Financing engagement: motivating employees as an FD

Gautam Sahgal, COO of employee benefits and reward & recognition platform Perkbox, discusses how employee engagement is critical to business success, and how FDs have a part to play

A single disengaged worker can cost a business over £3K annually in sick leave, lost productivity, training and recruitment. The solution? FDs and HR must work collectively to define an approach that motives and retains staff at a reduced cost.

Investment in employee health, well-being and engagement via perks and benefits is often seen as a costly, non-critical “nice-to-have” rather than an intrinsic tool for incentivising, retaining and recruiting talent. How easy is it, after all, to calculate the hard ROI of office massages and free yoga lessons, pension schemes and corporate cars in terms of output and performance?

While common sense might dictate that satisfied and rewarded employees yield dividends in terms of engagement, loyalty and morale, HR continually struggles to justify the costs of such initiatives to FDs. The challenges seem even more insurmountable for businesses operating within sectors debilitated by funding cuts.

Yet a single disengaged worker can cost a business thousands of pounds annually in sick leave, lost training costs and recruitment fees. In the recruitment sector, the annual figure is more than £3K. In the beleaguered care sector where staff retention and acquisition is reaching crisis point, the cost is £2K per worker*. Education, hospitality, retail and manufacturing sectors likewise posit similar figures. In short, the financial costs to a single business, irrespective of sector, can run into tens of thousands of pounds – or even seven figures if the organisation employs over 1,000 people.

Importance of non-financial factors

Most research indicates that remuneration might instantly gratify and sway potential employees into accepting a job offer, but it’s the non-financial factors that come with reward and recognition that ultimately engage and retain workers in the long run.

As the ex-financial director of Thomson Local – the then ailing local directory that faced structural decline due to lack of innovation and huge pension liabilities – understanding the scale to which employee disengagement was catalysing the decline of the company was something I needed to urgently grasp as part of the restructuring process.

At the time, the company was spending over £50K per month in recruitment costs primarily via outsourced HR functions, as well as further funds on a mobile L&D team that provided training to the constant flow of new recruits. Thomson Local had a sales force of around 600 FTE over 18 locations across the UK, with a staggering labour turnover rate of over 50%. Company revenues were declining at a rate of over 20% per year.

It soon became clear how revenue loss, recruitment spend and labour turnover rate were all intrinsically linked – and that impacts of investments and changes within HR may actually drive cost reduction across the value chain in ways that might not immediately be obvious when looking at standard management accounts.

A few things were apparent though. The Thomson Local offices that had the highest labour turnover consistently had the poorest revenue and also bore the steepest costs from an activity-based costing perspective. The revolving door trend saw the constant flux of new employees embark on essential training, only for a high proportion of the newly trained intake to then leave within months in an never-ending cycle of recruitment and churn. Such offices also recorded a higher absence and sick leave quota and incurred higher legal costs pertaining to HR issues.

Conversely, we noted that higher performing teams within the company comprised individuals who stayed within the business longer, received greater support from their managers and understood the part they played in the “bigger picture.”

Investment to boost performance

Prior to this period of candid analysis, employee engagement was never considered a possible solution to the low revenue/high turnover conundrum. But it soon became apparent that employee engagement initiatives of the kind that build stronger, more cohesive teams and had the potential to solve the financial issues at hand, had long been overlooked.

We conceded that investment in employee engagement was not a net cost to the business; it was an investment that sought to drive very specific levers correlated to the inherent company performance problem.

As a result, a number of initiatives were rolled out. In order to put a stop to the endless churn cycle and ensure that employees clearly understood the strategy of company, we took the deeply unpopular move of freezing recruitment and focusing only on those employees who chose to remain with us. While this had an impact on a number of offices, it was crucial to break the cycle of spend-train-lose, and it was doubly important to break the mindset that revenue correlated to number of heads rather than to quality of people. This meant a smaller sales team but one that we could focus on improving.

Senior management spent very significant amounts of time articulating the new strategy to all employees. Clear communication of the company mission and strategy can never be repeated too often. To ensure that all salespeople were learning how best to sell new products, a new self-learning platform was rolled out. Rather than focusing on classroom training, which was not at all engaging (and typically resulted in “in one ear, out the other” sessions), we focused on gamifying the learning process by making learning fun even on one’s own time. We allocated points and rewards to people who read and posted relevant content on an internal site, and to people who completed quizzes on new products and services. Finally, we created a company-wide game based entirely on self-improvement rather than on competition – whereby each salesperson received “air-miles” in a quarter, based on new targets which, at the end of the year, could be traded in for a trip of differing length and destination depending on how many “air-miles” had been redeemed. Importantly, targets included both classic sales metrics as well as other metrics (performance on product quizzes, quality of sales, churn etc).

Improved employee engagement was a central part to Thomson Local’s rescue strategy; of that I am convinced. Today, I find myself playing a central role helping out similar businesses curtail the exact same issues – from social care services to operations in the Third Sector where there are clear challenges present in justifying the purpose and cost of investing in employee engagement using both limited and public money. A standout example is Next Stage, a social care service for vulnerable people that managed to reduce staff turnover from 58% to 14% in just six months. Likewise, Esland Care – a service supporting children with behavioural problems and young adults from troubled backgrounds cited a turnover rate which, at one point, hit 40%; it now stands at 9%. In both instances, employee engagement initiatives played a key role in circumventing disruptive labour turnover that would’ve invariably impacted on the very people reliant on their services.

Getting on board

Employee engagement programmes continue to grow in popularity as business owners seek to find new ways of motivating, retaining and attracting talent in a cost-effective way. Yet the reality is that FDs still continue to widely represent a blocker to implementation.

Why the reticence, when the stifling cost of “unhappiness at work” is so indisputable? Earlier this year, Perkbox surveyed 100 business and discovered that over half of the UK did not formally recognise outstanding employees on a regular basis even though 44% said that reward and recognition was either “very relevant” or “extremely relevant” to their organisation and that 69% rated company perks and benefits as intrinsic to their overall satisfaction with work.

How might this disconnect be bridged? FDs might reconcile with HR to create a benefits and rewards strategy that curtails the costly disengagement issue that is both accountable and economically sound.  But for meaningful change to happen, HR must first keep the conversation around employee engagement alive by speaking in the language of business. Such initiatives will only work if the commercial worth and value of such changes are seen in terms of productivity and hard profit.

Gautam Sahgal is COO of employee benefits and reward & recognition platform Perkbox. Prior to this, Gautam was FD and CEO of UK directory company Thomson Local

*Sick leave is calculated to cost care businesses over £2K annually per employee, based on an average salary of £24,242; the average number of sick days taken by the disengaged employee is over 2.3x the average of an engaged worker. Meanwhile, it can cost a minimum of £4,848.40 to permanently replace a disengaged worker if you factor in the 20% recruitment fee on an average £24,242 salary.