STATE OFTHE AMERICANWOR KPLACEEMPLOYEE ENGAGEMENT INSIGHTS FOR U.S. BUSINESS LEADERS TO WIN CUSTOMER

STATE OFTHE AMERICANWOR KPLACEEMPLOYEE ENGAGEMENT INSIGHTS FOR U.S. BUSINESS LEADERS TO WIN CUSTOMER

STATE OFTHE AMERICANWOR KPLACEEMPLOYEE ENGAGEMENT INSIGHTS FOR U.S. BUSINESS LEADERS TO WIN CUSTOMERS — and a bigger share of the marketplace — companies must firstwin the hearts and minds of their employees. If you are a business leader seriousabout implementing proven engagement strategies for growth at your organization,contact Stephanie Holgado at +1-202-715-3101 or [email protected] COPYRIGHT AND TRADEMARK STANDARDSThis document contains proprietary research, copyrighted materials, and literary property of Gallup, Inc. It is for yourguidance only and is not to be copied, quoted, published, or divulged to others. All of Gallup, Inc.’s content, unlessotherwise noted, is protected by copyright © 2013. All rights reserved. This document is of great value to Gallup, Inc.Accordingly, international and domestic laws and penalties guaranteeing patent, copyright, trademark, and trade secretprotection safeguard the ideas, concepts, and recommendations related within this document.No changes may be made to this document without the express written permission of Gallup, Inc.Gallup®, Q12®, Clifton StrengthsFinder®, StrengthsFinder®, Engagement Creation Indexâ„¢, HumanSigma®, Gallup Panelâ„¢, Gallup-Healthways Well-Being Index®, and CE11® are trademarks of Gallup, Inc. All rights reserved. All othertrademarks and copyrights are the property of their respective owners.The Q12 items are protected by copyright of Gallup, Inc., 1993-1998. All rights reserved. ABOUTTHISREPORT The State of the American Workplace: EmployeeEngagement Insights for U.S. Business Leadersreport highlights findings from Gallup’s ongoing studyof the American workplace from 2010 through 2012.This is a continuation of Gallup’s previous report onthe U.S. workplace covering 2008 through 2010. Thislatest report provides insights into what leaders can doto improve employee engagement and performancein their companies. It includes an overview of thetrend in U.S. employee engagement, a look at theimpact of engagement on organizational and individualperformance, information about how companies canaccelerate employee engagement, and an examinationof engagement across different segments of the U.S.working population. FROM THE CEO Leaders,Here’s something they’ll probably never teach you in business school: The single biggest decision youmake in your job — bigger than all of the rest — is who you name manager. When you name thewrong person manager, nothing fixes that bad decision. Not compensation, not benefits — nothing.At Gallup, we’ve studied the impact of human nature on the economy for decades. We’ve nowreviewed more than 25 million responses to our employee engagement survey, the Q12. And whatwe found out about managers and employees has serious implications for the future of Americancompanies and the world.Of the approximately 100 million people in America who hold full-time jobs, 30 million (30%)are engaged and inspired at work, so we can assume they have a great boss. At the other end of thespectrum are roughly 20 million (20%) employees who are actively disengaged. These employees,who have bosses from hell that make them miserable, roam the halls spreading discontent. The other50 million (50%) American workers are not engaged. They’re just kind of present, but not inspired bytheir work or their managers.Here’s what you need to know: Gallup research has found that the top 25% of teams — the bestmanaged — versus the bottom 25% in any workplace — the worst managed — have nearly 50% feweraccidents and have 41% fewer quality defects. What’s more, teams in the top 25% versus the bottom25% incur far less in healthcare costs. So having too few engaged employees means our workplacesare less safe, employees have more quality defects, and disengagement — which results from terriblemanagers — is driving up the country’s healthcare costs. 4 Gallup research also shows that these managers from hell are creating active disengagement costingthe U.S. an estimated $450 billion to $550 billion annually. If your company reflects the average inthe U.S., just imagine what poor management and disengagement are costing your bottom line.On the other hand, imagine if your company doubled the number of great managers andengaged employees. Gallup finds that the 30 million engaged employees in the U.S. come upwith most of the innovative ideas, create most of a company’s new customers, and have the mostentrepreneurial energy.When leaders in the United States of America — or any country for that matter — wake up onemorning and say collectively, “Let’s get rid of managers from hell, double the number of greatmanagers and engaged employees, and have those managers lead based on what actually matters,â€everything will change. The country’s employees will be twice as effective, they’ll create far morecustomers, companies will grow, spiraling healthcare costs will decrease, and desperately neededGDP will boom like never before.This isn’t impossible. It’s doable. And Gallup is working with some of the world’s biggest and bestcompanies to make it happen. Jim CliftonChairman and CEO 5 TABLE OF CONTENTS 8 EXECUTIVE SUMMARYAlthough the state of the U.S. economy has changed substantially since 2000, the state ofengagement within the American workplace has not. Engaged employees provide the vitalcompetitive advantage U.S. companies need to regain their stature in the global marketplace. 