This is the first of several guest blogs from Rian Doris on the financial case for happy workplaces.
Companies that prioritise the happiness and well-being of their employees are generally considered more progressive, are viewed more favourably by the general public and seem to be recognised as morally superior, but do happy workplaces actually perform better financially?
Are they more profitable? Do they have higher share growth? Do they have lower costs? Through addressing each of these questions individually and drawing on the best research currently available we will see that the answer is an overwhelming “YES!” across the board.
Shawn Achor, world renowned happiness researcher and author of New York Times bestseller “The Happiness Advantage” lays it out simply when he says that “happiness leads to greater levels of profits” and this statement isn’t based on mere opinion. Achor draws from a meta-analysis of 225 academic studies conducted on over 275,000 people by Positive Psychology researchers Sonja Lyubomirsky, Laura King, and Ed Diener.
In their analysis they found strong evidence of directional causality between life satisfaction and successful business outcomes. It turns out that happiness is a prerequisite for success, not a byproduct of success and this sequence holds true when the metric for success is increased profit.
A 2012 Gallup meta analysis further validates this point. The analysis used 263 research studies across 192 organisations in 49 industries and 34 countries and statistically calculated the relationship between employee engagement and nine different performance outcomes, one of which was profitability. In total the researchers studied 49,928 work units, including almost 1.4 million employees and the research further confirmed the connection between employee engagement and profitability.
Work units in the top quartile of employee engagement were 22% more profitable than bottom-quartile units and results were not industry or region specific as the correlation remained consistent across these variables (Sorenson, 2013).
A Boston Consulting Group study which included over 4,000 respondents in 102 countries concluded that companies “that excel in leadership development, talent management and performance management experience substantially higher revenue growth and profit margins” and organisations that are highly capable in the 22 key HR topics identified, consistently enjoy better economic performance than their less capable counterparts.
As seen below, in several of the topics the correlation was significant with companies that are highly capable in these areas experiencing revenue growth of to 3.5x greater and profit margin 2.0x greater than those companies less capable in these HR topics (BCG, 2012).
The direct correlation between employee happiness and profitability is demonstrated time and time again across the research. In Harvard Psychologist Daniel Goleman’s New York Times bestseller “Primal Leadership” one study shows that for every 2% increase in how happy employees are revenue grew by 1% (Goleman, Primal Leadership, 2002).
Similarly, in a three year Wills Tower Watson study of 41 global companies, it was found that operating margins improved nearly 4% on average in organizations with high employee engagement levels and declined about 2% in those with low engagement levels. They concluded that there is a “clear relationship between high levels of employee engagement and improved financial and operational results.” (Wills Tower Watson, 2016).
There are countless more examples we could draw on to show that the relationship between employee happiness or engagement (which is a component of Happiness; see Seligman, Authentic Happiness, 2002) and profitability are positively correlated to a high degree. However, that pursuit goes far beyond the scope of this article, for now we can rest assured in the knowledge that the relationship exists and that the happier a company is, the more profitable it tends to be.
Coming Soon: Happy Workplaces have higher share growth
Rian is a student of Philosophy at Trinity College Dublin with a passion for Positive Psychology and all things wellbeing related. After completing undergraduate studies, he is aiming to pursue a Masters in Applied Positive Psychology and then go on to do further research in the field. Contact him at firstname.lastname@example.org