Happy workers, happy investors

Companies that succeed at creating a satisfying work environment for employees also have a much better chance of pleasing their investors.

A link between worker satisfaction and organizational performance won’t come as a surprise to HR managers. However, it is encouraging to see some concrete evidence to support the theoretical connection.

A recent study by University of Georgia researchers, Vandenberg and Richardson, measured worker morale variables, and HR policies and practices in areas such as work design, availability of flexible-work arrangements and training programs.

The study found a positive correlation between job satisfaction and organizational performance, as measured by return on equity. And although the correlation level was not overwhelming, it was statistically significant. In the study, flexibility was found to be the strongest positive determinant of organizational performance. In other words, programs that provide employees more flexibility (flex-time, job sharing, telecommuting, and so on) tended to payoff in terms of financial performance.

An examination of the recent performance of companies included in Fortune magazine’s list of “The 100 Best Companies to Work for in America” also provides evidence that firms with satisfied workers tend to perform well. Fortune generates its list after an extensive assessment process, which includes worker surveys. Scores are assigned to factors that relate to such things as benefits packages, layoff policies, flexible-work arrangements and training programs.
Employee perceptions and attitudes are also measured and used in the evaluation. The resulting index is designed to measure how good a company is to work for, which would presumably be strongly related to worker satisfaction.

The total investor returns (percentage return to investors based on both dividends earned and stock appreciation) for the publicly traded corporations that were included on the 1998 and 1999 Fortune lists are very impressive. In the year these companies were named to the list, they averaged an annual return of more than 47 per cent. What is more impressive however, is how these companies’ performance stacked up against their respective industries. Over the period from the beginning of 1998 to the end of 1999, the “best places to work” companies had total annual returns that were on average 14 per cent higher than that of each company’s respective industry.

In both the Vandenberg and Richardson study and the above mentioned examination of Fortune’s “best places to work,” financial performance was examined in a period that followed the data collection related to employee satisfaction. This is significant because it tends to indicate that worker satisfaction and strong company performance are not just correlated, but that there is a causal relationship.

Certainly there is an undeniable logic to the theory: high worker satisfaction should lead to lower absenteeism, lower turnover and fewer labour disputes, and should also positively impact worker motivation. These contribute to a better bottom line.

While it is obvious that many factors, in addition to worker satisfaction, will affect an organization’s success, this recent evidence lends further credence to the idea that creating a good environment for workers is something that all companies should strive for.

Stephen Alford, a Winnipeg-based research consultant, can be contacted at (204) 837-9923.

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