Employee Engagement is a Competitive Advantage

Employee engagement is more than just a nice-to-have. New research shows that it might be critical to your business’s survival.
Gallup examined 50,000 business units, including 1.4 million employees in 192 organizations across 49 industries in 34 countries. Here’s what they found:

• Business units who score in the top half of their organization in employee engagement are twice as likely to be successful as those in the bottom half.
• Engaged units had 37% lower absenteeism.
• In high-turnover organizations, engaged units had 25% lower turnover. In low-turnover organizations, they had 65% lower turnover.
• Engaged units had 28% less shrinkage, 41% fewer quality incidents, 48% fewer safety incidents and (where applicable) 41% fewer patient safety incidents.
• Engaged units had 21% higher productivity and 22% higher profitability.

Because the sample was so broad and substantive, these results are generalizable across organizations. That means that, yes, they apply to your organization too. The costs? Let’s go beyond percentages and look at the bottom line. When you consider all of the costs associated with recruiting and on-boarding an employee – including interviewing, hiring, training, reduced productivity, lost opportunity costs, etc – here’s what turnover really costs an organization:

• For entry-level employees, it costs between 30% and 50% of their annual salary to replace them. 
• For mid-level employees, it costs upwards of 150% of their annual salary to replace them.
• For high-level or highly specialized employees, you’re looking at 400% of their annual salary.

Let’s play a game called Fun With Math 
A small business loses 12 employees in one year, averaging one per month.

• Six of these employees were entry level, with an average salary of $40,000. It costs, on average, $16,000 to replace each employee at 40% of their annual salary, for $96,000 total.
• Four of these employees were mid-level, with an average salary of $80,000. It costs, on average, $120,000 to replace each employee at 150% of their annual salary, for $480,000 total.
• Two of these employees were senior, with an average salary of $120,000. At 400% of their annual salary to replace them, you’re looking at almost 1 million, at $960,000.

At this rate, you’re looking at costs of over $1.5 million.
Numbers seem high? Fair enough – there are organizations that estimate replacement costs to be lower. So let’s cut the cost of replacing all of those employees to the lower end of what it costs to replace an entry level employee – 30%.

• It’s going to cost your company $72,000 to replace the six entry level employees. 
• It’s going to cost your company $96,000 to replace your four mid-level employees.
• It’s going to cost your company $72,000 to replace the two senior employees.

That means that at the absolute lowest estimated end of the spectrum – your best case scenario – you are looking at almost  $250,000 to pay for the cost of turnover.
Now, what if I told you that you could reduce these turnover costs up to 65%? Would you be interested? That’s what employee engagement does – reduces turnover costs between 25% and 65%.
If turnover were the only problem, it would already be a no-brainer. But the Gallup information shows the positive impact of focusing on engagement goes far beyond that. It’s time to start taking this seriously, and investing in it as an organizational priority.
Related Reading

• Engagement at Work: Its Effect on Performance Continues in Tough Economic Times (Gallup)
• Employee Engagement Does More than Boost Productivity (Harvard Business Review)
• Employee Retention: What Employee Turnover Really Costs Your Company (Ross Blake)

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