The Theory and Practice of
Employee Engagement
California State Automobile Association
Presenter's Name
October 4, 2006
© 2006 TowersPerrin
Perrin
©2006Towers
Towers Perrin has prepared this document for the benefit of CSAA. This document contains proprietary material and
should not be reproduced, either in total or in part, circulated, or quoted from without the express permission of Towers Perrin.
Topics for Discussion
 Background – Engagement at CSAA
 Who we are
 Why the interest in engagement
 Results from our surveys
 ROI – Context for engagement ROI analysis
 What Towers Perrin’s research shows
 What other organizations have found
 How (and why) CSAA analyzed the ROI of engagement
 Background
 Data Collected and Analysis Performed
 Findings
 Key relationships
 ROI/financial Implications
 Actions taken and lessons learned
© 2006 Towers Perrin
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Background – Engagement at CSAA
California State Automobile Association (CSAA)
 AAA was established in 1900 and offers an array of automotive, insurance,
travel and financial services.
 AAA is a not-for-profit, tax-paying federation of 77 motor clubs with more
than 1,100 offices, serving 46 million members throughout the United
States and Canada.
 CSAA (AAA of Northern California, Nevada and Utah) serves more than
four million members and is the second-largest member organization of
the national AAA organization.
 We have almost 7,000 employees working out of more than 125 locations
across five states.
 CSAA is headquartered in San Francisco.
© 2006 Towers Perrin
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CSAA’s 2006 Employee Engagement Survey
 The 2006 Employee Engagement Survey was designed to meet the
following key objectives:
1. Learn how employees view the organization overall and understand
how they feel about their experiences in specific work groups
2. Understand employee perspectives regarding CSAA’s business
effectiveness and the organization as a place to work
3. Assess how well the organization is delivering on its vision, values
and behaviors from an employee perspective
4. Identify any important differences of opinion across CSAA
 The survey was administered from December 5 through December
16, 2005 (with paper surveys accepted through December 20)
 Of the 6,762 employees invited, 4,325 completed the survey – this
response (64%) is a strong response rate for an employee engagement
survey*
*The prior year’s employee engagement survey produced the same response rate of 64%, or 4,090 respondents out of 6,400 employees
invited to take the survey
© 2006 Towers Perrin
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CSAA’s 2006 Employee Engagement Survey
 Six questions form an engagement index that is:
 Consistent with Towers Perrin’s research on employee engagement
 Statistically reliable (the items form a cohesive index)
 The engagement index includes the following questions:
1. I would recommend CSAA to a friend as a good place to work.
2. I am proud to tell others I work for CSAA.
3. My job provides me with a sense of personal accomplishment.
4. I am willing to put in a great deal of effort beyond what is normally
expected to help CSAA succeed.
5. I understand how my role in CSAA is related to CSAA's overall goals,
objectives and direction.
6. I understand how my unit/department contributes to the success of
CSAA.
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In the 2005 survey, CSAA’s scores were above Towers
Perrin’s normative benchmarks on the employee
engagement index
Favorable
Engagement Index
Neutral
Unfavorable
81%
Diff. from
Norm
9%
10%
+7%
This year, CSAA’s engagement index score was similar to last
year’s -- and still notably higher than Towers Perrin norms
Favorable
Engagement Index
© 2006 Towers Perrin
82%
Neutral
Unfavorable
10%
9%
+7%
6
CSAA’s diversity index score is also above the
comparable index figure for last year
Favorable
Diversity Index
Neutral
Unfavorable
62%
19%
19%
Diff.
from 2005
Diff.
from Norm
+3%
N/A
 Six questions form a diversity index that CSAA has identified as the best survey
measure regarding diversity and is statistically reliable.
 The diversity index includes the following questions:
1. How would you rate your immediate supervisor/manager on:
Consulting employees before making decisions that affect them
2. How would you rate your immediate supervisor/manager on:
Acting in ways that support a diverse and inclusive environment
3. I can be myself around here.
4. It’s safe to say what you think around here.
5. At CSAA, employee input and different opinions are actively encouraged.
6. Employees at CSAA are able to contribute to their fullest potential regardless of their
age, race, ethnic background, gender, religion, disability, sexual orientation, or family
status.
