Markets
Happy Workers, Higher Stock Price
Employee satisfaction leads to greater productivity and market-beating returns.
By Anne Kates Smith, Senior Associate Editor
From Kiplinger's Personal Finance magazine, June 2009
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Alex Edmans is assistant professor of finance at the Wharton School, University of Pennsylvania.
How did you conclude that happy employees lead to higher stock prices?
My work uses the Fortune magazine study "The 100 Best Companies to Work For," which is compiled by an independent institution. The survey tries to get at the intangibles of employee satisfaction -- feeling respected, participating in decisions, enhancing self-esteem. From 1999 through 2008, the returns on portfolios based on these companies have beaten the market by an average of four percentage points a year.
Wouldn't you expect that?
If you stopped the average person on the street and said, "A new study finds that companies whose workers are happier do better," they'd say, "That's obvious." But it's not. The old view was that satisfaction was a bad thing. Every dollar given to employees was a dollar taken away from shareholders. If you spent on a corporate gym, you were not spending on dividends.
So why is employee satisfaction good for shareholders?
Because it leads to motivation, retention and, ultimately, productivity. A hundred years ago, motivation wasn't a problem. People worked in factories and produced widgets, and each widget was worth 25 cents. People were motivated to work hard because they were paid according to their output.
Now, companies look to engage their employees. Satisfied workers bring in new business, mentor subordinates, recruit people and encourage teamwork. If workers intrinsically feel that they're part of a team, they're like sports fans -- they live and die by their team and evangelize about it.
We're at nearly 10% unemployment and layoffs are the law of the land. Can companies afford to cater to workers now?
I think the economic instability might actually increase the benefit. Firms that retain and motivate workers despite current conditions will have an even greater edge.
How can investors profit from your findings?
The market doesn't take intangible assets -- such as employee satisfaction, advertising, and research and development -- into account the same way it looks at, say, cash flow. So companies with strong intangibles are undervalued, representing good bargains.
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Reader Comments (2)
Posted by: Nomen at 05/18/2009 06:15:22 PM
"Happy Workers, Higher Stock Price" who have you been interviewing and when??? One local multinational company had been making record profits and had record high stock values while cutting workers wages with the promise of incentive bonuses and job security. While the word "Team" was often used by the Company, the workers found out there was no "I" in team and there's no "WE" in it either. Recently after giving everyone a pat on the back and a small incentive bonus, thousands were handed permanent layoff notices and informed that the company was already building a new factory near the Mexican border. Would you like to interview the workers again??? The remaining workers now know that it's no coincidence that the words "team" and "ream" rhyme. We'll see if the stock price goes up.
Posted by: Jean Caton at 05/21/2009 01:02:30 PM
Happy workers are usually those whose strengths match the job requirements. If you do not look forward to going to work on Monday morning consider an assessment like Strengths Finder 2.0 or the Print Personality Assessment. I use these with my coaching clients to help them be more successful .