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THAT WORK    2017

​People are the only economic component in business with the inherent power to generate value. This value proposition is at the heart of Employee Engagement. And the reason why top leaders in every organization are totally interested in managing it well – but struggling.

“We need reliable human resource numbers that can help us better execute and prepare us for what’s next”, is frequently heard from the C-suite. Today’s leaders clearly want better HR analytics to synchronize people efforts and develop the right employee skills to succeed tomorrow. Traditional accounting statements and employee survey metrics of yesterday don’t see ahead, nor can they sustainably improve employee engagement, unity of effort and execution long term. 

In 54-plus years of employee attitude and engagement research, Scarlett Surveys has developed an analytical HR model around Employee Engagement which is predictive of employee and business performance. This simple model can significantly improve your execution and ensure the perpetuity of your business:


Competence x Engagement x Organizational Opportunity = 
Return on Human Capital

The CEO Formula works like this. Human resource expenses are the most expensive form of capital, up to 70 % of an organization’s recurring operating cost. Connecting the key value elements of those human resource expenses to future business performance shows leaders where capital should be concentrated today to produce desired outcomes tomorrow. The value elements that predict the productivity of your human capital are Competence, Employee Engagement and Organizational Opportunity.       

Here’s how each element of the CEO Formula works in your organization and how you can make it the centerpiece of your HR analytics dashboard by tracking and calculating three HR value elements. It’s where a more profitable and predictable future awaits!


Think of competence in your organization as a collective rather than individual phenomenon where unity of effort is more important than the sum of the parts. That’s why we have organizations — because one person can’t do all the work. Too much emphasis has been placed on individual talent management at the expense of group engagement and unity of effort where the real value and predictability potential slumber.

So competence is a group’s or organizations collective state of being adequate, well qualified, or masterful in performing a specific set of jobs or functions against set standards.  It’s a measurement of group performance in achieving desired business outcomes. What you’re aiming for is a reliable index on a 0-100 scale. (Don’t worry about precision measurement in the beginning, reasoned, consistent approximations will do.) Tracking and managing your signature competence index by itself is a productivity enhancer. Combined with other elements of the CEO equation it becomes a human capital multiplier. The group becomes stronger than the sum of its parts.


The second part of the CEO people equation is “Engagement”; often spoken about and rarely measured well. Real employee engagement drives willingness. Without willingness competence has little value. Both must be present for positive economic contribution to occur. [See “What is Employee Engagement? 2016”]

For example; how many times have we seen a gifted athlete or person of great talent become disengaged or even hostile towards the organization that employs them?  They may be masterfully competent or ready to provide great talent but they are emotionally unwilling to focus their talents and efforts for the economic benefit of the enterprise.  It’s like hiring a champion race car driver and spending big money on a high horsepower sports car but he refuses to start the car.  The driver is ready but unwilling.  True engagement measurement statistically describes this state of willingness and predicts the quality, speed, energy, and enthusiasm of human effort in the organization. Ready without willing results in poor return on human capital because the capital sits idle. The expert race car driver is going nowhere.

Engagement drives willingness. Engagement intensity determines how much effort will be put forth and for how long. So, if you want your talented race car drivers to start the car and win races, make darn sure engagement is measured correctly.

To measure engagement correctly, it must be defined well. Simply put, “engagement is an emotional state that predicts effort”. The long version is “an individual’s positive or negative emotional attachment to the work group, organization, job and colleagues, which heavily influence work effort and willingness to perform.” Why does this work? Because 95% of the thinking that drives our behavior occurs instinctively, heavily influenced by our emotional attachment or engagement. Engagement is our emotional pledge.

Notice that the above definition describes employee engagement as an individual phenomenon that varies in intensity from extremely positive to extremely negative. In the middle of the employee engagement spectrum is a neutral position which is often mistaken for “satisfied” (and acceptably productive). The reality is that engagement — or, more precisely put, emotional attachment — is heavily influenced by employee experiences with their employers, like leadership interactions, policies and procedures, company image, and experiences surrounding the job, work, rewards, social camaraderie and the work environment.

Think of employee engagement as an acceleration lever. At the front forward position there is a predisposed behavioral tendency that favors economic contribution for the organization.

