Employee engagement is a hot topic, but it’s more than just a buzz word: there is a real cost to businesses of disengagement. Although some of it can be readily identified such as staff turnover, sickness absence, tribunals, etc., some of it is hidden. So what is the cost of disengagement?

Several sources state that the cost of an actively disengaged employee is 34% of their salary. Sometimes it is stated as disengagement costs $3,400 for every $10,000 of salary.

In thinking about using this statistic to put a value on employee engagement initiatives, I wanted to find out more about how the statistic has been derived. However, I’ve struggled to find the original source.

This figure is said to come from Gallup, the source of much information about employee engagement from the surveys they conduct. However, I can find no mention of either statistic on Gallup’s website, despite an extensive search. If anyone can find it please do send me the original reference.

So, I have tried to calculate such a figure, partly to assess the potential basis for the figure and also to provide an alternative, should it be useful.

Given the statistic is sometimes quoted in dollar terms let’s start with US data.

The statistic most commonly quoted by Gallup on their website and in other materials about the cost of disengagement is that “actively disengaged employees costs the US between $450 billion – $550 billion per year in output” (State of Global Workplace Report, 2013).

Productivity or output is usually measured in terms of GDP, but GDP is not salary. How do we get to a salary figure? Well labour share statistics indicates that in the US labour share is 42.6% of GDP.

Given GDP in the US is approximately 18.57 trillion, the total US wage bill would be around 7.91 trillion. This means that actively disengaged employees cost between 5.7 and 7.0% of the total salary bill in lost productivity.

In the US, the actively disengaged are estimated to represent 18% of the workforce according to Gallup (2013), Therefore, assuming disengaged employees earn the same on average as other employees (which they may not) we could also assume that an actively disengaged employee costs the US between 31.7 and 38.6% of their salary in lost productivity.

This figure is close, surprisingly, to the original value we started with, indeed the mid-point of the range is 35.2%. Coincidence, or is this the way the original calculation was performed?

So now I feel I understand something about this figure instead of using it blindly, the next question I have is: can this figure be translated to other regions?

Gallup provide similar data for other countries. For example, Gallup estimates actively disengaged employees cost the UK between £52 billion and £70 billion per year in output” (State of Global Workplace Report, 2013).

UK wages represent roughly 51% of GDP and given GDP in the UK is approximately 2.6 trillion, the total UK wage bill must be around 1.3 trillion, which means that actively disengaged employees cost between 3.9 and 5.3% of the total salary bill. Since the actively disengaged represent 26% of the workforce in the UK they must cost 15.0 – 20.2% of their salary in lost productivity.

Lynda.com has an online calculator that uses this statistic to calculate the cost of disengagement to individual companies. Various commentators e.g. Sellner, Holloway), suggest the same idea. It’s interesting that some, like Sellner and Holloway, talk in terms of disengaged employees, not actively disengaged employees. There is a huge difference. In the US, 18% of the workforce are actively disengaged whereas 70% are disengaged. This could be misleading, massively over-estimating the total cost of disengagement.

This error is creeping into marketing messages from companies offering employee engagement solutions (e.g. InjoyGlobal, AboutPeople) to underpin ROI calculations for those solutions. While misleading, it may not be a deliberate attempt to do so.

Based on the calculations above, care should also be taken using the statistic without verification. As we’ve seen, It is possible the original statistic was calculated from GDP data, not actual costs to organisations. In which case, extrapolating across regions or countries is also misleading. The cost in the US may be $3,400 per $10,000 of salary, but it could be £1,800 per £10,000 in the UK. The cost should be determined for each region rather than a blanket usage.

It is also still possible the original figure was calculated from organisational cost information. However, without the original source reference it is impossible to tell…

Once again if anyone can find a reliable original source document for the statistic, I would be grateful. Equally, if anyone can suggest better or more accurate ways to calculate such a statistic than the one outlined here, I would be very interested.

In the meantime, I hope sharing this is of some value to others.