Engagement and performance
- Gallup examined thousands of businesses comparing financial performance with engagement scores
- Those with engagement scores in the bottom quartile averaged 30 – 50% more employee turnover, 50% more inventory shrinkage and 62% more accidents
- Those with engagement scores in the top quartile averaged 12% higher customer satisfaction, 18% higher productivity and 12% higher profitability
- Another Gallup study found that the Earnings Per Share (EPS) growth rate of organizations with engagement scores in the top quartile was 2.6 times that of organizations with below-average engagement scores.
- Tower Perrins carried out a global survey looking at similar comparison (highlighted in the book Closing the Engagement Gap: how great companies unlock employee potential for superior results by Gebauer and Lowman.
- Those companies with a highly engaged workforce improved operating income by 19.2% over a period of 12 months, while those companies with low engagement scores saw operating income decline by 32.7% over the same period.
- Those companies with high engagement scores demonstrated a 13.7% improvement in net income growth while those with low engagement saw net income growth decline by 3.8%.
- Most notable was the 52% gap in the performance improvement in operating income between companies with highly-engaged employees versus those with low engagement scores.
Engagement and costs associated with absenteeism
- Gallup found that engagement levels can be predictors of sickness related absenteeism, with more highly engaged employees taking an average of 2.7 days per year, compared with disengaged employees taking an average of 6.2 days per year.
Engagement and employee turnover
- While the research says that employee engagement may well be worth millions to businesses, an ACCOR Services Report indicates that over 75% of managers have no engagement plan or strategy. Even more startling, Accenture found that over half of CFOs surveyed could only guess at the return on investment in their human capital.
One aspect of our work at Resources for Leading is helping companies GET, KEEPand GROW the talent required for their success. Few things are more exciting than helping companies create Cultures of Engagement. When a group of leaders are committed to developing a comprehensive strategy for employee engagement the results can be phenomenal.
What does employee turnover cost?
- Corporate Research Council – Direct expenses can vary from 46% of annual pay for frontline employees, to 137% for a bank teller, to 176% for IT professionals and 241% for middle managers.
- American Hotel and Motels Association calculated the cost of turnover for an $8 per hour employee to be $4,100.
- Cornell University Hotel School says that the cost of turnover for a front desk employee in a hotel is $5,688.
- American Organization of Nurse Executives – says shows the cost of turnover for a Medical/Surgical Nurse to be $42K, and $64K for a Specialty Nurse.
- PriceWaterhouse Coopers – Turnover cost for the average hospital is $300K for every 1% increase in annual turnover.
These estimates vary widely because the researchers utilize slightly different methodologies in their calculations. But regardless of how you cut it, the numbers are staggering. While we would all agree that some turnover may be good, especially when it includes low performers moving on, we would also generally agree that much of the turnover we experience is not preferred.
At a mid-sized company I worked with that employed relatively high income employees in the technology and software industry we calculated the cost of turnover using Corporate Research Council numbers for IT professionals. With a 17% turnover rate, the impact was costing them over $7M annually. When we looked only at the voluntary turnover, which was about 80% of that number, the cost was still above the $5M mark.
Many business operators hear these numbers and either consider them to be unbelievable or insurmountable, so they often ignore them and go on doing business the way they have always done it. If they do chose to pay attention to them at all they may be satisfied with simply keeping their turnover rates within one or two percentage points of the norms for their industry.
This company took a different approach. They valued their employees and wanted them to succeed. They agonized every time they lost an employee to a competitor. They were frustrated with the reasons employees gave for their departures (a topic for another post). We joined forces and took action. We launched a concerted effort to develop a culture of engagement. We listened to employees by means of employee surveys and managers responded to their concerns and questions. We revamped the performance management and rewards systems and equipped every manager with the skills and resources necessary to develop and reward their people. The leadership operated on a philosophy of openness and transparency and share the results of employee efforts on regular interval, so they could see the difference they were making. Their efforts resulted in a turnover rate dropping from 17% to 8% during a period when turnover averaged 19% for comparable companies in their industry. That savings went directly to the bottom line, and the change was evident in the overall performance of the organization.
These kinds of results can only happen when leaders are committed to Getting the Right People, developing processes, systems and a culture to Keep them, and Grow them to be the best they possibly can be.
This is also why I love what I do with Resources for Leading. I have the opportunity everyday to help companies achieve these kinds of significant results.