While the economy is slowly recovering, a recent analysis by Hewitt Associates, a global human resources consulting and outsourcing company, shows employee engagement and morale in the workplace are not. Almost half of organizations around the world saw a significant drop in employee engagement levels at the end of the June 2010 quarter—the largest decline Hewitt has observed since it began conducting employee engagement research 15 years ago. This highlights the growing tension between employers—many of which are struggling to stabilize their financial situation—and employees, who are showing fatigue in response to a lengthy period of stress, uncertainty and confusion brought about by the recession and their company's actions.

Since July 2008, at the onset of the economic downturn, Hewitt began closely analyzing changes in employee engagement levels by quarter for more than 900 organizations globally that conducted annual engagement studies. These studies covered topics such as employee morale, confidence in the organization, career opportunities, rewards and recognition programs, and trust in leadership.

Historically, Hewitt’s research shows that about half of these organizations improved their engagement levels in a one-or-two year period, while only 15 percent had experienced a decline. However, the past two years have been more challenging: the percent of organizations with declining engagement has been steadily growing. This trend is particularly notable in 2010. Hewitt’s research shows that 46 percent of organizations experienced a decline in engagement levels in the quarter ending June 2010, while just 30 percent saw an improvement.

“The economic situation over the past two years has clearly strained the connection between employers and employees and the stress continues to increase,” said Ted Marusarz, leader of Global Engagement and Culture at Hewitt. “Organizations are struggling to improve employee engagement, but they need to stay focused. The extra effort companies put forth now will make a difference in how successful they are at boosting employee morale and retaining top talent as the economy stabilizes and employee opportunities open up.”

Engagement Linked to Financial Performance
Hewitt’s analysis suggests a clear link between employee engagement levels and financial performance. Organizations with high levels of engagement (where 65 percent or more of employees are engaged) outperformed the total stock market index even in volatile economic conditions. During 2009, total shareholder return for these companies was 19 percent higher than the average total shareholder return. Conversely, companies with low engagement (where less than 40 percent of employees are engaged) had a total shareholder return that was 44 percent lower than the average.

Steps to Improve Employee Engagement
In its work with organizations around the world, Hewitt has uncovered key factors that differentiate organizations that improve their engagement from those that are not. According to Hewitt, companies with improved engagement levels:

• Focus on the long term: While many of these organizations did cost-cutting and reductions in staff, they made changes consistent with their principles and values and without losing sight of their overall goals.
• Obtain buy-in from leadership: Engagement is a top priority for leaders at companies that saw improved engagement scores. Leaders at these organizations were visible and provided ongoing updates to reduce employee uncertainty and stress. They also created excitement among employees about the future of the organization (82 percent compared to 51 percent at other companies).
• Implement measurable actions: Successful organizations use employee information as a call to action rather than an assessment. They define specific and measurable actions and take steps in areas where the organization will see a clear impact.
• Involve all stakeholders: Organizations with improved engagement understand that creating a "high engagement" environment requires the involvement of multiple stakeholders—the organization (leadership, policies and program), managers and employees. They communicate to these stakeholders to ensure everyone is clear on their role in the process and on the employment proposition.
• Understand key employee segments: Successful organizations understand that not all employees are necessarily equal. They focus on key segments and critical talent so that they’re able to engage or re-engage them once the job market improves.
• Utilize a broader array of information and analytics: Hewitt’s analysis shows that 34 percent of organizations help employees through the on-boarding process to minimize the dip in engagement most organizations see in the first year of employment. Additionally, almost three quarters conduct exit surveys to understand why employees are leaving and proactively identify potential hot spots.

“Understanding what drives employee behavior—in good times and in bad—is critical to business success,” said Marusarz. “All organizations face similar pressures. Companies that are successful at improving engagement in spite of these pressures are the ones that create an environment focused on key human capital elements. They may make adjustments to their engagement strategies, but they don’t lose sight of their overall goals.”