© 2006 Towers Perrin
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CSAA’s empowerment index score is also
above the comparable index score from 2005
Favorable
Empowerment Index
64%
Neutral
Unfavorable
19%
17%
Diff.
from 2005
Diff.
from Norm
+5%
N/A
 The empowerment index includes the following questions:
1. How would you rate your immediate supervisor/manager on:
Encouraging/empowering people to take initiative in their work
2. CSAA empowers employees to make appropriate decisions that are
in the best interests of the company and customers.
3. CSAA provides me with opportunities to learn new skills and develop
myself.
4. I have the appropriate amount of decision-making authority to do my
job well.
5. At CSAA, employees are supported in taking appropriate work-related
risks.
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. . . And we have many opportunities for
improvement
Engagement surveys point out these key areas for improvement:
 I have excellent career opportunities at CSAA -- 55% favorable
 CSAA’s senior management acts in ways that are consistent with what
they say -- 47% favorable
 Managers consult employees before making decisions that affect them -
- 54% favorable
 CSAA cares as much for employees as for members -- 41% favorable
© 2006 Towers Perrin
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Results by Survey Category
 Employee views are generally positive, with views regarding senior
management receiving the lowest scores (as they did in last year’s survey)
 Scores in all categories either rose slightly or stayed the same as last
year
Diff.
from 2005
Favorable
OVERALL
Neutral
Unfavorable
66%
Overall Views
17%
76%
Customers
13%
69%
15%
Working at CSAA
67%
16%
Culture
66%
18%
Immediate Supervisor/Manager
Senior Management
64%
54%
16%
20%
23%
11%
0%
1%
16%
0%
17%
2%
17%
0%
16%
2%
24%
1%
Note: Totals may not add to 100% due to rounding
© 2006 Towers Perrin
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CSAA conducted a culture scan
to give us even more information
 Background: CSAA’s territory is extremely diverse. In general, our
employees reflect that diversity – except at the senior level.
 Goal of culture scan: To understand what basic beliefs drive
organizational practices and behaviors and how those beliefs impact the
ability of CSAA to leverage diversity
 Components of scan: Interviews, focus groups, analysis of employee
engagement survey, historical review
© 2006 Towers Perrin
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CSAA conducted a culture scan
to give us even more information (cont’d)
 Findings:
 Strategic -- AAA brand is key to our success
 Governance – Service-driven family
 Operational -- Individual effort
 Critical targets for leveraging diversity:
 Fear of retaliation
 Reluctance to speak up
 Requirements for fitting in
 Business case for diversity
Results were consistent with engagement survey findings,
with no significant differences based on ethnicity or gender.
© 2006 Towers Perrin
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ROI – Context for Engagement ROI Analysis
Towers Perrin’s Global Workforce Study reinforces why
engagement matters: Highly engaged employees
believe they contribute directly to results
= Global response
I can positively impact quality
31%
26%
Disengaged
62%
61%
Moderately engaged
84%
84%
Highly engaged
I can positively impact cost
19%
Disengaged
17%
42%
Moderately engaged
41%
68%
64%
Highly engaged
I can positively impact customer service
27%
Disengaged
Moderately engaged
Highly engaged
© 2006 Towers Perrin
25%
50%
56%
72%
76%
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The National Bank of Canada found strong
relationships among employee engagement, client
satisfaction and shareholder returns
150
$276
Employee engagement (left-hand side)
140
$290
Client satisfaction (retail) (left-hand scale)
$270
Total return to shareholders (right-hand scale)
$250
$230
130
127
$210
$190
120
$170
111
110
$150
$130
$110
100
$90
$70
90
$50
2001
© 2006 Towers Perrin
2002
2003
2004
2005
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Sears developed its employee-customer-profit chain to
help in the turnaround of the mid-1990s
Attitude
About Job





I like the kind of work I do
My work gives me a sense of
accomplishment
I am proud to say I work at Sears
How does the amount of work you are
expected to do influence your overall
attitude about your job?
