Employee Engagement: A Strategic Resource for Human Capital Management

Employee engagement has become a critical element of human capital management. Companies integrate this practice into their programs to gauge employee satisfaction, identify and prioritize areas of improvement, and gather feedback on new initiatives or enhancements to existing structures and processes. As a result, engaging with employees has become a key activity in managing a company’s workforce fostering its organizational culture.

There is an increasing expectation from third parties for greater visibility into a company’s workforce management approach. From an external stakeholder’s perspective, information on employee engagement offers insights into how the company manages potential impacts, risks, and opportunities related to human capital. A company’s engagement approach may include methods such as employee surveys, anonymous feedback mechanisms, direct conversations, Town Halls, resource groups, and leadership initiatives. However, beyond engagement mechanisms, it is crucial for companies to establish processes for addressing key human capital issues based on information gathered from these engagements.

Emerging sustainability standards and frameworks recognize employee engagement as a critical tool for managing risks related to human capital. The European Sustainability Reporting Standards (ESRS), under the topical standards for a company’s “Own Workforce” (S-1), emphasize both the employee engagement process itself (disclosure requirement S1-2) and processes to remediate negative impacts and actions for the workforce to raise concerns (S1-3). Additionally, these standards highlight the need for actions on material impacts, including strategies for managing material risks and seizing opportunities related to the workforce (S1-4).

ISS-Corporate reviewed data on public company disclosures to discern key trends on employee engagement activities. Such disclosures have become very common across geographies, with more than 80% of EMEA companies under coverage providing information on their employee engagement. Disclosure rates in Asia Pacific and the Americas stand at approximately 75% and 64%, respectively. Most of these disclosures also provide quantitative information on key metrics or trends (such as the employee participation rate or the satisfaction rate or score). However, a significant portion of companies provide information on their employee engagement and monitoring efforts without specific quantitative data.

As expected, trends vary by company size, with larger and more mature organizations more likely to disclose their employee engagement efforts and relevant metrics, compared to smaller companies. In the universe under review, approximately 88% of large-cap companies (those with a market cap of USD 10 billion or more) provide information on employee engagement or satisfaction, while the figure drops to approximately to 46% of micro-cap companies (with a market cap of less than USD 500 million).

Engagement mechanisms can be a valuable tool and a strategic resource for companies to manage their most valuable assets, their employees. When leveraging these tools, companies should consider the following:

• Ensure leadership buy-in: make employee engagement a leadership priority, with senior leaders demonstrating transparent and action-oriented communication. Aligning engagement with business goals and success (rather than positioning it solely as an HR initiative) can help drive organizational alignment. A superficial approach to employee engagement can result in missed opportunities for the company.
• Shift the mindset towards alignment: employee engagement can ensure that both employees and leadership are working towards the same goals. Engagement is a two-way communication and should not be seen as a forum for employee demands. Framing engagement as a chance to clarify business priorities and bridge gaps can foster a more collaborative and cohesive culture.
• Focus on specific, measurable, and accountable strategies: Conducting the engagement is just one step in gathering input. Companies must process the information to define clear objectives and establish measurable plans. This process should include assigning ownership and accountability. Consistent and transparent communication about progress is essential for building trust with employees. These communications should not only celebrate progress but also openly acknowledge challenges and outline alternative steps when necessary.