While employee engagement has been the topic of several posts, including our previous one, it is less common to hear people speak in specific terms about the real, often hidden, costs associated with disengagement.
During recent meetings with our Partners in Improvement these costs were discussed in detail. The Partners concluded that disengaged employees create a negative and expensive ripple effect throughout an organization, and drive-up costs five specific ways:
- Higher turnover: Disengaged employees leave their employers as soon as they see a better opportunity. This turnover increases the costs of recruiting, on-boarding, and training, which typically range between 16% – 22% of salary for low-to-mid-level employees, and significantly more for higher-level executives based on a Center for American Progress study.In addition, every new hire brings a risk of a bad fit, and every employee leaving an organization takes with him or her some organizational knowledge that might have been helpful to that organization in future decisions.
- Lower productivity, lower profitability: Disengaged employees don’t go the extra mile; they do not make an extra effort when faced with a challenge, and don’t put forth the same discretionary effort that an engaged person will make. A 2013 article from the Harvard Business Review concluded that organizations that cultivate high employee engagement yield a 22% increase in productivity over the norm.
- Little or no process improvement: Improvement requires engagement — a willingness to design and conduct experiments, a willingness to take risks to try something new and potentially better. However, disengaged employees tend to focus on their personal agendas and see little upside in trying something new to forward the organization’s goals.
- Higher pay: When we say about someone, “They are only in it for the money,” we are observing disengagement. While money is important to nearly everyone, if that is the only motivation, there is no genuine engagement. As the behavioral economist, Dan Ariely, said, “Money is the most expensive way to motivate someone.” Organizations that are unable to create an environment that intrinsically engages their employees must pay them more to keep and motivate them.
- The associated cost of lost opportunities is difficult to calculate; but it is significant and probably far greater than any of the direct costs outlined above.
In our next post we’ll share five ways to reduce these costs.