Employee Disengagement Risks

Yesterday I read the cartoon strip Blinkers Off by Salam in which a human resource professional is saying to the other – “We have a fantastic décor, well-lit office and efficient air-conditioning….why are we still having retention problems?” A couple of decades back when I started working this was all that was required to keep an Indian employee on the same job for life. Now with multinationals and globalization the poor human resource teams are struggling to retain employees and have a war of talent on their hands.

Employee engagement is the buzzword and India is doing excellently in it. As per Blessing White Employee Engagement Report Survey 2011, in India 37% of employees are engaged and 12% are disengaged. This is better than the world average of 31% employee engagement and 17% employee disengagement. This means worldwide, 1 of 3 employees is engaged and 1 of 5 is actively disengaged. China is at the bottom of the rung with just 17% employee engagement level. While reading this survey results Indians may feel gleefully triumphant, but hold the celebrations since there is a downside to it.

The average is good as 50% of the Baby boomers and 41% of Gen X are engaged. However, just 30% of Gen Y/ Millennial are engaged which is below the world average. In respect to disengaged employees the percentages are – 7% Baby boomers, 10%  Gen X and  17% Gen Y. That means the oldies when I started working are working with the same mindset of one company employment in a lifetime.

Now let us view this from a different lens. As per 2011 Census India’s total population is 1.21 billion and in the Wikipedia it is mentioned that “India has more than 50% of its population below the age of 25 and more than 65% hovers below the age of 35”. The trend is reflected in the IT/ITES sector where the average age of employee ranges between 25-30 years. Hence, in the long run, if Indian Gen Y is not engaged, the organizations will not be able to reap the benefits of an engaged workforce.

The Blessing White survey also indicates that in India engagement levels are not uniform amongst organizations and vary differently between industries, department, gender, generation and role level. This indicates that organizations can’t just see the survey results and feel that it applies to them.

Moreover, employee engagement misperceptions exist at CXO level. A survey conducted by Economist Intelligence Unit in US titled Re-engaging with Engagement states that “The C-suite displays a consistently “rose-tinted” view of engagement that is not shared lower down the ranks. For example, 47% of C-suite executives believe that they themselves have determined levels of employee engagement, a view shared by only 16% of senior directors outside the C-suite. More than one in five in the C-suite believe that employees are “much more engaged” than those in rival firms, compared with only 7% of respondents outside the C-suite”. Hence, the employee disengagement levels might be completely misunderstood the CXOs. Therefore, the associated impact and risks would remain unmitigated.  

In light of the above, risk managers while conducting a review or audit of Human Resource Department (HRD) need to check what percentage of engaged employees are reflected in the organization survey. Risk managers assume that employee engagement is a HRD issue and underestimate the risks of disengaged employees. According to surveys conducted by LSA Global Learning Solutions, “lower employee engagement scores result in:

• 12% lower profits
• 19% lower operating income
• 28% lower earnings per share

While higher employee engagement scores correlate to:

• 18% greater productivity
• 12% higher customer satisfaction
• 51% less voluntary turnover”

The above-mentioned numbers definitely call for attention. Just to give a brief explanation, below are three perils of disengaged employees.

1.    Disengaged employees impact sales

In People Metrics post “How Disengaged Employees Create Disengaged Customers” the results of customer research are published. It states that – “Disengaged employees disengage customers by appearing uncaring and apathetic. That matters because, as behavioral psychologists tell us, 70% of purchasing decisions are emotionally-based” Hence, disengaged employees directly impact customer satisfaction and show lower probability of deal closer. This directly affects sales.

2.    High Attrition Increases Costs

According to Indian HR professionals, the attrition cost of an employee is 3 to 4 times their salary. Now this is a concern in India as attrition levels are quite high. The costs involved are recruitment expenses, training, lesser productivity of new employee etc. The reason I am mentioning this is that disengaged employees have a higher probability of looking for another job.

3.     Increase in Fraud Risks

Disengaged employees are able to rationalize misconduct easier as they are not committed to the organization. With lack of motivation and loyalty towards the organization, and a higher disgruntlement level, it becomes easier to rationalize wrongdoing. Disengaged employees are more likely to circumvent the control procedures and less likely to adhere to policies. Lastly, there are lower chances of a disengaged employee  reporting misconduct of another. Hence, the overall fraud risk level of an organization increases with more disengaged employees.

These are just a few examples of impact of disengaged employees. I recommend a read of Blessing White Survey to understand the issues from an HR perspective.

 Closing thoughts

Disengaged employees can make or break the company. It is one of the key differentiators between successful and unsuccessful companies. Organizations with higher level of engagement execute strategies effectively. CXOs and HRD need to be forever vigilant about employee engagement. Risk managers must cover a review of employee engagement at least annually. This is one aspect where risk rewards and costs can be easily quantified. Hence, by directly adding to the bottom line risk managers can earn some brownie points.

References:

1. Blessing White Employee Engagement Report Survey 2011 – Thanks to Beverly Kaye (@BeverlyLKaye) CEO of  Career Systems International for bringing this report to my attention.
2. Demographics of India
3. How Disengaged Employees Create Disengaged Customers by People Metrics.
4. Re-engaging with engagement by EIU
5. LSA Global Learning Solutions
6. Calculating the Cost of Employee Disengagement by People Metrics