The 5 New Rules of Employee Engagement

What really keeps your workers motivated? These true tales reveal the surprising answers.

It's the furtive glances as you approach, the crowd at the water cooler suddenly dispersing. Whispers and snickers during meetings. The staring at the floor as you pass in the hallway, the forced smiles. Is it all in your imagination? You might love your employees, or consider some of them friends--but you also wouldn't be doing your job if you didn't stop to wonder what they really think of you.

Especially when you read the statistics: Just 30 percent of American workers are engaged at work, according to Gallup, costing the nation $450 billion to $550 billion per year in lost productivity. (That includes the price of absenteeism, workplace accidents, and increased health care costs.) Even the best companies--those scoring in the top 10 percent on employee surveys--register only about 38 percent of their employees as "fully engaged," according to consultant Kevin Sheridan, author of Building a Magnetic Culture.

You can quibble with those numbers--and we will--because the human heart is one performance variable that's impossible to measure, despite the business world's obsession with metrics. But that doesn't change an essential truth: Motivating your work force may be the toughest and most important challenge you face as an entrepreneur, especially in the age of social media, when a few disgruntled employees can destroy your reputation. You just know those unhappy campers are out there, sowing seeds of discontent throughout your organization and beyond. So how can you find out whether their gripes are legitimate or just bellyaching? And once you find out, what can you do about them?

Maybe the question is, what should you not do about it? Employee engagement has become such a hot topic that great swarms of consultants and authors are undoubtedly banging on your door as we speak, armed with enough action plans and PowerPoint presentations to make your head swim. Whom to trust? What to believe?

"The problem with employee engagement experts is they take well-meaning concepts and overengineer them to the point that they don't bear any resemblance to what normal people understand," says Neil Morrison, group human resources director for Penguin Random House U.K. "Then we wonder why we have a disengaged work force."

It's tempting to respond by throwing up your hands in despair and doing nothing, or by overcompensating and turning your office into a goofy playpen for coddled employees. But it doesn't have to be that complicated. Instead, consult our jargon-free guide to creating a great place to work.

Rule 1: Don't Sweat Anonymous Reviews

At first glance, social media software startup Lithium Technologies looks like an awesome employer. Located in downtown San Francisco, it has a game room with foosball, Ping-Pong, and a dozen guitars for playing Guitar Hero; a hammock for lounging; and free catered lunches three times a week from a choice of 10 restaurants. Occasionally, some of its 400-plus employees can be seen flying down the corridors on scooters.

But if you were job hunting a few years ago and read the anonymous posts from current and former employees on the career site Glassdoor, you probably wouldn't have bothered to apply. "There is not much positive to say about this company. It's a bad place to work," one reviewer said. "Stay away!"

At the time, Lithium Technologies was still run by CEO Lyle Fong, a computer-game entrepreneur who co-founded the company with his brother, Dennis Fong, in 2001. Of the six reviews posted during Lyle Fong's tenure, four were scathing, earning the company an overall rating of 2.3 stars out of 5.

Then Rob Tarkoff, a seasoned industry veteran, took over in August 2011. You had to feel for the guy, heading up a company selling social media expertise as it was struggling on a prominent social media site (one that nearly half of all job hunters consult, according to an independent survey by research firm Software Advice). Under Tarkoff, Lithium began asking employees to post reviews on Glassdoor and encouraging new hires to do the same as part of their onboarding process, according to Jennifer Trzepacz, Lithium's senior vice president of human resources.

If your employees are already disgruntled, throwing too many perks at them may only create a culture of entitlement.

Not a good idea in general, says Tim Erblich, CEO of the Ethisphere Institute, a global business ethics group. "We know of one company with 600 employees that got bad reviews on Glassdoor and directed employees to post positive stuff," he says. "For every one that wrote something positive, seven or eight employees said it was a bunch of hooey. No company is perfect, so when people see reviews so glowing they border on the obscene, that completely backfires. It's important to be authentic."

But Lithium didn't stop there. It also began paying Glassdoor for services to help improve its image on the site. That's something Glassdoor advertises with the pitch: "Join the conversation."

First, Lithium paid for an "enhanced profile" that included its core-values statement, photos, an elaborately produced "Why Work for Us?" video, and links to its Facebook and Twitter feeds and company blogs. Then it signed up for another paid program to promote its job listings in sponsored search results throughout the site. (Basic profiles are free; enhanced profiles started at $495 per month in 2010. Glassdoor declined to comment on current prices.)

