The Cost of Disengaged Employees

Once we’ve been intentional about creating a culture of top-down leadership that provides effective communication on an ongoing basis and we’ve worked to minimize the profitability that’s killed by high voluntary turnover and ongoing recruiting, the next - but certainly no less critical - profitability killer that needs our attention is the cost of disengaged employees. To have any real shot at doing that, we need to have a firm understanding of how widespread this issue truly is, how it impacts individual performance, and how each of those things ultimately affect even the best members of our teams…

Before digging into any of that though, let’s make sure we’re on the same page; I’m not suggesting we do everything we possibly can to make our employees happy nor do I believe that we can get long term results by simply working to ensure employee satisfaction. Employee engagement is very different from either of those things. In fact, an article I found on Indeed.com called How to Increase Employee Engagement that differentiated the three like this:

Employee engagement is a measurement of how committed an employee is to their employer, how passionate they are about the work they do and how well their personal goals and values align with the mission and objectives of their employer.

An engaged employee is enthusiastic about working with customers and providing them services that generate profit and a good reputation. Not only that, but if your company has an engaged workforce, you’re more likely to retain your current staff — instead of having to frequently spend time and money hiring new employees.

It’s important not to confuse employee engagement with employee satisfaction. While the two may sound similar, they’re actually two different concepts. A satisfied employee is someone who likes their job and feels their employer meets their needs, while an engaged employee is someone who is committed to their work, dedicated to their employer and consistently performs at a high level.

An engaged employee is always satisfied, but someone can be satisfied without being engaged. For example, an employee may be happy with the compensation and job duties, but they may not be emotionally connected to their work or loyal to their employer.

With that perspective in mind, we need to understand just how widespread the lack of engagement is. Over the decade or so that I had hands-on involvement with doing employee engagement surveys, the message that was most frequently shared with me was that the best organizations in the world had close to 20% of their workforce that was actively disengaged and around 30% of their team was actively engaged. The analogy I’ve used most often to describe this has been one with ten folks in a row boat; the three at the front are rowing just as hard as they possibly can to get to the destination, and there are two in the very back who are working just as hard to sink the boat. In the middle, however, we still have five folks who may or may not be holding oars but they’re certainly not breaking a sweat in their rowing efforts…

A recent Forbes article called Why The Latest Engagement Statistics Are Unacceptable, shared numbers from Gallup’s “State of the Global Workforce” 2022 report in a very similar manner:

Imagine out of 100 people in your business:

• 21 people are powerfully rowing toward your company goals.
• 19 people are actively rowing against them.
• 60 people are just along for the ride, creating drag for those who are rowing forward.

While it’s a little tougher to imagine a row boat that fits 100 people, it still paints a vivid picture. And whether we’ve got that world-class 30% rowing or just the 21 referenced in that recent study, there’s still a whole bunch of folks weighing down the boat that aren’t doing much to contribute!

Fortunately, Gallup offered a solution to this crisis; “The real fix is simple: better leaders in the workplace.” By this point, you know I’m a fan of simple so we’re going to work through some steps we can take as leaders to build the engagement we need in our organizations. Before doing that, I believe we should attach some dollar signs to this thing called engagement so we have a clear picture of how much profitability disengagement really is killing as well as the effect even the 19% who are actively disengaged can have on everyone else around them.

Not Just Some Fuzzy Initiative…

Based on the stats we just looked at showing that an overwhelming majority of the workplace at-large isn’t actively engaged in “powerfully rowing toward their company goals,” the cost of disengaged employees should be fairly evident… Truth be told, I struggle to understand how any company can make it over the long haul with so few pulling the weight for so many! And that has to contribute to why so many companies don’t make it.

But I still get folks who question whether or not engagement is actually something tangible that show’s up on the bottom line; think back to the fellow I mentioned recently who committed on a LinkedIn article I shared on the topic suggesting that the idea was simply a fuzzy initiative driven by someone in HR that never yields results. Here’s what I’ll challenge you to consider: how many times have you been completely miserable in a position and still produced great results for months or years on end with no intention whatsoever of finding a new place to call home? I understand that someone with solid character will continue exceeding expectations even when they’re frustrated, that’s where the character part comes into play, but I also know those folks are quite likely to move on when given an opportunity!

Now compare that to your performance for the best leader you’ve ever worked with or for… I’d bet that you found a way to deliver more for them than even on your best day in the role where you were frustrated!

With that in mind, do you really believe engagement is some fuzzy initiative that never yields results? In an article from Harvard Business Review called Things They Do For Love, Leah Buchanan shared this:

“Company leaders won’t be surprised that employee engagement—the extent to which workers commit to something or someone in their organizations—influences performance and retention. But they may be surprised by how much engagement matters. Increased commitment can lead to a 57% improvement in discretionary effort—that is, employees’ willingness to exceed duty’s call. That greater effort produces, on average, a 20% individual performance improvement and an 87% reduction in the desire to pull up stakes, according to the Corporate Leadership Council, which surveyed more than 50,000 employees in more than 59 organizations worldwide.”

