Many companies publish employee engagement scores, so are they a clue to the quality of management and future profitability? Difficult. The caveat is whether engagement - which is all about emotion, trust, behaviour and relationships - can be measured accurately. Engagement scores come from opinion surveys - sophisticated ones, true, but opinion surveys nevertheless. Like all opinion surveys, people do not always say what they mean. Ask the wrong questions and you get the wrong answers. If surveys are granulated by driving them down through the organisation and made to count towards annual bonuses, responses can be coerced or distorted.
So they are indicative only, which could be one reason why RBS (RBS) is somewhat coy about its engagement score. In its 2016 annual report, it says that employee engagement slipped to 6 per cent below the norm for global financial services. This was enough to cancel part of the pay due to its chief executive, Ross McEwan.
There are arguably more reliable ways of measuring engagement. One is through voluntary employee share plans. Participation rates depend on internal promotion, itself an indicator of top management's commitment to their employees, and the level at which employees respond demonstrates their commitment in return. Few companies publish these rates. They all should.
Another proxy is glassdoor.co.uk. This is a recruitment site that encourages employees to rate their employer, warts and all. RBS earns a 3.2 rating (out of 5). Fifty-five per cent of the 2,192 respondents said they would recommend working there to a friend and 76 per cent approve of their chief executive. Most appreciate the work/life balance. The main beef was a lack of career progression. Some think senior management is remote; a number see middle management as "a barrier for growth", perhaps a reflection on RBS's internal bureaucracy.
Even more revealing is the glassdoor rating of British Airways. This is just 2.8. A mere 38 per cent of 496 respondents would recommend working in BA to a friend and only 22 per cent approve of their chief executive. The core reason? Costs have been cut "to an absurd extent" - "very difficult to get work done properly... super embarrassing when dealing with customers" was one comment. And this was before 27 May, when BA's disastrous IT failure shut down Terminal 5 and BA had nobody on the ground to help the stranded.
In its 2016 annual report, directors of BA's parent, International Consolidated Airlines (IAG), blithely unaware of the recklessness of the cuts, had congratulated its chief executive, Willie Walsh, on his "strong and effective leadership" and for maintaining "the focus on cost control and capacity management". For this he was paid a bonus of over £1.1m. Time now to claw back his pay perhaps? And to keep more in touch, IAG directors might wish to take more notice of glassdoor.co.uk.
Shareholder engagement
In RBS, engagement is scrutinised by its sustainable banking committee. The idea is that sustainability will generate long-term value for all its stakeholders, so as well as employees and customers, its remit includes culture, brand, communications and environmental, social and ethical issues. The committee stumbled earlier this year when ShareSoc, a society that supports individual shareholders - and RBS has 187,579 of them - submitted a resolution to the RBS annual general meeting (AGM).
This was no mean feat in itself. ShareSoc had to obtain the signed support of more than 100 shareholders, who have to hold more than 10,000 RBS shares between them. It wants RBS to have a shareholder committee to give retail and institutional shareholders a direct input into strategy, the selection of directors and top pay. The logic is that AGM resolutions are normally broad-brush affairs. If shareholders wish to express dissatisfaction about high pay, for example, they can only vote against the remuneration report, which contains a host of other items, too. A committee would enable long-term investors to explore these issues in greater detail and would involve them more in key decisions. And therein lies the problem: it would poach power away from non-executive directors. RBS suggested a compromise: a panel for all stakeholders. Too unwieldy and a mere talking shop, said ShareSoc.
So how did RBS's shareholders respond to ShareSoc's resolution? A bit odd, this. Despite meeting the required criteria, RBS directors refused to risk adding it to the AGM agenda. In other words, a partly nationalised bank (71.5 per cent of RBS is owned by the government) rejected out of hand a proposal that accords with the government's own thinking on shareholder controls.
RBS might have missed a trick here. A shareholder committee could have added value by bringing fresh perspectives that blend with RBS's drive towards greater diversity. And who knows? It could have become a blueprint for other companies to follow. Or maybe that's what the RBS non-executive directors were afraid of.
