We’ve got some bad news: there’s an invisible drain on your company finances. Every single year, businesses around the world lose approximately US$7 trillion due to disengaged employees.
But wait—there’s no way we could collectively be haemorrhaging that amount of money without noticing, right? Well, apparently so. Employee disengagement is somewhat of a silent assassin in the workplace, with losses in tiny increments through day-to-day behaviours, rather than in obvious chunks.
StaffConnect is a leading employee engagement solutions provider. Want to know more about the mammoth financial burden you never knew existed? We’ve got the full breakdown of how much employee disengagement is costing your business.
What is employee disengagement?
Employee disengagement is the state of indifference or hostility from your workforce towards your organisation, its goals and its culture. Disengaged employees don’t feel connected to their workplace and underperform as a result, typically doing the bare minimum required to fulfil their job description without being penalised.
This manifests—and your organisation loses money—in three core ways:
- Lost productivity: The amount of revenue that would have been generated if those same employees were being engaged.
- Staff turnover: The cost of replacing staff that left their positions due to poor engagement.
- Employee absenteeism: The financial burden of employees calling in sick to avoid coming to work.
Disengagement is often blamed on the employees—attributed to individual character flaws like laziness, lack of self-motivation or poor concentration. However, it is a widespread problem across most workplaces, which hints that the bigger picture: organisations are lacking the understanding and the tools to maximise employee engagement and drive increased revenue.
How many people are disengaged?
Think your workplace isn’t affected? Think again. Gallup—a world leader in workplace analytics and business advisory services—estimates that only 15% of the global workforce is engaged.
The remaining 85% is divided between those who are “not engaged”, or workers that feel indifferent to their employer, and “actively disengaged”. The latter group represents employees who are deeply unhappy at work and feel hostile towards the company. Shockingly, they represent 18% of the global workforce: meaning that a higher percentage of people are actively disengaged than are engaged.
Notably, Gallup finds that engagement figures do vary between countries and continents, for example:
- North America: 29%
- Australia and New Zealand: 24%
- Western Europe: 14%
- Central and Eastern Europe: 11%
- Middle East and North Africa: 10%
- East Asia: 6%
It’s also worth noting that these figures are likely an underestimation. Although Gallup’s poll studied around 180 million employees worldwide, this only represents 6% of the 3 billion-strong global workforce and data is likely to be more accessible in some regions than in others.
Cost of lost productivity
Productivity is often treated as a buzzword, but it’s really not—it’s a quantifiable business expense. Financially speaking, productivity is equal to the amount of revenue generated per employee.
In the UK, the average is £118,000 generated per employee, although this varies quite substantially depending on the size of the business. Meanwhile, in the US, small businesses generate around US$100,000 for every employee, while larger companies can typically expect figures to be more in the region of US$200,000.
How is this affected by employee disengagement? Productivity is essentially a measure of efficacy and we know for a fact that disengaged employees are less effective than their engaged counterparts, making 100 times as many mistakes. This adds up, as the operating incomes of companies with low engagement scores have been shown to be 33% lower on average.
Gallup estimates that this all amounts to disengagement costing companies 34% of an employee’s salary per year in lost productivity.
If you’re a US retail business paying the median salary US$24,340 to your sales associates, you’re losing US$8275.6 on a single employee’s disengagement.
24340 x 0.34 = 8375.6
That’s just one person. Imagine you have 6,000 store assistants across all your locations. Every year, you’re losing a whopping US$49,653,600 to disengagement-linked non-productivity.
8375.6 x 6000 = 49,653,600
Productivity doesn’t sound like much of a buzzword now, does it?
Cost of staff turnover
If our figures on productivity felt like a bit of a blow, I’m afraid it’s about to get worse. Disengaged employees are 87% more likely to leave their jobs for another opportunity. Industries with a high proportion of deskless workers are at the highest risk, with staff churn in the UK’s hospitality sector reaching an unbelievable 90% last year.
