Like organizational culture, employee engagement is a frequent topic of mine.
Indeed, creating a culture of recognition is a foundational element to creating an environment in which employees choose to engage. Hallmarks of just such an engaging culture are (in order of importance to employees) trust, recognition and rewards as reported by recent research out of Australia:
“The core ingredients for engagement success according to the [Employee Engagement Capability] Report are flexible working arrangements, recognition programs, non-cash rewards/incentives, training and development programs, paid parental leave and time off for study.”
The cost of ignoring the importance of employee engagement is incredibly costly. I’ve cited numbers out of Towers Watson showing a 15 percent increase in engagement correlates to a 2 percent increase in operating margin. But let’s get more fundamental then that – how much money are you wasting every year by ignoring engagement?
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What’s the cost of getting engagement wrong?
In many companies a lack of employee engagement is costing the organization anywhere from 35 percent to 50 percent of payroll. Employees are paid 100 percent of their pay and benefits, but 35 percent to 50 percent of that money, if not more, is wasted because employees are not giving the organization 100 percent of what they are capable of producing. Companies that have learned the value of employee engagement are reaping the reward – turning 100 percent of their payroll into an investment. …
For the sake of this example, let’s be conservative and assume that all Not-Engaged (55 percent) and Actively Disengaged (16 percent) employees are giving you 50 percent of what they are capable of, and we’ll assume that the Engaged (29 percent) employees are giving you 100 percent. We’ll also assume an average pay and benefits per employee of $50,000, and that you are paying all employees 100 percent of their pay and benefits with the expectation that they will give you 100 percent of what they are capable of.
Here is the bottom line: In an average company in terms of employee engagement, 70 percent of employees are giving back only 50 percent of what they are being paid. That means 35 percent of payroll is pure cost … there is absolutely no return on investment.
Using these numbers, that lack of engagement in a 100 person company is costing $1,750,000 (35 percent of payroll), and for a 1,000 person company the cost is $17,500,000. And remember we are assuming that the Actively Disengaged employees are giving you 50 percent of their capabilities, and the Engaged employees 100 percent. Because I have used conservative estimates, the real cost could be substantially more.”