Employee Engagement ROI Guide

How To Measure Employee Engagement

Employee disengagement is often sensed on a gut level by managers and colleagues working closely with an individual. The unmistakable distance and detachment quickly become apparent. They manifest on all levels of life at work: behavioural, emotional, and mental.

Instinct is a valuable global alert system—telling us something is amiss in our environment, in this case—with an employee. Despite being able to sense something is "off," managers can't merely rely on their gut as a barometer for engagement. Despite our instincts usually being correct, they don't help get to a deeper understanding of the source of the issue nor quantify its severity.

Early signs of employee disengagement

Often, executives only pay attention to employee engagement once there are perceptibly high rates of absenteeism and turnover among their top talent in their workforce. In short, when employee disengagement is obviously symptomatic. At this point, disengagement has likely spread to all levels and evolved into a complex issue that will require a great deal of time and resources to fix.

To avoid this, it's incumbent on executives and managers to keep their finger on the pulse of the workforce satisfaction—to systematically monitor levels of engagement. The goal is to catch early and often subtle signs of dissatisfaction and disengagement before they manifest as full-blown absenteeism or, worse, turnover.

Organizations can achieve this goal by regularly conducting an engagement audit or regularly measuring engagement across their organization.

Conducting an employee engagement audit

If you went to visit the doctor because you are feeling ill, you wouldn't expect a doctor to begin treating you with any medication right away. Most doctors would (hopefully) perform routine examinations first. Before making a diagnosing and assigning a treatment plan, they would ask questions and run tests to judge the current status of your health.

Similarly, the process for diagnosing the underlying cause of low engagement should be approached in the same way; by first identifying your most prominent symptoms, their severity, and ultimately assessing the current health of your organization.

Typically, organizations approach an engagement audit by either conducting one in house or outsourcing the task to a third party that specializes in this type of organizational audit. The main drawback of outsourcing the work is the very high cost.

In reality, you can quickly assess the health and engagement of your organization by keeping an eye on a few key figures. The best part, coming up with most of these figures doesn't require surveying your employees at all.

Employee Engagement Metrics

Measuring employee engagement takes a multi-level approach. It would be best if you started with hard metrics and then moved on to more qualitative measures. 

For example, using hard metrics would mean measuring engagement with a number, like turnover rate.

This approach is an essential first step. A low turnover rate, for example, gives you an idea of the quality of your employee offering and experience. But there is a big drawback; hard metrics say very little about why employees are unhappy. Or, more importantly, what kinds of solutions they would like to see from your company. 

For instance, imagine someone asked you to rate how happy you felt about your job on a scale of 0-10. If you answered with a 6 out of 10, what would that say about your job? Not a lot other than the score is low. 

Next, the second phase of measuring engagement comes in—understanding why employees are unhappy, and what matters. Achieving this goal requires observational methods of gathering feedback. For example, you can do this through short-form surveys or employee interviews.

But first, let's start with the initial diagnosis with hard metrics. Hard metrics and engagement KPIs are not all bad; they have their benefits. And the main one is that they are an important general barometer of employee satisfaction. As such, it's important to track these key metrics over time so you can understand if you have an employee engagement problem in the first place.

These quantitative metrics are:

• Employee Net Promoter Score (ENPS)
• Employee Turnover Rate
• Customer Satisfaction Rate
• Employee Productivity
• Employee Absenteeism
• Employee Satisfaction Score

Employee Net Promoter Score

This metric is based on the "Net Promoter Score," the only difference is, instead of measuring customer loyalty, you measure your employees' commitment and engagement. It's a measure of how likely your customers are to recommend your company to others. As a result, this metric is found to be an accurate measure and predictor of employee loyalty.

Using questions like "How likely is it that you would recommend working at our company to a friend or colleague?" employees respond on a sliding scale of 1-10. Then, employees get classified into three categories: detractors, passives and promoters.

As you can imagine, detractors are individuals who do not recommend working for your organization while this metric doesn't tell you why it does do an excellent job at assessing on a global level, how proud your employees are to work for your organization.

Employee Turnover Rate

Voluntary turnover occurs when an employee leaves a company on their own volition. Measuring your turnover rates will give you an idea of the general health of your company.

Studies show that teams who score in the top 20% in engagement realize 59% less employee turnover. Engaged employees show up every day with passion, purpose, presence, and energy.

To calculate the monthly employee turnover rate, all you need is three numbers:

• The number of active employees at the beginning of the month (B) 
• The number of active employees at the end of the month (E) 
• The number of employees who left during that month (L)

Then, calculate the average (average) number of employees by adding your beginning and ending workforce and dividing by two.

Finally, you should divide the number of employees who left (L) by your average number (average) of employees and multiply by 100 to get your final turnover percentage.

In sum, when employees don't feel fulfilled or impressed by a company's offerings, high voluntary turnover is usually the first symptom. Or they might be unfairly compensated or challenge, and as a result, have eyes for organizations offering a higher salary and more challenging position.

Customer Satisfaction Rate (CSAT)

Happy employees are the foundation of customer satisfaction. So, if you're in the business of managing customer-facing employees, one of the best measures of employee engagement is how satisfied your customers are with their service.