If we’re being honest with ourselves here, we can relate the increase in our discretionary effort and our overall individual productivity to the jobs we’ve had where we truly were bought into the leader we worked for. The impact those things have on an organization's profitability, especially when multiplied across a group of team members, can be huge! For now though, let’s just stick with what happens when disengagement is the norm, and who feels the pain…

Based on the numbers from Gallup’s 2022 State of the Global Workforce report, there are usually two more people rowing than there are trying to sink the boat. If those who are actively working to take on water go unchecked for any real length of time though, even being the minority, how do you think that will affect the 60 who are just along for the ride? That’s rhetorical… Sooner or later, and usually sooner, some of those 60 will fall in with that crowd. And as more and more of the team works to sink the boat, the rowers will either give up or get out.

The sixty, who have recently been dubbed “quiet quitters” by many sources, could be a tremendous resource for the organization but instead have been allowed (yes, allowed) to become a drain - on the entire team they’re a part of, the customers and clients the organization serves, those charged with leading, as well as every family member with any ties to this mess! So how fuzzy is it now? Now let’s put some dollar figures to all this before moving on to how effective leadership can indeed drive employee engagement…

Very Tangible, But It Takes Work!

While I’ve never named the individual who made the “fuzzy initiative” comment on my LinkedIn article, I’ve referenced it enough that I actually think he deleted it! Oh well… My intent was never to call him out directly - or I would have used his name every time I’ve referenced the comment - but to call attention to something far too many executives believe without actually saying out loud! If I’m being completely honest though, I’d probably feel the same way if I hadn’t been held extremely accountable to produce results throughout my career that made a clear impact on the bottom line. The vast majority of consultants and trainers I dealt with during my corporate career would run through their canned talk, show a few flashy slides, then hop back into their rental car without even acting like they gave a shit if anyone ever did anything different. With that being almost the norm, I do my best to be patient with the comments about fuzzy initiatives and touchy-feely concepts - but I also respond with statistics and results! So let’s get down to business and look at some hard numbers that make a strong case showing that employee engagement is not just some fuzzy initiative so we can add the profit it’s killing back to our bottom lines.

Let’s consider each of the three areas the HBR article suggested would improve significantly with increased employee engagement; the “57% improvement in discretionary effort,” the “20% individual performance improvement,” and the “87% reduction in the desire to pull up stakes.” And let’s run the numbers based on averages for a 100 person company, just sticking with some of the most conservative figures, then you can do the math for how that likely relates to your own organization - whether you’ve ever captured any of these previously or not.

What if that “87% reduction in the desire to pull up stakes” ONLY yielded a 50% reduction in voluntary turnover? If you think back to what I shared when looked that the significance high turnover has as a profitability killer, you may remember me referencing a (now dated) Gallup study siting some BLS data and suggesting that just average turnover “could cost a 100-person firm between $438,000 and $4 million a year to replace employees.” So what if improving engagement could add $200k in profit back to the bottom line (or whatever the number would be when adjusted for the size of your company)? Even with that being such a conservative figure, I’m guessing some of the fuzziness just left the equation…

I won’t bother tying a number to the “57% improvement in discretionary effort” but I will ask you to think about how much harder you’ve been willing to work for the best leader you’ve ever reported to. With that in mind, I am going to connect that directly to the “20% individual performance improvement” - but not for the entire workforce. Since most companies have 20-30% of their team members who are already actively engaged, I don’t think it’s fair to expect more from them. And we won’t factor in the 20 or so that are actively disengaged either because I’d go so far as to say they should be in the process of being removed from the equation - but we’ll look at that more later on when we cover how setting clear expectations and holding everyone accountable captures a ton of lost profitability. Let’s only look at how much more profitable we could be if that 50% (rather than the full 60% Forbes suggested was just along for the ride) showed just a 10% increase (rather than the full 20%) in individual performance…

For simplicity, let’s say our 100 person firm does $10 million in annual revenue and has historically operated at a 10% profit margin, realizing $1 million in profit each year. Simple enough so far, huh? I could easily make a case suggesting that our 20-30 actively engaged folks are responsible for the vast majority of this, but I won’t. Even if we spread it out across our entire team, and figure in the 10% increased productivity from 50 of our folks who weren’t actively engaged or actively disengaged before, we’re looking at $500,000 in additional volume capacity (or that much less in total cost) with the same fixed costs. If we’re producing more, there could be 10-20% going to raw material costs but that still leaves more than $300,000 in increased profitability - while being VERY conservative…

What if I’m only half right? How much have you invested in the physical changes in your organization to capture an extra $250K in profit, especially when that investment pays a dividend year after year after year? In all my years in manufacturing, there was an expectation that any capital investment would pay for itself within 18-24 months. After that, it should be adding to the overall profit margin. One of the benefits of building stronger employee engagement is that the payoff time is so much quicker and it can perpetuate itself within a culture. What must be in place though is the type of effective leadership that drives this type of engagement so that’s where we’ll pick up soon!