The ROI of Words: Leadership Communication Drives Employee Engagement, Wellbeing, and Performance

By Terre Short

In the realm of business leadership, we often focus on tangible metrics: revenue, market share, and operational efficiency. However, there’s an intangible yet powerful force that can significantly impact these outcomes: the words leaders use. This article explores the concept of Return on Investment (ROI) for words, examining how effective leadership communication can drive employee engagement, boost retention, and enhance wellbeing.

The Power of Words in Leadership

Leaders have long recognized the importance of effective communication. In recent years, how well leaders communicate has been tied to their level of Emotional Intelligence. Self-aware leaders realize the impact their words have on those they serve. Words have power.

What makes communication “powerful”? It’s not just about message frequency or expertise sharing, but about choosing the right words at the right time. Effective leaders use language to:

1. Clarify Vision and Purpose: By articulating a compelling vision and connecting it to employees’ daily work, leaders can create a sense of meaning and direction.
2. Motivate and Inspire: Through carefully chosen words, leaders can ignite passion, boost morale, and encourage persistence in the face of challenges.
3. Build Trust and Psychological Safety: Open, honest, and empathetic communication fosters an environment where employees feel safe to take risks and share ideas.
4. Enhance Understanding: Clear communication of goals, expectations, and feedback helps employees align their efforts with organizational objectives.
5. Foster Belonging and Commitment: Inclusive language and recognition of individual contributions can strengthen employees’ emotional connection to the organization.

The impact of these communication functions extends far beyond mere sentiment. They directly influence key organizational outcomes, including employee engagement, retention, and discretionary effort.

Leadership Communication and Employee Engagement

Employee engagement, defined as the emotional commitment an employee has to the organization and its goals, has become a key focus for many businesses due to its strong correlation with performance outcomes. Gallup’s extensive research on employee engagement provides compelling evidence for the role of leadership communication in driving engagement.

A meta-analysis by Gallup (2024) found that highly engaged business units achieve:

• 78% lower absenteeism
• 17% higher productivity
• 23% higher profitability

Gallup’s Q12 engagement survey includes several items directly related to leadership communication, such as:

• “I know what is expected of me at work.”
• “The mission or purpose of my company makes me feel my job is important.”
• “In the last seven days, I have received recognition or praise for doing good work.”

These items underscore the importance of clear expectations, purpose-driven communication, and regular feedback – all aspects of effective leadership communication. (Gallup, 2024).

Leadership Communication and Employee Retention

In an era where employee turnover can significantly impact an organization’s bottom line, the role of effective leadership communication in improving retention becomes crucial. Let’s return to the recent Gallup Global Workforce study. In organizations with low turnover, engaged employees drove turnover down 51%, in ones with high turnover, engaged teams reduced turnover by 17%.

Examining the reasons why employees leave provides insights into the importance of communication. A survey by Leigh Branham (2005) identified lack of trust and lack of hope as two key reasons for voluntary turnover. Both factors can be significantly influenced by leadership communication:

1. Building Trust: Open, honest, and consistent communication from leaders helps build trust.
2. Instilling Hope: Leaders who effectively communicate a compelling vision and show how employees’ work contributes to that vision can instill a sense of hope and purpose.

The impact of leadership communication on retention isn’t just about formal, work-related interactions. A study by Kroth and Keeler (2009) found that managers who engaged in caring, personal communication with their employees fostered higher levels of commitment and reduced turnover intentions.

These findings demonstrate that effective leadership communication can significantly impact employee retention. By fostering trust, clarifying expectations, recognizing contributions, and creating a sense of purpose, leaders can create an environment where employees are more likely to stay and be long-term contributors.

The Impact of Word Choices on Employee Wellbeing and the Related ROI

The words leaders choose don’t just affect performance and engagement; they also play a crucial role in shaping employee wellbeing. This aspect of leadership communication has gained increasing attention as organizations recognize the link between employee wellbeing and overall organizational success.

1. Positive vs. Negative Language

In researching communication for my book, The Words We Choose: Your Guide to How and Why Words Matter, I discovered studies on the most effective positive to negative feedback ratio. A higher ratio of positive to negative interactions (minimally 3:1) is associated with better team performance. Some studies rationalized a ratio as high as 5:1. The evidence is clear that we are pre-disposed to a negativity bias and each of us benefits from at least a 3:1 positivity to negativity ratio if we are to hear, accept, value, and integrate meaningful feedback.

For instance, a study by Zenger and Folkman (2013) found that the highest-performing teams received nearly six positive comments for every negative one. In contrast, the lowest-performing teams received almost three negative comments for every positive one.

ROI implication is that teams experiencing more positive communication are likely to be more productive and innovative, directly impacting an organization’s bottom line.

2. Growth Mindset Language

Carol Dweck’s work on growth mindset has significant implications for leadership communication. Leaders who use language that promotes a growth mindset – focusing on effort, learning, and development rather than fixed traits – can positively influence employee wellbeing and performance.

