Business Leadership Today

The Link Between Employee Engagement and Business Performance


Matt Tenney, Author of Inspire Greatness: How to Motivate Employees with a Simple, Repeatable, Scalable Process

There’s probably no aspect of a workplace that affects business performance more than employee engagement. 

There are so many aspects of an organization’s success that depend on employee engagement, that it is surprising how many organizations still lack a strong employee engagement strategy. 

Organizations with high employee engagement often outperform their competitors in so many ways and in so many areas of the business. 

With organizations with high rates of engagement being four times more likely to succeed than organizations with higher rates of disengagement, the link between employee engagement and business performance is clear.

Employee engagement is linked to business performance because it affects profitability, productivity, absenteeism, retention, and customer satisfaction. Engagement is also linked to a company’s ability to innovate and adapt more easily in times of change, which impacts its future performance. 

This article will examine the strong link between employee engagement and business performance.

But first, we’ll take a look at employee experience and how it is tied to employee engagement.

The Employee Engagement / Employee Experience Link

Employee engagement refers to an employee’s level of commitment to their jobs, the enthusiasm with which they do their jobs, and their emotional investment in the organization they work for. Engaged employees will believe in the organization’s mission, vision, and core values. 

An employee’s feelings about their work, how they are treated in the organization, whether or not they feel a sense of purpose in the work they do, and whether or not they feel that the organization is dedicated to an authentic vision will affect an employee’s engagement level. 

Employee experience, which consists of the totality of a worker’s experience in a job, including what the worker encounters and observes over the course of their employment with an organization, starting at recruitment, determines an employee’s level of engagement 

To be engaged, enthusiastic, motivated, and committed to one’s job, certain needs must be met. An organization’s ability to meet its employees’ needs will determine how positive the employee experience will be for them. 

If the employee experience is positive, the employee is more likely to be engaged. 

How Employee Engagement Impacts Profitability

Here are a few statistics that demonstrate just how much engagement can impact profits.

Organizations that score in the top 25% on employee experience report double the return on sales compared to organizations in the bottom quartile. 

82% of employees at companies that perform well financially are “highly” or “moderately” engaged, compared to just 68% at under-performing companies.

High levels of employee engagement can greatly impact an organization’s profitability.

In fact, organizations with high levels of employee engagement are 21% more profitable than organizations with low levels of engagement. Engaged companies grow profits up to three times faster than their competitors.

High engagement leads to increased productivity, improved safety, less absenteeism, higher retention rates, and better customer service, resulting in more client satisfaction and client retention, resulting in better profitability.

How Employee Engagement Affects Productivity

Employee productivity is important for any business because increased productivity leads to increased profitability. 

According to a Gallup report, unengaged employees are 18% less productive than their engaged co-workers.

Engaged employees are usually motivated beyond monetary reasons. They are committed to the organization’s mission and feel that they are playing a valuable role in helping it achieve its vision. 

This makes engaged employees more productive, with organizations with a high level of engagement reporting 22% higher productivity. 

Engaged employees build closer bonds with team members, which leads to better, more successful collaborative efforts and facilitates a sense of connection that makes employees feel united with a shared sense of purpose. 

This improves an organization’s overall productivity and makes employees better at resolving problems than can hinder creativity. 

How Employee Engagement Impacts Absenteeism

Every year, absenteeism is responsible for the loss of a significant amount of revenue. 

The Centers for Disease Control and Prevention (CDC) says the loss of productivity associated with absenteeism costs U.S. companies $225.8 billion yearly.

In a 10,000-person company, disengagement results in around 5,000 lost days annually. This costs organizations $600,000 in salary paid when there was no work performed. 

Unscheduled absenteeism can cost $3,600 annually for each hourly employee. It can cost around $2,650 for salaried employees annually.

But here’s the good news: Organizations that have high employee engagement can see a 41% reduction in absenteeism. 

Employees who are engaged in their jobs are less likely to miss work due to job-related stress, which can be costly.

Reduction in absenteeism is good for an organization’s bottom line, but it is also good for employees. This reduction in absences is often due to the employee experiencing less job-related anxiety, stress, and burnout.

How Employee Engagement Impacts Retention

Employee engagement boosts retention levels, which results in an improvement in a business’s financial performance. This is due to the savings in costs associated with replacing employees when they leave. 

Because engaged employees are less likely to leave their jobs, high engagement can reduce turnover.

This helps organizations avoid the costs associated with turnover that result from the recruitment and onboarding of new employees, loss of productivity, and effects of disengagement on performance.

Engaged employees feel more loyalty to the organizations they work for and usually remain in their jobs.

Research suggests that highly engaged employees are 87% less likely to leave the organization they work for, and organizations with high employee engagement can see lower turnover rates of around 31%

High turnover causes significant performance losses for companies due to the cost of replacing employees and loss of efficiency. 

It is reported that turnover costs companies, on average, six to nine months of an employee’s salary to replace them. 

How Employee Engagement Impacts Customer Satisfaction

Engaged employees tend to be much happier in their jobs than disengaged employees. And happy employees will keep customers happy. 