At the back end position there is a behavioral tendency that withholds economic
contribution. Individuals at this end are disengaged.  
Employees at the extreme
back end are indignant about constructively
contributing to the economic benefit
​of the organization.

Dr. Frederick Herzberg identified fifteen employee “experiences”
which are
​dominate influencers in the formation of engagement intensity. Scarlett Surveys has empirically validated these experiences over 15 million surveys. These experiences or “drivers” are universal across cultures and organizations in forming emotional engagement level. Employee attitudes towards these engagement drivers heavily influence behavioral predisposition to economically contribute, add value, or not contribute (discretionary effort).  Employee engagement can be measured by surveying employee attitudes about these drivers, using a battery of validated questions, weighted formulas and algorithms and then comparing calculated responses to an empirical database. The data base comparison normalizes results thereby highlighting high-value engagement improvement priorities. The sum of scored responses to these question batteries categorize emotional attachment level, intensity of effort propensity, and predict future behavior. Calculated responses are summarized by a group Engagement Index, Drivers Dashboard and ratio of positively engaged to negatively engaged.

Below is a chart which shows how a reliable engagement measurement and classification system operates. Figure 2 shows how employee experiences with dominate engagement drivers affect employee engagement intensity. It also shows corresponding effort and willingness at different engagement levels.

Figure 2

The importance of quality employee engagement psychometrics cannot be overemphasized: attitudinal willingness and unity of effort metrics are fundamental to having credible HR analytical tables.  Faulty engagement measurement disables management’s ability to engage employees. Time and money are spent on activities that do not have a lasting effect on boosting engagement intensity.

We have found that employee disengagement is often the root cause of companies going out of business.  Disengaged employees cannot adequately respond to competitive business pressures or changes in serving customers. They gradually lose their emotional energy to care or try hard.

While there is general agreement about what employee engagement theoretically can or cannot do for organizations, there is significant misunderstanding about measuring engagement. The reality is that engagement levels exist in employees whether they are measured correctly or not. Engagement intensity becomes baked into us by certain experiences we routinely encounter in the workplace. Many organizations get thrown off the measurement track by using an employee survey which has little correlation to the real heartstrings of engagement. They become bogged down in post-survey communication meetings, issues and perks rather than better managing genuine drivers of engagement every day, at every leadership level.  As a result, neither the business nor engagement sustainably improves and the C-suite disconnects.

For example, we found that 7 out of 10 CEOs are less than satisfied with the measurement integrity/return value of their current employee engagement survey.  They don’t believe that their employee survey accurately measures engagement or shows a statistical connection to business performance.  Conversely, 8 of 10 HR Directors are satisfied with their survey, often citing number of issues addressed and communication meetings held. This disconnect has slowly extinguished companies without their awareness. In this age where people are your only competitive advantage, it is a necessity for leaders to have a real engagement survey instrument to engage Human Resources and use as a statistical base for predictive HR Analytics.

While some employee surveys get at some elements or derivatives of engagement, rarely do they contain all the dominate engagement drivers. The harm is caused when follow-up managers prioritize an incomplete or incorrect list of drivers that, when actioned, actually disengage employees. This predicament is commonplace with opinion surveys that in reality are issue, satisfaction or entitlement oriented.  Actioning results from these types of surveys do not have a positive correlation to improving the number or positive intensity of engaged employees. Engagement, or emotional attachment, is a state of heart which must be earned by effectively managing the most significant employee experiences.  

In a global podcast I was asked why there are 15 engagement drivers. My response was “I wish there weren’t because there are more questions to ask, more psychometrics to get right and more factors to manage, but we can empirically prove there are 15, just as Frederick Herzberg proved there are 15 that affect employee intensity of effort.” The interviewer’s response provided a good summary of reality. “I guess that’s because people are a lot more complicated than we want to believe.” A host of workplace experiences determine engagement intensity – some experiences more than others.

Does the survey instrument correctly measure employee attitudes towards proven engagement drivers and produce a reliable engagement index predictive of employee willingness and effort? Just because we ask employees for their opinions, does not mean that we are measuring their emotional state of engagement. Getting the engagement survey measurement right is key to long term business success and reliable HR Analytics.