Both the internal and external efforts paid off for Lithium. Suddenly, it became a fantastic place to work, "like a thrilling ride with a bright future," one employee gushed on Glassdoor. "Best company I've ever worked for," said another. The company's rating soared from 2.7 to 4.4 in a matter of months, and as of late October, 61 percent of reviewers said they would recommend it to a friend. Lithium received Glassdoor's 2014 Best Places to Work Employees' Choice award.

Many owners resent a business that allows people to anonymously say nasty things about you, and then offers paid services to help you clean up your now-sullied reputation (see "Secrets of a Very Opaque Glassdoor"). "It really bothers me that people can just slam a company without anybody knowing how accurate it is," says Sheridan. Glassdoor spokesperson Samantha Zupan says that employers can respond to negative reviews without paying for enhanced profiles, and can flag reviews they consider inappropriate. "If it does not meet our community guidelines"--poor grammar and "accusations of criminal activity" are frowned upon--"we will reject it," she says. "If it meets our community guidelines, it stays up."

Companies don't necessarily have to pay up. There are other ways to handle negative reviews--and Lithium did many of them. It responded to reviewer complaints about a lack of communication by instituting weekly staff meetings and by sharing more financial information. It began an annual survey of employees, set up a digital network for posting suggestions, and started hosting quarterly employee roundtables with Tarkoff.

Even these efforts were not enough to stop the bad reviews: "Do not work here, terrible culture and awful leadership," read a recent one-star rating. But in the age of Yelp, job hunters are savvy at recognizing that bad reviews often say more about the reviewer than the reviewed. And people know instinctively what a study by Workplace Dynamics found last year: Glassdoor reviews represent only a tiny slice of employees--on average, 1.6 percent--and most of them are malcontents, with unhappy workers five to eight times more likely to post a review than happy ones. "The overall Glassdoor star rating was a very poor indicator of what it is really like to work at a company," the study concludes.

So don't sweat the negative reviews too much--and don't dress up your Glassdoor page with lots of expensive content. It will only make people wonder what you're trying to hide.

Rule 2: Discover Your Company's Purpose

In 2001, when Andrew Limouris started employment agency Medix Staffing Solutions, he wanted it to be less like his father's bakery and its grueling 12-hour days and more like the offices where his mother worked as a cleaner. For Dad, the business was just a way to support his family. "But Mom became such close friends with the people she worked with that she couldn't wait to go in every day," he says. Limouris wanted Medix, which helps clients find contract employees, to be a place where employees could share their joys and sorrows--like the births of his three children, his mother's death--and truly have one another's backs.

But Limouris is now 43 and most of his 275 employees are Millennials working their first job after college. In the past five years, as the age gap began to grow, turnover became high. They wanted to dress casually; he wanted professional attire. They wanted to work remotely; he wanted them at the office. They wanted to move to downtown Chicago; he wanted to stay in the suburb of Lombard, so he could get home to attend his children's soccer games.

Limouris loosened up about the dress codes and, in a few cases, telecommuting, and even agreed to move the company's headquarters to downtown Chicago. But turnover remained high. Next, he brought in consultants, one of whom asked him: Are people rallying around your company's goals? The answer, clearly, was no--partly because those goals had not been articulated. So Limouris and his senior management team spent an entire day asking a simple question: "Why does Medix exist? What is our core purpose?"

Ultimately, they realized that Medix already had a profound purpose: to find jobs for people in an uncertain economy. The company came up with a rallying cry, "Positively Impacting Lives," and created a goal of helping 20,000 people land employment.

Limouris was discovering what many in the field of employee engagement have come to understand over the past several years: Motivating employees isn't really about the free food and nap pods that companies like Google offer. If employees hate their jobs, perks like that won't keep them around, and those perks can even create problems in the short term. "The employee says, 'My hand is out, make me happy,' which creates a mentality of entitlement," says Chris Gay of Bridge Consulting.

An important turning point for employee engagement experts came with Daniel H. Pink's Drive. The 2009 book argues that while it's important to pay employees well, most carrot-and-stick motivators don't work in the long term, because people get so fixated on the reward that they lose interest in the activity itself. What we really want in our jobs, Pink writes, is autonomy, the chance to get better at what we do, and a purpose that connects us to something larger.

