Breakthrough Research

Breakthrough research: Identifying the factors that make a high-performance employee experience (HPEX) The world’s leading organizations are increasingly focusing on employee experience (EX). The fundamental belief is that EX sits at the heart of delivering an exceptional customer experience and, in theory at least, superior financial performance. But to date, there has been a lack of robust definition of EX, or any reliable research to identify how it relates to organizational performance. So, we set out to do two things: first, develop an evidence-based model of EX, which identifies the factors that matter the most; and second, establish whether EX is predictive of business performance. 1 willistowerswatson.com

Fundamentals of EX Dimensions of EX: Fundamentals that employees are looking for at work © Willis Towers Watson To develop a perspective on employee experience, it is As organizational members, employees also have the helpful to first consider some workplace fundamentals. As opportunity to contribute at work and be recognized members of an organization, employees have the opportunity accordingly. They execute job tasks through organizational to experience both connection and contribution at work. structures and systems, build capability and are rewarded To connect, they interact in teams with other employees with compensation and growth opportunity. The quality of on a regular basis, they take direction from managers and this overall “contribution experience” shapes loyalty to an they support colleagues to achieve work goals. In addition, employer. employees link work goals with the broader purpose of the organization – its mission, strategy and future direction. These aspects of connection and contribution can be The quality of this overall “connection experience” shapes summarized in the figure above. Fundamentally, employee engagement at work. experience is about: ƒƒConnecting with people and organizational purpose ƒƒContributing to work and being rewarded accordingly 2 willistowerswatson.com

EX – what matters most? If purpose, people, work and reward are fundamental A second criterion is dimensions of employee experience, how do we identify also applied—clients Willis Towers the factors that matter the most? Do we know them from must have above Watson’s database a proxy statement or a financial report? Probably not. The average employee best source for insight into employee experience is the survey scores. In other of employee opinion experiencing agent themselves – employees. words, they must includes feedback have strong financial from nearly a To understand this requires a rigorous data source of performance and a quarter of a billion employee feedback. Each year, Willis Towers Watson relatively strong culture. surveys over 500 companies and nearly 10 million employees. It turns out it’s hard to employees. Our total database, from nearly 50 years of research, is do both. Only about approaching a quarter of a billion employees. Across those 30 out of the over 500 companies, our employee surveys tap into all aspects clients make it into this elite group every year. of employee experience – from local conditions such as training opportunities, immediate supervision and teamwork, The financial return from this set of organizations is to aspects of organizational functioning such as senior impressive. The figure on the next page shows the return leadership effectiveness, customer focus and on a $1,000 investment in these firms, started in 2002 company competitiveness. and tracked through 2017. Had you invested $1,000 in the market in general it would now be worth just over $2,000 Within our group of over 500 clients each year, we define (as we see from the performance of the S&P and Dow Jones a smaller set of global “high-performance” companies. as examples). However, had you invested in our group of We examine all our clients on nine measures of financial high-performance companies, re-investing your money each performance. Example measures include return on assets, year as the norm group changes slightly from one year to revenue growth and net profit margin, examined for both the next, your $1,000 would now be worth nearly $9,000 – current rates and three-year trends. Only clients who are incredible! Of course, this company set is selected in part for significantly outperforming their sectors, on a sustained above-sector return to investors, nevertheless this picture is basis over three years, are included in the group of confirmation of the superior and sustained business results high-performance companies. from this group of companies. 3 willistowerswatson.com

High-performance companies have impressive and sustainable performance Stock performance of high-performance companies vs. Dow Jones and S&P Indexes Return on $1,000 investment 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $ 10,000 $ 9,000 $ 8,000 $ 7,000 $ 6,000 $ 5,000 $ 4,000 $ 3,000 $ 2,000 $ 1,000 $ 0 S&P Dow Jones Global High-Performance Companies Clearly, there is something exceptional about this group of The results of this comparison are shown on the next page. companies. By studying opinions from employees in the The global average is represented by the vertical axis on high-performance group, it is possible to uncover which the left, and the scores represent the extent to which survey aspects of employee experience characterize successful scores of the high-performance group outstrip the global companies. To do this, we compared the opinions of average (in percentage points). Three sets of topics can be employees in the high-performance group with the opinions distinguished based on the size of the gap. of employees in our total global data set, the “global average”. 4 willistowerswatson.com

