Why Employee Engagement Matters

In a 2008 interview, Brad Bird - the Academy Award-winning filmmaker behind The Incredibles and Ratatouille - made the poignant observation that production team morale ‘has the most significant impact on a movie’s budget—but never shows up in a budget.’ He even went on to propose a quantification of the impact morale can have:

“If you have low morale, for every $1 you spend, you get about 25 cents of value. If you have high morale, for every $1 you spend, you get about $3 of value. Companies should pay much more attention to morale.”

Let’s take a look at how improving employee engagement can deliver tangible results.

1. Reduce staff turnover

It’s no secret that the more engaged people are, the less likely they are to leave your organization. As early as 2004, research by the Corporate Leadership Council found that engaged employees are ‘87 per cent less likely to leave the organization’.[1] Later, a Gallup study of 23,910 businesses found that those with engagement scores in the bottom quartile had 31% – 51% higher employee turnover.[2] This link is further evidenced by an internal study by financial services giant Standard Chartered which found that their branches with high employee engagement had 46% lower voluntary turnover.[3]

What does all this extra turnover cost? Replacing one employee is estimated by some experts to cost as much as their annual salary.[4] How much are you currently spending on recruiting and training replacement staff?

2. Absenteeism, health and happiness

Engaged employees take an average of 2.7 sick days per year, while disengaged employees take 6.2.[5] Marks & Spencer found that absenteeism in stores in the top quartile of engagement scores were 25% lower than those in the bottom quartile.

The MacLeod Report pointed to other evidence: “Fifty-four per cent of the actively disengaged say that work stress caused them to behave poorly with friends or family members in the previous three months, against 17 per cent of the engaged. More alarmingly, 54 per cent of the actively disengaged say their work lives are having a negative effect on their physical health, versus 12 per cent of the engaged.” [6]

Businesses with low employee engagement reported 62% more accidents.[7]

In this way, engagement can have a big impact. 86% of engaged employees say they very often feel happy at work, whereas only 11% of the disengaged say the same thing. 45% of the engaged say they get a great deal of their life happiness from work, against a mere 8% of the disengaged.[8]

What would the impact be on your business if employees took fewer sick days?

3. Inventory shrinkage

Low engagement levels have been connected to elevated inventory shrinkage. The MacLeod Review cited a broad-based meta-analysis that found inventory shrinkage was 51% worse in workplaces with low engagement compared to businesses with engaged employees. Improving engagement levels in your organization can have a significant effect on employee behaviours and your bottom line. For example if we could increase the number of engaged employees by just 5% in a business with $10M inventory shrinkage we might save around $250,000. If your organization has a significant shrinkage cost, this is worth considering.

“If we take our eye off the ball on employee engagement we’ll start to see churn rates increase or sick days increase. How people feel is not something you just improve and they stay that way when you stop paying attention. If you did something with your kids over the weekend and you made them happy by Sunday - do you stop checking in on them? Without care people’s happiness deteriorates. We have to keep working on this.”

- Dr Jason McPherson, Chief Scientist, Culture Amp

4. Sales

It makes sense that more engaged salespeople are more successful. In quantifying the impact, a wholesale and logistics company featured in the 2016 Engage for Success report (who chose to remain anonymous) reported that across over 2,000 salespeople, those ‘actively disengaged’ failed to meet their sales goals, by 3% on average. Highly engaged sales people exceeded their sales goals, by 4% on average. With a $1m sales goal over a year, highly engaged salespeople sold an average of $70,000 more per year than actively disengaged salespeople[9] - this is around 7% extra sales revenue per engaged employee.

If every engaged salesperson is earning you an extra 7% it doesn’t take long to add up even with a small increase in engaged employees. How much more could you be making in sales if for example half of your salespeople earned you 7% more than they currently do?

5. Profit

The culmination of all of the savings and increased earnings you’ll have working with more engaged employees hits your bottom line. Multinational financial services company Standard Chartered conducted their own engagement study, finding that branches where employee engagement was high exhibited:

16 per cent higher profit margin growth than branches where employee engagement was low. (p.41)

As far back as 2001, Hay Group concluded that engaged employees generate 43% more revenue than disengaged ones.[10]

6. Innovation

There are strong correlations between high levels of engagement and high levels of innovation. Krueger & Killham (2007) found that 59% of engaged employees say that their job ‘brings out their most creative ideas’, while only 3% of disengaged employees said the same thing.[11]

“The primary reason to increase employee engagement is to make the workplace a better place for all of us to come to - especially given how much time we spend here. It’s the same reason you try to make your home life happy - because you spend a large part of your life there. However, in addition to that, improving employee engagement won’t be harming your business. The evidence suggests it will make it more successful.”

