Employee engagement has been extensively researched, written about, and measured over the past few decades in an effort to figure out what drives it and how to maintain it in organizations.
Leaders have poured large amounts of time, money, and effort into boosting engagement in their organizations, with U.S. companies alone spending over $100 billion on employee engagement annually, often with mixed results.
With such a low success rate, why are companies still investing so much money into employee engagement initiatives?
Because, while there are many factors that can and do affect an organization’s financial performance, employee engagement is probably the factor that has the biggest impact on an organization’s profitability and, by extension, its future success.
Employee engagement affects profitability in a variety of ways. Engagement can significantly improve productivity, safety, absenteeism, retention, and customer satisfaction. Engaged employees are also better at adapting and innovating, which are both necessary for sustainable profitability.
In this article, we will examine the link between employee engagement and profitability and how engagement impacts long-term financial success.
Engagement Defined
In brief, employee engagement is an employee’s emotional commitment to their work, the organization they work for, and its goals. It describes the bond an employee builds with their specific job and the organization.
High engagement in an organization indicates that employees care about their work, are dedicated to the organization, and their attitudes and behaviors are aligned with the organization’s core values. Engagement levels are higher in organizations when employees feel a strong connection and dedication to their jobs.
Employee engagement drives organizational success and is essential for increasing retention, attracting top talent, fostering loyalty, boosting customer satisfaction, improving organizational performance, and providing stakeholder value. 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.
The Three Levels of Engagement
When considering the financial impact of engagement, we need to look at the ways in which it can improve profitability when there is a high level of employee engagement or hurt profitability when there is a high level of disengagement in an organization.
There are three different levels of engagement that we typically refer to: engaged, not engaged, and disengaged. The behaviors we see from employees who fall into each of the three categories can lead to radically different financial outcomes for organizations.
Becoming familiar with the characteristics of each level can be extremely useful when considering new employee engagement initiatives and strategies and help you determine the best ways to focus your engagement efforts.
It can also provide a clearer idea of just how much of an impact employee engagement can have on an organization’s profitability.
In addition to the cost, the time as they struggle to quickly learn their new job duties.
Engaged
Engaged employees exhibit certain positive behaviors that can improve many aspects of an organization’s overall profitability.
These employees show up to work with a sense of purpose, commitment to the organization and its goals, dedication to performing well, and enthusiasm for providing exceptional customer experiences.
Engaged teams are better at collaboration, communication, and innovation. They are better able to adapt in times of change and are willing to improve processes and learn new skills. They also thrive on giving and receiving feedback.
Engaged employees truly care about the organization’s mission, vision, and core values and are invested in the future of the company. They know the role they play in the organization is important to helping it grow and essential to the organization’s success.
Not Engaged
According to Gallup, most workers in the U.S. currently fall into the “not engaged” category.
Not engaged employees show little commitment to or enthusiasm for their jobs. They will do their work, but they do it with disinterest and typically do the bare minimum. These employees are typically not very invested in the work they do and rarely go the extra mile for customers or their co-workers.
Their performance can be adequate but, because they are not fully invested in the organization’s success or necessarily on board with its mission, they can also perform very poorly.
Employees who are not engaged may miss deadlines, communicate poorly with management and co-workers, and will demonstrate a lack of accountability. They may not participate in collaborative projects or show any real interest in being a part of the team.
Disengaged
Disengaged employees lack the passion and commitment to their job that engaged employees exhibit. They may engage in toxic behaviors, underperform, refuse to take accountability, and lack a strong belief in the organization’s mission, vision, or values.
When it comes to problem-solving, process improvement, collaboration, or innovation, disengaged employees will show little interest in participating. 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 damage employee morale, bring down performance, stifle innovation, and adversely affect profitability.
The Positive Effects of High Engagement
Not surprisingly, 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, and engaged companies grow profits up to three times faster than their competitors.
Indicators of high engagement include increased productivity as the result of high performance, improved safety, less absenteeism, higher retention rates, and better customer service, resulting in more client satisfaction and client retention, and better overall profitability for the organization.
The High Cost of Disengagement
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.
Unfortunately, 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 engaged employees and more disengaged employees, 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.
Engagement and Productivity
Employee productivity is important for any business because increased productivity leads to increased profitability. Organizations with a high level of engagement report 22% higher productivity.
A high level of disengagement in an organization will negatively impact productivity. Because disengaged employees do not typically go above and beyond in any aspect of their job and have higher rates of absenteeism, they can be a drag on the overall productivity of the organization.
According to a Gallup report, unengaged employees are 18% less productive than their engaged co-workers.
Engagement and Safety
Research has shown a connection between employee engagement and improved safety. This is because engaged workers are more likely to be aware of their surroundings and better at following best practices for safety. They are also more likely to take measures to protect their co-workers.
Whatever the setting, the evidence shows that employees who are more invested in and committed to their work typically care more about how they are doing their job and take more pride in what they do. This level of job investment helps them to be more detail-oriented and better at reducing accidents on the job, which creates a productive and much safer workplace for all employees.
Disengaged employees can cause problems for businesses by disregarding safety measures. These employees have 64% more accidents on the job than engaged workers.
They are less likely to be proactive than engaged employees, miss more days of work, are far more likely to get injured on the job, and often leave their jobs after shorter periods of time.
Engagement and Absenteeism
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.
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.
Engagement and Retention
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 remain in their jobs. Research suggests that highly engaged employees are 87% less likely to leave the organization they work for.
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.
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.
The cost of turnover is staggering. It is reported that turnover costs companies, on average, six to nine months of an employee’s salary to replace them. A high turnover rate can devastate a company’s revenue.
Engagement and Customer Satisfaction
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.
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.
Past research has shown that organizations with highly engaged employees enjoy 26% higher revenue per employee, as well as 13% greater total returns to shareholders.
These numbers tell us just how important high levels of employee engagement are to an organization’s profitability and demonstrate why 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 work. The key to successful strategies is that they meet employees’ needs.
Matt Tenney has been working to help organizations develop leaders who improve employee engagement and performance since 2012. He is the author of three leadership books, including the groundbreaking, highly acclaimed book Inspire Greatness: How to Motivate Employees with a Simple, Repeatable, Scalable Process.
Matt’s ideas have been featured in major media outlets and his clients include numerous national associations and Fortune 500 companies.
He is often invited to deliver keynote speeches at conferences and leadership meetings, and is known for delivering valuable, actionable insights in a way that is memorable and deeply inspiring.
