May, 17, 2016

Does Employee Satisfaction Improve Company Value?

Most companies these days deploy a lot of resources to track and measure customer satisfaction, but employee satisfaction rarely gets the same attention. However, the happiness of a company’s employees also plays a significant role in the profitability and wellbeing of a business.

Despite it being somewhat well known that employee satisfaction improves talent recruitment, retention and productivity, most companies aren’t too eager to invest in this type of business development.

Unfortunately for those companies, research by Alex Edmans, a Professor of Finance at London Business School, shows that overlooking employee satisfaction is bad for business. High employee satisfaction actually improves company value.

In his study, Edmans analyzed 28 years of data measuring employee satisfaction and long-term financial performance of various companies. He found that companies that take better care of their employees are not only more productive, but actually outperform others by 2.3% to 3.8% in long-run stock returns.

These findings disprove the conventional wisdom of many companies that view investing in employee satisfaction as a wasteful expenditure.

So, given this information, why don’t all companies invest in higher employee satisfaction? According to Edmans, it usually takes several years for such investments to start paying off. Considering that most managers and investors are focused on quarterly profits, they are reluctant to spend money on things that focus on longer-term value.

Edmans’ research highlights an important point about corporate social responsibility. This study should provide companies and HR specialists with the ammunition they need to approach employee satisfaction with as much fervor as they do customer satisfaction.

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