Engagement

The Right Metrics: ROI of Employee Engagement

“How will this employee engagement impact business results”?

This is a very common question that most HR professionals come across at least once in their lifetime when they are trying to experiment with new employee engagement initiatives. More often than not, they struggle with defining the return on investment or ROI of employee engagement. It is true that at times, employee engagement can directly lead to greater sales and revenue. However, in most cases, the impact is not so direct and makes it difficult for professionals to measure the ROI of employee engagement. 


Quantifying the impact of employee engagement simply in terms of profit and loss is not the most comprehensive approach. Since employee engagement is a move towards improving employee experience, belongingness and wellbeing, simply focusing on top line figures might circumcise the real real value it creates. Let’s explore how organizations today are dealing with this challenge and calculating their ROI of employee engagement. There are primarily two approaches in this respect, measuring what can be quantified and then going beyond the metrics to gauge the intangible impact.


Measure the Metrics

Let’s start with the metrics which can be measured and can give you data points to convince your senior leadership to focus more on employee engagement activities:

Higher productivity

To begin with, you can gauge the effectiveness of your employee engagement activities by reflecting on your employee productivity. Studies show that employee engagement has the power to augment productivity by 17%. There are several ways for you to judge employee productivity. You may calculate how much output they are able to deliver vis-a-vis the input. At the same time, it may be a good idea to study the trends of absenteeism in the organization. You can easily map lower absenteeism to engaged employees which definitely translates to higher productivity.

Retention and attrition

Disengaged employees are often on the lookout for another opportunity and would run with the speed of light when something worthwhile comes along. Therefore, another way to gauge the ROI of employee engagement is to see how many employees is the organization able to retain, happily. A reduced rate of attrition is definitely a metric that can help you make a stand for greater employee engagement initiatives. While organizational retention is one part, a similar phenomenon is when within an organization, teams that are more engaged see lower attrition rates and team swaps. 

Annual figures

Finally, another effective metric to understand how well your employee engagement practices are performing is by looking at your monthly and annual figures. While this will not give you an all encompassing picture, it will definitely be a big driver towards dedicating greater resources to employee engagement. Annual figures like increases in sales and revenue can help to directly create a correlation. In fact, research shows how employee engagement can lead to a 21% increase in profitability


Beyond the Tangible Metrics

While the above metrics can help you quantify the impact of employee engagement and provide data points for continued efforts, there are other metrics that you should be documenting to create a larger case for employee engagement. You may not directly connect these factors to create an impact on the organizational growth. Nevertheless, the value they create is very important for organizational resilience and business continuity. At the same time, research shows a direct correlation between the below factors and data points of profitability, productivity, etc. 

Innovation and creativity

When employees are more engaged, they tend to unleash their creative potential to a greater extent. This means that one way to judge how well your employee engagement programs are doing is to gauge the pulse of innovation. You may want to see how your employees are able to adapt to changing and uncertain situations. For instance, organizations with high levels of employee engagement found it easier to adapt to the changing work conditions in the face of Covid-19. In retrospect, they faced least disruption in operation and thus, did not face a major slump in revenues.  


Employer branding

Employee engagement is not only a tool to augment the productivity and wellbeing of your existing employees, but also a means for effective employer branding. How well engaged your employees are reflects in the kind of talent you are able to attract during recruitment rounds. You can easily gauge the ROI of employee engagement based on the quality of applications you receive. Well engaged employees spread a good word and you are bound to receive strong applications. 


Strong leadership pipeline

A direct impact of employee engagement is retention of high quality employees which can step into leadership shoes as and when the need arises. Therefore, an effective way to gauge if your employee engagement programs are doing well is to see how many employees do you have who are ready to take on leadership roles. If the pipeline is strong and healthy, you are in the safe zone. 


ROI of Employee Engagement: Final Words

To put the entire discussion in a nutshell, it is important to understand that employee engagement offers both tangible and intangible benefits. Measuring the impact and ROI of employee engagement simply based on financials is a misinformed move. It is important for organizations to take a holistic view and take into account all direct and indirect benefits while creating a case for employee engagement. At the same time, it is vital to remember that employee engagement is a dynamic concept. Thus, there is a constant need to keep adapting the employee engagement strategy with technology enhancements and accordingly delve into new metrics to judge the ROI. At the same time, it is important for organizations to focus on continuous measurement and tracking of impact to ensure effectiveness. It cannot simply be an annual assessment. Organizations should ensure ongoing measurement and regularly transform their employee engagement strategy.