Some of the easiest decisions in management are whether to give a person a pay rise, but it can be a more complex management task to keep that employee switched on and contributing to the team.

Which pays bigger dividends – more pay or better employee communication? It seems the pay rise comes way down the list as a motivator.

Towers Perrin, a multi-focus consulting firm, has studied this issue for some time and its recent work in the US looks at employee engagement in the context of downsizing and pay cuts – yet even in this climate a study of 35,000 workers found that they wanted to help their organisation succeed.

This "willing to help" attitude of employees is a true HR asset and should appear on the balance sheet or somewhere in the annual report, if only to remind management not to fritter employee goodwill away. Management in the US still has a long way to go, for even with the positive starting point of employees, only around 20 per cent are "actively engaged" in their work. The Gallup Organisation finds similar outcomes to Towers Perrin.

Does it pay off to have employees actively engaged?
The Zell Lurie Entrepreneurship Centre at the University of Michigan studied over 300 firms over a five-year period to find the differences between high performers and low performers. The high performers had a strong focus on employee energy and involvement (read communication), on culture and rewards and on organisational structure. The low performers on the other hand focused on product, technology and capital market expectations. They made a strong case for the link between good employee management and communication, and business results.

PricewaterhouseCoopers completed a Global Human Capital Survey in 2003 showing that looking after your people "significantly helped" the bottom line, through integration of HR and business strategies and the right leadership.

Watson Wyatt in a 2002 study went further and put a measure on it – it claimed that better human capital practices led to an average 30 per cent greater shareholder value. These better practices included a collegial and flexible workplace, effective communication and clear accountability and rewards.

A US-based consulting firm, Best Practice Limited, produced a 2003 report studying top US firms and found that what kept them on top was an emphasis on people, service, going as far as placing employees first among the stakeholders and ensuring "excellent communication" with them.

Wipro Spectramind was acknowledged in 2004 with the Trailblazing Award for its people and performance orientation. Company values and operating principals are broken down into behavioural indicators that are regularly measured, linking to an individuals performance review. The award acknowledged that Wipro had innovative practices in attracting the right people, promoting "fun" as an operating principal, along with learning and employee communication. As chairman and managing director Raman Roy said "Our business is people centric and requires constant innovation in HR practices so that each employee is able to achieve levels of performance that exceed expectations."

The evidence of these and other studies shows that if you want better results, improve your communication with employees. We know from over 20 years of research that employees want active leadership from their managers, clear knowledge of what is expected of them, frequent performance feedback, opportunities to grow, encouragement for ideas, accountability and autonomy. Many of these depend on the communication skills of your management team.

The hard thing about these findings is that the way forward is nowhere near as simple as just giving a pay rise or offering a bonus. The prescription is that your business should change so that communication and relationship with employees leads to real engagement.

One way to start is with an audit of internal communication. Another is to evaluate the communication skills of your management group and improve them where needed. A further way is to ask: does my business regard employees as the most important stakeholder?

Don't dismiss these as "soft" areas – as the studies above show, these people skills have a direct impact on business success.