In traditional economics, the interests of owners and employees are often portrayed as conflicting. But is it really the case that taking care of employees goes against the interests of owners?
The analytics firm FTSE Russell studied the stock prices of the 100 publicly listed companies classified as Great Places to Work, which are renowned for exceptional care for their employees and a high emphasis on their well-being and welfare.
The analysis was based on the stock performance from 1998 to 2022. During this period, the 1,000 largest companies making up the benchmark index, the comparative index, performed quite well. These companies saw a 539 percent increase in their overall stock prices.
This number pales in comparison to the performance of the 100 companies recognized as outstanding employers. In the same period, these 100 companies achieved an 1,811 percent increase in stock prices, which is 3.36 times the return.
Of course, these figures are mere correlations. We cannot determine whether these companies perform well because they take good care of their employees or if they take good care of their employees because they perform well. Nevertheless, there are several indications of how and why taking good care of employees can be directly profitable.
Firstly, it leads to lower turnover. Employees in the top 100 employers are half as likely to leave their jobs as equivalent employees in the same sector. Unhappy employees who leave their positions can be vastly expensive for companies.
When a skilled employee leaves, the company must advertise the position, select a candidate, and provide training. All of these processes take time and money. However, it’s much easier to attract qualified candidates from other companies when you are known for being an outstanding employer.
Secondly, good employers can boast employees with better mental and physical health. A good job is considered one of the most significant contributors to lifelong well-being.
83 percent of employees at outstanding employers describe their workplace as healthy, whereas only 52 percent of employees in comparable companies in the benchmark index say the same about their jobs. Furthermore, when employees are sick, the company’s performance tends to suffer.
The third important reason why good working conditions pay off, is extra-role behavior. Modern companies rely on employees who go above and beyond their prescribed responsibilities and tasks.
If the aim is to have employees who make efforts & contributions for the company’s benefit, even beyond what is defined as their job, it is important you have employees who genuinely care about the company and its well-being. Treating others the way we feel they treat us is a fundamental human impulse. If employers treat us well, most of us are inclined to give something back.
In conclusion, these figures suggest that the conflict between the interests of owners and employees is somewhat exaggerated. Investors are probably wise to consider a company’s treatment of its employees as part of their investment decisions.
The text was first published in Norwegian in Dagens Perspektiv:
https://dagensperspektiv.no/2023/synspunkt-mads-nordmo-arnestad-sammenhengen-mellom-borskurs-og-behandling-av-ansatte
Kitterman, T. (2023, April 26). When Employees Thrive, Companies Triple Their Stock Market Performance | Great Place To Work®. https://www.greatplacetowork.com/resources/blog/when-employees-thrive-companies-triple-their-stock-market-performance.
Published 3. October 2023