Employee Engagement, Rewards, and Retention in U.S. Federal Government

Introduction and Background

Research has shown that effective employee engagement and a positive work environment significantly contribute to improved customer outcomes and high performance (Deloitte Inc., 2021). A study by the Corporate Leadership Council (as cited in Deloitte Inc., 2021) found that less engaged employees were 22 percent less productive than their highly engaged peers, and that a unit increase in employee engagement in an organization increased the customer satisfaction index by 12 percent (Deloitte Inc., 2021).

Studies have also found a strong positive association between employee engagement and retention. According to Deloitte Inc. (2021), high levels of engagement increased an employee's likelihood of staying with an organization by 40 percent. The Society of Human Resource Management (SHRM) holds that retention management remains a crucial factor for organizations even in a tight job market (SHRM, 2008). First, employee turnover costs an organization money, time, and other resources. Available estimates indicate that on average, turnover-related costs impose a burden of between 50 and 60 percent of an employee's annual salary in replacement expenses and accrued paid time off (SHRM, 2008). At the same time, turnover affects employee morale, reducing sales growth and a firm's bottom line (SHRM, 2008). Thus, it remains crucial that organizations attract and retain top talent through high levels of employee engagement.

Unfortunately, compared to the private sector, the federal government underperforms in ensuring high levels of employee engagement or offering a positive employee experience. The 2020 report on the Best Places to Work in the Federal Government showed that the private sector significantly outperformed the federal government in training opportunities, recognition of high performance, and effective use of talents (Deloitte Inc., 2021). Seventy-eight percent of private sector employees felt that their talents were used well, compared to 58 percent of employees in the federal government (Deloitte Inc., 2021). Further, only 51 percent of federal government employees felt satisfied with the training and development opportunities offered at the workplace, compared to 64 percent of their counterparts in the private sector (Deloitte Inc., 2021). In the area of employee recognition, only 48 percent of federal government employees mentioned that their agencies recognized high performance, compared to 67 percent in the private sector (Deloitte Inc., 2021).

With Baby Boomers retiring from the workforce, it is prudent that federal agencies take steps to attract and retain younger employees to remain effective in their missions. In 2017, young people under 30 made up less than 6 percent of the total government workforce, compared to 21 percent in the private sector (Deloitte Inc., 2017). Employees under 30 still account for the highest attrition rates in the federal government — figures from 2021 indicate an attrition rate of 8.5 percent among this group, relative to the government-wide attrition rate of 6.1 percent reported that year (Partnership for Public Service, 2021). Importantly, data also shows that compared to older age groups, employees under 30 pay more attention to policies that foster employee engagement at the workplace (Partnership for Public Service, 2021). Improved employee engagement therefore provides an invaluable opportunity for the federal government to attract and retain younger employees.

This study seeks to identify ways by which the government could increase employee engagement, focusing on two aspects of employee management: rewards for creativity and innovation, and the policies and practices of senior leaders. The findings are intended to inform government policies and human resource practices. The research questions are as follows:

RQ1: Is there a significant relationship between the rewarding of creativity and innovation and employees' length of service in the federal government?

RQ2: Is there a significant relationship between the level of satisfaction with the policies and practices of senior leaders and the overall quality of work done by the employee's work unit?

Literature Review

Herzberg's two-factor motivation theory postulates that two sets of factors influence an employee's level of job satisfaction. The first set are referred to as motivational factors, or satisfiers (Alrawahi et al., 2020). These positively influence job satisfaction by addressing the need for self-actualization and self-growth. They include work advancement, responsibility, recognition, and achievement (Alrawahi et al., 2020). Advancement refers to the positive or upward change in one's status in the organization, such as opportunities for promotion and personal growth. Responsibility involves having the autonomy to make decisions in one's position (Alrawahi et al., 2020). Recognition involves receiving rewards or praise for high performance, and achievement concerns realizing progress at work, finding adequate solutions to problems, and completing complex tasks (Alrawahi et al., 2020).

