Are You Wasting 35% of Payroll Every Year by Ignoring Employee Engagement?

Recognize This! – Lack of employee engagement costs you 35% of your payroll, or up to $17.5 Million annually in a 1,000 person organization.

Like organization 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% increase in engagement correlates to a 2% increase in operating margin. But let’s get more fundamental then that – how much money are you wasting every year by ignoring engagement?

What’s the cost of getting engagement wrong?

Keith Ayers, CEO of Integro Leadership Institute, ran some numbers based on reported Gallup levels of engagement in the US workforce.

In many companies a lack of employee engagement is costing the organization anywhere from 35% to 50% of payroll. Employees are paid 100% of their pay and benefits, but 35% to 50% of that money, if not more, is wasted because employees are not giving the organization 100% of what they are capable of producing. Companies that have learned the value of employee engagement are reaping the reward – turning 100% of their payroll into an investment. …

“For the sake of this example, let’s be conservative and assume that all Not-Engaged (55%) and Actively Disengaged (16%) employees are giving you 50% of what they are capable of, and we’ll assume that the Engaged (29%) employees are giving you 100%. We’ll also assume an average pay and benefits per employee of $50,000, and that you are paying all employees 100% of their pay and benefits with the expectation that they will give you 100% of what they are capable of.

“Here is the bottom line: In an average company in terms of employee engagement, 70% of employees are giving back only 50% of what they are being paid. That means 35% 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% 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% of their capabilities, and the Engaged employees 100%. Because I have used conservative estimates, the real cost could be substantially more.”

What should you do?

Certainly, assessing your engagement levels is a first step. But don’t fall into the engagement survey trap. Join me and BlessingWhite today, 27th March 2012, at 3:00 pm EDT (7:00 pm GMT) for our webinar on what do with the information you uncover in an engagement survey so you can stop wasting 35% of your payroll.

Register now for “Your Engagement Survey Is Done, Now What?” I look forward to engaging with you on your questions at the end of the webinar.

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