That is especially true of the Millennial generation, which will make up three-quarters of the nation's work force in just over a decade. Studies show that recent MBAs will work for a significantly lower salary if they truly believe in what they are doing.

At Medix, discovering the company's core purpose had a dramatic effect. The new mantra and related team-building exercises, like group-assembling a bicycle, yielded striking results: Turnover dropped, productivity increased, and employee surveys showed engagement levels rose. "We have more people today producing at a higher level than ever before," Limouris says. Finally, Medix was truly becoming more like the type of place where his mom would have loved to work.

Rule 3: Survey, But Keepit Short and Follow Up

When Mike Derheim, Mike Schmidt, and Luke Bucklin founded the Nerdery in 2003, they vowed to make the web production company "the ultimate destination for nerds." They would give employees plenty of autonomy, fun projects, and a laid-back work environment lousy with office dogs. When Bucklin, the company president, died in a plane crash in 2010, the Nerdery honored his memory by giving everyone on staff the title of "co-president," formalizing an exhortation Bucklin gave to all employees a few months before his death, urging them to transcend their assigned roles.

But the Minneapolis startup started to grow so fast--nearly doubling its staff, to more than 500, since 2012--that its vaunted culture suffered. Turnover increased, and departing employees complained about compensation and benefits in exit interviews. Alarmed, the Nerdery's human resources department, in 2013, brought in an outside firm, Modern Survey, to find out what was wrong.

Employee surveys by big consulting firms like Gallup and Towers Watson have been a staple of large corporations for decades, of course--by some estimates, it's a $1 billion business--but only recently have smaller, growing companies like the Nerdery begun to use them too. The trouble is, critics say, these surveys are highly unscientific at best and fraudulent at worst. Leading the naysayers was the late Robert Gerst, a Canadian statistician who kicked up a storm in 2013 with an article in the Journal for Quality and Participation that concluded, "The dirty little secret of employee engagement surveys is that they're largely junk science." Gerst, who died earlier this year, argued that most consultants conducting such surveys have a built-in conflict of interest: First they reveal that large swaths of your work force are out to lunch, and then they sell you services to improve that dismal situation. (Gerst sold a kit, through his Converge Consulting Group in Calgary, Alberta, that allowed employers to create their own employee surveys.)

One reason measuring employee engagement is so difficult is there is no consensus on what the term means, exactly. Gallup says it describes people who are "psychologically committed to their jobs and likely to be making positive contributions to their organizations." But Gerst maintained that it is statistically impossible to accurately predict outcomes like productivity, profitability, sales, absenteeism, and accident rates on the basis of employee-engagement numbers, despite the claims of Gallup and others.

"You can't borrow somebody else's work environment--you'll be miserable at it."Tariq Ford, founder of Edible Arrangements

So what's an entrepreneur to do? In short, follow the example of the Nerdery: Survey your employees if you need to get a handle on how they feel, but don't spend a lot of money, make it short, and ask the right questions. The Nerdery hired Modern Survey to administer a simple five-question poll to get an overview of morale and then drill down deeper to unearth specific complaints. (Modern Survey charges $5,000 to poll 200 staffers.)

The Nerdery received an astounding 97 percent level of participation from its employees and got excellent marks for encouraging teamwork, treating employees fairly, and running a company they are proud to work for. But two big areas of dissatisfaction emerged, about compensation and benefits and lack of training. So the Nerdery responded, authorizing each department head to give raises of up to 10 percent. The company also ramped up dental and short-term disability benefits, and replaced vacation and sick days with "personal time off" days that people can use for any reason. It also created a cross-training program to help employees develop secondary and even tertiary skills across a variety of tech platforms. That helped the company too, by keeping employees busy when there was less demand for their primary skills.

True to its ethos of transparency, the Nerdery kept employees informed about the survey results and the actions it took in response. This is crucial, says Don MacPherson, co-founder and president of Modern Survey, because taking surveys without sufficient follow-up makes employees more cynical and less inspired. For example, one tech company used his services but then "didn't do a single thing--they just swept it under the rug. We came back two years later and the results were even worse," MacPherson says, adding that the miserable work environment eventually got the CEO fired. "If you're doing a survey, you have to realize that employees will expect something to get done."

