The High Cost of Low Morale

Last Updated Jun 4, 2009 1:49 PM EDT

Employee engagement is the top workforce priority for 2009, according to a King's College London survey.
It's now a strategic HR objective, as well as part of the corporate brand, with companies competing to be great places to work. Even the government has taken to the term, launching its own employee engagement initiative.

But there's a problem: business leaders may adopt the language around engagement, yet they don't see it as business critical or a management priority.

The current recession has worsened this: why worry about motivation and morale when everyone's focus should be on cost-cutting and restructuring?

But this is dangerous. Less engaged teams are less productive, less customer-focused and prone to withdrawing their efforts and adopting counterproductive behaviour.

This may manifest itself as neglect, gossiping, theft and other disruptive behaviour. Ultimately, they'll leave -- whether it's a recession or a period of growth.

So the end-point of withdrawal is staff turnover. And if you believe one study, replacing staff can cost up to around 150 per cent of salary.

So, if you've got 1,000 and lose 200 people a year at an average salary of £30,000, the cost would be £9m. And that's without adding in the costs of counterproductive behaviour and absences.
Comparing US retailers Costco and Wal-Mart, an Academy of Management Perspectives article argued that Costco's employment practices saved the company up to 1.5 per cent of gross sales as its more highly engaged staff were significantly less inclined to steal inventory.

The same article also argued that Costco generated $21,805 in operating profit per hourly employee, compared to $11,615 at Wal-Mart's Sam's Club.

So what can you do to keep people tuned in?

  • Make sure you understand scale of the potential problem and produce accurate, credible and timely data on key employee metrics such as absence and turnover, and levels of engagement, alongside key business outcomes such as service levels and productivity.
  • Demonstrate the economic costs of withdrawal -- a cost/benefit analysis to address disengagement can be highly persuasive and will get senior management to champion employee engagement.
  • Then, train your line managers and incentivise them to focus on engagement. You may need to se HR performance targets and embed them in managers' performance objectives in order to change the way they think and act.
  • In terms of driving higher engagement of staff, look at the following:
    1. Job design: ensure some autonomy and variety so employees can exercise their own judgement. Build in flexibility where possible for those with conflicting work/life priorities.
    2. High trust cultures: do you treat employees with fairness and respect?
    3. Team input: Involve employees in the operation of the organisation -- getting their input on business developments creates collaborative, as opposed to adversarial workforces.
    4. Rewards: Develop recognition and equitable reward systems at all levels
    5. Careers, not jobs: Promote internal career paths to develop staff professionally and personally.
    6. Feedback: Ensuring line managers provide regular (daily or weekly) performance feedback builds a performance-based culture.
    7. Talent management: Train with career development in mind.
    • Stuart Woollard

      Stuart Woollard is Managing Director of the King's College London HRM Learning Board. After gaining over 10 years' senior level business and consulting experience, Stuart worked as a global HR Director in the financial services industry and was also Managing Director of UK operations. Stuart's areas of expertise include business strategy, people strategy and performance, organisational development and change management. He has published research on the role of HR in international mergers and acquisitions (CIPD) and on the impact of the current recession on HR and the workforce. Stuart makes regular contributions on HR issues to a variety of industry and special interest groups.