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The Employee Engagement Crisis (Part 1)

I apologize. You’ve seen the reports and read the headlines. You may even be experiencing it first-hand. Some optimism has begun to creep into our collective conversation about the economy. Signs related to orders and production rates, the stock market at a 14-month high, unemployment potentially leveling off, and a modest rise in consumer spending are contributing to our cautious optimism. Yet, I apologize, because I am going to toss a bit of a wet rag over the simmering glow of these positive signs and, instead, write about a continuing crisis: the decreasing levels of employee engagement in the U.S.

Let’s start with some statistics from Gallup:
• 29% of employees are actively engaged in their jobs
• 54% are not engaged
• 17% are actively disengaged
These figures mean that not only are fewer than one in three employees actively engaged, but the attitude and behaviors of almost one in five employees is consistent with active or purposeful disengagement. Are you surprised to learn that that over 70% of employees aren’t fully engaged in their jobs and, therefore, are not doing their best work?

Similarly, according to a recent study by the Conference Board research group, Americans continue to become more unhappy with their jobs. Levels of employee satisfaction, a major component of engagement, were at 45%, the lowest in the 22 years that they have performed the study. Although worsened by the recession, there has been a downward trend for over 20 years (the level of job satisfaction was 61% in 1987).

The study sites some reasons why workers have steadily grown more unhappy:
• Fewer workers (51%) consider their jobs to be interesting (down from nearly 70% in 1987).
• Incomes have not kept up with inflation. After growing in the 1980s and 1990s, average household incomes adjusted for inflation have been shrinking since 2000.
• The soaring cost of health insurance has eaten into workers’ take-home pay.

Other underlying issues may also include decreased morale, lack of direction, and limited motivation. Despite hearing lots of talk about “pay for performance,” fewer employees think they’ve seen enough in terms of pay raises, incentives or other rewards for their contributions. And this view appears to be intensifying as the economy regains steam.

Why does employee engagement and satisfaction matter? Workers who find their jobs interesting are more likely to be innovative and to take the calculated risks and the initiative that drive productivity and contribute to economic growth, says the Consumer Board. From a quality of work life perspective, positively engaged employees are often energetic and enthusiastic, which makes them more productive in group efforts and makes them enjoyable to work with. If the job satisfaction trend is not reversed, economists say, it could stifle innovation and hurt America’s competitiveness and productivity…and dampen company profits and employee compensation.

As a result, this situation is also creating retention risks. According to a Towers Perrin study, more than half of the U.S. respondents are what they term ‘passive job seekers’ – open and vulnerable to other job offers.

The High Cost of Employee Turnover

It makes sense that employee disengagement and low levels of job satisfaction often result in increased employee turnover. Unfortunately for the employer, the negative impacts of employee turnover are many, including direct costs of hiring and training, decreased productivity, lower quality of work, and often increased stress and workload on other employees. Based on a 2008 survey of 245 companies from Salary.com, here are some industries who reported estimated costs of replacing an employee (expressed as percentage of previous employee’s base salary and dollar cost):
»  Biotechnology — 38% or $46,250
»  Aerospace/defense — 42% or $30,875
»  Energy and utilities — 31% or $28,512
»  Retail and Wholesale — 47% or $27,545
»  Manufacturing — 30% or $26,944

These figures are striking. Obviously, business owners and leaders should know their cost of employee turnover. And not only do they need to better understand this crisis of employee disengagement, but action needs to be taken to reverse the trend. How can this be accomplished?

We will discuss some ideas next month, in part 2 of our look at employee engagement.