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financial impact of employee disengagement
5 min read

A few weeks ago, I was having a chat with the general manager of a tech company – I’ll call her Jo – and she was telling me that her business had set aggressive growth targets for the next financial year, which, while exciting, seemed impossible given her team was experiencing a higher rate of turnover than ever before.

While some employees had naturally outgrown their roles and wanted to move on to the next chapter in their careers, other employees were leaving even though they didn’t have another role to go to. This was a massive red flag for Jo. It meant people were willing to take the risk and spend time actively searching for different job rather than spend any more time under her employment.

What was going on in her company to drive her best people away? And without them, how was her business supposed to grow at the rate its investors wanted?.

How can business grow if discretionary effort and intent to stay is at an all time low?

If you recognise Jo’s predicament, you aren’t alone. The 2018 results from Gartner’s Future of HR survey show that while growing business is a top objective for business leaders, there’s a lot of work to do to retain the people who are going to achieve that growth.

The best employees (the ones we want to keep!) are at risk of being lured into a very attractive job market, and those that are actually staying are likely to be disengaged and provide very little of the discretionary effort, innovation and critical thinking required to achieve your business’ growth goals.

financial impact of employee disengagement

Gallup’s most recent State of the Global Workforce found 71% of Australian employees are disengaged at work, which means 3 out of every 5 of your people do only what is absolutely necessary to get through the day, and no more. As many as 14% or 1 in 5 employees are actively disengaged, which means not only are they doing the bare minimum, they’re also actively trying to undermine any effort you’re making to improve their experience at work.

This slump in productivity and engagement is not just bad news for your managers and employees – it’s slowing economic growth nationwide.

Employee disengagement costs Aussie businesses millions every year

Calculating the direct costs of employee turnover can be relatively straightforward – most HR agencies will say that depending on the size of the business and the role it’s 30-150% of the individual’s salary, and the indirect costs impact your bottom line too.

On top of the people who leave and are replaced, there are the employees who stay who are disengaged and disenchanted. Let’s look at the types of ways employee disengagement can impact your financials:

Cost of involuntary turnover Cost of disengaged employees
Loss of productivity from employees who are filling in for people who left Opportunities lost when people don’t go above and beyond
Cost of training and induction Lack of innovation and time lost on inefficient processes
In-house hiring and admin costs during the recruitment process Poor decision-making and collaboration when respect for business goals and workmates is low
Loss of productivity as new hires become familiar with new systems and people  Brand damage when people speak badly about their employee experience

Even if your people aren’t leaving at the same alarming rate that Jo is witnessing in her company, increasing retention and preventing top talent from leaving will impact productivity, motivation and overall business results. It’s worth looking at whether the culture and experience in your own company is creating an engaging environment that supports the growth and innovation your business needs in the near future.

The reality is, your competitors have set aggressive growth targets too. And the businesses who succeed in attracting that elusive 15% of the Aussie population who are engaged and achieve phenomenal business results, are investing in improving employee engagement.

These business leaders know that improving things like leadership, management and communication, or providing continuous employee recognition and support for employees’ mental, physical and financial wellbeing all set their people up for success.

financial impact of employee disengagement

Culture is more than a coffee machine and a Christmas party

The tempting thing for many leaders – especially those who don’t have an HR team or operate on very restricted budgets – is to put a bandaid solution on a bigger problem. But further research from Gartner has found that “supporting what employees value, not just what they need, increases employee performance by 20%.

The solution is to ask your people how you as an employer can provide them an employee experience that enables and supports them in their day-to-day work.

Instead of throwing a few thousand dollars on big events that are only improve the mood briefly, or big rewards that only reach a small percentage of your employees, consider how you can assign that budget into a relevant, impactful employee engagement program that improves the lives of all your people everyday.

financial impact of employee disengagement You could generate more open and honest communication by creating an employee communications hub where any employee can post questions and comments on company-wide announcements. You could reinforce your purpose, mission or values by providing daily opportunities for leaders to recognise their people instead of just once a year. Or you could look at ways to help employees pursue professional development or ease financial stress by helping them save on everyday expenses.

All these things bring your Employee Value Proposition to life in tangible ways – and this is the key to creating a sense of connection to your business.

The business case for investing in employee engagement is a no-brainer for leaders like Jo because they know it will have a tangible, ongoing impact on her people’s and business’ success. All we need is more leaders like her to have the conversation about what needs to change, and take a first step.

It may seem challenging at first, but doing nothing will come at a greater cost.

Evan Smith

Evan is one of our Employee Engagement Consultants. His passion for people means he is always leaning in to share, listen and learn stories form HR leaders around the country. To relax, you'll find him walking his dog and on the hunt for good food.

Employee Engagement Consultant

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