Employee Engagement: The Business Case

Pim
Written by

Our recent post, “The Way We Work Is Broken” revealed the engagement sinkhole, and the associated burnout rate. We highlighted the impotence of leaders in solving this problem. We highlighted the gap between current and desired workplaces.

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Now we offer data that shows why organizations urgently need to fix their broken workplaces. This is the business case for employee engagement.

Inhumane and shortsighted

That only 15% of all employees are engaged at work is very, very sad. And though many organizations realise this, it does not spur them to action—to make changes. Their focus stays only on performance—especially money and output. Engagement is a nice-to-have, not a must-have.

But that’s not just inhumane; it’s also painfully short sighted. Here are five reasons why.

1. Return on engagement

If you are not in business for a higher purpose, take a long look at the money first.

When work is exciting and motivational, people thrive and organizations flourish. This is not just our belief. This is reality. The persuasive financial evidence is below.

A Glassdoor‘s Best Places to Work gave much better returns than investing in the average S&P500. Check the stock price data below. It’s impressive!

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2. Increased performance

A Gallup meta-study highlights the positive influences on organizational success. Workplaces with high employee engagement seriously outperform those with lower scores. Engaging workplaces enjoy higher profitability, productivity and customer ratings. They also have lower turnover, absenteeism, accidents and quality defects.

Gallup’s study clearly reveals the correlation between engagement and business performance. Moreover, the findings are highly consistent across different organizations, industries and parts of the world.

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3. Replacement costs

But wait, there’s more. What about the costs of people leaving because they dislike their workplace?

Well, these are probably higher than we imagine. Think of the replacement costs: recruiting, interviewing, new equipment, on-boarding and training. Plus, there’s a lost opportunity cost—the cost to an organization when it can’t grasp opportunities that appear, because roles are vacant or understaffed

The Center for American Progress found the cost of replacement is around 20% of an employee’s annual salary. For the highest paid jobs, this can be  213% of salary!

4. Cost of absenteeism

Disengagement relates to other costs like absenteeism. Earlier we showed the connection between engagement and sick leave, burnout rates, and so on. Now, let’s look at other associated costs.

Various studies cite absenteeism as accounting for around 15-20 percent (!) of payroll costs (direct and indirect). Some of these are: wages paid to absent employees, wages paid to temporary employees and wages paid for overtime. Oh, and don’t forget the admin expense of managing all this absenteeism.

Then there are other indirect costs: “reduced productivity, poor goods or services because of understaffing or overtime fatigue, safety issues from inadequately trained employees, poor morale from employees who had to do extra work and managers’ time spent on discipline and finding replacements.”

So, take the payroll costs of your company, and do the calculations. Is absenteeism costing you an extra 15-20%, too? It adds up, very quickly!

5. Toxic workers

But we’re not finished yet—there is more. Take the cost of so-called toxic colleagues.

Research by Northwestern University’s Prof. Dylan Minor tries to uncover the cost of toxic workers. With colleagues, he examined worker behaviour. They assessed if they were benefiting the organisation (top performers) or harming it (the toxic workers). They then compared the value of hiring top performers versus parting with toxic ones.

They found that engaged top performers boosted the performance of colleagues. Indeed, the top 1% of these colleagues earned an extra $5,300 for the organization: merely by doing above average.

Then the research gets very interesting. Typically, the cost of a toxic colleague was estimated at $12,800! The cost of being surrounded by toxic colleagues is much greater than the benefit of working with top performers.

The verdict

This data is a strong wake-up call for all organizations. Beyond the personal pain, the disengagement epidemic severely affects business outcomes. It costs heaps of money!

That’s why it’s time to act. It’s time to lift awareness – everywhere. The more who know, the higher the chance that we can all make an impact.

So, take some action:

“Nothing happens until something moves”…

Pim
Written by Pim
8 months ago

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Replies (2)

eric

eric

keep doing what you guys are doing, this is awesome data... I have worked many years at companies that just beat you down and drain the energy from you and they never strive to fix it... even when they see it. I have been lucky to find a company in the last year that is a unicorn, the energy at this place is off the charts and the level this team delivers at is phenomenal... culture is a foundational must have

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Frank Thun

Frank Thun

The problem with linking Engagement directly to Business Outcomes is that the causality is not clear: More successful companies lead employees to declare themselves more engaged - and vice versa. While the argument that Gallup makes is convincing and appears to be common sense, it has can not be proved scientifically.
That's a point that Mats Alverson et al. make in their book "Stupidity Paradox" or Phil Rosenzweig in "The Halo Effect" . Both are good reads.

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