Now that we are experts in quality employee engagement measurement and its economic value, let’s look at the last element of the CEO Formula: Organizational Opportunity.  Also known as “job fit” 

Dr. Frederick Herzberg once commented “If you want someone to do a good job give them a good job to do.” This statement describes organizational opportunity; putting the right people in the right place at the right time doing the right job and working for the cause they love. Giving employees the chance to succeed by matching their traits, aptitude and motivation to an important job to which they are best suited and where they can achieve to their potential.

Organizational Opportunity metrics are a bit trickier to gather than Competence and Engagement since they aren’t wholly available off the shelf. In the book, Outliers, Malcolm Gladwell describes how opportunity in addition to competence and engagement (he calls it luck) helps people and groups succeed. The cumulative effect of managing these business success components over time is staggering. GE did some good practical work on organizational opportunity some years ago. They took data from performance appraisals, placement tests and employee engagement surveys relating to job fit, productivity, personal growth and personal goals to formulate individual work plans matched to customer engagement, future customer demand and potential new markets. They were one of the first organizations to realize that organizational opportunity, giving people a chance to contribute to the max and have unlimited success, could predictably maximize GE’s return on human capital and grow their business exponentially. GE forced their managers to figure out innovative skill building career paths for each individual in their group. As a result, a good brand was made great, innovations and new start-ups became commonplace — all while running low operating costs and achieving high return on human capital. Getting people in the right job has great rewards for the individual, team and company.

Our research over the years has revealed that people generally go to work for economic stability, to find out who they are, to achieve and to be recognized for those achievements. Companies on the other hand want people to come to work to add more economic value than they are paid. The two motivations can be bridged through organizational opportunity. Getting the right person in the right job.

Take for example our race car driver who is ready (he is a certified, competent master race car driver with a great car), he is willing (he is fully engaged racing cars) but he is required to work concessions at the track instead of being provided the opportunity to race. If one of the multiplied components of the CEO Formula is zero than the economic return of human capital (ROHC) is zero!  A company’s potential return on human capital is only as good as its lowest number in the CEO Formula. The ROHC of the champion race car driver selling concessions is probably negative. He cannot sell enough sodas to pay his salary and overheads.


There you have it.

Competence X Engagement X Organizational Opportunity = Return On Human Capital

Your potential return on human capital is only as high as your lowest number in the formula.

Let’s work through an example. Let’s say you want to look at Group A’s potential ROHC. First, arrive at a simple basis to calculate a group competency score – let’s say it comes out to “60” on a 100 scale. Next look at the engagement Index score for Engagement from your engagement survey score. Let’s say this is an “80”. Lastly, come up with an easy way to find out if you have people in group A in the right job – like asking each one in private. Let’s say that aggregate percentage is “60”. Your potential ROHC is 28.8 %.

Not bad, but now you know what to focus on in that group to increase productivity. You can put these numbers in an analytical table and push it out to the Group A leader and her boss to develop an action plan.

Next thing you know in six months time your ROHC in Group A has increased – and you are making more money.

The CEO Formula can be applied to any group, team, or organization as a method to predict performance. It provides leaders with a sound listing of what they need to work on. It beats historical cost accounting for predictability and unleashing the economic power of people, hands down. The higher your score the higher your employee economic contributions, the higher your chances are to continuously thrive in this age of rapid market shifts.

Isn’t it time you apply real HR Analytics around real employee engagement? It’s where a more profitable and predictable future through people awaits.  


White Paper 2 of 3

Author’s Note:
Scarlett Surveys has surveyed over 15 million employees over 54 years and has empirically validated the 15 drivers of engagement, developed by Dr. Frederick Herzberg, with their Associate Engagement Research (AER™) employee engagement survey instruments, worldwide.

"What is Employee Engagement?" is the most viewed and quoted White Paper on employee engagement.  Ken can be reached at Ken.Scarlett@ScarlettSurveys.com. 

© Scarlett Employee Surveys International “Lead. Inspire. Profit.” 

Quotations without approbation subject to copyright infringement.