The Cost of Employee Disengagement

Aug 07, 2019
5 min read
Disengaged employees perform at a lower level. Learn how disengagement impacts morale and the true cost of employees who aren't motivated to do their job.

According to the Gallup State of the Global Workplace, "85% of employees worldwide are not engaged or are actively disengaged in their job." Employee disengagement occurs when an employee is unhappy in their workplace or job role. Often they will complete the bare minimum of work asked of them, but they are not motivated to do so with energy, enthusiasm, or passion.

As a result, disengaged employees can have a big negative impact on company performance and employee retention. Companies have long motivated their sales employees in an attempt to avoid disengagement (and ultimately, sales rep turnover) with incentive compensation and variable pay structures. But in some cases, engagement can come down to improving employee morale, which impacts incentive compensation and company culture. 

The Types of Employee Engagement

Not every employee operates at the same level of productivity, with the same enthusiasm, or the same drive to consistently improve. Just the same, employees may be productive and do their job effectively, but they may operate on a daily basis at a different engagement level than their peers.

Gallup categorizes employee engagement into three categories:

  1. Engaged: These employees are your all-stars. They are highly involved in and enthusiastic about their work and workplace. They are psychological “owners,” drive performance and innovation, and move the organization forward.
  2. Not engaged: Employees who are not engaged in their job are psychologically unattached to their
    work and company. Because their engagement needs are not being fully met, these employees are doing the bare minimum in their role by putting time—but not energy or passion—into their work.
  3. Actively disengaged: Actively disengaged employees aren’t just unhappy at work—they are actively expressing their unhappiness in a way that hurts team performance. Because their needs aren’t being met , these employees potentially undermine what their engaged coworkers accomplish.

Gallup data shows that one in three (32%) of worldwide working-age adults (ages 23-65) say they have a "good job," which Gallup defines as a full-time employment position that works at least 30 hours per week. Yet, two-thirds of these employees are not engaged in their job, and 18% are actively not engaged—and this has a big impact on a company's ability to drive revenue and growth. 

The Impact of Employee Disengagement

Think about your role and the responsibilities your employees are tasked with. Employees are paid to complete the tasks and reach goals within their job description; however, there is a noticeable difference in performance output between someone who does the bare minimum and someone who is motivated and constantly looking to improve processes and striving for better results. 

So what is the real cost of employee disengagement? Let's break down the facts on the impact of disengagement and unhappy employees: 

  • Disengaged employees cost companies $450-500 billion each year (Source: The Conference Board)
  • When surveyed, 81% of employees would leave their jobs today for the right offer (Source: Hays)
  • Companies with disengaged employees see 41% higher absenteeism
  • Organizations that suffer from high levels of disengagement see up to 20% lower sales

On the other hand, engaged employees not only go above and beyond their initial responsibilities, they have a big impact on the overall success of an organization. In fact, according to Gallup, workplaces in the top quartile of employee engagement: 

  • Earn 10% higher customer ratings
  • Achieve 22% higher profits
  • Are 21% more productive
  • See 40% lower turnover rates

It's also important to consider stress levels in the workplace and the possibility of burnout before classifying an employee as disengaged. While similar, there is a difference between employee burnout and disengagement. An employee who suffers from burnout is not necessarily disengaged. Rather, burnout results from being overworked or being overly engaged for a long period of time without breaks, but employees suffering from burnout can become disengaged as a result. 

Improving Engagement in Your Organization

As mentioned above the most common factors behind low employee engagement are incentive compensation and company culture. In fact, 47 percent of employees who are actively looking for a new job say company culture was one of the main reasons for wanting to leave their current workplace. However, when company culture is positive and boosts employee engagement and morale it results in up to 4x more revenue, according to Forbes

To help you better identify potentially disengaged employees, here are 4 things you can do to improve employee engagement in your organization.

1. Pay Attention to Office Chatter

The Easy Fix: Communicate openly with teams and individual employees regularly

There's no denying that employees talk—especially when a large group is unhappy. It's important to listen to the concerns within the workplace and address any issues transparently and promptly. It's also vital to ensure employees have an objective space to share any individual concerns. The best way to do this is to be open and transparent with the team, provide constructive feedback, and hold regular 1:1 meetings with each employee.

2. Examine Employee Pay

The Easy Fix: Benchmark pay against industry and peer data

The number one reason employees leave their job is for a higher-paying position. That's not entirely surprising considering the stat we mentioned above: 81% of employees would leave their current job if the right offer came up. HR, sales ops, and compensation admins must consider this when building employee incentive compensation plans and pay mix.

In order to attract and retain top talent, compensation must be competitive in the industry and for the individual role. Benchmarking against industry data (like Xactly Insights 14+ years of aggregate pay and performance data) helps ensure your pay is fair, equal, and competitive, allowing you to attract, recruit, and retain high performers.

3. Define Employee Career Paths

The Easy Fix: Talk to employees and create a clear path for them to follow The second most popular reason employees leave jobs is lack of a career path and skill development opportunities. Without a clear path, team members can easily lose motivation and become disengaged. One one hand, it's important for the HR team to help build out career paths to show the different tracks employees can follow as they gain tenure.

Managers should also work with individual employees to build out their own career paths and plans. Since managers are closer with each employee, they have a better understanding of each person's skills and can help develop career tracks and plans based on performance and tenure. (Learn more about the relationship between employee tenure and pay in this guide).

4. Reflect on Company Culture

The Easy Fix: Take a good look in the mirror and improve from top-down

Culture has a big impact on company morale and engagement. Almost half (47%) of individuals looking for a new job state culture are one of the main reasons for wanting to leave. When culture is good and positive, however, it can result in up to four times higher revenue than companies with poor culture, according to Forbes

Culture is an extremely important part of a successful workplace. It dictates how employees interact with customers, peers, and behave every day on the job. It stems from company values (read about Xactly's CARE Values here), the mission statement, and ultimately, leadership. The attitudes and mindset of the entire organization start with the CEO and trickle down to each individual employee. 

Want to learn more about how you can reduce employee disengagement and improve performance with a diverse workplace? Download the "2019 State of Gender Equality in Sales."

  • Incentive Compensation
  • Sales Coaching and Motivation
Karrie Lucero
Karrie Lucero
Content Marketing Manager

Karrie Lucero is a Content Marketing Manager at Xactly. She earned marketing and journalism degrees from New Mexico State University and has experience in SEO, social media and inbound marketing.