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 under-estimated, but if you act and actively design and shape your organization’s culture, you can unlock this wasted money for big investments.
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.
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A comprehensive look at the costs of replacing an employee
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 impact the team and organizational culture which, it suddenly turns out, is not as stable as it was assumed to be.
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.
Employee disengagement needlessly burns money every day
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.
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Pay for disengagement or pay to find new talent? It’s Hobson’s choice
Perhaps you’re now doing the sums for your organization, to work out whether you’d rather replace people who leave, or tolerate disengaged employees.
This 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.
The worst thing is that if you don’t invest in designing and implementing an engaging culture, your new recruits will also quickly join the ranks of the disengaged and start costing you 34% of their annual salaries.
What’s the alternative?
The alternative is to reduce the money you’re quietly losing by investing a small portion of it in deliberately designing the conditions for engagement – the cultural and behavioral infrastructure that allows people to contribute at their best.
Engagement improves most sustainably when organizations move beyond motivation tactics and instead redesign how work, decision-making, and contribution are structured – particularly for people with different neurostyles.
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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.
