We’ve all heard about the importance of having an engaged workforce.
But many HR professionals struggle to quantify the business impact of a disengaged workforce, and to justify the expense of programs or initiatives aimed at improving employee engagement.
To help you make a business case for investing in employee engagement initiatives, we’ve pulled together statistics and best practices that demonstrate the high value of an engaged workforce.
But before I dive in, we created a great infographic to accompany this post that we invite you to download.
This infographic highlights the dollars of sense of employee engagement.
Employee Satisfaction vs. Employee Engagement
First, it’s important to identify that employee satisfaction and employee engagement are not the same thing.
Employee satisfaction is a measure of an employee’s happiness with a company, their particular job, or their co-workers among other factors. While an employee’s happiness or satisfaction is important, and can contribute to their engagement, it’s not the same thing as engagement.
There are lots of different definitions of employee engagement floating around.
According to Aon Hewitt’s definition, employees are engaged when they “say, stay and strive”: they speak positively about the organization to others, are committed to remaining with their current employer, and are motivated by their organizations’ leaders, managers, culture and values to go “above and beyond” to contribute to business success.
Others define employee engagement in terms of employees’ commitment to the organization’s strategy or mission, their emotional attachment to their job or organization, their enthusiasm for their work, or the degree to which they act to further the organization’s interests.
In the end, most definitions of employee engagement boil down to: the employee’s contribution to the betterment of the organization.
So What Do the Surveys Say About Engagement?
In their Global Workforce Study, Towers Perrin found that 4 out of 5 employee are not contributing up to their potential. And 4 out of 10 workers are disenchanted or disengaged.
Towers Perrin list the top 10 global drivers of employee engagement as:
- Senior management sincerely interested in employee well-being
- Improved my skills and capabilities over the last year
- Organization’s reputation for social responsibility
- Input into decision making in my department
- Organization quickly resolves customer concerns
- Set high personal standards
- Have excellent career advancement opportunities
- Enjoy challenging work assignments that broaden skills
- Good relationship with supervisor
- Organization encourages innovative thinking
It’s interesting to note that half of these top 10 drivers are at the organizational level, and half are at the departmental/personal level.
So What Helps Motivate Employee Engagement?
Performance management is in many ways the centerpiece of the talent management process so it should be no surprise that it has an impact on many of the elements that drive engagement.
An effective manager uses the performance management process to:
Give employees a framework from which to do their work every day by providing clear expectations, ensuring they have the skills/knowledge/expertise to accomplish their goals as well as the time, resources, autonomy and authority.
Provide feedback that focuses on the employee’s strengths more than correcting faults. By spending more time telling employees what they did or do well, it makes it easier to identify and replicate the conditions that support high performance. That doesn’t mean a manager should completely ignore correcting faults- they should always be addressed in a timely fashion but balanced with the positive feedback.
Get to know their employees as individuals through regular, ongoing, two-way dialogue. This form of manager-employee relationship building ensures expectations, performance levels and development needs are understood and addressed as needed.
The above steps are fundamental to good management and we need to train our managers to think this way.
What Do Different Levels of Engagement Look Like?
At a more practical level, you can clearly see the impact of engagement levels:
A highly engaged employee:
- Uses their talents every day
- Demonstrates consistent levels of high performance
- Builds connections and professional networks
- Is committed to the organization and its values
- Has high energy
- Broadens what they do
- Helps make the organization more profitable
A moderately engaged employee on the other hand:
- Is meeting their performance goals
- Is satisfied with their position in the organization
In short, they’re doing what’s required. They’re just not going the extra mile.
Meanwhile, a disengaged employee:
- Often doesn’t know what is expected of them – and doesn’t ask for clarification
- May not feel they have the resources they need to do their work effectively
- Does not feel committed to the organization or their co-workers
- Is actually costing the organization approximately $3400 for every $10000 in paid salary (Gallup, 2002)
The Power of a Positive Attitude
Engagement research also shows that an employee’s mindset or attitude about their ability to impact quality, costs and customer service varies with their engagement level. The more engaged an employee is, the more they believe they can make a difference, and the more they actually try.
So What is Disengagement Costing Your Organization?
You can estimate the costs of disengagement at your organization with some basic calculations.
Based on engagement research, the Human Capital Institute put together a model of what engagement and disengagement could be costing your organization. This model assumes that a person’s salary is a reasonable measure of their value to the organization.
First you need to decide how many levels of engagement you want to consider. This example uses four levels of engagement:
- fully engaged
- somewhat disengaged
- fully disengaged
Given most employee engagement findings are identified via an employee survey, to be consistent, your scale should use the same number of levels your survey identifies.
Next, you need to make some assumptions about the different returns on salary each level of engagement delivers. In this example, we’re assuming:
- Fully engaged employees return 120% of their salary in value
- Engaged employees return 100% of their salary in value
- Somewhat disengaged employees return 80% of their salary in value
- Disengaged employees return 60% of their salary in value
You can work with your CFO to come to some agreement on these assumptions. In these measures the return each level of engagement delivers relates directly to discretionary effort and therefore employee productivity.
Then, use an average salary to calculate how much each employee at a given engagement level is returning to the organization. In this example, we use an average salary of $80K.
Fully engaged: $80K x 120% = $96K or +$16K value
Engaged: $80K x 100% = $80K or even in value
Somewhat disengaged: $80K x 80% = $64K or -$16K in value
Disengaged: $80K x 60% = $48K or $-32K in value
Finally, to determine the estimate cost of disengagement to the organization, you can multiply the return for each level of engagement by the number of employees who ranked at that level.
So if you had 500 employees, and they followed a typical distribution pattern: the 40% engaged, and 12% fully engaged would be adding $960K in value to the organization. While the 39% somewhat disengaged, and 9% fully disengaged would cost your organization more than $4.5 million dollars in productivity.
In this scenario the organization is losing more than $3 Million dollars because of disengagement!
But don’t despair. While you now better understand the cost of disengagement, you can also calculate the potential financial benefits of any programs designed to improve employee engagement.
Steps You Can Take to Improve Employee Engagement
In their employee engagement research, the Corporate Leadership Council found that up to 76% of employees are “up for grabs” in terms of engagement, and could become engaged or disengaged. The potential financial impact of this could be substantial for your organization.
So what can you practically do to improve employee engagement? Among other things, you can:
- Provide training and coaching for managers to enhance their ability to motivate and inspire employees which in turn will help improve engagement scores (this is critical since managers have such a direct impact on employee engagement).
- Ensure you support employee development at all levels within the organization. Provide learning and mentoring opportunities and a culture where regular ongoing discussion about career paths takes place.
- Ensure employees get the regular coaching and constructive feedback they need to direct their work and improve performance. Make sure managers have the skills to do that effectively.
- Put a succession planning program in place to give high-performing, high-potential employees opportunities for development and career progression.
- Ensure all employees have clear, SMART goals that are aligned with the organization’s high-level goals.
Then, you can use the same formulas you used earlier, to now calculate the financial benefit the organization could derive from any improvements in employee engagement.
These calculations help you make the business case for the tools and programs you need to help your organization increase employee engagement.
- Towers Perrin Global Workforce Study 2007-2008
- Human Capital Institute’s HCS Certification Course 2010
- Gallup, 2002
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