How does the way you are treated by those
who supervise you influence your overall
attitude about your job?
Service
Effectiveness
Customer
Recommendations
Return on Assets
Employee
Behavior
Customer Impression
Operating Margin
Revenue Growth
Attitude About
the Company




I feel good about the future of the company
Sears is making the change necessary to
compete effectively
I understand our business strategy
Do you see a connection between the work
you do and company’s strategic objectives?
5 unit increase in
employee attitude
© 2006 Towers Perrin
Employee
Retention
Merchandise
Value
1.3 unit increase in
customer impression
Customer
Retention
.5% increase in
revenue growth
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Towers Perrin’s work with a major hospitality company
elaborated on the relationships among employee
behaviors, customer loyalty and financial results
Team Member
Attitudes and
Behaviors
Key Drivers
Q10: Overall job satisfaction
Q15: Encouraged to identify
problems
Q19: Hotel retains top
performers
Q20: Team members are kept
informed
Q33: Proud to work for hotel
Q54: Vision - ‘Investing in the
development of team members’
Q55: Vision - ‘Delivering
innovative products/services’
Q56: Vision - ‘Improving hotel
perf. through the BC’
Q57: Vision - ‘Family of brand
awareness’
Q60: Hotel’s image
Q63: Balanced Scorecard
drives decisions
Q69: Hotel management
balances short-/long-term
considerations
Q70: Members of the Executive
Committee cooperate well
together
Q72: Hotel has high standards
for business ethics
© 2006 Towers Perrin
Reduced
Turnover Cost
Commitment/
Loyalty Index
Q1 Hotel as a place to
work
Q58 Overall
satisfaction w/hotel
Q59 Willingness to
recommend to a friend
Guest Service
Index
Q4 High quality
service
Q5 Courteous team
members
Q6 Sensitive to guest
needs
Q7 Solving guest
problems
Q8 Meeting
expectations
consistently/timely
Q9 Providing a safe
place
Customer
Outcomes
Customer
Loyalty
Financial
Outcomes
RevPar
Index
EBITDA /
GOP
Margin
Brand A: 5 percentage point change in team member
attitudes/behaviors > +1.6 percentage points in EBITDA
Brand B: 5 percentage point change in team
member attitudes/ behaviors > + 2.1 percentage points
in GOP margin
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Dollar Change in Market Value per Employee
Becker, Huselid and Ulrich found a relationship between
HR systems and firms’ market value per employee
$390,000
$370,000
$350,000
$330,000
$310,000
$290,000
0
20
40
60
80
100
Quintile Changes in Sophistication of HR Architecture
© 2006 Towers Perrin
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How (and Why) CSAA Analyzed the ROI of
Engagement
The Lay of the Land
 CSAA leadership realizes that employee engagement is important but that
the ROI is difficult to quantify
 If the ROI can’t be quantified, it’s difficult to justify requests for
resources to improve engagement
 But without a resource investment, engagement isn’t likely to increase
 And the (difficult to quantify but nevertheless real) benefits of engagement
won’t be realized
 Hence the challenge:
 Figure out where and how engagement really matters in a business
sense
 Determine which investments in building engagement are likely to
produce the highest ROI
 Define the investment strategy
 Track the ROI produced by increased engagement, partly as proof and
partly to direct future investment
© 2006 Towers Perrin
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Our analysis focused on determining the strength and
the financial implications of relationships between:
 Employee engagement and perceived customer service focus
 Engagement and financial outcomes
 Engagement and employee turnover
 Turnover and financial outcomes
 Engagement, perceived customer focus and other operational results
© 2006 Towers Perrin
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With this as backdrop, we undertook a
six-step process
1. Project planning and kickoff – Launched the project by confirming goals
and desired results of the effort
2. Compiled current CSAA data – Obtained financial, customer satisfaction
measurement and HR data to analyze for linkage relationships
3. Developed value driver models – Identified statistical relationships
between engagement and operational outcomes
4. Mapped employee behavior/attitude elements to customer behavior
elements – We delved further into engagement data to understand the