Even for companies like the Nerdery, which was already doing well, MacPherson says that conducting employee surveys can pay off in the long term, like seeing your doctor for an annual checkup even if you're feeling good. "I've had executives tell me they don't want to do a survey because 'I'm afraid of what I'll learn,' " he says. "That's so discouraging. If you're having health issues, you have to deal with it. Otherwise, the consequence could be the failure of your organization."

Rule 4: There Is Only So Much You Can Do

When Tariq Farid started Edible Arrangements, in 1999, it was easy to train people and correct or praise them immediately. But today the Wallingford, Connecticut, company, which makes bouquets of fresh fruit, has 150 employees and more than 1,200 franchise locations around the world. That growth has been rocky at times; as the company grew to its present size, Farid could feel workers were less inspired and not communicating as well.

Customers complained. Senior employees with great ideas and lots of enthusiasm left the company, some saying in exit interviews that they didn't feel appreciated. "I was surprised they felt that way," says Farid. "Maybe we weren't paying attention."

And then there's the really unhappy former employee who's suing Farid. Tara Perino, who worked as Edible Arrangements' comptroller from 2011 to 2012, alleges that Farid repeatedly harassed her in the workplace, discriminated against white women like her in favor of South Asian and Muslim employees, and, despite her positive performance review and two salary raises, unfairly fired her.

Farid denies all charges and is fighting the lawsuit. There appears to be little middle ground in the case; if Perino's allegations have merit, Edible Arrangements' employees have more serious problems than a lack of engagement. But if the lawsuit is baseless, at least Farid can use it as a reminder of how difficult it is to stay on top of what's happening with his employees.

"You can't borrow somebody else's work environment--you'll be miserable at it," he says. "You have to be real, because that's the kind of leadership people are looking for."

That's a hard-fought conclusion. As employee morale started slipping, Farid tried immersing himself in the literature of engagement and spending more time with his HR people, looking for ways to celebrate achievements and keep people excited. When weekly staff meetings became too predictable, managers introduced karaoke singing to liven things up. They formed flash mobs when an employee had a birthday. They sponsored walks and bowling events to raise money for charity and build a sense of community.

But there's a limit to how much "fun" is good for a company--and its employees. Studies show that while team-building events and public celebrations can decrease turnover, they can also harm productivity. And playing games in the workplace can have a positive effect, but only if the workers want to participate; perhaps not surprisingly, "mandatory fun" has been shown to reduce productivity and job satisfaction.

In other words, it's OK to acknowledge that some problems are beyond a boss's control. "One thing entrepreneurs should not worry about is trying to engage everyone," says MacPherson. "It's perfectly acceptable to write off the employees who will never buy in."

Rule 5: Actually, Don't Worry About Engagement

After decades of rapid growth, the field of employee engagement is now suffering a well-deserved backlash. Though big consulting firms have been sounding the alarm about disengaged workers for more than 30 years, today 79 percent of businesses are seriously worried about engagement and retention, according to Deloitte. Globally, only 13 percent of employees are highly engaged, says Gallup. So if employee-engagement programs are so effective, why are so many workers still checked out?

It might be a problem with the measuring sticks. That's the argument from Morrison, the HR director for Penguin Random House U.K., who last year launched a vigorous transnational debate on the value of engagement with a single tweet: "Every time I hear the word engagement another part of me dies."

In an interview, Morrison says that wrestling with employee-engagement issues in various HR roles over 15 years has convinced him that the field encourages companies to view employees as mere tools of productivity rather than as real human beings.

"Surveys are fine, but simply having actual conversations and asking employees 'What can we do better?' is much more valuable," he says. "If employees can't sit down with their boss and talk about things, it doesn't matter how many anonymous surveys you run; you have a problem."

A useful test, Morrison says, is to ask yourself, "How much do I know about my team? Not just how long they've worked here, what their last job was, or how they like their coffee, but who are they? What are their lives about? What did they do last weekend? If you don't know, you haven't built up a relationship with them, and you probably won't know when things aren't going well."

So don't worry about employeeengagement. Instead, treat people well, listen to them, and give them room to grow. Don't do that just to squeeze more productivity out of them--they're smart enough to see that coming--but because it's the right thing to do. And if your heart is in the right place, they'll see that too.