Matt Tenney, Contributor
Employee engagement can have a significant impact on an organization’s success.
While a high level of engagement among employees is the most valuable asset an organization can have, low levels of engagement cost companies billions of dollars every year.
Besides affecting an employee’s attitude toward their job and how well they will perform their job, employee engagement can also have a profound effect on a company’s financial performance.
Employee engagement can affect the financial performance of a company because it is tied to an employee’s performance, productivity, absenteeism, retention, and customer satisfaction. It can also impact a company’s ability to innovate and improve processes, which are both necessary for financial success.
In this article, we will explore the ways in which high engagement and low engagement can affect an organization’s financial performance.
Employee Engagement: A Brief Overview
Employee engagement is defined as an employee’s emotional commitment to their work, the organization they work for, and its goals.
This emotional commitment is an indication that the employee cares about their work, is dedicated to the organization, and their attitudes and behaviors are aligned with the organization’s core values. Because of this, employees’ perceptions of an organization will directly influence engagement levels.
An employee’s relationship with their organization must be rooted in trust, loyalty, integrity, and a mutually beneficial system of healthy communication and feedback between leadership and team members in order for them to become fully engaged with their work.
Engagement is a driver of organizational success and is essential for high rates of retention, attracting top talent, fostering loyalty, boosting customer satisfaction, and improving organizational performance and stakeholder value. Engagement levels are higher in organizations when employees feel a strong connection and dedication to an organization’s mission, vision, and values.
The main drivers of engagement are leadership, organizational culture, meaningful, purposeful work, development opportunities, autonomy, recognition, feedback, work/life balance, and an inclusive work environment that fosters honesty and transparency.
Engagement is a critical metric for organizations because it can have a tremendous impact on so many aspects of a business and can significantly affect its overall profitability.
Levels of Engagement: Engaged, Not Engaged, Disengaged
Gaining an understanding of the different levels of engagement and the behaviors associated with each level can be extremely useful when considering new employee engagement initiatives and strategies.
It can also clearly show just how much of an impact employee engagement can have on the financial performance of an organization.
Understanding these three levels of engagement is essential for increasing the positive impact of engagement and mitigating the negative effects associated with low engagement because it will help you understand how the behaviors of each group can help or harm an organization’s finances on a daily basis.
Examples of employee engagement include employees showing up to work with a sense of purpose, a deep commitment to the organization, dedication to performing well, a collaborative attitude, good communication with co-workers and leaders, and the ability to give and receive feedback positively.
Engaged employees won’t just show up for a paycheck or a shot at a promotion—they truly care about the organization’s mission, vision, and values. They are invested in the future of the company, recognize that they play an important role in helping it grow, and know that the work they do is essential to the organization’s success.
When employees are engaged, they develop a process improvement mindset that can spark innovation. They will also take advantage of learning and development opportunities to improve their skills or learn new ones.
Not engaged employees show little commitment to or enthusiasm for their jobs. They do what they are asked but rarely go the extra mile because they are not fully invested in the organization’s success or necessarily on board with its mission.
Employees who are not engaged will do their work but are disinterested in it. They may miss deadlines, communicate poorly with management and co-workers, and demonstrate a lack of accountability. They may not participate in collaborative projects or show any real interest in being a part of the team.
Employees who are not engaged could have been engaged at one time but aren’t any longer. This lack of engagement can be due to changes in their work environment that they take issue with or because of issues in their personal lives that have affected their level of enthusiasm for their job.
Most workers in the U.S. fall into the not engaged category currently.
A disengaged employee brings neither passion nor commitment to their job. They may exhibit toxic behaviors, underperform, refuse to take ownership of their work or demonstrate accountability, and lack a strong belief in the organization’s mission, vision, or values.
Disengaged employees are not interested in problem-solving, process improvement, collaboration, or innovation. They may be averse to change and unable (or unwilling) to adapt and express frustration when they are asked to do certain tasks or learn new processes.
Actively disengaged employees pose a serious threat to organizational success because they can cause significant damage to employee morale, bring down performance, stifle innovation, and adversely affect profitability.
High Engagement: The Financial Impact
The five indicators of high engagement in a workplace include less absenteeism, higher retention rates, increased productivity as the result of high performance, improved customer service, resulting in more client satisfaction and client retention, and better overall profitability for the organization.
The boost in profitability that results from a high level of employee engagement shows management’s commitment to employees. This commitment to helping employees thrive can lead to improvements in performance, productivity, and employees’ enthusiasm for their work, all of which are essential for long-term financial success.
We know that high levels of employee engagement can make an organization more profitable, but just how much more profitable?
Organizations with high levels of employee engagement are 21% more profitable than organizations with low levels of engagement. As Business Leadership Today contributor John Spence recently discussed, engaged companies grow profits up to three times faster than their competitors.
Let’s take a look at how high levels of employee engagement can benefit the financial performance of an organization.
Highly engaged employees are able to connect the dots between the work they do and the organization’s success. Having this sense of purpose makes them more connected to their jobs and leads to greater job satisfaction. Greater job satisfaction will make them better performers.