The second set of factors are referred to as hygiene factors, the absence of which lowers job satisfaction (Alrawahi et al., 2020). Hygiene factors are extrinsic and include interpersonal relationships, quality of supervision, organizational policies, salaries, and working conditions (Alrawahi et al., 2020). Unfulfilled salary expectations, poor social interactions, unclear or ineffective policies, poor leadership, and poor physical working conditions can all cause job dissatisfaction (Alrawahi et al., 2020). According to the theory, motivation and hygiene factors operate on a continuum, implying that an employee can experience satisfaction and dissatisfaction concurrently. However, if the motivational factors outweigh the hygiene factors, employees feel satisfied with their jobs and are likely to stay longer (Alrawahi et al., 2020). Employers must therefore find a way to harmonize both sets of factors to produce sustained job satisfaction (Alrawahi et al., 2020).

The relationship between rewards, job satisfaction, and retention has attracted immense interest from researchers. Mgedezi et al. (2014) sought to determine the effect of intrinsic motivation and job involvement on the loyalty of employees. Using a sample of 160 government employees drawn from different departments across the UK, the study administered a questionnaire measuring intrinsic motivation, job involvement, and employee retention. The results of Pearson and multiple regression analyses showed a significant association between employee loyalty and both intrinsic motivation and job involvement. However, intrinsic motivation emerged as a stronger predictor of job retention than job involvement among government employees (Mgedezi et al., 2014).

Terera and Ngirande (2014) partly address the shortcoming of ignoring the relationship between rewards and intrinsic motivation in their study involving 180 nurses drawn from different South African hospitals. A cross-tabulation of rewards and employee loyalty using the chi-square test of association found a positive association, implying that employees were more loyal when rewarded more. Chi-square tests also found a positive association between rewards and job satisfaction, and correlation tests found a strong, positive relationship between job satisfaction and employee retention. The study concluded that rewards positively influence job satisfaction, which in turn drives employee loyalty (Terera and Ngirande, 2014).

Other studies have adopted a broader scope to assess the impact of different types of rewards on employee behaviour. A 2015 study by Lee et al. compared the effect of social and economic rewards on loyalty among 334 hotel staff recruited via an online survey. Economic rewards were defined as monetary rewards such as prizes and performance bonuses. Social rewards included personal recognition from management and access to special services (Lee et al., 2015). Correlation results showed a strong association between loyalty and both reward types. However, social rewards yielded a stronger correlation coefficient than economic rewards. The study concluded that social rewards were more effective drivers of employee retention because they fostered intrinsic rather than extrinsic motivation (Lee et al., 2015).

These findings mirror those of Alhmoud and Rjoub (2019), who tested the effect of intrinsic, extrinsic, and social rewards on loyalty among 500 employees of different Jordanian banks. The extrinsic rewards construct was assessed using five items: supervised career development, promotion opportunities, training and development opportunities, financial rewards, and reasonable workload (Alhmoud & Rjoub, 2019). The intrinsic rewards construct was assessed using co-worker support, supervisor support, meaningfulness of job tasks, and input into job tasks (Alhmoud & Rjoub, 2019). Multiple regression results showed a significant positive relationship between all three forms of rewards and employee retention, with social rewards emerging as the strongest predictor (Alhmoud & Rjoub, 2019).

Two additional studies by Kyndt et al. (2008) and Malik et al. (2014), using samples of 349 and 181 employees respectively, similarly found a significant positive association between rewards and employee retention. Both studies found that retention was also dependent on individual differences between employees. Kyndt et al. (2008) found that the effect of rewards depended on an employee's leadership skills, level of seniority, and attitude toward learning, with higher retention reported among employees in senior positions and those with a positive attitude toward learning. Malik et al. (2014) similarly found that rewards drove job satisfaction and retention most effectively when an employee regarded the rewards as important, had an internal locus of control, and possessed high self-efficacy.

Chang et al. (2013) conducted a study to determine the effect of five total quality management (TQM) practices on employee loyalty and satisfaction. The five TQM practices included employee compensation, teamwork, employee empowerment, employee training, and effective leadership (Chang et al., 2013). Using a sample of 200 administrative employees selected through stratified sampling from various departments in Taiwan's Taipei City Government, partial least squares regression results showed a significant positive association between employee satisfaction and four of the five TQM practices: compensation, teamwork, empowerment, and management leadership. Employee training was found to be an insignificant predictor, a trend attributed to training sessions that employees may not have considered relevant to their jobs. The study concluded that employees feel more satisfied when leadership offers the support and guidance needed to succeed at work (Chang et al., 2013).

