Our previous post focused on ways of reducing the costs associated with disengaged workers. While the most obvious course of action might simply be to increase the percentage of engaged workers, doing so is no easy feat! It’s also important to recognize the specific ways in which disengaged workers impact an organization’s bottom line or, stated another way, to identify and quantify the waste!

During 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 in numerous ways:

Higher turnover: Disengaged employees leave their employers as soon as they see a better opportunity. The turnover increases the costs of recruiting, on-boarding, and training, (1.5-2x annual salary as explained in a recent post), and significantly more for higher-level executives based on a Center for American Progress study. 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: 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.

Lower profitability: Similarly, McBassi & Company has compiled data which shows that the Engaged Company Stock Index (comprised of 43 companies with high engagement scores), outperformed the S&P 500 by 21.4 percentage points since it’s inception in 2012.

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. Often times, disengaged employees focus on their personal agendas and see little upside in trying something new to forward the organization’s goals. The associated cost of lost opportunities is difficult to calculate; but it is significant and probably far greater than the direct replacement costs outlined above.

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.