The Cost of Neglecting Employee Engagement
Content Editor at Workvivo
28 May 2023
The cost of neglecting employee engagement? $7.8 trillion. Having a workplace that people actually want to come to? Priceless.
$7.8 trillion. That’s how much employee disengagement cost the world economy in 2021 according to Gallup’s State of the Global Workplace Report. Such a whopping dollar figure – which equated to 11% of global GDP – is difficult to even grasp, let alone ignore. But one thing is clear: employee engagement is not simply a wellbeing metric; it has a substantial impact on organizations’ bottom lines.
Although employee engagement has been a hot topic for quite a while now, disengagement at work is an increasingly rampant problem. In 2022, the ratio of engaged-to-disengaged employees in the US reached its lowest level since 2013.
Why should company leaders be concerned? Because the harmful effects of disengagement run deep, detracting from numerous critical facets of the business including productivity, revenue, and talent retention. So, to emphasize how imperative employee engagement is, in this article we’ll break down just how costly disengagement can be (and what your organization can do to prevent it).
The steep cost of neglecting employee engagement
To appreciate the negative impact that disengagement can have on a company, let’s start by considering the overall cost expressed as a single metric. Gallup estimated that disengaged employees cost organizations 18% of their annual salary. To illustrate what that can amount to, here’s a hypothetical example:
Suppose a 500-employee company pays its workforce an average salary of $60k. If we apply an employee disengagement rate of 20% and then factor in Gallup’s 18% cost metric, that comes out to an annual loss of $1,080,000. In a company of 2000 employees, that number would quadruple to $4,320,000.
These projections are certainly alarming, but it’s important to note that the 20% disengagement rate used in this example was a conservative estimate. As per Gallup’s research, 18% of employees are actively disengaged (the most acute form of disengagement). But the same survey revealed that 50% of employees are neither engaged nor actively disengaged. Rather, they constitute a sort of apathetic middle-ground – and one could argue that these “half-hearted” employees would push the losses in the above example much higher.
Putting a concrete price tag on employee disengagement helps elucidate the issue in simple terms. But, to better understand why disengagement is so costly, we need to look more closely at the various outputs and processes that can be adversely affected. On that note, below are three specific ways in which neglecting employee engagement inhibits companies’ growth and success.
1) Hindered productivity and performance
There’s a clear connection between engagement and productivity. Engaged employees are motivated by genuine interest, a sense of purpose, and pride in their work. This motivation drives them to exert more effort, which ultimately translates into heightened productivity. Conversely, disengaged employees lack motivation, and this disinterest hampers their productivity. In light of this, it’s no surprise that engaged teams are 14% more productive than disengaged teams.
Engaged employees are also more likely to take initiative, strive to improve, and go beyond the basic requirements of their role. To put it plainly, they truly care about their work and want to be involved. Disengaged employees, on the other hand, perceive work as a chore and often struggle just to show up. This is apparent in the fact that engaged teams experience 81% lower absenteeism than disengaged teams.
Building on those notions, if a company suffers from low engagement, the attendant declines in employee productivity and presence are sure to weaken aggregate performance across the organization. So, a low-engagement culture is bound to yield low performance (and vice versa).
2) Impeded revenue and profitability
When the aforementioned declines in productivity and performance are taken into account, it’s logical to presume that employee disengagement stunts revenue and profits as well – and the data backs this up. According to Gallup, engaged teams achieve 18% higher sales volume than disengaged teams. So, when employee engagement is low, there’s a significant amount of revenue being left on the table.
This is partially due to the fact that engaged employees tend to cultivate better customer relationships, thus maximizing customer value. As Kristin Hancock, VP of Community & Engagement at ICology, explains, “When your employees feel valued, your customers feel valued. And when customers feel valued, they’re going to spend more money.”
Conversely, disengaged employees are often afflicted with low morale, which can degrade client interactions. Interestingly, Gallup also noted that engaged teams foster 23% higher profitability than disengaged teams, proving that employee engagement is correlated with both the top and bottom lines.
