How to Calculate the Cost of Employee Disengagement
March 24, 2017
One of the biggest misses historically in business is fully recognizing the importance of “people” functions like HR, recruiting and learning and development. After all, organizations are only as good as the people who work for them, and these departments are responsible for bringing in and getting the most out of those people.
And yet, we often see these HR-related functions not have a “seat at the table” with executives. Why?
A big reason is a lack of ownable, clear metrics that tie directly to the bottom line. Sales, for comparison, has sales. Marketing has leads. Customer service has customer satisfaction rates. But HR metrics can occasionally feel squishy or hard to quantify, and therefore it’s hard to put a dollar amount on their efforts.
Well, this article is aimed to help solve that problem. In her LinkedIn Learning course Organizational Learning and Development, Dr. Britt Andreatta detailed how to calculate the cost of employee disengagement at your company.
And the numbers can be pretty shocking.
How to calculate the cost of employee disengagement
Gallup, through extensive research, found that, on average, 17.2 percent of an organization’s workforce is actively disengaged.
Gallup describes an actively disengaged worker as someone who is “unhappy and unproductive at work and liable to spread negativity to coworkers.” In other words, they are people who don’t like their job and aren’t afraid to let others know about it.
Gallup also found that an actively disengaged employee costs their organization $3,400 for every $10,000 of salary, or 34 percent. That means an actively disengaged employee who makes $60,000 a year costs their company $20,400 a year!
Using those two metrics, Andreatta suggested predicting the amount of money actively disengaged employees cost their company. First, you can predict how many employees are disengaged at your workforce – 17.2 percent. So, if you have 5,000 employees, that’s 860 people (5,000 x .172).
Now you can figure out the cost of those disengaged employees. So, say your workforce’s median salary is $60,000 a year. That means each disengaged employee costs you $20,400 on average, or 34 percent of their salary ($60,000 x .34).
That means those disengaged employees – 860 x $20,400 – cost your company $17.5 million a year. That’s a lot of money!
Confused with the calculations? Don’t worry, you can download our calculator here to help you predict the cost of disengagement at your company.
Okay, so how do I fix this problem?
It’s great to know how much actively disengaged employees are costing your company. But that only begs the question, how do I fix this?
Well, the answer is to reduce the amount of actively disengaged employees in your workforce. Here are some tried-and-true methods to do exactly that:
Have career conversations with your employees. The stats show employees overwhelmingly want to have career conversations with their boss, and yet few bosses do it. Don’t be afraid to have these talks and build career plans for your people.
Build a culture of learning at your company. LinkedIn research shows the biggest reason employees leave a job is for career development, or lack thereof. Building a culture of learning at your company ensures your people can grow at your organization.
Work hard to develop great managers. Managers have a tremendous impact on their employees’ experience at your company. Build a robust manager development program to ensure your employees have great bosses.
Prioritize diversity and inclusion. If a portion of your employees feel unwelcome for any reason, they are going to stop caring about their jobs. Prioritize building a diverse and inclusive organization at all levels, which will improve employee engagement and overall performance.
There’s a dozen other tactics you can use as well, along with a list of things not to do. The key is measuring engagement through employee surveys and finding out what works and what doesn’t at your organization.
Download our interactive workbook today to find out how much actively disengaged employees and turnover is costing your company.