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New Metrics
SAP:
Increased Employee Engagement Helping Bottom Line

German software company SAP’s operating profit improves EUR35 million ($38 million) to EUR45 million ($49 million) when its employee engagement index rises one percentage point, according to the company’s 2014 integrated report.

The financial impact of a higher employee engagement index results, among other things, from the fact that dedicated employees are more innovative and absent from work fewer days. Likewise, because they are more loyal to the company, there is less missed revenue and less recruiting and training costs traditionally associated with higher turnover rates.

In addition, for each percentage point in change in SAP's business health culture index (BHCI), the impact on operating profit is between EUR65 million ($70.7 million) and EUR75 million ($81.6 million). BHCI is a measurement standard that provides information on the culture of organizational health at SAP. It covers questions concerning how employees rate their personal well-being and the working conditions at SAP, including its leadership culture.

This is SAP’s third integrated report, but the first time the company has expressed in concrete monetary terms how changes in its employee engagement and employee health indexes affect its operating profit.

SAP’s total number of key performance indicators (KPIs) with quantified financial impact has doubled, from two to four — the company had already identified the gross effects for the employee retention and carbon dioxide emissions KPIs in its two preceding integrated reports.

Taking some year-on-year adjustments in the assumptions into account, a one percentage point change in employee retention impacts SAP’s operating profit by about EUR40 million ($43.5 million) to EUR50 million ($54 million). And for every percent of greenhouse gas emissions saved, SAP achieves a cost avoidance of around EUR4 million ($4.3 million). The company has long-made employee engagement part of its carbon dioxide reduction strategy.

SAP says the internal models it uses for quantification take indirect effects in particular into account. The various quantifications can’t simply be added up because the different KPIs are closely linked and influence each other. The integrated report does not include assessment of the investments required to facilitate the change in non-financial factors. The financial effects described in the report only represent gross effects.

U.S. companies would do well to heed the SAP’s report — Americans have the worst work-life balance in the developed world, according to a ranking by the Organisation for Economic Co-operation and Development’s (OECD) Better Life Index. Based on the SAP report, this could contribute to a business handicap in the long-run.

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