How Developing Key Leadership Competencies Drive Employee Engagement and Business Success
Employee engagement is at an all-time low, not just since the beginning of the pandemic, or the return to office announcements of large global organizations, and it’s costing businesses more than they realize. Gallup’s State of the Global Workplace 2024 report estimates that low employee engagement costs the global economy a staggering $8.9 trillion, or 9% of global GDP. While engagement has been declining for years, the downward trend has worsened since the pandemic, and today, only 18% of employees worldwide are engaged.
The Real Problem: Underperforming Leadership
The root cause of disengagement isn’t the employees themselves but underperforming leadership. Research shows that managers account for 70% of the variance in employee engagement (Gallup). When leadership fails, businesses experience a direct hit to productivity, employee morale, and ultimately, the bottom line.
These numbers show that businesses cannot afford to ignore employee engagement. The cost of disengagement manifests in high turnover rates, lost productivity, and declining business performance.
Leadership's Role in Employee Disengagement
Despite overwhelming evidence that leadership plays a critical role in engagement, many organizations fail to measure and improve managerial performance. Gallup’s findings indicate that leaders themselves are struggling, with many experiencing burnout and negative workplace emotions (Gallup Study).
If leadership is disengaged, how can they inspire their teams?
Strong leadership behavior is critical in reversing disengagement and proven to enhance engagement:
Establish Prosocial Norms – Leaders must reinforce behaviors that prioritize group success over individual gain, fostering a collaborative and purpose-driven workplace.
Encourage Collaboration – Trust-based relationships among employees and leadership enhance cooperation and alignment towards shared business objectives.
Foster Psychological Safety – Employees must feel free to express themselves without fear of negative consequences to their status, image, or career.
Prioritize Growth – Leadership should focus on personal and professional development, treating failures as learning opportunities and fostering a growth mindset.
Value Uniqueness & Encourage Belonging – Recognizing the unique strengths of employees and ensuring they feel included leads to higher motivation and engagement.
Organizations that have successfully implemented leadership development focused on these competencies report remarkable outcomes:
Productivity increases of 21% when managers improve their coaching capabilities
Customer satisfaction improvements of 10-15% correlated directly with higher employee engagement
Innovation metrics rising by 22% in teams with psychologically safe environments
Talent acquisition costs reduced by 50% through improved retention and internal mobility
Measuring Leadership Behavior:
The First Step to Identify What needs to get Fixed
To fix employee disengagement, organizations must first measure leadership behavior. Without identifying the root causes, companies risk implementing surface-level solutions that don’t address the underlying issues. Traditional methods for evaluating leadership effectiveness, such as employee engagement scores, 360-degree feedback, turnover and retention rates, performance metrics, and psychological safety indexes, are often retrospective and outdated, and on top fail to provide an unbiased assessment of leadership behavior. These methods primarily focus on employee sentiment or lagging indicators rather than real-time leadership impact. What’s missing is a direct, objective measurement of how leaders actually behave, interact, and influence their teams. Without this, businesses continue to rely on subjective feedback that may not truly capture leadership effectiveness or provide actionable insights for improvement.
A Pathway Forward:
Transforming Leadership Behavior to Drive Engagement and Results
Despite current challenges, organizations that prioritize effective leadership development are positioned to reverse declining engagement trends and achieve remarkable business outcomes. The path forward is clear, actionable, and supported by compelling research.
Research consistently demonstrates that investing in leadership development yields substantial returns. A comprehensive study by Deloitte found that organizations with strong leadership development programs are 2.1 times more likely to meet or exceed their financial targets. The most effective programs focus on four critical leadership competencies that have been proven to significantly impact employee engagement
Increased Employee Engagement and Commitment
Organizations with strong pro-social cultures see 31% lower turnover intentions and 75% fewer sick days (Deloitte). When employees feel they can be their authentic selves, engagement scores rise by 83%, driving discretionary effort and organizational commitment (BetterUp).
This research demonstrates that leadership behavior is the critical activation mechanism that allows diverse workforces to achieve their full potential, delivering measurable business impact through enhanced performance, innovation, and commitment.
The Competitive Advantage of Engaged Leadership
As we look ahead, organizations that develop leaders equipped to foster engagement will gain significant competitive advantages. According to the Cambridge Institute for Sustainability Leadership, companies with highly engaged workforces outperform their peers by 147% in earnings per share.
By measuring leadership behaviors, providing targeted development, and creating accountability for engagement outcomes, organizations can transform their workplace culture and business performance simultaneously.
The evidence is clear: investing in leadership competencies that drive engagement isn't just good for employees—it's essential for sustainable business success in today's challenging economic environment. By making leadership excellence a priority, businesses can create a more engaged, productive, and successful workforce.
For more insights, explore the full Gallup State of the Global Workplace 2024 report here.