ROI is impacted by fostering a growth mindset through careful word choices, which can lead to increased innovation and adaptability, crucial for organizational success in rapidly changing markets.

3. Empathetic and Inclusive Language

The use of empathetic and inclusive language by leaders can significantly impact employee wellbeing. We now know that inclusive language fosters psychological safety in teams, leading to increased engagement and willingness to share ideas.

Improved mental health and job satisfaction are linked to lower absenteeism and higher retention rates, both of which have clear financial benefits for organizations.

4. Stress-Reducing Communication

The way leaders communicate during stressful times can significantly affect employee wellbeing. For example, leaders who frame challenges as opportunities and provide clear, actionable guidance can help reduce employee anxiety and boost resilience.

Reduced stress levels are associated with lower healthcare costs and higher productivity, creating a positive ROI for the words used in such guidance.

5. Recognition and Appreciation

The language of recognition and appreciation has a powerful effect on wellbeing. A study by Gallup (2016) found that employees who receive regular recognition and praise increase their individual productivity, increase engagement among their colleagues, are more likely to stay with their organization, receive higher loyalty and satisfaction scores from customers, and have better safety records and fewer accidents on the job. We have published several articles noting the impact of recognition and invite you to explore this one, “The Power of Recognition”.

ROI is elevated by the multifaceted benefits of recognition language – from increased productivity to improved safety.

Given that leadership communication is a key factor to the success of wellbeing initiatives, these figures suggest a significant potential ROI for leaders who master wellbeing-focused communication.

We are eager to see more of Jan-Emmauel de Neve’s (Wellbeing Research Centre, University of Oxford) work on the financial impact of wellbeing on organizations. Wellbeing: Science and Policy was published in 2023 and covers years of research. (De Neve 2023). More of a layman’s resource is due this summer in his next book. We look forward to sharing our takeaways in future articles.

Throughout this exploration of leadership communication and its impacts, we’ve shared compelling evidence for the significant return on investment that the right words can yield. Let’s summarize the key findings:

1. Employee Engagement: Effective leadership communication strongly correlates with higher levels of employee engagement, leading to increased productivity and profitability.
2. Employee Retention: Employees are significantly more likely to stay with employers whose managers are effective communicators, resulting in substantial cost savings related to turnover.
3. Employee Wellbeing: Leaders’ word choices directly impact employee wellbeing, influencing stress levels, mental health, and overall job satisfaction. This, in turn, affects productivity, absenteeism, and healthcare costs.

The ROI of effective leadership communication manifests in both tangible and intangible ways:

Tangible ROI:

• Reduced turnover costs
• Increased productivity
• Higher profitability
• Improved customer satisfaction scores
• Enhanced innovation output
• Lower absenteeism rates
• Reduced healthcare costs

Intangible ROI:

• Stronger organizational culture
• Improved employee morale and job satisfaction
• Enhanced employer brand and ability to attract talent
• Greater organizational resilience and adaptability
• Improved psychological safety and team dynamics

While assigning an exact dollar value to effective communication is challenging, the cumulative impact of these benefits is substantial. Studies have shown that companies with highly effective communication practices significantly outperform their peers in terms of shareholder returns.

Moreover, in an era where employees increasingly seek purpose, meaning, and wellbeing in their work, the ability of leaders to articulate a compelling vision, connect individual contributions to larger goals, and foster a positive work environment through their words becomes even more crucial.

It’s important to note that realizing the full ROI of leadership communication requires more than just occasional townhalls and email updates. It demands a consistent, authentic approach to communication that permeates all levels of interaction. Communication is a core competency, worthy of ongoing development and refinement.

Investing in leadership communication—through training, coaching, and creating systems that facilitate open and effective dialogue—is a strategic imperative. The research we’ve explored suggests that such investments can yield substantial returns in terms of engagement, retention, wellbeing, and ultimately, organizational performance.

In the complex and rapidly changing business landscape of today, the ability to harness the power of words may well be one of the most valuable skills a leader can possess. By focusing on positive, growth-oriented, empathetic, and inclusive language, leaders can create an environment where employees thrive, leading to tangible benefits for the organization. Words are powerful tools. Are the right ones in your toolbox?

References

Branham, L. (2005). The 7 Hidden Reasons Employees Leave. AMACOM.

De Neve, Jan-Emmanuel. (2023). Wellbeing: Science and Policy. Cambridge University Press.

Gallup, 2024. State of the Global Workforce Report– 2024. https://www.gallup.com/workplace/321725/gallup-q12-meta-analysis-report.aspx

Kroth, M., & Keeler, C. (2009). Caring As a Managerial Strategy. Human Resource Development Review, 8(4), 506-531.

Short, T. (2020). The Words We Choose: Your Guide to How and Why Words Matter. Epigraph Publishing.

Zenger, J., & Folkman, J. (2013). The Ideal Praise-To-Criticism Ratio. Harvard Business Review.

Terre Short is a best-selling author, executive leadership coach, dynamic speaker and learning experience creator who connects from her heart. Visit ThrivingLeaderCollaborative.com to learn more.