These happy customers are more likely to continue doing business with the organization.

Engaged employees take pride in their work. They are better able to serve customers and provide a higher quality of service when they take pride in the work they do and feel a sense of purpose.

When employees feel valued and appreciated, they will be more engaged with customers and more willing to go above and beyond for them. This leads to a positive customer experience and high rates of customer satisfaction.

Ensuring that the customer has a positive experience is crucial to customer retention, and employee engagement has a profound effect on customer retention. 

Over 80% of customers are retained by organizations with more than 50% employee engagement.

Having employees that provide superior service doesn’t just improve customer retention, it also generates positive feelings toward an organization and can improve its reputation with potential customers. 

The positive customer reviews and word-of-mouth reviews that result from superior customer service experiences can improve awareness of and respect for an organization’s brand and help them stand out from competitors. 

How Employee Engagement Impacts Innovation

Employee engagement and innovation are linked. Engaged employees exhibit innovative behaviors in all types of industries. 

We know that highly engaged employees are motivated to often go the extra mile for leaders, co-workers, and customers. This kind of motivation is strongly correlated with innovation. 

Research has shown that around 8 out of 10 highly engaged employees view their organizations as having cultures that foster innovation, while only half of the least engaged employees agree.

Innovation can be enhanced when senior leadership cultivates a work environment that authentically and genuinely engages employees and keeps them engaged.

Not being afraid to make mistakes is a big part of innovation. Letting employees fail and learn from mistakes builds trust with leadership and makes them feel heard. 

A work environment that fosters creativity, fresh perspectives, and regular feedback from all employees can spark innovation in a variety of areas. 

How Employee Engagement Impacts Adaptability

A work environment that fosters creativity, fresh perspectives, and regular feedback from all employees can spark innovation in a variety of areas. 

McKinsey & Company suggests building adaptability to accomplish this.

When employees are engaged, they are more adaptable. And when they are adaptable, they have the flexibility to efficiently learn new knowledge, skills, processes, and technologies that they can then apply across a variety of situations. 

This adaptability builds optimism, supports employee well-being, and creates an environment where co-workers can thrive.

Engaged employees also have a high degree of career adaptability.

According to research published in the SA Journal of Human Resource Management, there is a strong link between career adaptability and employee engagement, with results suggesting that employees who have experienced high employee engagement have better career adaptability skills.

Career adaptability refers to an employee’s ability to adapt to changing tasks, engage in continuous development and self-learning, perform their job duties well, and strategically guide their career direction. 

Engaged employees with career adaptability can inform succession planning and can adapt as industries change in a way employers value because of the positive effect it can have on performance. 

How Disengagement Hurts Business Performance

According to a recent Gallup report, employee engagement in the U.S. experienced its first annual decline in a decade, dropping to 34% engaged in 2021 from 36% engaged in 2020.

This downward trend continued into the early part of 2022, with only 32% of full- and part-time employees engaged. The number of actively disengaged employees grew to 17%, an increase of one percentage point from 2021.

With fewer engaged employees and more disengaged employees, revenue for many organizations will be hard hit due to the decrease in productivity, increase in absenteeism, and frequent turnover disengagement can lead to. 

Low levels of engagement and high levels of disengagement can cost companies around $450-500 billion annually, taking a huge toll on an organization’s performance.

Research shows that companies with poor engagement scores earn an operating income that is 32.7% lower than companies with more engaged employees. 

Additionally, disengaged employees cost an organization approximately $3,400 for every $10,000 in annual salary. 

These numbers clearly show the impact low engagement can have on financial performance and employee performance. 

Boosting Employee Engagement To Boost Business Performance

Research has shown that organizations with highly engaged employees enjoy 26% higher revenue per employee, as well as 13% greater total returns to shareholders. 

Organizations that score in the top 25% on employee experience report double the return on sales compared to organizations in the bottom quartile.

A positive employee experience leads to a jump in engagement. Compared to only 68% at under-performing companies, 82% of employees at companies that perform well are “highly” or “moderately” engaged.

These numbers indicate a strong link between high levels of employee engagement and an organization’s performance and demonstrate why employee engagement should be a priority in all organizations. 

Organizations should always be working on ways to create positive employee experiences and improve employee engagement. As we are seeing with The Great Resignation, when employee needs change, what it takes to engage those employees changes as well.

Instead of aiming for quick wins, developing a long-term strategy to constantly improve the employee experience and maintain high rates of employee engagement is better for the future success of the organization and creates a more sustainable environment for employees, improving both engagement and performance.

Matt Tenney has been working to help organizations develop leaders who improve employee engagement and performance since 2012. He is the author of three leadership books, including the groundbreaking, highly acclaimed book Inspire Greatness: How to Motivate Employees with a Simple, Repeatable, Scalable Process.

Matt’s ideas have been featured in major media outlets and his clients include numerous national associations and Fortune 500 companies.

He is often invited to deliver keynote speeches at conferences and leadership meetings, and is known for delivering valuable, actionable insights in a way that is memorable and deeply inspiring.

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