Article: Why feeling undervalued costs companies more than you think

Culture

By Gunja SharanMay, 26 2025 @11:21am IST

At the top of every organisational priority list are three recurring themes — productivity, profitability, and retention. These metrics drive quarterly reviews, shareholder expectations, and long-term growth strategy. Yet, there's a silent, often underestimated threat to all three – employees feeling undervalued.

While businesses obsess over optimising processes and reducing operational costs, they frequently overlook an intangible yet potent force – employee sentiment. When people feel unrecognised, or underappreciated, it doesn’t just lower morale, it directly undermines the core pillars of business performance.

Moreover, employees who feel undervalued are twice as likely to quit within the year, and actively disengaged employees cost American businesses over $450 Bn annually in lost productivity, according to a Gallup study. These people are physically present but mentally checked out — not innovating, not collaborating, and certainly not motivated to push the company forward.

For C-suite leaders and HR executives, employee recognition is no longer a ‘nice to have’ thing — it’s a strategic necessity. The absence of recognition doesn’t just hurt morale; it undermines retention, erodes productivity, and quietly drains the bottom line.

In today’s competitive talent landscape, understanding the real cost of undervaluing your people isn’t optional but a business imperative. If you’re not investing in recognition, you’re paying for its absence. Let’s break down what that really means.

Undervalued employees drain productivity

When employees feel their efforts go unnoticed, they begin to disengage emotionally from work. Instead of striving for excellence, they do the bare minimum — showing up physically but checking out mentally.

Over time, this lack of recognition stifles creativity, reduces problem-solving initiative, and leads to a decline in innovation. Talented individuals stop offering new ideas or going the extra mile as they don’t feel encouraged. In fast-moving, competitive industries, this disengagement becomes a silent productivity killer that erodes team performance and business outcomes.

To address this, leaders can:

Implement real-time recognition systems that allow immediate acknowledgment of good work.
Encourage managers to give consistent praise regularly, not just during annual reviews.
Focus on specific, personalised feedback rather than generic comments like ‘good job’.
Personalised recognition highlights exactly what was done well, making it more meaningful and motivating.

Recognition impacts retention directly

Exit interviews routinely cite ‘lack of appreciation’ as a key reason for leaving, especially true for top talent. High performers typically have more options, greater visibility, and less tolerance for environments where their contributions go unnoticed. When they leave, the cost is compounded: not only do you lose a key contributor, but you also send a signal to others about the culture and values of the organisation.

Companies must move beyond one-off gestures and bake recognition into the leadership framework itself. Here’s what can be done:

Set KPIs around recognition behaviours. Track how often leaders acknowledge their teams — both formally (e.g., awards, peer-nominated programs) and informally (e.g., shoutouts in meetings, personal notes).
Measure employee sentiment. Use pulse surveys or engagement tools to assess whether team members feel valued and recognised. This should influence leaders' evaluations.
Tie recognition to retention. Establish retention through recognition as a measurable goal. Leaders should be accountable for keeping top performers engaged — and that begins with making them feel seen and appreciated.
Reward the recognisers. Highlight and reward leaders who are doing this well, reinforcing that recognition isn't just HR’s job — it's a leadership skill.

Cost of turnover is real and measurable

When a skilled employee leaves, the loss goes beyond emotional impact — it hits the bottom line. According to a study, the cost to replace just one employee can range from 50% to 200% of his annual salary. This includes recruitment, training, lost productivity, and the disruption to team dynamics. The impact is even greater in high-skill or leadership roles, where institutional knowledge and client relationships walk out the door.

To avoid these costly losses, leaders should:

Use data and analytics to spot departments or teams with unusually high turnover or low engagement scores.
Cross-reference this with recognition patterns — are employees in these teams being acknowledged less frequently?
Identify trends early and intervene with targeted support, coaching, or recognition programmes to improve retention.

Disengagement spreads like a virus

Disengagement is contagious. When one team member feels undervalued, their frustration and lack of motivation can influence others. Teams operate through emotional contagion, meaning attitudes (positive or negative) ripple through the group. If one person is checked out, it can quietly drag down the morale, energy, and performance of the entire team.

To stop disengagement from spreading, leadership can:

Train front-line managers to spot early warning signs — like withdrawal, lack of participation, or sudden dips in performance — and respond quickly with support.
Empower peer-to-peer recognition. Build a culture where appreciation flows at all levels, not just from the top. When teammates actively value one another, it strengthens morale and makes recognition a shared responsibility.

Recognition is not just HR’s job, but a leadership imperative

While HR often designs and manages recognition programmes, relying solely on HR to drive appreciation sends the wrong message. When recognition is seen as ‘just an HR function’, it becomes procedural — not cultural. True change happens when executive leaders actively participate and signal that valuing employees is a core part of how the business operates.

Leaders can do the following:

Establish executive visibility initiatives. This means creating regular, authentic opportunities for leaders to interact with employees, such as recognition shout-outs during town halls, personalised thank you messages, or surprise visits to celebrate.
Lead by example. When senior leaders consistently show appreciation, it sets the tone for the entire organisation. It shows that recognition isn’t a box to check — it’s a business value.

DEI & recognition are interlinked

Recognition isn’t just about morale — it’s about equity. Research shows that employees from underrepresented groups are more likely to feel overlooked or undervalued at work. When recognition isn’t distributed equitably, it reinforces feelings of exclusion and undermines efforts to build a diverse, inclusive, and equitable culture.