The Dollars and Sense of Employee Engagement
Calculate Your ROI
From the executive suites of multinational corporations to the back offices of small, agile organizations, the most compelling argument to sway decision making is return on investment (ROI). Calculate the ROI of Employee Engagement.
Cost is the leading objection organizations use to justify putting off or dismissing employee engagement programs. Sure, the executive team hears how employee feedback surveys can help shape places where people want to give back to their workplace. How queries about job satisfaction translate into happier, more contented, more productive employees. But when it comes to finding and allocating funds for employee opinion insights it’s how these initiatives convert into dollars that weighs in heaviest. Concrete, measurable, bottom line dollars.
How does engaging employees through surveys and other means measure up in terms of ROI? When you sit down to crunch a few numbers, findings are persuasive.
# of Employees
The number of employees in your organization is the starting point. For the purposes of this exercise, let’s use a small organization with 200 employees as an example.
Voluntary Turnover Rates%
The Bureau of Labor Statistics reports almost one-quarter (23.6%) of U.S. employees voluntarily quit their jobs in 2015. Per the Conference Board of Canada’s Compensation Planning 2014 report, the voluntary turnover rate in 2013-2014 was 7.3 percent. If we apply the more modest rate to an employee population of 200, that works out to 14.6 employees who voluntarily leave annually.
Average Wage in Your Organization
According to the Bureau of Labor Statistics, the median wage for workers in the U.S. in 2016 was $849 per week or $44,148 per year. Statistics Canada reports the average wage for employees in 2016 was $952 a week – or just under $50,000 a year. Let’s use $47,000 as a happy medium.
Basic Voluntary Turnover Cost $
Based on a shopping list of factors, estimates for employee turnover costs fluctuate wildly, from as low as 12 percent of annual pay for unskilled, easy-to-fill hourly jobs to as high as 200+ percent for professional, managerial and executive positions where niche expertise takes longer to find. If we use a 40 percent estimate for this exercise (excluding new hire salary and benefits) and an average salary of $47,000, that works out to an average turnover cost of $18,800 per exiting employee. For that small 200 employee organization with a voluntary attrition of 14.6 employees, the basic turnover cost is nearly $275,000 every year. That’s a fair bit of money.
Comprehensive Voluntary Turnover Cost $$
Keep in mind turnover costs are complex. They include the likes of administrative paperwork and exit interviews; loss of knowledge and skills; transferred workloads; disrupted productivity; and of course, recruitment, training and learning curve ramp-up time, to name a few. If you include new hire salary plus 30 percent company sponsored costs (health benefits, taxes, retirement/pension contributions, bonuses…), and apply the industry-standard complete cost (averaging around 125 percent of a departing employee’s annual earnings), numbers jump exponentially. Without running through all the math here, that small fictitious organization faces a $960,680 comprehensive voluntary turnover cost from its employee population. Annually.
Then there’s Absenteeism Costs
Referring again to the Conference Board of Canada’s Compensation Planning Report, overall absenteeism rates in Canada during 2012-13 were 6.9 days per employee. In 2014 in the UK, absences were pretty much parallel, with an average of 6.5 days per employee. Let’s revisit that fictitious organization for a look at numbers as they relate to absenteeism. Based on a comprehensive wage (that includes employer costs for benefits), roughly 240 working/business days (allowing for weekends, statutory holidays, average 2 week vacation time) and an average absenteeism rate of 6.9 days applied to all 200 employees, the average annual absenteeism expense is $302,680.
Bottom Line Cost $$$
Our fictitious organization with low employee engagement can project basic turnover costs of $275,000 and estimated absenteeism costs of $302,680 for combined costs of $577,680. Each. And. Every. Year. That’s where we begin to see a return on employee engagement investment. Turnover and absenteeism are one of the first areas to realize positive outcomes.
Interestingly, a survey cited by Benefits Canada found 52 percent of employees indicated their last absence was non-illness related. These same employees also reported both higher work-related stress and lower levels of support from their organizations; both are determinants of employee engagement.
How Engaged Employees Reduce Expenses
A growing body of research reports that highly engaged organizations have the potential to reduce absenteeism dramatically. The Workforce Institute on Absenteeism, for instance, notes a 41 percent drop in absenteeism when teams are engaged in their work and an average 40 percent improvement in turnover. Apologies, yes, if you’ve read this far you’ve been digesting a lot of numbers. To whittle it down, applying those figures to that fictitious organization could mean expense reductions of $233,960. And that’s just the tip of the iceberg.
Below the surface of improved turnover and absenteeism, global research also indicates engaged organizations grow profits much faster than their competitors…
- Jacob Martin analyzed 250 companies for the Harvard Business Review and found organizations that focused on employee engagement “had more than four times the average profit and more than two times the average revenue. They were also almost 25% smaller, which suggests higher levels of productivity and innovation.”
- Studies by Gallup suggest businesses with highly engaged teams experience a 20% lift in productivity.
- For Fortune’s 100 Best Companies to Work For- stock prices rose an average 14% per year from 1998-2005, compared to 6% for the market overall.
- The Enterprise Engagement Alliance Engaged Company Stock Index, created to draw attention to the connection between an organization’s performance in the stock market and its relationships with customers, employees, and communities, found:
- Operating income at companies with low engagement are on average 32.7 percent lower than companies with more engaged employees; companies with a highly-engaged workforce experience a 19.2 percent growth in operating income.
- Net income for high-engagement companies advanced 13.2 per cent; companies with low engagement saw a decline of 3.8 per cent.
These results reflect stock market performance from October 1, 2012, to September 30, 2016 against the performance of the S & P 500 average.
Now it’s Your Turn
Use TalentMap’s quick or customized 8 Step ROI Calculator to measure and gauge the dollars and sense behind employee engagement for your organization.