The Return on Investment in People15 Oct 2013
Alex Evans talks to FTSE 250 and FTSE 100 leaders about the correlation between employee engagement and shareholder value
Jack Welch once said “the soft stuff is the hard stuff”; but it’s worth the effort. In a study of 39 organisations examining the relationship between employee engagement and Total Shareholder Return (TSR), the Kenexa Research Institute found that those with the most highly engaged employees achieved seven times greater 5-year TSR than those with the least engaged people.
Shareholder value is a key measure of a CEO’s success, and it’s no coincidence that those with the most engaged employees are delivering the best returns. The finalists shortlisted for the 2013 Leader of the Year award have all achieved profitability and growth by enabling innovation and best practice while investing in talent.
When Harriet Green joined Thomas Cook as its Group Chief Executive in 2012, its market cap was just £150m; it is now in excess of £2bn. Share price has gone from 13p to just over £1.70 in the course of the year and in the last 6 months it has returned to the FTSE 250 (now 134).
This turnaround is attributed to her ability to connect with her employees. “Harriet creates an engaging sense of purpose that people rally behind … communicated with a passion that can be felt in different geographies, across different cultures no matter what role you perform,” says Sandra Campopiano, Chief People Officer at Thomas Cook.
Fellow finalist Phil Couchman, CEO of DHL Express UK & Ireland, has secured a dominant market share of 50% and has achieved double-digit revenue growth in each of his three years in post by driving a culture of ‘respect and results’. As part of his goal to meet every colleague, Phil went back to the shop floor by appearing on Channel 4’s ‘Undercover Boss’ where he got firsthand access to employees in the warehouses, loading bays and with the couriers. Changes implemented since his TV experience include pay rises and new satnavs for drivers – delivering the improvements in customer service that have boosted sales.
The story behind the share price
This correlation between engaged employees and shareholder value is also demonstrated by finalists for the QBE FTSE 100 Business of the Year.
Sir Martin Sorrell leads the £16bn global marketing communications giant WPP. He attributes consistent and impressive growth in a biting recession to an investment in attracting and training talent.
“A key part of our strategy is what we call 'horizontality', which means getting our people to work together more and more effectively for the benefit of our clients,” says Sir Martin. "One example of that is our innovative 'Team' model, which allows clients to access the best talent from across our various operating companies."
Fellow finalist Smith & Nephew, the medical devices firm operating in over 90 countries, was recently named one of Fortune’s most innovative companies. This is attributed to a culture of innovation driven by its chief executive, Olivier Bohuon, whose mantra is: “Innovation is not solely the role of R&D”. As part of his drive to create a culture of continuous innovation, where everyone is responsible for doing things differently and better, Oliver has introduced the CEO Forum and CEO Award as part of its talent development programme. Within the last 12 months, a third of participants have been promoted or taken on a new role in the business.
Diversity in its broadest sense has been embraced by Whitbread which employs over 40,000 people. “The great thing about this business is that anyone entering at any level has the same opportunity to rise to the top, regardless of whether they went to university,” says CEO Andy Harrison. “Social mobility and ethnicity are important areas of diversity for Whitbread because this reflects the diversity of our customer base.”
The UK’s biggest hospitality company, which owns the popular Premier Inn and Costa coffee brands, Whitbread reached tenth place in the Sunday Times Top Companies to Work For in 2013 and won the Diversity in Employment award at last year’s Springboard Awards for Excellence. On a Compound Annual Growth Rate (CAGR) basis, its TSR has grown by 54%, the shareprice has grown by 51% and the dividend by 16% in the last two years.
As CSR has become intertwined with employee engagement, these finalists are retaining talent by engaging their people in community related projects – helping them to develop their skills and leadership potential. Part of a more embedded and holistic strategy for sustained growth, this is reassuring shareholders about the corporate longevity of these organisations - and the results speak for themselves. Finalist Centrica, whose employees gave over 81,000 hours to voluntary projects last year, achieved TSR growth of 35% over the last 18 months.
But for this good work to have an impact on behaviour and perception, it needs to be recognised – both internally and externally. By telling their story through the National Business Awards - and media partners including the Telegraph - these finalists are helping to educate peers and shareholders about the story behind the share price.
Be among the first to find out who triumphs at this year’s National Business Awards – book your place at the ceremony now. Check out Croner’s recent white paper on how to be a great employer for insights on how to turn employee engagement into competitive advantage.