How to Invest in Your Employees for a Better Bottom Line

Investing in employees delivers long-lasting dividends, from increased engagement, higher productivity, lower attrition, happier clients, stronger growth and more profitable results. You don’t need to take my word for it. These benefits are well documented:

• A major Gallup poll showed that increased engagement leads to 51% reduction in absenteeism, a 64% drop in safety incidents and a 29% improvement in quality.

• Another Gallup poll showed that 70% of employees aren’t working to their full potential, costing companies between $450 and $550 billion dollars a year.

Intuitively, investing in an employee experience seems like a smart move, one that can send your stock price soaring. Unfortunately, many business leaders fail to see the business logic of investing in the people who build their products, interact with their customers and generally keep the lights on.

So let’s start with a basic question: Can you afford not to invest in your employees? Let’s break this down into a series of questions, the answers to which can spell the difference between growth and stagnation.

First, can you afford to lose nearly half of your workforce?

This isn’t an idle question. A poll by Monster.com, released in January 2023 year shows that 96% of workers are considering looking for a new job. Not all of them will take the plunge, but close to half will.

History tends to repeat itself, and business leaders would be wise to heed its lessons. For example, a Prudential poll from 2021 showed that 48% of workers were rethinking their career choices and wondering if there are better opportunities for them. Some 47 million ultimately resigned, leaving chaos in their wake. Quitters weren’t simply Millennials and Gen Zers chasing a bigger paycheck. A large majority of those who resigned were aged 30 to 45. Many quit because they wanted to derive more satisfaction from their careers.

For businesses struggling to manage supply chains and grow at a time when consumers felt flush, the resignations were painful. The employees who left were more senior, and they took with them all the experience, knowledge and skills with them when they walked out the door. That pain was compounded for those organizations that didn’t have a strong knowledge management or learning and development function established.

Even if your organization will experience just 20% - 30% attrition this year, the indirect costs of that loss can beupwards of 300% their annual salary, delivering a negative swing to your bottom line.

The next question is, can you afford to replace the workers who leave?

Recession or not, we are still in a pitched war for talent. Here we are in 2023 and competition for skilled employees is still fierce. Worse, over the past decade employees have been asked to do more work in less time so that when one leaves, it’s a crisis for the remaining staff. They are struggling with full plates as it is, and a sudden volume of extra work that needs to be completed ASAP is enough to prompt them to leave as well.

In such scenarios, the pressure stems from all corners to replace the headcount ASAP, but as many a manager can tell you, rushed recruiting delivers bad outcomes. A poor hiring decision can costup to 5x that employee’s salarywhich will add up fast. Worse, low retention rates will cost U.S. businesses some $430 billion by 2030.

Costs aside, who will nurture your new hires, and ensure they find a place that allows them to thrive? That kind of attention can’t come from the same person or group; they will need to foster connections within the greater corporate community.

Of course there’s an upside to improving the people connections within the company. Greater engagement across the board can drive empathy for co-workers and clients alike, leading directly to more relevant, better, and innovative ideas.

But how much should you invest per employee? What are your goals for those investments? How will you measure the impacts of those investments? And how can you calculate the ROI of those investments?

The last question is: can your culture carry you through?

Failure to invest in your employee experience will have a negative impact on morale, which in turn, translates into decreased engagement and lower productivity. Nobody wants to work at a place where they don’t feel valued, or work for managers who don’t want their input. A demoralizing work atmosphere leads to greater degrees of absenteeism and stress.

Conversely, strong morale can go a long way in helping an organization weather difficult times as employees are motivated to step up for the company. It can even lead to ideas thathelp drive innovation and greater efficiency. It also reduces workplace stress andmore time on the job.

What should you spend on employee experience?

Now that we’ve made the case around what happens when you fail to invest in your employee experience, the next question is: what should you spend per employee in order to improve productivity and strengthen their connections across the organization?

The answer depends on the size of your company, your industry, and your goals. That said, a good rule of thumb is to invest at least 1% of your annual revenue in employee development and engagement. How do you calculate the ROI of that 1% investment?

Let’s start with some basic assumptions, such as:

• A company has 10,000 employees

• The company retains 70% of its workforce this year

• 90% of the companies hiring decisions result in finding candidates well suited for their jobs

• The cost of each employee is $75,000

This company will need to recruit some 3,000 people in order to fill the gaps that result from normal and fully expected turn over. The company will also need to find another 300 people to make up for the bad hires.

There are also indirect hiring costs, which are about 150% of the employee salary, which means the company's bad hires come with a steep price tag, some $157.5 million!

Now, let’s say the company invests $100 -- $200 per employee to improve retention rate. That’s an outlay of a few million dollars, an amount that pales in comparison to the $157.5 million of recruiting and hiring the wrong person.

By improving the retention rate by just 5%, the company will save $26.5 million this year. That translates to $2,625 per employee. If the company invested less than 10% of that amount in its EX, it could easily afford investments such as a modern digital workspace and most-likely other cultural initiatives that would boost morale and drive engagement.

For example, a robust modern workspace could equate to about a $1 million investment, but there are cheaper options like basic intranets or communication-based intranets that can still improve the work experience. The most important factor is to show your workforce that you value them by investing in their on-the-job lives to make them more streamlined, connected, and nurtured.

Get in Touch

If you’re ready to invest in your employee experience, we have plenty of ways to support you here at Rightpoint. We’d love to get in touch about how we can bring your workspace, employee engagement and experience initiatives to life.