This finding mirrors that of Alagaraja et al. (2014), who sought to determine the effect of people management practices and leadership on organizational performance. The study measured the effectiveness of people management practices by how well an organization promoted employee morale and productivity, as well as leadership efforts to integrate initiatives, systems, and processes for improved performance. Path analysis conducted on the responses of 138 professionals drawn from 241 small business organizations showed that the combined effect of people management and leadership significantly improved organizational performance.

Asrar-ul-Haq and Kuchinke (2016) extend this line of inquiry by comparing the effects of three leadership styles — transactional, transformational, and laissez-faire — on the attitudes and performance of 224 employees from five Pakistani banks. Leadership style was measured using a questionnaire based on Bass' theory of transactional and transformational leadership, while employee outcomes were measured by three constructs: job effectiveness, satisfaction with leadership, and willingness to put in extra effort. Multiple regression results showed a significant positive relationship between transformational leadership and both employee effectiveness and satisfaction. The association between laissez-faire leadership and both outcomes was negative, though significant. Only transformational leadership yielded a significant relationship with employees' willingness to put in extra effort. The study concluded that leadership is a significant predictor of organizational performance and employee satisfaction, with transformational leadership emerging as a stronger predictor than laissez-faire or transactional approaches (Asrar-ul-Haq and Kuchinke, 2016).

The same finding is reported by Ascensio (2016), who used data from the 2010 Federal Employee Viewpoint Survey to measure the impact of transactional and transformational leadership on the job satisfaction of federal employees in the US. Using ordinary least squares regression, the study found that both leadership styles had a significant positive effect on job satisfaction, but that transformational leadership yielded a larger impact.

In sum, the literature on rewards and management practices is rich and readily available. However, literature focused specifically on federal employees in the US is limited, creating a knowledge gap that this study seeks to address by investigating the extent to which rewards influence length of service and the extent to which satisfaction with management and leadership policies influences performance among federal employees in the US.

Research Methods and Data

The study used secondary data from the 2018 Federal Employees Viewpoint Survey (FEVS) to answer the research questions. The survey allowed federal employees to share their opinions about eight topic areas, including job satisfaction, work-life programs, leadership, supervisors, agency, work units, and personal work experiences (Office of Personnel Management [OPM], 2018). The survey comprised a total of 94 questions: 78 measured employees' perceptions across these topic areas, while 16 were demographic questions (OPM, 2018).

The target population was the 1.4 million federal government employees, all of whom were invited to participate. The sampling frame consisted of workers' lists at the participating agencies. A total of 598,003 employees responded, translating to a 40.6 percent response rate for the web survey (OPM, 2018). A total of 82 agencies across the federal government were represented, with participants ranging from non-seasonal, permanent, part-time, and full-time employees (OPM, 2018). Data was collected using a cross-sectional research design, meaning that collection occurred at a single point in time.

Weights were assigned to the collected data as follows: "Strongly Agree" was assigned a weight of 5, "Agree" a weight of 4, "Neither Agree nor Disagree" a weight of 3, "Disagree" a weight of 2, and "Strongly Disagree" a weight of 1. Males made up 56 percent (314,127) of the sample of 598,003, while females made up 44 percent (247,741). Additionally, 39 percent of participants (219,145) worked at the headquarters of their agency, while 61 percent (349,679) worked in field offices.

In regard to federal tenure, 12 percent of participants (66,935) had worked in the federal service for less than 3 years, 29 percent (168,053) had served between 4 and 10 years, 31 percent (177,089) had served 11 to 20 years, and 27 percent (155,702) had served more than 20 years (OPM, 2018).

Conclusion

This study found that rewarding employees for creativity and innovation is a significant predictor of their length of service in the federal government. Further, satisfaction with the policies and practices of senior management significantly predicts the quality of output or performance among federal employees. The findings provide crucial insights for management and leadership teams within federal agencies on how to improve employee retention and increase the quality of output.

The study is timely because recent statistics show that, compared to the private sector, the federal government underperforms in ensuring high levels of employee engagement and offering a positive employee experience. With Baby Boomers retiring from the workforce, federal agencies must take steps to attract and retain younger employees to remain effective in their missions. Data shows that compared to older age groups, employees under 30 pay more attention to employee engagement at the workplace (Partnership for Public Service, 2021). Improved employee engagement therefore provides an invaluable opportunity for the federal government to attract and retain the next generation of public servants.

References

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