Employee turnover is one of disengagement’s most expensive symptoms. The cost of replacing a leaver amounts to around one-fifth of that person’s salary, taking into account:
- Exit interviews
- Severage pay
- Unemployment taxes
- Increased overtime from colleagues
- Recruitment costs
- On-boarding and training
In the hospitality sector, where the average UK salary is £8.21 an hour or around £16,000 a year, you’re losing £3,200 every time an employee decides to quit.
16,000 / 5 = 3,200
Let’s say your business has 60 employees. If you’re one of the in the hospitality sector experiencing a sky-high turnover rate at the moment, you’re paying £172,000 yearly to replace 90% of your workforce.
60 x 0.9 = 54
3,200 x 54 = 172,00
And yes, this is on top of the money you’re losing to non-productivity.
Cost of absenteeism
Employees that feel disconnected from the organisation or no longer care about their jobs aren’t going to lose much sleep about inconveniencing the business by calling in sick. Let’s be very clear: we’re not talking about legitimate illnesses. Someone with a contagious illness, such as a cold or infection, coming in to work could actually send your absentee rate into overdrive. In this case, employee absenteeism refers to those employees who wake up with a slight cough or a headache and think “yes! I have an excuse not to go into work today!” or worse still, make up fake excuses to avoid having to work.
It’s estimated that absenteeism of all kinds—legitimate and non-legitimate—costs businesses US$84 billion globally. The UK Institute for Employment Studies, meanwhile found that an employer can spend as much as 16% of its annual salary bill on staff absences. But can employee engagement really cut this figure down?
Turns out that it absolutely can. There’s plenty of evidence to support the idea that higher engagement leads to fewer employees calling in sick. For instance, Gallup found that businesses with highly engaged employees experienced a 37% lower rate of absenteeism.
Now, 37% is a lot and it depends on what level of absenteeism you’re starting from. But separate studies have found that bringing your absentee rate down by just 10% can lead to a 1-2% saving in payroll costs.
Engage employees, increase profits
Advancing employee engagement isn’t just about cutting costs: it can also quickly and significantly boost revenue, strengthening your entire bottom line. The reason couldn’t be more simple: people who are happy in their jobs produce better quality work for their company, use their time more effectively and participate in the company culture.
The same study, prepared on behalf of the UK government’s Department for Business, Energy & Industrial Strategy, that found operating incomes at companies with disengaged workers to be 33% lower also identified that those with a highly engaged workforce grew by 19% in just 12 months. Separate research conducted by the Corporate Leadership Council revealed that companies could increase their profits up to three times faster than their competitors by engaging employees.
Disengagement is clearly restricting businesses that have the potential to be high-growth—both in terms of the existing financial burden and the profit increase they could unlock. The question is: is your company ready to address it?
How do I solve employee disengagement?
Responding to the employee disengagement crisis isn’t easy and there’s no blanket answer. It’s about making your workplace more connected, whether you have one location or hundreds of them, so you can build a closer relationship with your entire workforce (not forgetting your deskless workforce!). Because that’s really what employee engagement is all about: it’s a relationship. Here are StaffConnect’s top tips for connecting with staff:
- Go straight to the source. Most companies conduct employee engagement surveys. But how often does this get turned into action? Ask your workforce to evaluate their own engagement and if you get poor results, let them be a part of the solution.
- Communicate properly. How is information distributed within your organisation? Who is this not reaching? Often, pressing company news is communicated to deskless workers—who are often customer-facing—last, causing frustration and resentment. Level the playing field and break down barriers between head office and the majority of your staff.
- Recognise achievements. If there is a member of your team doing great work—let them know! Underappreciated employees quickly revert back to underperforming, while those that habitually underperform are given no incentive to work harder if their colleagues’ efforts go unnoticed.
Employee engagement doesn’t happen on its own. Having systems in place that facilitate communication, improve the distribution of information and allow you to build a company culture is a business-critical issue. StaffConnect is one of the world’s leading mobile employee engagement platforms and has been designed with both in-office and deskless workers in mind.
We have helped countless clients across high-risk sectors such as hospitality, retail, manufacturing and healthcare transform the relationship between the organisation and its employees for a brighter, more cost-effective and profitable future. Discover some of our case studies to find out more about the transformative power of StaffConnect.