- Dr Jason McPherson, Chief Scientist, Culture Amp

7. Customer satisfaction

Although it’s difficult to quantify the impact of customer dissatisfaction on the bottom line, we can understand how engaged and disengaged employees relate to customers. Seventy per cent of engaged employees indicate they have a good understanding of how to meet customer needs and only 17% of non-engaged employees say the same.[12]

8. Advocacy

Employees can be your greatest advocates. 67% of engaged employees say they advocate on behalf of their company or organization against only 3% of disengaged employees. Seventy-eight per cent would recommend their company’s products or services, against 13 per cent of the disengaged.[13]

Conclusion

Now you’ve got the proof that increasing engagement has beneficial impact on churn, absenteeism, employees’ health, inventory shrinkage, sales, profit, customer satisfaction and how likely employees are to recommend your organization and products or services.

How can we help?

We built Culture Amp, the world’s most powerful employee feedback and analytics platform, so that professionals like you have the insights they need to help employees succeed at their fingertips.

We’d love to show you around. Leave us your details and one of our people geeks will be in touch.

Customer spotlight: Optoro

“I think some of our executives find it funny that I always say this, but whenever I’m asking for something I can now say, ‘as you’ve seen in our most recent engagement survey, X, Y, and Z.’ It’s really become a powerful tool for me as an HR leader to have this data at my fingertips, to build a business case,” says Emily Holland White, Senior Director of Talent and Culture at Optoro.

Read the case study here >

References

[1] Corporate Leadership Council, Corporate Executive Board. Driving Performance and Retention through Employee Engagement: a quantitative analysis of effective engagement strategies. 2004. Cited in MacLeod 2009, p.14.

[2] Harter, J.K., Schmidt, F. L., Kilham, E. A., Asplund, J.W., (2006), Gallup Q12 Meta-Analysis. Cited in MacLeod, 2009, p. 11.

[3] MacLeod, D., and Clarke, N. Engaging for Success: Enhancing Performance Through Employee Engagement—A Report to Government. London: Department for Business Innovation and Skills. 2009. Crown copyright.

[4] MacLeod, 2009, p. 14.

[5] Harter, J.K., Schmidt, F. L., Kilham, E. A., Asplund, J.W., (2006), Gallup Q12 Meta-Analysis. Cited in MacLeod, 2009, p. 36.

[6] Crabtree S., ‘Engagement Keeps the Doctor Away’, Gallup Management Journal, 2005; and Gallup Study; ‘Feeling Good Matters in the Workplace’, Gallup Management Journal 2005. Cited in MacLeod, 2009, p. 30.

[7] Harter, J.K., Schmidt, F. L., Kilham, E. A., Asplund, J.W., (2006), Gallup Q12 Meta-Analysis. Cited in MacLeod, 2009, p. 11.

[8] MacLeod, 2009, p. 30.

[9] Court-Smith, J., ‘The Evidence: Case Study Heroes and Engagement Data Daemons’, Engage for Success, April 2016, p. 23.

[10] Hay Group, ‘Engage Employees and Boost Performance’, 2001, cited in MacLeod, D., and Clarke, N. Engaging for Success: Enhancing Performance Through Employee Engagement—A Report to Government. London: Department for Business Innovation and Skills. Crown copyright, July 2009, p. 39.

[11] Krueger, J. & Killham, E ‘The Innovation Equation.’ Gallup Management Journal, 2007. Cited in MacLeod 2009, p. 12.

[12] Chartered Institute of Personnel and Development, Measuring True Employee Engagement, 2006, cited in MacLeod, D., and Clarke, N. Engaging for Success: Enhancing Performance Through Employee Engagement—A Report to Government. London: Department for Business Innovation and Skills. Crown copyright, July 2009, p. 14.

[13] MacLeod, 2009, p. 14.