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EE = EBITDA is an obscure but interesting formula that, once I came to understand it, has uncovered an exciting new source of increased profits that any business can realize.
The “blow up” of this formula is:
Employee Engagement = Earnings Before Interest Taxes Depreciation and Amortization.
Before going any further I want to say that Employee Engagement – EE – is certainly not the only factor that has an impact on EBITDA, but it does have a significant impact on your bottom line. It just also happens to be one of the easiest ways to increase profitability you will ever come across.
Because, of all the ways to increase profits, increasing your levels of EE is almost completely within your control. This is because EE is largely determined by the leadership culture of your organization. And you get to control that.
In fact, a recent Melcrum Employment Engagement Survey of more than 1,600 human resources professionals found that, “The actions of senior leaders and direct managers are the most important drivers of employee engagement by a factor of between 400 and 700 percent.”
In fact, I doubt you could find a single CEO of a Fortune 500 company who even questions whether increasing EE increases EBITDA.
An October 2011 study done by the Gallup Group involving thousands of participants revealed that, on average, 71 percent of people are “disengaged” from their work. Three-quarters of this group is considered “not engaged.” These people do their jobs but not much more. The remaining one-quarter of the disengaged population is considered “actively disengaged.” These are people who are actually working against the best interests of the organization.
This leaves only 29 percent of the workforce who are considered “highly engaged.” These are the ones who put in extra time; think about their jobs during off hours and are energized. They are the ones who generate the most per capita profit.