SHRM Foundation Research Employee Engagement: A study of the link between performance management and employee engagement in multinational corporations in developed and developing economies Funded: June 2008 Completed: October 2011 Elaine Farndale, Ph.D., Tilburg University, The Netherlands Executive Summary Employee engagement is a hot and often debated topic for both practitioners and academics, especially when exploring it across countries (given variations in national value systems and management styles and practices). This project has examined the definitions and drivers of employee engagement in four multinational enterprises (including GKN, AkzoNobel and Tesco HSC) operating across developed and developing economies. It explored in particular how approaches to performance management can be used to enhance employee engagement. Based on interviews with 42 HR and other business managers, and survey responses from 964 employees across the UK, Netherlands, India, and China, a more nuanced understanding of the meaning of employee engagement has emerged: Across the data, the findings show both similarities and differences in how employee engagement is defined, and how it might be developed through performance management, the provision of resources and the setting of certain levels of demands at both the job and organization level. KEY FINDINGS AND IMPLICATIONS FOR PRACTICE The research largely found that the definition of engagement was very similar across the company/country combinations, with key words such as passion, commitment, motivation, being happy, and crucially, alignment with the organization’s objectives and values: “Employee engagement, it’s an internal force of the company. So if the employee has engagement, they can build the internal power of the company and work as a team, and they can work in a similar direction to push the company to grow in the same direction and it will grow faster.” [HR Manager, China] Crucially, the findings suggest that we can identify four dimensions of employee engagement: • Job state engagement • Organization state engagement • Job behavioral engagement • Organization behavioral engagement Employees with a high level of job state engagement are passionate and enthusiastic about their job. An employee with high organizational state engagement is very positive about the company and is an excellent brand ambassador. Employees exhibiting high job behavioral engagement are motivated to develop themselves and take the initiative. They are looking to develop and progress in their work but do not necessarily hold the organization they work for in high esteem. High levels of organizational behavioral engagement are found in employees who are proactive in highlighting problems and suggesting improvements to the benefit of the company. Understanding these different dimensions of engagement can help companies determine the focus of the performance management system. The research found that particular facets of performance management drive different types of engagement. In terms of the performance management process, having a broad range of outcomes which are valued by the employee (e.g. promotion, training, reward) are associated with all dimensions of employee engagement except, interestingly, organizational behavioral engagement. Where employees are involved in target setting as part of the process, they show improved job state and organizational state engagement – this suggests employees will be more enthusiastic about their jobs and companies if they are involved in setting their own targets, and this was found to be particularly the case in the Netherlands. In terms of work climate, providing increased levels of job resources - more feedback, autonomy, training and development, and task variety was linked with all dimensions of engagement. Providing high levels of organizational resources in the form of welfare provision and support from line managers, colleagues, and senior managers is also associated with all aspects of employee engagement: “I do believe that the line manager is possibly the most critical element in employee engagement because for all employees, their immediate boss or supervisor is like the company” Business Manager, India. Additionally, where employees perceive high standards of justice and fairness, this is linked with higher job and organizational state engagement (where people feel passionate and enthusiastic about their job and the company), but not their behavioral engagement to be more proactive. The research found that employees who perceived the workload in their job to be high had lower levels of organizational state engagement. However, sensing a general high pressure to produce, and for those with work which demands a lot from them emotionally, was associated with higher levels of job and organizational behavioral engagement – they were more proactive, but did not necessarily feel more positive about their job or company. Cross-culturally, different values and contexts drive employers towards looking for different types of engagement. In China and India high levels of organizational state behavior were found to be desirable in potential employees: Because of a highly buoyant job market, recruiters view loyalty to the company as highly desirable. Contrastingly, in less fluid job markets in Europe, behavioral engagement appeared to be more prized. Despite standard performance management systems being in place across countries, managers also reported differences in the way in which these operated: for example, it was felt that in China, giving open feedback was a problematic part of the process. Overall, these results suggest that performance management systems, as well as job and organization resources (and some demands) are positively associated with different dimensions of employee engagement, and therefore focusing on these drivers might enable organizations to secure higher levels of engagement. Study Methods The study was based on four case study organizations (GKN, AkzoNobel, Tesco HSC, InsureCo*) and includes data from Europe (The Netherlands and UK), India, and China. Findings are presented from a series of semi-structured interviews and focus groups involving a total of 42 participants, and also an online survey with 964 responses from 1,268 email invitations (76% response rate). When considering the demographic of responses, the sample mainly represents professional and middle management employees. *This company preferred to remain anonymous for confidentiality reasons. Download the full research report. View the full list of SHRM Foundation funded research.