“When I ask my clients to look back over the last 12 months and give me a cost – a dollar figure or a percentage of revenue – that disengagement represents, they typically estimate between 10% and 20% of current revenue.” – Don Rheem, CEO of E3 Solutions.
3) Accelerated employee turnover
In addition to influencing performance-related metrics like productivity and revenue, engagement also has a strong effect on talent retention. Engaged employees enjoy a high degree of job satisfaction, which makes them more likely to stay with the company. Disengaged employees, on the other hand, grow dissatisfied and discouraged, which can eventually lead them to resign in search of greener pastures. For this reason, engaged teams have up to a 43% lower turnover rate than disengaged teams.
Furthermore, a low engagement rate across an organization debases company culture, which, in turn, makes employees head for the door even faster. As for the financial impact, turnover is an expensive matter in and of itself. Gallup has estimated that the cost of replacing an employee can be up to two times the employee’s salary. And, on top of that, there are also intangible costs such as the loss of knowledge and expertise.
Reasons behind employee disengagement
Now that we’ve examined the cost of disengagement, let’s discuss the underlying causes. While each employee’s circumstances are unique, disengagement has common culprits that are repeatedly observed across roles and industries. Here are some of the most endemic roots of disengagement that leaders need to be wary of.
1) Poor internal communication
Internal communication is the glue that holds organizations together. And, without an effective internal communication platform and strategy, employees may feel alienated from their colleagues and out of touch with the organization as a whole. Feelings of isolation can quickly turn into disengagement, which is why companies are now leveraging social intranets to encourage employee connections.
2) Toxic company culture
A toxic company culture can exhibit many different symptoms including hostility, pessimism, competition, cynicism, and criticism – all of which lead to excessive stress and, in some cases, anger or frustration. And, like isolation, these negative emotions typically go hand in hand with employee disengagement if they persist.
3) Unhealthy work-life balance
Overworked employees inevitably burn out, and this is an all-too-common occurrence in the modern workplace. A Future Forum survey found that 42% of white-collar workers felt burned out in Q4 2022. And when employees hit burnout, they often disengage because they don’t have enough energy to be enthusiastic or motivated at work.
4) Limited opportunities for professional development
Most employees aren’t content to perform the same tasks in the same role indefinitely: they want to learn, grow, and advance their careers. So, if employees don’t have a clear trajectory and growth opportunities within the company, they may begin to feel like hamsters on a wheel – even if they were initially enthusiastic about their position.
5) Insufficient employee recognition
Even the humblest employees still want to feel seen and appreciated at work; it’s an intrinsic human desire. And if an employee’s effort and contributions aren’t properly recognized, this can lead to detachment and even bitterness in the worst case. So, company leaders need to not only consider if employee recognition is being given, but also how it’s being delivered.
“Leaders are often disconnected from the experience of employees at lower levels of the company. And, because of that, they’re not investing in the right tools, resources, and initiatives to create an experience that will make employees want to stay.” – Kristin Hancock, VP of Community & Engagement at ICology.
Developing an Employee Engagement Plan
Based on everything we’ve covered, it’s clear that neglecting employee engagement incurs a heavy cost. So, the question is: what can leaders do to nurture engagement within their organization? The first step is to create a clear employee engagement plan.
An employee engagement plan is a list of strategic initiatives aimed at increasing engagement and enriching company culture. These initiatives should be prioritized and include both short-term action items and long-term goals to work toward.
With that in mind, here are the four primary steps to developing an employee engagement plan:
- Determine the overarching objective(s)
- Assess the current state of employee engagement within the company
- Establish targets and action items that will support the objective(s)
- Incorporate review mechanisms to monitor results
For a detailed explanation of how to produce an employee engagement plan, head over to our comprehensive article on How To Develop Your Employee Engagement Action Plan, which includes a free template to guide you.