The business case for employee engagement

Businesses that are wary of what an engagement program will cost them should be compelled by how much it will make them.

There was a time when the dominant view of business leaders was that people who are paid to do a job should just do it, whether it makes them happy or not, whether they are engaged or not. 

While a few companies seem to maintain this mentality, these days it not only sounds cold and out of touch from a human point of view; it’s also hard to rationalise from a business perspective.  

One of the most compelling recent studies in this area, which we’ve referenced previously, comes from Gallup¹. It found that, compared to companies with the most unengaged staff, those with highly engaged people: 

• are 14% more productive, 

• have 41% fewer quality defects, 

• have 43% less staff turnover, 

• experience 81% less absenteeism, 

• enjoy 10% more customer advocacy, and 

• are 23% more profitable. 

These numbers will become relevant later on, and we’ll refer back to them. Still, business leaders don’t necessarily need the stats to be convinced. The general principle is certainly more widely accepted these days than it used to be.  

It’s surprising, then, that many businesses resist investing formally in employee engagement. 

Some may say, “well, we can do it ourselves.” And, in theory, that’s true to a degree. There are things they can do. But – apart from the fact that most organisations are not specialists in employee engagement – our observation is that there are often forces at work (perhaps unconscious) that impede or oppose internally driven engagement initiatives. Those range from cultural inertia, to competing business priorities that are “more urgent” (but that never really go away, they only change form), to financial resistance.

This last reason is somewhat unsurprising and understandable. However, it’s not objectively defendable. 

The feeling (or fear) from business leaders or shareholders is often that an engagement program will come straight off the bottom line. To the contrary, we’ve seen over and over again that, in fact, it adds to the bottom line. That’s why it’s not just a nice-to-have – it’s an investment. And like any investment, it should show a return. 

But people, rightfully, might want more than a lofty claim to be convinced of the value. So we looked at employee engagement programs that we’ve designed and run, and used them to compile typical business cases to illustrate just what kind of return companies can reasonably and realistically expect on their investment. 

The quantified value of quality employee engagement 

Exhibit one is a business case for a company of 1,000 employees. 

Let’s start by determining the investment amount. The calculation is straightforward: multiply the number of employees by the average annual salary to determine the annual salary cost – in this example, R325 million. 

In this example, we’ve assumed an investment of 1% of the annual salary cost. (This is a reasonable but conservative amount. 2% would be expected to yield even greater returns, and, at the upper end, an investment of 3% is not far-fetched.) So the investment amount is R3.25 million. Not insignificant – which is why the reservations of the financial department are understandable. 

But now let’s look at the returns. And here we refer back to the Gallup study mentioned at the beginning of this article. Some of the benefits it mentioned were: 

Lower staff turnover. In the business case, we assume that staff turnover will reduce from 10% to 8%. Put differently, this is a 20% reduction in staff turnover. (Arguably, this is conservative in the context of the Gallup study, which cites 43% less turnover in highly engaged companies compared with the least engaged companies.) Now, we can calculate the annual costs of replacing staff (including things like recruiters’ commissions, training and onboarding) and reduce that cost by 20%, which, in this business case, equates to R1.5 million. 

Lower staff absenteeism. Here we’ve assumed a reduction from 2.5% to 2% – also a 20% reduction, and also a conservative estimate compared with Gallup’s finding of 81% less absenteeism in highly engaged companies compared to unengaged ones. The cost of absenteeism can also be calculated, and based on that – in this example – the small decrease in absenteeism has a substantial rand benefit, to the tune of R1.625 million.  

Together, the reductions in turnover and absenteeism alone almost pay for the program. 

Higher productivity. Gallup found that companies with more engaged employees can be 14% more productive. But even with a much more modest 2% increase, this business makes more than R6 million extra in productivity. 

Quality defects. Gallup mentions 41% fewer defects in companies with more engaged employees. We have conservatively assumed a 25% reduction (from 1% to 0.75%) – an improvement worth more than R2 million. 

Customer retention. In this company, a one percentage point increase in customer retention is worth R9 million. (Read Why retention eats acquisition for breakfast.) 

So, a R3.25 million investment returns more than R20 million. 

Bigger company, bigger investment  

Our second business case assumes a company of 20,000 employees, and an investment of 2% of annual salary cost: 

We don’t need to run through each calculation again – but suffice to say that, again with conservative assumptions, this company could be looking at returns of half a billion rand. 

When tiny numbers translate to giant numbers  

What’s striking about the business cases is that seemingly insignificant improvements (in the single-figure percentage points) equate to massive returns (in the tens or hundreds of millions). 

When you look at what the numbers actually mean, it adds up. Take absenteeism. If the average employee takes five non-leave days off work, and you can reduce that by a single day per employee, you get 1,000 more work days (in the first business case). 

And what about productivity? Well, that is not necessarily about time spent, but time does prove the point mathematically: if all 1,000 employees are 2% more productive, that equates to about 10 minutes more work per day per employee. That’s more than 3,000 hours per month across the company. 

The biggest return in both business case examples comes from improved customer retention. The link from employee engagement to customer retention may be less direct, but very logical: we can confidently expect that more engaged employees will produce better quality work, goods or services (with fewer defects), and provide better customer service. The business may even – with improved profitability – be able to lower its prices. So improved customer loyalty is not such a leap, and it ultimately could be more than one or two percentage points. 

Technology: the big boon for small enterprises  

Admittedly, the business cases above apply to large companies, which may more readily be able to afford the costs of having a bespoke engagement program researched, designed and managed. But what about smaller businesses? 

A few years ago the costs of such a program might have been prohibitive for smaller enterprises. But as in so many other spheres, technology has made things more affordable and accessible.  

An employee recognition and reward platform like bountiXP can help improve employee engagement significantly, with quick implementation and without the same scale of set-up. While we would always recommend a fully customised program, we understand that it may not be feasible for smaller businesses. But why should they be left behind? And why should they not enjoy the benefits of a more engaged team? 

Meanwhile, for larger companies, the tech platform becomes the heartbeat of a bespoke engagement program, making recognition more accessible and regular throughout the organisation. It also provides valuable data with valuable insights: imagine knowing who your most engaged employees are, for example, or who is thinking of leaving. There are numerous ways that technology improves the results and returns of a full-scale engagement program, especially compared with what might have been expected a decade ago. 

The right thing to do 

If you believe that work should be more humane, you won’t need much motivation to improve employee engagement. Employees certainly want it (and younger-generation employees expect it), and will be more likely to stick around and do better work if you nurture it. 

But sometimes it’s not about having the will; rather, it may be a question of having the means: can we afford to do this? 

When you look at the numbers, perhaps the more pertinent question becomes: how can we afford not to?