Employees that deliver top customer service intentionally go beyond the minimum of what is expected. Passion and ownership underpin their work. There is a personal and intrinsic motivation to provide excellence.

Measuring customer satisfaction is possible in several different ways. It can be done quantitatively with formal customer satisfaction surveys, or more casually through conversation or feedback. Either way, when you make an effort to gather insights from customers, you'll quickly notice patterns and trends. For example, when the same associate receives negative feedback, complaints, or a poor CSAT score, you know who the common denominator is. And time and energy should be invested in addressing and correcting the issue.

Employee Productivity

In the traditional sense, productivity is about meeting a certain output goal within a given time period. In short, meeting a quota. This is still the case for certain lines of work. However, In our modern work environment, the definition of productivity should take into consideration the value and quality of production as well. Taking into consideration both the quantity and quality of employees’ work.

That said, when quality or quantity of work begins suffers, this can be symptomatic of employee disengagement. For example, an employee consistently misses their daily or monthly quotas, or they begin delivery work of poor quality—with apparent errors and lack of attention to detail. If you've correctly assessed quotas to ensure they are attainable, and productivity still suffers, disengagement is a likely culprit.

As a case in point, an extensive meta-analysis conducted by Gallup, which showed businesses that scored highest in employee engagement, are shown to be 22% in profitability and show a 21% increase in productivity.

In short, productivity and engagement are closely tied. So continuously monitoring employee goals and productivity is crucial to keeping your finger on the pulse of engagement.

Employee Absenteeism

Absenteeism occurs when employees don't show up for work. It can negatively impact productivity, and it's a red flag for employee disengagement. Not to mention, absenteeism strongly affects the company's bottom line. This metric measures the percentage of employees who were absent over a given time. Higher percentages can indicate high levels of employee disengagement.

To measure employee absenteeism you all you need is the following values:

• Number of employees (E)
• Number of absences (A)
• Total number of work hours (H)

Band-aid solutions will not suffice if you wish to lower employee absenteeism in an enduring way. The root cause of employee disengagement must be addressed with a strategically implemented Employee Engagement Program for absenteeism issues to be truly resolved.

In fact, according to a Gallup Workplace report, businesses boasting a highly engaged workforce are shown to have a powerful impact on lowering employee absenteeism by up to 41%.

Employee Satisfaction Score

This metric can only be obtained by administering a survey that contains questions conceived to measure employee satisfaction. You’ve likely heard of and probably taken a survey of this nature in the past. Survey questions often asked are “on a scale of 1 to 10 how happy are you at work?” and “do you feel valued at work?”

Usually, employee satisfaction surveys are administered in a “pulse” form, with only one question asked daily. As a result, on a monthly basis, you should have a global idea of where you’re workforce stands in terms of their satisfaction at work.

After keeping track of these important metrics, you get a sense of the engagement levels in your organization. So you are probably dealing with a high employee turnover rate or low eNPS score at this point in your investigation. In other words, you know your employees are dissatisfied, but you are unsure why. 

Or maybe you even know which area of the work environment they are unhappy with. Still, you want to gain a clearer understanding of the problem. Now you need to turn to more qualitative methods of measuring employee engagement. This means gathering information through surveys, one-on-one interviews, and other ways that help you collect more detailed insights into the underlying issues.

Qualitative approaches you can use:

1. Using a continuous listening tool
2. Short-form employee surveys
3. One-on-one interviews
4. Focus groups
5. Exit interview

Using a Continuous Listening Tool 

Modern survey tools help companies keep their finger on the pulse of employee sentiment. This is why these tools are often called Pulse Surveys. 

Although we put it under qualitative methods, in reality, a Pulse Survey tool is both quantitative and qualitative. These tools come with reporting features that offer HR a high-level scoring system, like a “satisfaction score,” so HR can put a hard number on how happy employees are. 

However, pulse questions are often categorized by theme or topic, so you can quickly drill down to qualify further which area of the experience you need to focus on. And the fact that they are anonymous is critical. 

That said, Pulse Surveys do help dig a bit deeper to uncover problem areas, for example, revealing that employees are unsatisfied with the leadership in your company. Yet, they still can't fully answer why that might be the case. And most importantly, which solutions will best address their problems. More investigation is necessary, so you can come up with proper solutions that are aligned with your employees' needs.

Short-Form Employee Surveys

Anonymous short-form surveys are where you will get the meatiest insights. That’s because these types of surveys should be designed to drill down into very specific topics.  

For example, they can investigate satisfaction with management or with perks and benefits. These highly specific surveys are the best way to gain rich information from your employees about why they are unhappy with a particular area of the workplace and what your company can do to fully address the issue.

That said, it’s important to remember these types of surveys should come after you’ve identified your “problem areas” with a Pulse Survey tool or a longer-form survey. Or simply after receiving feedback from employees and managers.

The experience of individual employees varies widely, and it's critical to understand these nuances to come up with a concrete action plan that will work in the long run.

One-on-One Interviews 

A common method of gauging employee engagement levels is through direct interviews with employees. Typically, this method is the most time-consuming and intensive. As such, it’s generally reserved for investigating more serious issues in depth. Many companies may even outsource this work to third parties to help with the task or hire specialists for this task. 

