The Cost of Employee Disengagement (it’s Higher than You Think)

No manager wants to pull their subordinate aside to ask them to put more effort into their job, but sometimes this awkward discussion is essential because the success of the business depends on it. After all, disengaged employees cost organisations millions of dollars in lost productivity and revenue every year.

There is a big difference between a worker having an “off day” and being “disengaged”. Even the most diligent workers have days when they can’t perform to their maximum potential, but when this becomes consistent or widespread it’s clear there’s a problem.

This is the unfortunate reality for most organisations in Australia and New Zealand, as only 14% of employees are personally invested in their work, according to research by Gallup. The majority of workers, according to the report, either do the bare minimum without enthusiasm, or actively undermine the achievements of their colleagues through their negative behaviour because they have little job satisfaction.

This article explores the high cost of employee disengagement:

1. Low productivity and revenue
2. High turnover with steep recruitment expenses
3. Negative workplace culture
4. Lost shareholder value

What is the cost of unhappy employees?

Mental health issues linked to workplace stress:

• 9 in 10 Australian employees believe it’s important to work in a healthy environment.
• But only 52% say their workplace is mentally healthy.
• 1 in 5 Australians have taken time off work because they felt stressed, anxious or psychologically unwell. This number is more than double (46%) for people who believe their workplace is unsupportive.
• When mental health is untreated, it costs Australian workplaces around $10 billion per year.

Source: Headsup 2014

• More than 25% of employees in New Zealand often feel depressed. Evidence suggests that work-related stress is a strong risk factor.
• The most distressed employees took 3.5 more days off work than those with the least amount of stress.

Source: Massey University 2019

Of course, these findings refer to a time before COVID-19 became a reality.

The pandemic has put workers around the world under an immense amount of stress. According to MetLife’s Employee Benefits Trends Study 2020, the coronavirus has impacted four aspects of employee wellbeing: physical (the threat of falling ill with the virus), financial (the fears around job security and financial wellness), social (the lack of social interaction due to social distancing measures), and psychological (the anxiety and stress as a result of other factors).

The Sydney Morning Herald reported one in 10 Australians feel depressed as a result of COVID-19, and in New Zealand, calls to an emergency mental health helpline increased 40% in call volume one week after lockdown orders were put in place.

The full extent of the social and economic fallout from COVID-19 is not yet known but concerns around mental health are prevalent. Employers should acknowledge the impact it has had on their workers and prioritise providing support.

1. Low productivity and revenue

High activity does not equal high productivity; employees do not need to be chained to their desk from 9am to 5pm to achieve KPIs (key performance indicators) and OKRs (objectives and key results).

However, it’s safe to assume that an employee who checks their social media frequently isn’t getting much done. Not only do dissatisfied workers fail to take initiative or perform effectively, but they also arrive late, take frequent breaks and regularly call in sick. This widespread behaviour damages an organisation’s bottom line and reputation.

“It should come as no surprise that unhappy, emotionally distressed workers are more likely to get sick and less likely to recover from injury.” Dr Marc White, CEO and President of Canada’s Work Wellness and Disability Prevention Institute

In the United States, for example, disengaged employees are 18% less productive with 37% higher absenteeism rates (as reported in Forbes). This lowers individual profitability by 15% – leading to annual losses of up to $550 billion for US companies.

In Australia, actively disengaged employees are costing the Australian economy more than $2 billion a year, according to Procurement and Supply.

The opposite is true when employees are switched on and interested in their jobs (read more about the benefits of staff engagement).

2. High turnover and costly recruitment processes

Businesses with disengaged employees have higher turnover rates than those that have an engaged team. An organisation with high turnover rates experiences 24% less attrition in their most active divisions, and these divisions are spared the disruptions that occur when team members are replaced.

Workplace disruption aside, increased recruitment efforts is a financial burden on any organisation. A global report by LinkedIn shows that most organisations take between one to four months to fill a vacancy, and this isn’t possible without a sizeable budget. Another study estimates that replacing an individual who earns less than $50,000 a year costs 20% of their salary. The higher the pay cheque, the steeper the hiring expenses.

3. Toxic workplace culture

We already know that workplace stress is one of the main drivers of employee disengagement. However, the reverse also applies (a typical “chicken and egg” scenario).

Disengaged employees create tension in the workplace through their actions (or rather, lack thereof). When they neglect their duties, it usually falls to their colleagues to pick up the slack. Enthusiastic workers may also become apathetic or choose to leave when they experience extra pressure and resent the lack of teamwork.

4. Lost shareholder value

Shareholders will vote with their feet if they suspect an organisation has engagement problems. Mass staff departures, negative customer reviews and low performance metrics are enough to plant seeds of doubt and lower stock value. Investors are instead drawn to stable, well-managed businesses that nurture a positive culture.

The proof is in the pudding: organisations with engaged teams generate five times higher shareholder returns over five years, according to research by Towers Perrin.

How to raise employee engagement

Managers who are fed up with their disengaged workforce can lower turnover rates, improve business performance and lift shareholder value by giving employees more reason to feel invested in their jobs.

Roughly 6 in 10 respondents said they have a formal process in place to measure employee engagement, from ELMO’s HR Industry Benchmark Survey 2019 report. Low employee engagement was cited by 1 in 5 respondents as a top challenge for their organisation over the next 12 months. This ratio is higher at 1 in 4 for enterprise organisations.

Gallup’s State of the Workplace report found that organisations where managers confidently lead their teams, having earnt the respect of employees and stakeholders alike, achieve around 17% more productivity and 21% higher profitability.

Here are the steps you can take to improve job satisfaction at your workplace:

1. Find out what causes low employee morale
2. Determine how to measure employee engagement at your organisation
3. Work out how to engage staff at work

Learn more about how ELMO can help your organisation