This is the second guest post from Rian Doris on the financial case for happy workplaces.
Dr. Andrew Chamberlain, Glassdoor’s chief economist, says “the research shows that companies recognised for excellent culture and high employee satisfaction outperform the stock market over time — while companies that rank poorly have significantly underperformed.”
A recent Glassdoor research report found that an investment made in 2009 in a stock portfolio comprised of companies listed in Glassdoor’s 50 “best places to work” list would have outperformed the S&P 500 by up to 36%.
A Russell Investment Group study of stock market returns of companies from Fortune magazine’s annual “100 best companies to work for” list looked at the average annual returns for companies on each year’s list, over 17 years from 1997 to 2013. Average annual returns for the S&P 500 were 6.0% while annual returns for those companies that made Fortune’s list were a staggering 11.8%.
The 13 companies that have been on the Fortune list every year since the beginning have scored a cumulative return of 495%, almost three times the 170% growth of the S&P 500.
Similarly, The Boston Consulting Group, in association with World Federation of People Management Associations have shown that companies that have made the “100 Best Companies to Work For” list for three or more years outperform the S&P 500 by 99 percentage points over a 10 year period between 2001 and 2011.
In the most detailed econometric study of this data to date Alex Edmans, then at Wharton Business School at the University of Pennsylvania, analyzed the result of investing in the companies listed in the Great Place to Work listings over the last 25 years. He found a difference, compared to the stock market, of 3.5% a year.
An investment which would have returned $100,000 in a tracker fund would have achieved $236,000 from investing in companies that focus on creating great workplaces and prioritise employee happiness.
This is further evidence for the strong correlation between employee happiness and shareholder returns. While admittedly the evidence is correlation-based, the lessons are still clear: employee happiness is a strong predictor of long-term company performance.
Jerome Dodson, founder of the Parnassus Workplace Fund has fully embraced “the idea of creating a fund that only invested in organisations where employees were really happy” and he has done rather well as a result. He invests in companies from the “100 best companies to work for” list and over ten years up to February 2016 the Parnassus Workplace Fund has shown an average annual return of 10.62%, putting it in the top 1% of US mutual funds and showing a return of almost double the S&P Index every year.
It now manages over $1.3 billion and Dodson has achieved this through abiding to the simple philosophy that “consistently more engaged performance inevitably reveals itself in the firm’s bottom line.”
The reality is that companies with employees who love going to work will do better than companies whose employees don’t and the results of Parnassus are evidence of this truth.
Finally, James Harter, a Gallup researcher, found that you can predict future increases or decreases in sales and profits by measuring employees’ feelings about their organisation. Harter has “proven that engaged organisations have 3.9 times the earnings per share (EPS) growth rate compared to organisations with lower engagement in their same industry.”
The takeaway? The happier the employees the higher the share growth. Simple!
Previous post: Happy Workplaces are more profitable
Coming Soon: Happy Workplaces have lower costs
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 email@example.com.