  2. Emotional attachment to work. Engagement can also mean an emotional commitment on the part of a person toward their job, which then translates into higher productivity, better customer service, and lower absenteeism. This is a definition used in business management and some academic studies.
  3. Something good. “Engagement” is also used as a catch-all term for everything good and beneficial for a company that isn’t quite tangible. For example, I’ve seen both productivity and employee satisfaction equated to engagement. In fact, a common complaint about the term “engagement” is that is mixes causes (good managers) with attitudes (feels about the company) with behaviors (discretionary effort) and outcomes (productivity).5

I prefer #2, emotional attachment to work; that’s one of the most widely used formal definitions, and the one that I find to be the most clear and concise. It’s the emotional state that is caused by a supportive work environment, and causes behaviors and outcomes such as increased productivity.

The emotional attachment to one’s work, or employee engagement as we have defined it, shouldn’t be confused with other employee characteristics like:

  • Motivation. When HR professionals refer to motivation, they usually mean an employee’s extrinsic reason to do something – the desire to get paid, to be recognized, and to complete a task. And, because of that focus, there’s a lot of talk in the HR community about providing incentives to make employees “more motivated”. Engagement is different – and adding incentives are largely ineffective (and often detrimental, as we’ll talk about later). Instead of the fickle, coin-operated meaning that’s often attached to motivation, engagement is an internal and relatively stable emotional bond.
  • Satisfaction. Many Americans are satisfied with work, but not engaged. According to SHRM, 83% of American workers are satisfied, but only 30% of them are engaged, according to Gallup.6 How can that be? While the two concepts are strongly related, these surveys are clearly measuring different things. Employee satisfaction can be considered a basic level of contentment with one’s job; engagement is a more recent and richer concept that extends far beyond satisfaction.7 As Abhishek Mittal from Towers Watson describes it, ‘Satisfaction is a “one-way street” (what can you do for me), whereas engagement is a “two-way street” (what can you do for me and what I can do in return)’8 Perhaps most importantly, engagement is strongly correlated with increased productivity, while satisfaction is less so.
  • Happiness. Happiness is a current emotional state, that is often related to many factors that have nothing to do with employment – the weather (people are happier on sunny days), family life, personality, etc. Engagement is viewed as a more enduring emotional attachment. An employee can be happy because they just ate a great bagel; that bagel doesn’t mean much for employee engagement.9

Why is Employee Engagement Important?

Now that we have an answer for “what is employee engagement”, let’s move on to what this concrete definition means for the importance of engagement. Over the years, employee engagement has been the subject of numerous research studies. According to a Gallup survey of 1.4 million employees, teams scoring in the top 25% of respondents for engagement have the following characteristics, relative to those in the bottom 25%10

  • 65% lower turnover (in industries with low-turnover normally)
  • 48% fewer safety incidents
  • 41% fewer quality incidents (i.e., defects)
  • 37% lower absenteeism
  • 28% less “shrinkage” (i.e., theft at work)
  • 21% higher productivity
  • 22% higher profitability
  • 10% higher customer metrics

Beyond workplace outcomes, Gallup also argues that engagement is positively related to employee physical health (lower diabetes, obesity, blood pressure) and healthy habits as well (exercising regularly eating healthier). While these relationships come from surveys that correlate engagement with positive employee outcomes, and don’t show that engagement directly causes them, the general sense in the field is that engagement plays a causal, though difficult to measure, role.

In terms of dollars and cents, a study by Kenexa of 39 employers found that companies with engagement in the top-quartile had seven times higher total shareholder returns over five years than those in the bottom quartile (19% versus -4%), and twice the annual net income.11

For employers, employee engagement writer Kevin Kruse highlights what may be the single most important outcome from employee engagement, which drives many of the other outcomes described above: Discretionary effort. For example, he says:

“…the engaged retail clerk picks up the trash on the store floor, even when the boss isn’t watching…the TSA agent will pull a suspicious bag to be searched, even if it’s the last bag on their shift”.12

One simple way of thinking about the impact of engagement is this: look at the negative. Someone who is unengaged (by definition) isn’t attached to their work. How would you expect someone to act who didn’t want to work at their job? They wouldn’t work very hard. They would find creative excuses not to come in. They wouldn’t be very pleasant with customers. They would take opportunities to stay home or do other things when presented (snow days = days off instead of working from home). Eventually, they would quit. And that’s basically what researchers have argued.13


[1] http://www.virginpulse.com/
[2] http://partners.healthypawspetinsurance.com/AffiliateAssets/RWOI
[3] http://www.workforce.com/articles/brain-training-is-becoming-the-new-push-in-employee-wellness
[4] There are also numerous related concepts in the academic community with related definitions, such as organizational citizenship, which I touch upon discussed below. Since the term “employee engagement” arose in the HR consulting community, here I am focusing on that term and how it is used; I’ll reference the academic literature and concepts where relevant to the concept of engagement.
[5] E.g, Macey and Schneider (2008).
[6] http://www.gallup.com/strategicconsulting/163007/state-american-workplace.aspx. This is especially striking because Gallup’s survey was previously considered a survey of “job satisfaction” before it was rebranded. As discussed below, it It’s is the measurement of “engagement” that effectively defines it; there is no formal definition (I’ll talk about that more in a future blog post). And clearly, these two surveys are measuring (and defining) two different things. In the academic community “job satisfaction” has a particular and narrower definition; I’m using the non-technical meaning of the term here.
[7] Engagement, as used here, is related to the older concept of “overall job satisfaction”, as distinct from “job satisfaction” and “cognitive job satisfaction”. Trying to keep that distinction clear is difficult with such similar terms, though. A different term, Using “engagement” is clearer, following Harter et al. (2002)..
[8] http://abhishekmittal.com/2011/04/18/employee-engagement-vs-employee-satisfaction/. The “one way-street” metaphor fits one of the most common theoretical frameworks to understand employee satisfaction – Locke’s Affect Theory (1976).
[9] Happiness is sometimes studied in ways that are similar to engagement though – see http://www.deliveringhappiness.com/
[10] http://www.gallup.com/file/strategicconsulting/161459/2012%20Q12%20Meta-Analysis%20Summary%20of%20Findings.pdf. See Harter et al. ( 2002) for a metaanalytic review across business units for the Gallup data, that comes to similar conclusions.
[11] Kenexa (2009) http://www.kenexa.com/getattachment/8c36e336-3935-4406-8b7b-777f1afaa57d/The-Impact-of-Employee-Engagement.aspx
[12] Kruse (2012) http://www.forbes.com/sites/kevinkruse/2012/06/22/employee-engagement-what-and-why/
[13] For example, one line of research in the academic community, for example, defines engagement as the opposite of burnout. See Maslach et al. (2001).

Stephen is a behavioral scientist who studies financial behavior and how digital products can help individuals manage their money more effectively. He serves as Head of Behavioral Science at Morningstar (HelloWallet’s parent company), where he leads a team of behavioral scientists and practitioners to conduct original research on saving and investment behavior.

Stephen has authored two books on applied behavioral science, Designing for Behavior Change and Improving Employee Benefits, and founded the non-profit Action Design Network, educating the public on how to apply behavioral research to product development with monthly events in seven cities.

Stephen holds a BA from U.C. Berkeley, a Master’s from Johns Hopkins-SAIS, and a PhD from the University of Maryland, where he analyzed the dynamics of behavioral change over time. He has two wonderful kids, who don’t care about behavioral science at all.

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