Employee engagement ROI: is the investment worth it?
Published on 9 May 2024 • Written by Dr Lisa Colledge
Employee disengagement quietly drains budgets through lost productivity, absenteeism, and turnover. Here’s why investing in engagement delivers a measurable return.
Gallup reports that 77% of employees globally are disengaged from their organization’s mission. That disengagement shows up in three familiar ways: people who quietly do the minimum; people whose frustration becomes disruptive to others; and people who eventually leave, triggering costly replacement cycles.
In all three cases, organizations pay – long before a resignation ever appears on paper.
The financial consequences of employee disengagement are substantial and often underestimated. But disengagement is not simply an employee motivation problem. It can also be a signal that the systems, culture, and ways of working around people are making it unnecessarily difficult for them to contribute at their best.
Three key takeaways
Disengagement is a compounding cost, not a one-off problem. Organizations don’t pay for disengagement only when someone leaves. They pay for it quietly, year after year, through lost productivity, absenteeism, reduced innovation, and drag on others’ performance.
Turnover does not solve disengagement – it multiplies its cost. By the time a disengaged employee leaves, you’ve already absorbed years of under-contribution. Replacing them adds a second, substantial cost, while the underlying cultural conditions remain unchanged.
Engagement improves when it is treated as infrastructure, not motivation. Sustainable engagement comes from deliberately designing how work, decisions, and contribution happen – not from perks, slogans, or one-off initiatives.
The cost of disengagement doesn’t start when someone leaves
We all know that recruiting a replacement for someone who has resigned costs a lot of money, effort and time. I think that most of us would rather not have to do it, and, while we whole-heartedly congratulate our excited colleague on their imminent new position and opportunities, we are quietly dreading what lies ahead.
Let’s be honest with ourselves. It’s not only the process of advertising, narrowing down applications, and interviewing that we don’t love. It’s not even only the investment needed by the manager and whole team to onboard the new person and help to familiarize them with their new organization that causes our internal groan. It’s a lot of intangibles as well.
As the new person learns their way around the team and organization, indirect costs are incurred through their lower productivity and skill in solving problems compared to the team member who left.
This combines with the lost knowledge and experience of the employee who resigned; the most diligent handover document never fully compensates for their in-person expertise. And if that person has been in the organization for a long time, it takes correspondingly longer for their replacement to build up the knowledge to fully compensate for the systems and project experience that was lost.
But the true impact of someone leaving a team is much more widespread. Others ask why they left, and will come to a conclusion, regardless of whether it’s right or not. Employees remaining in an organization with a high turnover may become despondent and demotivated, disengaging from the mission which leads to lower productivity, profitability, innovation, and customer satisfaction.
Someone leaving can also affect the wider team: colleagues ask why they left, draw their own conclusions, and may begin questioning their own experience. Turnover can therefore become both a consequence of disengagement and a contributor to it.
What is the actual cost of replacing someone who has resigned?
The true cost of an employee leaving is tricky for most organizations to calculate because the different activities tend to be recorded in different systems and departments, and, as just discussed, they are not all tangible.
But studies consistently report that the combined tangible and intangible costs of replacing an average waged worker are at least 6 to 9 months of their annual salary (references are at the end).
The average US worker earns just under $60,000.
Replacement cost of the average US worker: $30,000–45,000.
Of course, the average worker doesn’t exist. Let’s take a couple of specific examples.
For a technical specialist, the cost will be 100–150% of their annual salary. An average technical specialist in the US earns just over $100,000 a year.
Replacement cost of an average technical specialist: $100,000–150,000.
If we are talking about a C-suite employee, the cost is more than 200% of their annual position. The average US C-suite employee makes just over $140,000.
Replacement cost of an average C-suite employee: >$280,000.
The bigger cost accumulates while people stay
OK, you may say to yourself, there is always some turnover, it is part of business, and a few disengaged employees can’t cost that much.
Think again! A disengaged employee costs you on average 34% of their annual salary, each and every year that they hang around in your organization, because of higher absenteeism, and lost productivity and profitability.
77% of your average workers are costing you $20,400 each, per year.
For technical specialists, that figure rises to $34,000 per person, per year.
At C-suite level, disengagement costs are $47,600, per executive, per year.
Pay for disengagement or pay to find new talent? It’s Hobson’s choice
It might be tempting to frame this as a choice between tolerating disengagement and paying the cost of replacing people who leave. But that reminded me of a phrase I learnt at school: Hobson’s choice. It looks like you have a choice, but it is an illusion.
The reason is that you’ll have been losing money for years on the disengagement of someone who eventually decides to leave your organization, when you then need to invest in finding their replacement. You need to pay both costs for anyone who resigns.
And replacing someone does nothing to address the conditions that contributed to their disengagement. If those conditions remain unchanged, the organization risks reproducing the same pattern with the next person.
What’s the alternative?
The alternative is not to try harder to “drive engagement”. It is to deliberately design the conditions that make engagement more likely – the systems, norms, and ways of working that allow people to contribute at their best.
I now describe this as performance infrastructure: how work is coordinated, decisions are made, expectations are communicated, and different neurostyles are enabled to contribute. Get those conditions right, and engagement becomes less something you have to manufacture and more an outcome of how work is designed.
➡️ Want to explore the business case further? Download this free PDF to learn more about the impact of neuro-inspired culture.
➡️ If these ideas resonate, you can explore how I design leadership and coordination for complex, high-pressure environments on the Services page.
References
Costs relative to salary of replacing an employee: taken from the summary presented in the PeopleKeep blog (2024),Employee retention: the real cost of losing an employee.
Average 2024 US annual salary from Forbes.
Average US technical specialist salary from Indeed.
Average US C-suite salary from Glassdoor.
Disengagement costs 34% annual salary (2019): How Much Are Your Disengaged Employees Costing You?from Forbes.
