How to Measure the ROI of Employee Engagement

NSC Technologies

Generally defined as when a worker has their individual priorities aligned with organizational values, employee engagement is a hot topic among both executives and HR personnel.

Engagement can be difficult to measure, but it’s easy to recognize: An engaged employee wears it on their face and shows it in their work. It might seem obvious that an engaged workforce makes for a better workplace, it can also impact a company’s bottom line, primarily because of less turnover, lower absenteeism and greater productivity.

When leadership is dedicated to worker engagement, the return on that investment can be observed in various ways. Engaged staff members work more efficiently, communicate more transparently, develop more innovations and solve more problems. This makes sense: Someone who truly cares about their work is going to do the best they can and even go the extra mile.

One major way to increase engagement is to prioritize effective communication. A recent study showed staff members who receive little if any feedback from their supervisors tend to be actively disengaged. Engagement increased dramatically when staff members heard feedback about their weak points, and even more so when they were given feedback about their strengths.

When calculating the ROI of employee engagement, you need to consider several factors, including turnover rate, average employee salary and annual revenue. Employee engagement ROI can be seen in many ways, particularly, lower turnover, lower absenteeism and higher productivity. Consider the following engagement ROI factors.

Revenue per employee

Determined by dividing annual company revenue by the average number of employees during the year, ‘revenue per employee’ measures how efficiently a company used its most valuable resource: employees.

Individual and organizational costs of absenteeism

The average employee takes 3 days off due to absenteeism over the course of a year, or 1.2 percent of the entire year. To determine this cost, take 1.2 percent of revenue per worker and add that to 1.2 percent of your average worker salary.

Multiplying this figure by the average number of employees provides the company-wide cost of absenteeism.

Turnover rate

The turnover rate is calculated by dividing the number of employees that departed over the year by the average number of employees during the year. Year-over-year turnover rate has been shown to decrease with higher employee engagement.

Please note that turnover rates vary by industry. There are numerous web resources that can provide the average turnover for your industry.

Average cost to replace an employee

When a salaried employee must be replaced, it costs between six and nine months of the replaced employee’s salary, according to The Society for Human Resources Management. The replacement costs for executive positions can be even higher, as much as double of the annual salary for the position.

Total cost of employee turnover

The overall costs of turnover rate is determined by multiplying the average cost to replace an employee by the number of employees that left over the course of the year.

At NSC Technologies, we fully support all the employee engagement initiatives of our clients. If your company is currently looking for a staffing partner, please contact us today.


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