However, these one-on-one interviews can be done more efficiently. For example, by institutionalizing quarterly 1:1 meetings with managers. Each team manager is responsible for helping collect employee feedback. HR can design a roadmap or questions for these quarterly conversations. The goal is to gather specific information about employee satisfaction.

That said, this method also has an important drawback to keep in mind -- interviews are not anonymous. It’s important to consider incorporating anonymous feedback systems in your investigations as well. 

Focus Groups

Aiming to interview every employee regularly can be a big undertaking. So, focus groups are a useful alternative. Taking a few employees from each department and interviewing them in a group setting. This task can be achieved more quickly. And it's less draining on your time and resources. 

However, one main drawback is that, again, face-to-face interviews are never anonymous. As such, you can’t expect everyone to be perfectly honest. This is especially true if your company is dealing with a culture where psychological safety is lacking, and employees are afraid of speaking up.

Exit Interviews

Exit interviews are a prime opportunity to collect feedback about employee experience. Since departing employees are generally more candid than those still in their jobs.

The information you gather from exit interviews will tell an interesting story. Ultimately, the feedback you receive from departing employees can help you to identify problem areas within your business. And in extension, it can give you insights to help you better plan your employee engagement strategies.

Investing in Employee Engagement Programs

In business, the lowest-hanging fruit often gets picked first.

We are naturally drawn to short-term goals because they are easier to reach and measure. That's just human nature. But this bias is also why many companies fail to develop employee engagement—it's not a short-term goal. You can't simply list "engage employees" on your quarterly to-do list and then be done with it. It's a perpetual process.

In other words, data-focused leaders may struggle to grasp the value of this "touchy-feely" subject. As a result, they may relegate these initiatives to the bottom of the priority list.

Leaders should avoid this at their peril, as research shows us just how much businesses are losing due to employee disengagement—trust us; it's a high number! 

Ultimately, the companies that leap to invest in employee engagement will succeed long-term. Because so few businesses spend money on programs where ROI is uncertain or difficult to measure. Taking even small steps to enhance employee experience will give your business a competitive edge. 

That said, let's first explore what employee engagement entails practically; let's then analyze the costs associated with these programs.

How much budget should be invested in employee engagement?

The first step to drawing up a budget is to do some research and look at what other businesses are dedicating to programs. In short, let’s determine a benchmark. 

Compensation consultants like David Weaver, author of the 2020 book Pay Matters, suggest 0.5%-1% of payroll as the ideal budget for recognition and rewards.

According to SHRM research, companies that make this level of investment (1% of payroll) are nearly 3X as likely to rate their program as excellent compared to companies that invest less Remember, this budget is for a reward and recognition program only. 

As mentioned above, not all your engagement initiatives will be related to rewards and recognition. But recognition and rewards is a critical pillar, so they will be the center focus of our calculations here.

What does it mean to invest in employee engagement?

Employee engagement is a vague, broad term. Ask ten people what it means, and you'll get ten different answers. At Applauz, we define employee engagement as any strategic effort a company makes to meet the needs of its employees. With that in mind, these employee engagement programs can take many forms—some more costly and complex than others.

For example, adopting a software-based employee recognition program is an engagement initiative but so can something as simple as hosting a monthly wellness challenge on a tight budget. 

With that in mind, you can see how any company can invest in employee engagement based on their budget and employee needs. 

For the sake of this article, we will focus on the recognition and rewards pillar of an employee engagement strategy.

What to expect when investing in employee engagement

Research and data analytics shows that engaged employees lead to more profitable businesses because employee engagement isn't just some abstract HR concept; it has a very tangible productivity connection.

Official statistics prove this, time and time again.

Looking at successful companies with admirable achievements such as a high retention rate, low absenteeism, high productivity and profits, what do you think is the common denominator running through these businesses? That's right—a high rate of engaged employees.

Can you calculate the return on investment of employee engagement? YES!

In order to calculate the estimated ROI (return on investment) of employee engagement, we look at some validated statistics to inform our calculations.

Businesses that score high in employee engagement saw a drop in absenteeism by 41%—that’s employees using unearned PTOs—when employees were engaged in their work, according to a Gallup Workplace Report. Lastly, high employee engagement has been shown to experience a 20% increase in productivity, according to a Gallup study.

By comparing these successful companies to their less successful counterparts, we can begin to quantify the precise degree in which employee engagement impacts a company's success.

Using engagement statistics provided by the HR industry, we can deduce a fairly accurate estimation of how much revenue an organization can expect to save by implementing an Employee Engagement Program. In short, implementing employee engagement software like Applauz yields a 4X return on investment.

Employee Engagement ROI Calculator

Manually calculating the ROI of engagement can sound intimidating. To help make calculating the ROI of engagement a breeze we created a calculator that will do all the heavy lifting for you.

Just plug in three figures: the number of employees in your company, the average salary, and the employee turnover rate, and let the ROI calculator tool do the rest of the work!

The calculator will let you know your expected return based on an increase in productivity and a decrease in absenteeism and turnover.