Three levels of EX – essentials, emphasis, excellence Essentials – At the bottom are aspects of the workplace that employees are not actively collaborating with colleagues by provide little differentiation across companies. Most firms sharing information and working easily across organizational perform, in their employees’ eyes, to a similar level in terms boundaries. There is a common characteristic to these topics of providing the workplace basics of goal understanding, which suggests that high-performance companies give extra organizing work efficiently, fair compensation and local emphasis to personal influence or agency at work, allowing manager support for performance. We can characterize these employees to actively take advantage of opportunities as workplace “essentials” – foundational capabilities most to excel. organizations spend a lot of time and effort on, but which alone do not characterize high performance. Excellence – Finally, there is a group of topics that most differentiate the high-performance companies, and that Emphasis – Next there comes a group of topics where high can be considered the true “hallmarks of excellence”. The performers are noticeably differentiated compared to the best companies, in their employees’ eyes, excel by inspiring global average. In these organizations, reward is insufficient connection to mission and purpose, providing growth without also building people’s capabilities through training opportunity to fuel ambitions, engendering deep trust in and learning experiences that advance their skills. Likewise, senior leadership effectiveness and creating a sense of work delivery is suboptimal unless employees exercise voice drive (through strong customer focus, ongoing change through proper job authority and avenues to speak up and management and agility in meeting marketplace demands). drive new ideas. Connection to purpose is ineffective unless The common characteristic of these factors is that they are employees bring their full selves to work in an inclusive a function of the mindset within the company. environment. People management efforts fall short if Based on the extent to which survey topics are hallmarks of high-performance EX companies EX in high-performance companies vs global average Inspiration 13 Areas on which Ex high-performance Drive 10 11 cellencecompanies excel Trust Growth 10 Market Focus 9 Voice 7 EmphasisAreas where Inclusion 6 some companies begin to pull away from Capability 6 the global average Collaboration 5 Support 4 Basics all companies do Organized Work 4 Essentialsreasonably well and which don’t especially differentiate Organized Structure 2 high-performance Understanding 2 Fair Pay 2 Source: Willis Towers Watson Normative Database. © Willis Towers Watson 5 willistowerswatson.com

A modern model of EX By blending the basic dimensions of employee experience (purpose, people, work and reward) with these levels of differentiation the following model of the full landscape of employee experience emerges. We call this the High-Performance Employee Experience (HPEX) model. HPEX model Levels Mindset Inspiration Drive Growth Trust Excellence needed to “I trust leadership and they succeed “I’m totally inspired by “We’re transorming, agile “I’m achieing my potential” trust us” what we do” and ahead o the maret” How to Inclusion Voice Capability Collaboration Emphasis create personal “I really fit in here, and we “I hae a say in what we do” “I’m deeloping “We help each other, and agency respect human differences” my capabilities” wor across boundaries” Basic Understanding Organization Fair Pay Support Essentials facilitation of work “I get it” “We’re efficient, flexible, “I’m rewarded airly or “I eel supported, and hae efforts and continually improing” my perormance” a good boss” Purpose Work Reward People Dimension © Willis Towers Watson The link between EX and financial performance To answer our second question, as to whether EX can predict financial performance, we created a short 34-item employee survey, with questions mapped to our HPEX model above, and which EX predicts can be aggregated into a single index. We then tracked scores across 120 client organizations. sustained We also researched the financial performance of each. This allowed us to determine the financial correlation between EX and business results. As shown in the following figure, those correlations are real and meaningful. Companies with more effective employee experience outperform their success. peers for top-line growth, bottom-line profitability, and return to shareholders. In other words, our EX diagnostic is predictive of whether an organization will underperform or outperform its peers. EX predicts better financials Analysis of EX vs. financial performance across organizations Comparison vs. sector average 4% 4% 2% 3% 3% 1% 1% 1% -1% -1% -3% -5% -6% -10% Return on Return on 1-year change in 3-year 3-year change in Assets Equity Gross Profit Margin Revenue Growth Gross Profit Margin Poor EX Average EX Strong EX Source: Willis Towers Watson Normative Database. © Willis Towers Watson 6 willistowerswatson.com

Practical implications So, what are the practical implications, for organizations to HPEX Scorecard achieve success? ƒƒEX now has a definition. Until now, EX was poorly defined. Our model above provides an industry standard for understanding EX. ƒƒEX is a business issue and needs to be managed. Because EX has such a significant impact on sustained financial success, it cannot be left unmanaged. That makes it a leadership responsibility. ƒƒEX should be THE guiding construct for human capital. Because of the profound impact of EX on an organization’s success, no significant change in an organization should ƒƒFree the spirit of employees. What really starts to define be made without considering the impact on the employee high-performance organizations is their ability to free the experience. spirit of employees by giving them voice, allowing them to ƒƒEX can be assessed. Our model allows us to move from bring their full selves to work in an inclusive environment, just talking about EX to true assessment, with a diagnostic building their capabilities and helping them work across that we know predicts financial performance. We create boundaries. scorecards for clients, which give a rich play back of their ƒƒTransforming your organizational mindset will bring EX, allowing them to establish priorities for change. the biggest gains. The most profound change though ƒƒWorkplace essentials alone will not drive change. comes through a transformation of mindset—inspiring The research makes very clear that, because of the your organization around your purpose, driving agility and ubiquity of focus on compensation, supervision, setting innovation to be ahead of the market, helping your people clear goals and organizing work, employees’ experience of achieve their potential and building a trusting leadership the workplace essentials does not vary a great deal from environment. The fact that so few organizations do this one organization to the next. They are necessary table well suggests it is hard. But it is the ultimate magic key to stakes and there are risks and costs for not getting them unlocking high performance. right. But workplace essentials alone will not significantly impact your ability to achieve high performance. It is interesting then that they are the preserve of so much leadership attention and investment. Authors Stephen Young Patrick Kulesa Global Practice Leader, Global Research Director, Employee Insights Employee Insights 7 willistowerswatson.com

About Willis Towers Watson Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com. willistowerswatson.com/social-media Copyright © 2019 Willis Towers Watson. All rights reserved. willistowerswatson.com 8 willistowerswatson.com