The Cost of Employee Disengagement

4 min read

Imagine you are a business owner. What’s top of mind? Most likely, running the show and hiring top talent. Then, there’s making sure the bills are paid, such as obvious expenses like rent, computers, and employee training. An expense that doesn’t get much attention —and should—is that of employee engagement and retention. You might be surprised to learn that employee disengagement costs companies billions in lost productivity each year!

The impact of engagement and retention on organizational productivity and profits is well-researched. With just a little investigating, you can send yours sky high with a few tweaks to your incentive compensation plans. 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.

Lately, leading companies are moving ahead by extending incentive compensation to non-sales employees. Consider these thought-provoking statistics when planning your company’s compensation plans:

1. The Impact of Engagement Levels

Companies with low engagement had average operating margins of 10 percent. Those with high sustainable engagement had operating margins of 27 percent—nearly three times higher. The same study found that disengaged employees are more than twice as likely to leave their employers within the next two years, compared to highly engaged employees. (Source: The Towers Watson analysis of 50 global companies for its 2012 Global Workforce Study)

2. The Cost of Disengaged Employees

Actively disengaged employees—those who actually want to see their company fail—cost U.S. companies more than $300 billion per year in lost productivity. (Source: Gallup Employee Engagement Index)

3. The Cost to Replace Disengaged Employees

Replacing just one employee costs businesses, on average, about one-fifth of that employee’s salary — and that percentage increases with the person’s salary and skill level. For instance, replacing a senior executive can exceed 213 percent of that person’s annual salary! (Source: Center for American Progress)

In a world where we are asking employees to do more with less, traditional engagement tactics no longer cut it. Today’s employers must use modern resources and tools to enable workers while also figuring out what increases their physical, emotional, and social well-being. That’s where incentive compensation programs can come in. 

A strong incentive compensation program will help motivate your employees and drive desired behaviors across your organization. Visit to learn how incentive compensation can help to create a workforce of engaged employees.