12 U.S. WORKFORCE ENGAGEMENT STAGNANT — HOLDINGBACK ECONOMY Seven in 10 American workers are “not engaged†or “actively disengaged†in their work,meaning they are emotionally disconnected from their workplaces and less likely tobe productive. 16 A CLOSER LOOK AT UNEMPLOYMENT IN THE U.S., 2010-2012Gallup began measuring employment trends daily in 2010 and developed a unique metric totrack full-time employment among the U.S. adult population that is unaffected by shifts inthe nation’s workforce size. 18 HOW GALLUP MEASURES EMPLOYEE ENGAGEMENTGallup’s Q12 metric shows that employee engagement is measurable, manageable,and improvable. 24 HOW EMPLOYEE ENGAGEMENT DRIVES GROWTHGallup’s recent meta-analysis confirms employee engagement’s well-established links to nineessential performance outcomes, and additional research connects employee engagement tohigher earnings per share. 27 WORKPLACE PERKS NO SUBSTITUTE FOR ENGAGEMENTEngagement has a greater impact on employees’ wellbeing than perks such as vacation timeand flexible hours. 6 29 EMPLOYEES ALLOWED TO WORK REMOTELY ARE MORE ENGAGEDWhen workers have the opportunity to work off-site, they are slightly more engaged and log morehours at work each week. 31 MAGIC NUMBERS: HOW ORGANIZATION SIZE AND TEAM SIZEAFFECT ENGAGEMENT Employee engagement flourishes in smaller, tight-knit environments. 32 DIFFERENT TYPES OF WORKERS DEMAND DIFFERENT ENGAGEMENTSTRATEGIES Learn how occupation, tenure, age, education, and gender play a role in employees’engagement levels. 43 THREE WAYS TO ACCELERATE EMPLOYEE ENGAGEMENTGallup helps organizations boost engagement levels with strategies to hire the right employees,develop their strengths, and enhance their wellbeing.1. Select the Right People2. Develop Employees’ Strengths3. Enhance Employees’ Wellbeing 54 LINKING EMPLOYEE ENGAGEMENT TO CUSTOMER GROWTHEmployee engagement is not an end in itself. The moment an employee connects with a customeris a source of untapped power that has profound implications for a company’s profitability. 59 WHAT THE BEST DO DIFFERENTLYDespite a challenging business environment and stagnant engagement levels nationally, manyorganizations that partner with Gallup are finding success by making employee engagement thefocus of their growth strategies. 7 STATE OF THE AMERICAN WORKPLACE EMPLOYEE ENGAGEMENT INSIGHTS FOR U.S. BUSINESS LEADERS EXECUTIVE SUMMARYWhile the state of the U.S. economy has changed substantially since 2000, thestate of the American workplace has not. Currently, 30% of the U.S. workforce isengaged in their work, and the ratio of engaged to actively disengaged employees isroughly 2-to-1, meaning that the vast majority of U.S. workers (70%) are not reachingtheir full potential — a problem that has significant implications for the economyand the individual performance of American companies. Gallup’s research showsthat employee engagement remains flat when left unmanaged. However, there arepockets of organizations in the U.S. that have figured out engagement, and some, likeGallup’s Great Workplace Award winners, are reaping the benefits of having morethan five times the ratio of engaged to actively disengaged employees.This report includes an overview of the trend in U.S. employee engagement, a look atthe impact of engagement on organizational and individual performance, informationabout how companies can accelerate employee engagement, and an examination ofengagement across different segments of the U.S. population. Findings from what thestrongest organizations do differently provide insights into what any company can doto improve employee engagement and performance.Through decades of research with hundreds of organizations and more than25 million employees, Gallup leads the world in its unparalleled understanding ofengagement’s impact on the workplace. 8 STATE OF THE AMERICAN WORKPLACE EMPLOYEE ENGAGEMENT INSIGHTS FOR U.S. BUSINESS LEADERS SOME OF GALLUP’S MOST IMPORTANT FINDINGS INCLUDE: ENGAGEMENT MAKES ADIFFERENCE TO THE BOTTOM LINE •• Engaged workers are thelifeblood of their organizations.Work units in the top 25% ofGallup’s Q12 Client Databasehave significantly higherproductivity, profitability, andcustomer ratings, less turnoverand absenteeism, and fewersafety incidents than those in thebottom 25%.