Research Shows That Companies Who Invest in Employee Engagement Deliver Stock Returns that Consistently Outperform the Market
“Businesses exist to serve a purpose and only by doing so will they generate profits in the long term. To reach the land of profit, follow the road of purpose” says Alex Edmans, Professor of Finance at London Business School.
Four Year Research Study
And Alex has proved his point with a rigorous 4 year research study in which he has looked at the 100 Best Companies to work for in the US and measured their stock performance against carefully selected peers.
What Alex found was startling. Those companies in the 100 Best Companies to work for in the US beat their peers in terms of delivered stock returns by 2-3% per year over the period 1984-2009. That’s an average over performance of 2-3% every year for 26 years. Moreover, it’s employee engagement that improves stock returns, rather than stock returns improving employee engagement. The study is featured in his TEDx talk, “The Social Responsibility of Business”, at http://bit.ly/csrtedx.
To become one of the 100 Best Companies to work for, an organisation gets randomly sampled against a score card. Two thirds of the marks are gathered by a Trust Index Employee Engagement Survey that measures things like management credibility, job satisfaction and ‘camaraderie’. The remaining third is a ‘Cultural audit’ which looks at pay, the employee experience from hire to retire, learning and development opportunities and quality of communications.
Build a Great Place to Work
If you want to outperform your competitors you need to build a great place to work and to do that you need engaged employees. Employees become engaged when they buy into the companies purpose, are given the skills and support to do their job, are recognised for their contribution and rewarded for bringing the organisational purpose to life.
At Engage for Success we call these the 4 enablers of Employee Engagement: Strategic Narrative. Employee Voice, Engaging Managers, Organisational Integrity.
Building great places to work takes time and needs investment in employee engagement. Investment in people drives profit not the other way around, which Alex’s research has proved.
Returns from investments in engagement typically realise in 4-5 years. Engagement is a medium to long term investment play that will deliver long term stock outperformance. There are no short cuts.
Clear Link between Employee Engagement and Stock Performance
Alex’s research has clearly demonstrated the link between investment in employee engagement activities and long term stock outperformance. Stock returns are, and have always been, a board level issue. But how many boards have culture and engagement on their agendas? Given the challenges faced in our increasingly volatile and changing world can boards continue to ignore the opportunities presented by employee engagement and are they focused enough to make the necessary investments? The answer to these questions could be the difference between thriving or surviving.