nuances of engagement at CSAA
5. Defined overall investment strategy – We completed the project by
recommending a directional investment strategy for improving engagement
and the financial outcomes it influences; focus for CSAA:
- Leadership development
- Creating a diverse and inclusive environment
- Hiring, promotion and talent management processes and policies
6. Executed – Check for progress (pulse surveys)
© 2006 Towers Perrin
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We conducted a range of analyses using both
Towers Perrin and CSAA data
 Using the Towers Perrin Global Workforce Study (GWS) database, we
analyzed the relationship between employee engagement and
combined ratio for a population of 16 insurance companies
 Using these data we developed a structural equation model
 We applied this model to CSAA insurance product data
 We also performed a series of analyses on the CSAA Employee
Engagement Survey data (supplemented by analysis of the engagement
findings from our GWS database) to deepen our understanding of
engagement drivers
 We collected and analyzed a variety of other CSAA data:
 Financial data for each product area
 Comprehensive file of human resource data
 Performance and customer satisfaction metrics from all of CSAA's
businesses
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CSAA’s insurance business, we examined data on the
financial value of engagement in the insurance
industry
 For this analysis, we integrated two sources of data:
 2005 financial data from AM Best (combined ratio, loss ratio, expense
ratio, net premiums written (NPW) growth rate) for US insurance
companies*
 2005 engagement and customer satisfaction** data from Towers
Perrin’s Global Workforce Study for the same insurance companies
 We looked at relationship among engagement, customer satisfaction
and the financial measures across companies
 Based on the nature of the measures, we would expect:
 Negative relationships between engagement/customer satisfaction and
combined ratio, loss ratio, and expense ratio (since lower numbers
mean better performance for the these ratios)
 Positive relationships between engagement/customer satisfaction and
NPW growth
*23 top U.S. writers with at least $1 billion in DPW and approximately 60% or more of writings in personal auto and homeowners. Most of the
companies do not pay a dividend, so combined ratio without dividend was used in the analysis.
**Customer satisfaction data is based on employee perceptions.
© 2006 Towers Perrin
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Findings
The Bottom Line:
 For CSAA overall, a 5% increase in engagement is associated with a
possible financial gain of $47.4 million, comprising:
 $44.2 million in the insurance product area (net underwriting gain)
 $3.2 million in membership and travel (operating income)
 Improving engagement also has implications for turnover cost:
 A 1% improvement in key turnover drivers is associated with potential
cost savings from $185,000 (if the cost of each termination is 50% of
annual pay) to $554,000 (if each termination costs 1.5 times annual
pay)
 These cost reductions are embedded within the broader financial
calculations for improved engagement
 Engagement is not a stand-alone activity. Relationships are not
guaranteed but the direction is clear. It is also a powerful way to
galvanize leadership commitment to employee issues.
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The relative strength of engagement drivers suggests
targets for HR investment
 Ten questions account for 67% of the variance in engagement
 Key items have a much stronger linkage to engagement than others; question 9
(excellent career opportunities) has an impact almost four times that of item 53
(people care about each other)
 Items in bold are also key factors associated with turnover
Top Ten Engagement Drivers
Relative Effect on
Engagement*
9. I have excellent career opportunities at CSAA.
19%
15. I understand what I can do to build the AAA brand for our customers.
17%
18. CSAA is a company that is an advocate for safe and responsible
transportation.
14%
40. CSAA has a set of values that I can identify with.
10%
10. I think CSAA is doing what it takes to be a leader in its industry.
9%
12. CSAA cares a great deal about customer satisfaction.
7%
19. CSAA's senior management is taking steps to ensure the long-term success
of CSAA.
