The Cost of Employee Disengagement on Your Bottom Line: A Wake-up Call for Employers

Employee disengagement is a real issue that can hurt your business in so many ways— and the bad news from recent Gallup research is that employee engagement has declined for the first time in a decade.

According to Gallup, engagement fell from 36% in 2020 to 34% in 2021. Conversely, active disengagement fell by four points from 2020 to 2021 and two points from 2021 to 2022. But this year's data shows that 18% of full- and part-time employees are actively disengaged.

Employee disengagement can have several adverse effects on your business, ranging from decreased productivity and less team collaboration to more absenteeism and high turnover, and ultimately impacting the bottom line. Let’s dive into how employee disengagement manifests, and what the true cost is for companies.

The Most Affected Groups

Disengagement affects employees from all groups. However, some groups are more affected than others.

Gallup’s research revealed that employees under 35 (Millennials and Gen Z) had the highest decrease in engagement, with a 4-point drop compared to an increase of 4 points for employees 35 years or older.

Women also experienced a higher engagement drop compared to men. Active disengagement among women rose by three points, while engagement declined by four points. On the other hand, engagement declined by one point among men.

The research also found that employees in remote-ready jobs but working fully on-site experienced decreased engagement, with active disengagement rising five points and engagement declining five points.

The True Cost of Disengaged Employees

The Gallup study shows that when employees are engaged, companies experience greater productivity, lower absenteeism, and employees bringing the best version of themselves every day.

Disengaged employees, on the other hand, cost a business significantly. Gallup found that disengagement cost the world economies $7.8 trillion in lost productivity and that the blanket cost of disengaged employees in the US is $450 to $500 billion annually, which translates to $3,400 for every $10,000 in salary.

And these statistics are only counting actively disengaged employees—they don’t factor in the majority of the workforce who simply fall under the not engaged category.

Let’s dive deeper into the top effects of employee disengagement:

Declining Productivity

Disengaged employees contribute to a significant loss of productivity for your company. If employees aren’t engaged, they underperform and miss deadlines, resulting in poor sales and time usage.

These employees are also more likely to be absent from the workplace than engaged employees. The research shows that the most profitable companies have 50% more engaged employees than less profitable ones.

Overall, companies with high numbers of disengaged employees experience:

• 15% lower profitability
• 37% higher absenteeism
• 18% lower productivity

Higher Turnover

Businesses with higher levels of disengagement also have to contend with higher turnover rates. Actively disengaged employees often plan an exit route should a new opportunity arise.

Gallup estimates that engaged teams experience 18% to 43% higher turnover rates than engaged business units.

When disengaged employees leave, they cost your company productivity and the extra cost of replacing them. Turnover costs can amount to 33% of an employee’s annual salary.

What’s more, a high turnover rate paints a bad picture of your organization’s culture. In turn, you experience more difficulties in attracting and retaining top talent.

Damaged Culture

When employee disengagement is rampant, it becomes a threat to your company culture. Employee disengagement is often the result of employees not feeling valued or listened to, so failing to take action against these issues only exacerbates disengagement and weakens company culture. All employees—even the engaged ones—will feel the impact of poor culture, and eventually, it’ll affect your bottom line.

Poor Customer Experience

The effects of employee disengagement don’t manifest internally only. They also seep outside the confines of your organization. More specifically, disengaged employees are a threat to the customer experience.

It’s common for customer complaints to rise when dealing with disengaged employees. Why? Because disengaged employees are frustrated and demonstrate these frustrations during customer interactions. For example, they might shout at customers, fail to assist, or let their cynicism and negativity toward your brand show.

How to Reduce Employee Disengagement

Many employers think that engagement is a characteristic of an excellent employee.

However, as Gallup said, "Engagement is not a characteristic of employees, but rather an experience created by organizations, managers, and team members." Improving employee engagement, therefore, calls for improving company culture and the employee experience.

Below are several steps you can take to reduce active disengagement and drive engagement among employees:

1. Clarify expectations: The biggest cause of disengagement is employees not having clarity on what’s expected of them. This causes frustrations as employees underperform or spend most of their time clarifying tasks or waiting for feedback.
2. Keep the feedback channels open: Let employees know how they’re performing. When they perform well, be sure to recognize and reward them. More importantly, keep feedback channels open so employees can communicate their ideas or dissatisfaction.
3. Embrace flexible working: Employees in remote-ready roles but working entirely on-site exhibit some of the highest disengagement rates. You can reduce this issue by providing flexible working conditions and support for hybrid and remote roles.

Communication Ties it All Together

Looking at the strategies for boosting engagement, you’ll realize that most rely on personalized, effective communication. To help you evaluate your current communications strategy and understand the reach and impact of your existing communications channels, we’ve put together this channels audit template.

Interested in talking to a Poppulo representative about how we can help drive engagement at your organization through more effective comms? Contact us today!