In fact, when engaged employees experience greater job satisfaction, it can lead to a 17% increase in performance. When employees have a high-performance mindset, it can inspire creativity, spark innovation, and boost an organization’s overall productivity, all of which is great for a company’s bottom line.
As we know, increased productivity leads to increased profitability. Employee productivity is important to any business. The more productive your employees are, the more successful you’ll be as a business.
Organizations with a high level of engagement report 22% higher productivity. They also have 28% less internal theft than organizations with low engagement.
One way high employee engagement helps lower absenteeism is that it reduces burnout. And employees who like their jobs and are satisfied in their roles are less likely to miss work due to job-related stress, which can be costly.
Organizations that have high employee engagement can see a 41% reduction in absenteeism. This is good for an organization’s bottom line, but it is also good for employees because this drop in absenteeism is often due to the employee experiencing less work-related stress and anxiety.
When engagement boosts retention levels, there will be a resulting improvement in profits due to the savings in costs associated with replacing employees when they leave. Organizations with high employee engagement can see lower turnover rates of around 31%.
When employees are engaged with their work, they are likely to feel more loyalty to the organization and more likely to stay in the job. Research suggests that highly engaged employees are 87% less likely to leave the organization they work for.
When employees take pride in the work they do and feel a sense of purpose and motivation, they are better able to serve customers and provide a higher quality of service that is also good for the bottom line.
This leads to a positive customer experience and high rates of customer satisfaction, which makes customers more likely to continue doing business with the organization. The impact of employee engagement on customer retention is profound, with over 80% of customers being retained by organizations with more than 50% employee engagement.
Low Engagement: The Financial Impact
As Gallup recently reported, employee engagement in the U.S. experienced its first annual decline in a decade, dropping to 34% engaged in 2021 from 36% engaged in 2020. The trend continued into the early part of 2022, with only 32% of full- and part-time employees engaged and 17% actively disengaged, an increase of one percentage point from the previous year.
With fewer employees being engaged and more employees being disengaged, we can expect to see the effects of this trend on revenue. And the effects of disengagement are very different from the effects of engagement.
Low levels of engagement and high levels of disengagement can cost companies around $450-500 billion annually.
Research shows that companies with poor engagement scores earn an operating income that is 32.7% lower than companies with more engaged employees. Additionally, disengaged employees cost an organization approximately $3,400 for every $10,000 in annual salary.
These sobering numbers demonstrate that the cost of employee disengagement can negatively impact an organization’s profits. Here are just a few ways it can cost your organization:
Actively disengaged employees are a real problem because they can cause significant damage to employee morale, create a toxic work environment, drive good employees to quit, and, as a result, adversely affect profitability.
Because disengaged employees are not interested in problem-solving, process improvement, collaboration, or innovation, they can negatively impact the performance of the team, resulting in less productivity.
According to a Gallup report, unengaged employees are 18% less productive than their engaged co-workers. They also have more absences than engaged employees, which can slow productivity for the whole team.
Because they do not typically go above and beyond in any aspect of their job as engaged employees do, they can be a drag on the overall productivity of the organization. This can be costly when project deadlines are missed and customers aren’t happy with the lackluster customer service disengaged employees provide, which ends up hurting customer retention.
Absenteeism is responsible for the loss of a significant amount of revenue yearly. The Centers for Disease Control and Prevention (CDC) says the loss of productivity associated with absenteeism costs U.S. companies $225.8 billion yearly.
In a 10,000-person company, disengagement results in around 5,000 lost days annually, costing organizations $600,000 in salary paid when there was no work performed. Unscheduled absenteeism can cost $3,600 annually for each hourly employee, and it can cost around $2,650 annually for salaried employees.
When employees are not engaged with their work, they will not be happy, and they will likely leave for greener pastures. The frequent and regular loss of employees causes significant financial losses for companies due to the cost of replacing employees and loss of efficiency.
The cost of turnover is staggering. It is reported that turnover costs companies, on average, six-nine months of an employee’s salary to replace them. A high turnover rate can devastate a company’s revenue.
When employees are disengaged, they will not be enthusiastic about their jobs or perform them well. This results in poor customer service and dissatisfied customers.
Because of the poor service, customer retention can suffer. Negative customer reviews, or even negative word-of-mouth reviews, can hurt an organization’s brand and drive potential customers away.
The Case for High Engagement
Organizations that score in the top 25% on employee experience report double the return on sales compared to organizations in the bottom quartile, and 82% of employees at companies that perform well financially are “highly” or “moderately” engaged, compared to only 68% at under-performing companies.
These numbers tell us just how important high levels of employee engagement are to an organization’s success.
The effects of employee engagement on financial performance are clear and indicate that engagement should be a top concern for organizations. Considering the high costs of low engagement and the profits to be gained with high levels of engagement, ensuring long-term financial success lies in creating engagement strategies that meet employees’ needs.
Matt Tenney is an active CEO who aspires to create the best workplace culture in the world. Matt is also the author of Serve To Be Great: Leadership Lessons from a Prison, a Monastery, and a Boardroom, and The Mindfulness Edge: How to Rewire Your Brain for Leadership and Personal Excellence. Matt is frequently invited to present keynote speeches at leadership conferences and meetings. His TEDx Talk has been viewed over 1,000,000 times since January, 2020.