The Science-Business Mismatch
After steadily trending higher for a decade, employee engagement in the U.S. experienced its first annual decline during the pandemic and has since dropped further, according to a 2023 study by Gallup1,2. As seen in the chart below, the percentage of employees feeling “engaged” at work fell from 36% in 2020 to 34% in 2021, down to 32% in 2022. Internationally, only 21% of global employees reported feeling engaged. In aggregate, Gallup estimates that employee disengagement costs the U.S. economy about $350 billion in lost productivity yearly.
U.S. Employee Engagement Trend: Annual Averages (%)
Source: Gallup (January 2023).
In his book Drive: The Surprising Truth About What Motivates Us, author Daniel Pink explains that there is a fundamental mismatch between what science knows and what businesses do to motivate employees. Pink argues that most companies today are built around extrinsic motivators that use external rewards to promote positive behaviors and outcomes. However, these conventional methods have become outdated and less effective in the 21st-century workplace.
During the 19th and 20th centuries, many jobs consisted mainly of “algorithmic” tasks that required employees to follow a set of instructions to achieve an objective. Yet, Drive quotes a study that estimates that only 30% of job growth in the U.S. comes from algorithmic work today. In contrast, 70% comes from “heuristic” work, which demands employees to develop solutions by exercising creative thinking, experimentation, and problem-solving skills.
External rewards can provide a short boost of motivation for workers performing routine, repetitive, or mechanical tasks. For example, an assembly line worker might feel motivated to increase his output if a bonus is given after exceeding a production target. Yet, this fixation on the reward can reduce creativity in more abstract roles by encouraging employees to focus on the prize instead of the task.
Similarly, while effective for short-term assignments, rewards could entice workers to take shortcuts when dealing with longer-term work. In other cases, they can also undermine autonomy as money becomes the primary driver of people’s decision-making.
Upgrading to Motivation 3.0
According to Pink, businesses that seek to improve employee engagement should aim to motivate them intrinsically instead of extrinsically. This is what he calls “Motivation 3.0″—the level above primitive survival (“Motivation 1.0”) and motivation based on rewards (“Motivation 2.0”). In contrast to extrinsic motivation, Pink says, “Intrinsic motivation is built around the desire to do things because they matter, because we like it, because they’re interesting, and because they are part of something important.”
According to Pink, the three main elements of intrinsic motivation are:
- Autonomy: the desire for self-direction and control over our work
- Mastery: the desire to continually improve and acquire new skills
- Purpose: the desire to feel part of something meaningful beyond ourselves
Case in point: Microsoft3. After becoming CEO, Satya Nadella focused on creating a culture centered on learning and famously said, “We want to be learn-it-alls, not know-it-alls.” In an age when change is constant, fostering a culture of humility and continuous learning can help a company keep pace with that change and stay ahead of the competition.
In addition, Nadella is a firm believer in finding meaning and purpose in our everyday work. On his first day as CEO in 2014, he emailed all employees, stating, “as we look forward, we must zero in on what Microsoft can uniquely contribute to the world. The best work happens when you know it’s not just work but something that will improve other people’s lives. This is the opportunity that drives each of us at this company.”
Investor Takeaways
According to a different Gallup study, engaged workers can have a positive financial impact. Researchers discovered that as the economy began to rebound during the Great Financial Crisis4 of 2008-2009, an engaged workforce became a significant differentiator in earnings per share (EPS)—a barometer often used by investors to gauge a company’s profitability.
Companies with engaged workforces appeared to have an advantage in regaining and growing EPS quicker than their peers. On the contrary, companies with average engagement levels didn’t experience any increased advantage over their competitors in the economic recovery,5,6.
Lastly, an engaged workforce can also help companies develop a strong corporate brand, making it easier for those businesses to attract and retain top talent. In contrast, low employee engagement can lead to higher costs due to turnover and burnout. Today, building a culture of engagement is beneficial to the success of every organization, and some of the most innovative and forward-looking companies have been able to stand out from the crowd by turning engagement into a key differentiator and source of competitive advantage.
Important Disclosures
1 Harter, J. (2023, May 30). U.S. Employee Engagement Needs a Rebound in 2023. Gallup.com. Available at: https://www.gallup.com/workplace/468233/employee-engagement-needs-rebound-2023.aspx
2 Gallup measures employee engagement by asking random samples of the working population about specific workplace elements that link to many organizational outcomes, including profitability, productivity, customer service, retention, safety and overall wellbeing. Gallup conducted quarterly surveys of the working population during 2022 – random samples of approximately 15,000 U.S. full- and part-time employees each quarter.
3 Microsoft is a holding in Polen Capital’s Focus Growth and Global Growth portfolios as of March 31, 2023.
4 The Great Financial Crisis refers to the period of extreme stress in global financial markets and banking systems between mid-2007 and early 2009. During this period, the S&P 500 peaked in Oct-2007 and bottomed in Mar-2009.
5 Gallup (2023) The Benefits of Employee Engagement, Gallup.com. Available at: https://www.gallup.com/workplace/236927/employee-engagement-drives-growth.aspx (Accessed: 14 June 2023).
6 Every two to four years, Gallup completes meta-analysis research, a statistical technique that pools multiple studies. In 2020, Gallup conducted its 10th meta-analysis on the Q12 using 456 research studies across 276 organizations in 54 industries and 96 countries. Within each study, Gallup researchers statistically calculated the work-unit-level relationship between employee engagement and performance outcomes that the organization supplied. Researchers studied 112,312 work units, including 2.7 million employees.
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