Employee satisfaction boosts shares

Alison Maitland's picture

A fascinating study from Wharton business school in the US has found what's claimed to be the strongest evidence so far that employee satisfaction is a significant driver of a company's value.

In a paper published by the peer-reviewed Academy of Management Perspectives, assistant finance professor Alex Edmans shows that companies where employee satisfaction is high – measured by their inclusion in the “100 Best Companies to Work For in America” list - generate substantially higher stock returns over the long term than their peers. Inclusion in the prestigious annual list is based on employee and manager ratings of things like trust, fairness, diversity, communication, respect, and work-life balance.

It's good to see this demonstration of the direct link to a company's value. It seems obvious that people who feel respected, valued and trusted at work are likely to be more motivated and therefore more productive. Add to that the freedom to work where and when it suits - provided objectives are fully met - and there's a great recipe for engaged and satisfied employees.

But, as Prof Edmans points out, stock markets under-appreciate the value of this intangible asset - employee satisfaction - with the result that managers under-invest in it. It's surely time for a broad reassessment of a crucial component of business success.

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