7%
11. CSAA is a proactive partner with the communities it serves.
6%
28. Sup/mgr: Supporting my efforts to live CSAA's values and behaviors
5%
53. People at CSAA care about each other.
5%
2006 Towers Perrin
*©Percentages
show relative strength of linkage to engagement; higher percentages mean a stronger linkage
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Engagement Index and Customer Index — Percent
Favorable by Location
Engagement Index
CSAA
Customer Service Index
82%
Auto Guardian NV
69%
93%
Irvine Office
87%
Car Care Plus NV
87%
Region 2 Sales & Service
85%
Region 6 Sales & Service
85%
Colorado Springs Claims Center
87%
77%
81%
71%
70%
85%
71%
Region 4 Sales & Service
84%
Region 7 Sales & Service
84%
67%
Las Vegas Claims Center
84%
67%
Region 8 Sales & Service
83%
Livermore Contact Center
83%
Region 5 Sales & Service
81%
Main Office
81%
Auto Guardian CA
80%
Region 3 Sales & Service
79%
Region 9 Sales & Service
77%
Elk Grove Contact Center
77%
Draper Contact Center
77%
Car Care Plus CA
77%
Region 1 Sales & Service
76%
© 2006 Towers Perrin
70%
70%
73%
74%
64%
69%
66%
66%
68%
67%
79%
67%
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As the preceding chart suggests, CSAA locations high
on the engagement index are also high on the customer
service index
The correlation between the engagement index and the customer service
index is high (.69)
95%
90%
Customer Index
85%
80%
75%
70%
65%
60%
60%
65%
70%
75%
80%
85%
90%
95%
Engagement Index
© 2006 Towers Perrin
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Insurance companies that score high on engagement
also score high on customer satisfaction
5
Customer Index
4.5
4
3.5
3
3
3.5
4
4.5
5
Engagement Index
Source: Towers Perrin’s 2005 Global Workforce Study
© 2006 Towers Perrin
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We found a strong relationship between engagement,
customer satisfaction, and expense ratio; in turn,
expense ratio drives combined ratio
Engagement
-.54*
Expense Ratio
.67*
Combined Ratio
-.72*
Customer
Satisfaction
Loss Ratio
Numbers shown for tested relationships (solid arrows) are correlation coefficients; these range from 0 to 1, with 1 indicating two variables are
perfectly related to each other. * indicates a statistically significant relationship. Dashed arrows show relationships that exist by definition.
© 2006 Towers Perrin
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Actions Taken and Lessons Learned
Actions Taken -- Division action planning
 Train supervisors to lead career pathing discussions
 Launch “coffee and conversation” programs with execs
 Increase frequency of department social events
 Invite cross-enterprise guest speakers to Town Halls
 Enhance on-boarding activities
 Make mid-year discussions more robust
 Enhance rewards and recognition programs
© 2006 Towers Perrin
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Actions Taken -- Division action planning
(cont’d)
 Increase frequency of Brown Bags
 Create executive “day on the frontline” program
 Increase frequency of executive face-to-face sessions
 Build cross-training programs
 Create department working agreements
 Create an online suggestion forum
 Hold focus groups to assess progress
© 2006 Towers Perrin
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Actions Taken -- Enterprise
 Posted action plans on intranet
 Held full-day “Empowering the Employee” sessions for all employees
 Increased focus on talent management – added to executive metrics
 Implemented “Goodwill Gesture” empowering front-line employees
 Enhanced diversity training for executives
 Launched annual day-long leadership conference for managers
 Revised staffing policies
 Increased visibility of executives
 Implemented intranet feedback function for all stories
 Launched “Way We Work” initiative to support work flexibility
© 2006 Towers Perrin
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Looking Ahead
 Continue focus on talent management
 Build career management tools
 Change engagement survey format and cycle time – move to 18-
month cycle with mid-cycle “pulse” surveys
 Support engagement through AAA University
© 2006 Towers Perrin
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Lessons Learned
 Building engagement takes time, energy and money
 Senior leadership must be vocal and visible
 Get the demographics right
 Overall score can be high -- and there can still be significant work to do
in some areas
 Divisional acting planning must include senior leadership
 Transparency is key – share the good, the bad and the ugly!
© 2006 Towers Perrin
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Contact Information
Marie Andel
Senior Vice President
CSAA
marie_andel@csaa.com
415-565-7876
Tom Davenport
Principal
Towers Perrin
tom.davenport@towersperrin.com
415-836-1127
© 2006 Towers Perrin
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