How Employee Disengagement Impacts the Bottom Line


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Posted In: Workforce Insight

Feb • 8 • 2017

How Employee Disengagement Impacts the Bottom Line

In January 2016, Gallup released its annual employee engagement survey. After polling more than 80,000 working adults in the U.S., Gallup calculated that 32 percent of those employees were “engaged” at the workplace.

 

Conversely, 50.8 percent were classified as “not engaged,” while 17.2 percent fell into the “actively disengaged” category. Those percentages, Gallup noted, mirror the findings of the previous year, indicating “little improvement” in employee engagement.

 

Everyone knows employee engagement is important, but it’s not easy to get a definitive picture of what employee engagement actually looks like. The concept rests on what is essentially subjective human behavior. To assess engagement, HR officers and managers have to sort out real disengagement from different communication styles or when an employee is just having a bad day at the office.

Nevertheless, several benchmarks have emerged that offer a clearer picture of what employee engagement is. Some studies have even measured how good employee engagement can boost a company’s bottom line — and the damaging impact of disengagement on company revenues.

 

How Many Workers are Engaged?

 

For the purposes of its survey, Gallup defined an engaged employee as “one who is involved in, enthusiastic about and committed to their work.” To decipher whether they are engaged, workers were asked to rate their perceptions of several workplace factors:

  • Do I have the opportunity to do my best work each day?
  • Am I surrounded by an encouraging and supportive team?
  • Is the company’s mission purposeful, which enables me to feel my role in the workplace is important?
  • Are my viewpoints heard?

The answers to those questions, Gallup asserts, tie directly to organizational performance.

Similarly, HR consulting firm Bersin by Deloitte argues that employee engagement relates to “an employee’s job satisfaction, loyalty and inclination to expend discretionary effort toward organizational goals.”

These suggest characteristics of an engaged employee: He or she consistently turns in superior work, actively contributes to projects or initiatives that lead to the company’s success, and volunteers to participate in efforts that go beyond their job description.

What Disengagement Looks Like

 

For many managers, it’s probably easier to spot an actively disengaged employee. Their work product ranks as consistently subpar; they spend most of their time gossiping, complaining, or engaging in non-work-related activities while in the workplace (such as looking for another job or playing computer games). Excessive absenteeism is another red flag.

If disengaged employees interface directly with clients, they receive a high number of customer complaints. (Although as Nikoletta Bika points out in a blog on Workable, sometimes clients can be unfair, but their input should not be ignored.) If left unchecked, these actively disengaged workers act as a demoralizing toxin on co-workers.

Yet, as the Gallup survey indicates, the majority of workers were rated as “not engaged,” a tick above “actively disengaged.” These employees are bit harder to classify because they may appear superficially to be “good” workers. While not overtly disruptive or actively seeking other employment, they do only the minimum requirements of the job without displaying any discretionary effort or enthusiasm.

Further, according to Bika, they rarely participate in meetings or planning sessions and seldom, if ever, offer their viewpoints. Their tenuous commitment to the job means they’ll likely bolt at the first opportunity.

The Impact on the Bottom Line

 

Numerous studies have quantified the impact employee engagement (or lack thereof) has on company revenues:

  • Dale Carnegie Training reports organizations with engaged employees outperform those with disengaged employees by 202 percent.
  • Towers Perrin estimates that highly engaged employees boost a company’s net profit margin by 6 percent.
  • Conversely, Gallup estimates employee disengagement costs U.S. business between $450 billion and $550 billion a year due to poor productivity.

The impact of employee disengagement on the bottom line stems from several factors, including high turnover rates that add up to spiraling recruitment costs; poor client relationships that lead to lost revenue; and excessive absenteeism.

Most business leaders understand those factors and how harmful they can be to the bottom line. But how can a company actually calculate the impact in dollars and cents?

One performance management consultancy, 15Five, has devised a mathematical equation to measure the impact of absenteeism on company revenues. 15Five calculates that on average employees take three days per year of unearned paid time off (PTO). That’s about 1.2 percent of total working days. To gauge how much absenteeism digs into the bottom line, calculate 1.2 percent of revenue per employee, and then add that amount to 1.2 percent of an average employee’s salary. (To determine revenue per employee, divide annual company revenue by the average number of employees.)

When the numbers are crunched, the bottom-line-busting effect of unearned PTO becomes a real dollar value. It’s also easy to see the cost of high absenteeism in more human terms. Co-workers are forced to fill in for the absent employee, making them less productive in their jobs. They also may resent having to take on extra duties. Converting the disengaged and absent workers to engaged and present employees reverses that trend.

 

So, despite some fuzziness in the term, employee engagement has a meaningful impact on revenues. This is reflected in College for America’s own survey of employer partners and their employees. As our impact research shows, 48 percent of employers believe they’re more likely or much more likely to retain College for America students and 43 percent believe their College for America students missed work less often.

 

With some perceptive management, disengaged workers are easy to spot. And — importantly — if companies more actively explore the satisfaction factors posed by Gallup, employee engagement can be improved.

 

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