Should Employee Engagement Be A KPI?

Employee engagement is one of those topics that pops up in every HR strategy deck, CEO town hall, or “future of work” webinar. It’s often held up as the magic ingredient for higher productivity, better retention, stronger culture and improved customer service. It’s no wonder that I get asked on a regular basis: should we treat employee engagement as a KPI?

It’s a tempting idea, if you can measure it, you can manage it, right? But the reality is a little more complicated and nuanced.

The case for engagement as a KPI

Let’s start with the positives. There are some strong arguments for putting employee engagement on the dashboard alongside revenue, profit, customer satisfaction and safety (although, a separate question might be useful here, how many KPIs do you have already?!).

1. It shows people matter
By elevating engagement to KPI status, leaders send a clear message: “our people are just as important as our numbers.” That visibility matters, it’s important. It tells your people their views and experiences are being taken seriously and put them on an equal footing to other KPIs.

2. It links directly to performance
Decades of research (Engage for Succes, CIPD, IES, etc. – you will have heard me talk about these!) show strong correlations between high engagement and outcomes like productivity, innovation, retention and customer satisfaction (amongst other things). If engagement affects your business metrics, why wouldn’t you measure it?

3. It drives accountability
Without KPIs, engagement can end up being “someone else’s problem” (usually HR – and this is another regular comment – “Why do we end up having to do everything!”). Making it a KPI puts the onus on leaders and managers to act on survey results and foster better a culture.

The case against engagement as a KPI

On the flip side, there are drawbacks. Treating engagement as a KPI can sometimes do more harm than good.

1. Engagement is an outcome, not an input
KPIs tend to work best when they measure things you can directly control. Engagement, however, is the result of many factors: management style, leadership, culture, wellbeing etc. If you only focus on the score, you risk missing the bigger picture.

2. It can create pressure to “game” the results
When engagement scores are tied to leadership bonuses or manager appraisals, suddenly the survey doesn’t feel so neutral. Employees may feel nudged to respond a certain way, or leaders may avoid difficult conversations to “protect” their score.

3. Numbers can overshadow nuance
An overall engagement figure (say, 72%) is neat and tidy, but it hides the richness of what your people are actually telling you. Engagement is multi-layered and factorial; people can feel proud of their work but frustrated with systems; or motivated yet sceptical about leadership. Reducing it to a single KPI can flatten these nuances.

Should engagement KPIs link to pay or bonuses?

I thought I’d cover this as it is another regular question I get. This is where it gets particularly tricky. On paper, linking engagement results to leader bonuses might look like a neat way to drive accountability. In practice, it rarely works.

The moment money is tied to a score, behaviour changes. Leaders may focus more on “getting the number up” than genuinely improving culture. Employees may feel their honest feedback could cost someone financially, which undermines trust in the survey process. And managers in tougher contexts, perhaps leading remote teams, or operating in high-pressure environments, can be unfairly penalised despite doing great work.

A smarter approach is to use engagement insights as part of performance conversations. Reward leaders for their actions and behaviours, such as how they listened, what they did with feedback, and the impact on their team, rather than the raw number on a dashboard. That way, the focus stays on building trust and making positive change, not chasing a score.

If you do make engagement a KPI…

For many organisations, the benefits outweigh the risks. So, if you decide to make engagement a KPI, how do you do it well?

Do: use engagement as a headline measure, but dig deeper
Keep the big number for the boardroom, but always look at what’s underneath. Break results down by department, tenure, role, or demographic. Use thematic analysis of comments to uncover why people feel the way they do. We do this in our surveys as a matter of course, the devil, as they say is in the detail.

Do: connect engagement to real outcomes
Show leaders how engagement links to retention, productivity, customer satisfaction or patient outcomes (in health and social care, for example). This creates a narrative beyond “we want a higher score”, it’s about the value engagement brings. I cannot stress enough how important this is!

Do: make leaders and managers part of the story
Rather than treating engagement as an “HR metric”, build it into leadership behaviours and performance conversations. Recognise and reward leaders who act on feedback and create positive environments. As I regularly say, engagement is ‘everyone’s’ responsibility. It’s owned by every single person within an organisation.

Don’t: obsess over year-on-year movements
An engagement score moving up or down by 1–2% isn’t the end of the world. Focus instead on the direction of travel over time and the tangible changes being made. Your internal benchmarking and overall direction of travel is more important than any external benchmark.

Don’t: make the survey the only touchpoint
If the survey becomes a once-a-year ritual to hit a KPI, employees quickly lose faith. Combine survey data with regular check-ins, focus groups, pulse surveys and informal conversations. An employee survey is a great way to give everyone the same opportunity to share their views in a safe confidential environment but shouldn’t be the only way your people can tell you what is working where improvements need to be made.

Don’t: punish or shame managers with low scores
Use results as a starting point for support and development, not a stick to beat people with. Some managers may lack the skills to have open conversations with their teams; others may be working with particularly challenging contexts. You do need to consider the maturity of your management cohort here and be prepared to support them to have conversations and action planning sessions with their teams.

So, should engagement be a KPI?

The honest answer: it depends. I know, I know – sounds like a cop out, hear me out!

For some organisations, having engagement as a KPI provides focus, visibility and accountability. For others, it risks oversimplifying a complex, human issue.

Perhaps the best approach is to treat engagement as a strategic indicator rather than a hard KPI. Keep it visible, report it regularly, connect it to business outcomes but resist the temptation to reduce it to a single number or tie it directly to pay. I would say that employee/ staff or people engagement should be on every board agenda meeting at the very least.

At its best, engagement is a mirror that shows how your people are experiencing work. Use it to listen, learn and improve. Because ultimately, engagement isn’t about hitting a KPI. It’s about creating a workplace where people feel proud, motivated and willing to go the extra mile.

And that’s a win worth chasing.

If you want to understand how engagement can guide better decisions and stronger performance, we’re here to help you build a survey approach that gives clarity, confidence and a clear route forward. Contact us today!