•• Organizations with an average of9.3 engaged employees for everyactively disengaged employeein 2010-2011 experienced 147%higher earnings per share (EPS)compared with their competitionin 2011-2012. In contrast,those with an average of 2.6engaged employees for everyactively disengaged employeeexperienced 2% lower EPScompared with their competitionduring that same time period. MANAGERS AND LEADERS PLAY ACRITICAL ROLE •• Managers and executivesemerged from the GreatRecession with the mostmomentum in the workplace.More than one-third (36%)of managers and executiveswere engaged in 2012, up 10percentage points from 2009. Bycontrast, professional workersoverall saw a modest two-pointincrease in engagement levelsfrom 2009 to 2012.•• Gallup has found thatmanagers who focus on theiremployees’ strengths canpractically eliminate activedisengagement and double theaverage of U.S. workers who areengaged nationwide. DIFFERENT TYPES OF WORKERSNEED DIFFERENT ENGAGEMENTSTRATEGIES •• The generations near the endof their careers tend to bemore engaged than those atthe beginning of their careers,according to Gallup’s research.•• Millennials are most likely of allgenerations to say they will leavetheir jobs in the next 12 monthsif the job market improves.•• Women have slightly higheroverall engagement than men.•• Employees with a college degreeare not as likely as those withless education to report havinga positive, engaging workplaceexperience. •• Gallup estimates that activedisengagement costs the U.S.$450 billion to $550 billionper year. 9 STATE OF THE AMERICAN WORKPLACE EMPLOYEE ENGAGEMENT INSIGHTS FOR U.S. BUSINESS LEADERS ENGAGEMENT HAS A GREATERIMPACT ON PERFORMANCE THANCORPORATE POLICIES AND PERKS •• Although certain policies suchas hours worked, flextime,and vacation time do relate toemployee wellbeing, engagementlevels in the work environmenteclipse corporate policies.•• Despite not always having amanager nearby to monitor theirproductivity, remote workersactually log more hours at theirprimary job than do their on-sitecounterparts.•• Only 22% of U.S. employees areengaged and thriving. Whenemployees are engaged andthriving in their overall lives,they are more likely to maintainstrong work performance — evenduring difficult times. 10 EMPLOYEES ARE NOT PREPAREDTO ENGAGE CUSTOMERS •• Only 41% of employees felt thatthey know what their companystands for and what makesits brand different from itscompetitors’ brands.•• Engagement levels among serviceemployees — those workerswho are often on the front lineserving customers — are amongthe lowest of any occupationGallup measured and havedeclined in recent years, whileengagement for every other jobcategory increased. STATE OF THE AMERICAN WORKPLACE EMPLOYEE ENGAGEMENT INSIGHTS FOR U.S. BUSINESS LEADERS WHAT COMPANIES CAN DO TO IMPROVE EMPLOYEE ENGAGEMENTUse the right employee engagementsurvey. The employee engagement metricscompanies use can affect their ability tocreate changes in performance. Often,organizations make the mistake of usingemployee surveys to collect data that areirrelevant or impossible to act on. Whena company asks its employees for theiropinions, they expect action to follow.Gallup’s Q12 employee engagement metricwas designed with this expectation inmind — the data the Q12 survey collectsare specific, relevant, and actionable forany team at any organizational level, andthey are proven to affect key performancemetrics. Why? Because the Q12 measuresemployees’ emotional engagement, whichties directly to their level of discretionaryeffort — their willingness to go the extramile for their company.Focus on engagement at the enterpriseand local levels. Transformation occursat the local level, but it only happenswhen the tone is set from the top down.Companies realize the most benefitfrom engagement initiatives whenleaders weave employee engagement intoperformance expectations for managersand enable them to execute on thoseexpectations. Managers and employeesmust feel empowered by leadership tomake a significant difference in theirimmediate environment. Select the right managers. Whetherhiring from the outside or promotingfrom within, organizations thatscientifically select managers for theunique talents it takes to effectivelymanage people greatly increase the oddsof engaging their employees. Instead ofusing management jobs as promotionalprizes for all career paths, companiesshould treat these roles as unique withdistinct functional demands that requirea specific talent set. They should selectmanagers with the right talents forsupporting, positioning, empowering, andengaging their staff.Coach managers and hold themaccountable for their employees’engagement. Gallup’s research has foundthat managers are primarily responsiblefor their employees’ engagement levels.Organizations should coach managersto take an active role in buildingengagement