Talent Management

Show Me the Money: The Bottom Line Impact of Employee Engagement

showmethemoney1

Employee engagement seems to be the buzzword constantly reverberating throughout the global HR arena. But is it legitimate?

I mean, really, does it matter if employees are engaged? Are organizations with engaged employees any better off?

And I’m not talking about employees being better off emotionally (no one cares about that). I mean does the company have a stronger financial performance and operational efficiency with engaged employees? If not, then employee engagement is just another time-wasting hoax for executives to deal with until the HR department comes up with a bigger-and-better distraction to throw their way.

Anyone who agrees with the statements and questions posed here hasn’t taken the time to do a routine Google search on employee engagement research (and obviously has no heart). Scholars, consultants, non-profits, and companies have been researching the validity of engagement for quite some time. The correlative data revealed in their research initiatives is significant. Here are some recent findings:

Operating income

In research prepared for the UK government (Engaging for Success: enhancing performance through employee engagement), David MacLeod and Nita Clarke found the following correlations to employee engagement:

  • Companies with low engagement scores earn an operating income 32.7 percent lower than companies with more engaged employees.
  • Similarly, companies with a highly engaged workforce experience a 19.2 percent growth in operating income over a 12-month period.

Profitability & attrition

The Corporate Leadership Council studied the engagement level of 50,000 employees around the world to determine its direct impact on both employee performance and retention. Here are two important findings:

  • Engaged companies grow profits as much as 3X faster than their competitors.
  • Highly engaged employees are 87 percent less likely to leave the organization.

Customer loyalty, productivity, and turnover

Any business owner can tell you that optimizing productivity levels is an uphill battle, and customer loyalty is what companies depend on to make payroll. (If only employees would understand that — right?)

In an article published by Jonathan Pont, the most-engaged workplaces experienced the following performance metrics:

  • 2X higher customer loyalty;
  • 2X higher productivity; and,
  • 2X lower turnover.

 The cost of disengagement

As if the business metrics that correlate to high levels of employee engagement aren’t convincing enough, let’s take a look at how much disengaged employees can cost a company. McLean & Company found some very compelling correlations:

  • A disengaged employee costs an organization approximately $3,400 for every $10,000 in annual salary.
  • Disengaged employees cost the American economy up to $350 billion per year due to lost productivity.

Ouch. Bottom line (pun intended): if companies want to bolster productivity and profitability, increase customer loyalty and operating income, and slash attrition and disengagement losses, they have to engage employees.

Don’t shoot the messenger.

This was originally published on the DecisionWise blog.

Reese Haydon is the Marketing Specialist at DecisionWise, a management consulting firm specializing in leadership and organization development using assessments, feedback, coaching, and training. His professional experience comes from working with the Organizational Leadership and Strategy department at Brigham Young University, the editorial team at brass|Media, Inc., and other teams in both for-profit and non-profit organizations.
  • Mark Miller

    No doubt about it that employee engagement yields big results for businesses. Now that we know it actually drives impact, how do you boost engagement? I believe shifting behavior is the first step. Employees and leaders need to demonstrate successful behaviors that take into account the way people naturally and most effectively work, communicate and act.

    We developed a blog on this topic – would love to hear thoughts http://www.emergenetics.com/driving-employee-engagement-productive-workplace-behaviors

    Mark Miller
    VP of Marketing
    Emergenetics International (www.emergenetics.com)

  • Jacque Vilet

    The results show correlation which is a whole different
    ballgame than “cause” and HR needs to understand that. Those
    that have a vested interest in selling engagement surveys do a good job of
    hyping this connection as if it were “cause”. It isn’t.
    Too bad we are so gullible. Read this:

    http://www.tlnt.com/2012/11/19/lies-damn-lies-and-statistics-engagement-company-performance/

    • Reese Haydon

      Great point, Jacque–and excellent post! You’ll notice I didn’t claim causation in my blog; I’m leaving interpretation up to the readers on this one. Thanks for sharing your thoughts!

  • Michael E

    “The Beatings will continue until Morale improves”… Sound familiar? “Beatings” can increase engagement too, so therefore if a causal effect were true such actions would increase ROI … but they don’t. The opposite occurs. The reason is because real world, positive “engagement” is a byproduct of an overall set of policies that are already contributing to increases in ROI. It’s unfortunate the garbage that masquerades as science these days.

  • CJ

    I fully endorse the need for robust stats and agree with Michael E – engagement or disengagement can be by-products of the policies in place in the organisation.

    I also agree with Jacque though, that engagement (or disengagement) may be by-products of policies (ie through causation) or they may be by-products of something totally different, and that HR often confuses correlation with causation. However, let’s also remember that this is a common failing – managers and other people generally fall into this trap too. We do need to arrive at more in-depth analysis of what drives what, and a higher level of HR professionalism – but also a higher level of managerial professionalism too. After all, who actually is responsible for getting the best out of the team? Is it HR or is it their manager? I think most people now believe the direct manager is the person responsible for this, and the role of HR, organisational leaders and others who may be working with the organisation are to ensure policies and processes (including development support for managers) are there to provide what managers need to build a productive environment.

    Mark asks how can we boost engagement. There has already been some interesting research here in the UK into how effective management can have an impact on business performance, via a framework that explores what drives what – ie effective management can drive engagement which can drive business performance.

    The links to the studies are below (2 related studies) – I think they make interesting reading, and perhaps these take the research a stage further than the studies referred to in previous comments and links? The framework referred to enables the organisations to critically assess and improve every component in the program (which Jacque suggests is important) and also compares the research group to a control group, so that the issue of correlation or causation can be more closely explored.

    Note that the key issue, though, is effective implementation of this framework in order to achieve this result. Where implementation is not effective, the result is understandably less effective.

    http://www.som.cranfield.ac.uk/som/p13929/Research/Research-Centres/Centre-For-Business-Performance/The-impact-of-Investors-in-People

    http://www.som.cranfield.ac.uk/som/dinamic-content/media/CBP/Publications/Cranfield%20IIP%20report%202010%20Final.pdf

  • CJ

    … whoops – sorry not sure what happened to my photo there! Sorry everyone!