plans with their employees,hold managers accountable, track theirprogress, and ensure they continuouslyfocus on emotionally engaging theiremployees. Gallup’s Great WorkplaceAward winners consistently makeemployee engagement part of theirformal review process, and most usethese improvements as a criterionfor promotions. Define engagement goals in realistic,everyday terms. While the overallorganization may set lofty goals forengagement, leaders must make theseobjectives meaningful to employees’ dayto-day experiences to bring engagementto life. Ensure that managers discussemployee engagement elements at weeklymeetings, impact planning sessions, andin one-on-one sessions with employees toweave engagement into daily interactionsand activities.Find ways to connect with eachemployee. As this report clearlyillustrates, each person has differentneeds and expectations regardingemployee engagement. Managers should know that age, gender, tenure,and other variables all play a vital rolein shaping a team member’s workplaceexperience. Managers should alsoknow that every interaction with anemployee has the potential to influencehis or her engagement and inspirediscretionary effort. 11 U.S. WORKFORCEENGAGEMENTSTAGNANTHOLDING BACK ECONOMY Since the global recession of 2007-2009,the American workforce has struggledto adapt to the new economic climate’suncertainties in a period marked bysluggish growth, persistently highunemployment, and sharp spending cutsby businesses and consumers. 70%OF AMERICAN WORKERSARE “NOT ENGAGED†OR“ACTIVELY DISENGAGED.†12 Despite the toll the Great Recessionhas taken on the economy, which wasdocumented at length in Gallup’s 20082010 State of the American Workplacereport, Gallup found employeeengagement levels holding steady amongU.S. workers during that interval. Thistrend continued through the 2010-2012period of Gallup’s latest report. Gallupdefines “engaged†employees as those whoare involved in, enthusiastic about, andcommitted to their work and contributeto their organization in a positive manner. In 2010, 28% of American workers wereengaged. By the end of 2012, as theU.S. inched toward a modest recovery,that number increased slightly to 30%,matching the all-time high since Gallupbegan tracking the employee engagementlevels of the U.S. working populationin 2000.These latest findings indicate that70% of American workers are “notengaged†or “actively disengaged†andare emotionally disconnected fromtheir workplaces and less likely to beproductive. Currently, 52% of workers arenot engaged, and worse, another 18% areactively disengaged in their work. Gallupestimates that these actively disengagedemployees cost the U.S. between $450billion to $550 billion each year in lostproductivity. They are more likely to steal EMPLOYEE ENGAGEMENT AMONG THE U.S. WORKING POPULATION 2012 18 2011 19 2010 19 2009 18 2008 20 2007 20 2006 15 2005 1517 2003 17 2002 17 2000 30 52 29 53 28 54 28 51 29 50 30 55 3059 2004 2001 52 1618 54 2629 55 28 53 30 54 3056 0% 26 100%ACTIVELY DISENGAGED? NOT ENGAGED? ENGAGED from their companies, negatively influence their coworkers, miss workdays, and drivecustomers away.Having the vast majority of American employees not engaged with their workplaces istroublesome as the country attempts to recover ground lost during the financial crisisand get back on track to pre-recession levels of prosperity. Even more troubling is thatworkplace engagement levels have hardly budged since Gallup began measuring themin 2000, with fewer than one-third of Americans engaged in their jobs in any given year.Gallup’s extensive research shows that engagement is strongly connected to businessoutcomes essential to an organization’s financial success, including productivity,profitability, and customer satisfaction. And engaged employees are the ones who arethe most likely to drive the innovation, growth, and revenue that their companiesdesperately need. These engaged workers build new products and services, generatenew ideas, create new customers, and ultimately help spur the economy to create moregood jobs.13 ENGAGEMENT AMONGWORKERS, STATE BY STATE LOWER HIGHERPercentage of engaged workers Although engagement has remained flat overall in the U.S., Gallup researchers found slight variation inengagement among workers state by state. Louisiana leads the country with the highest percentage ofengaged workers, at 37%, followed closely by Oklahoma at 36%. South Dakota, Georgia, Arkansas, and SouthCarolina each have 34% of engaged workers. Thirty-three percent of workers are engaged in Texas, Nevada,Wyoming, Alabama, North Dakota, and Florida. At the far end of the range is Minnesota, which has the lowestnumber of engaged workers, at 26%.Gallup found that at the opposite end of the engagement spectrum, more than one in five (21%) workers inRhode Island are actively disengaged, as are 20% of employees in New Jersey, Connecticut, Pennsylvania, NewYork, Michigan, Vermont, Kentucky, and Illinois. When looking at the range of actively disengaged employees,Idaho had the lowest percentage of this type of worker, at 14%. 14 21 20%10%0% “ORGANIZATION IS HIRING†“ORGANIZATION IS LETTING GO†50%43 40%34 30 20% 21 20% 30% 10% 10% 0% 0% 20 30% 13 40% 50% ENGAGED? NOT ENGAGED? ACTIVELY DISENGAGED 50%ENGAGED WORKERSREPORT TWICE AS MUCH JOB CREATION40% 13 20 30 The national unemployment rate has served as a key indicatorof progress — 30%or lack thereof — in what many economistshave characterized as a “jobless recovery†after the recessionyears. Economists20%widely agree that the U.S. needs more jobsto bolster the country’s fragile economic recovery. In a recentstudy, Gallup found that engaged employees are twice as likely10%to report that their organization is hiring new workers as thosewho are actively disengaged. In contrast, those who are actively0% three times more likely than those who aredisengaged are nearlyengaged to report that their organization is shedding jobs. Thisis regardless of overall U.S. job creation holding steady duringthe survey period.Gallup researchers surmise that job creation partially maybe a by product of the economic climate as a whole, but it isalso likely a function of a business’ own success, driven by itsworkplace environment, performance, and leadership. How leaders manage their employees can substantially affectengagement levels in the workplace, in turn influencing thecompany’s bottom line. Gallup’s analysis suggests that the mostsuccessful organizations effectively engage their employees,leading to higher productivity and better financial outcomes.These organizations appear to move the job market in theright direction.By comparison, workplaces that disengage their workers sufferfrom lower productivity, are less likely to create new jobs, andare more likely to be reducing their workforce.These findings suggest a link between engagement and jobcreation. And if American companies do not find a way toengage more of their workers, they will struggle to create morejobs, making it difficult for the U.S. to achieve real, sustainableeconomic growth in the near future.? 15 A CLOSER LOOK AT UNEMPLOYMENT IN THEU.S., 2010-2012In reviewing the state of the U.S. workplace, it is important to considerthe broader impact of unemployment on the country’s workforce.Gallup’s unemployment rate averaged 9% from 2010-2012. It peaked at10.9% in January 2010 and remained above 10% for three consecutivemonths through March of that year. The lowest unemployment levelGallup measured during this period was in October 2012 when it dippedto 7%, likely as a result of seasonal holiday hiring, although it quicklybounced back up to 7.8% a month later. While Gallup did not begintracking unemployment until 2010, according to the U.S. Bureau of LaborStatistics (BLS), the pre-recession unemployment rate was 5% in late2007 and had remained more or less stable at that rate for 30 months.Gallup measures unemployment in amethod similar to what the BLS uses;however, Gallup does not seasonallyadjust its unemployment metric and itreflects daily interviewing. The BLS, onthe other hand, collects and analyzesdata for one week of each month andadjusts the data according to seasonaltrends. As Gallup began tracking dailyunemployment numbers during recoveryfrom the recent economic downturn,it became clear that this conventionalunemployment metric only told part ofthe story. 16 To fully understand the economicbackdrop of this recovery period, Gallupdeveloped a Payroll to Population (P2P)rate and an “underemployment†rate.P2P measures the percentage of the U.S.adult population aged 18 and older whoare employed full time by an employerfor at least 30 hours per week. Gallup’sunderemployment rate measures thecombined percentage of U.S. adults whoare unemployed in the workforce with thepercentage of those who are workingpart time but looking for full-time work.These measures are unique to Gallupand paint a more complete picture of theU.S. employment situation than can theunemployment rate alone. GALLUP UNEMPLOYMENT RATE TREND, 2010-201215% 10% 5% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2010 Unlike unemployment rates, which canactually improve if people drop out ofthe workforce, P2P is a true reflectionof the labor force. P2P is also highlycorrelated with GDP per capita andwellbeing. Gallup tracked the country’shighest P2P rate from the 2010-2012period in October 2012 at 45.7%. Thelowest reading of 41.7% came in February2011. The overall average for this period 2011 2012 was 43.8%, although by December 2012the P2P rate was up to 44.4%. Similarto other employment metrics, P2P issubject to seasonal hiring fluctuations,but in general, P2P has improved since2010, and many months in 2012 sawmonth-over-month improvements. Theemployment situation seems to besteadily improving, though it is stillin a fragile state….