Companies with high levels of staff satisfaction perform better financially, according to new research. The study examined the effect of staff satisfaction on corporate performance and stock price using employees’ online reviews of where they work.
Writing in the journal Economic Letters, the researchers say that firms rated highly by their current employees in terms of satisfaction achieve greater financial performance compared to firms characterized by low levels of employee satisfaction. This is ultimately reflected in their stock price.
They add that online satisfaction reviews are good predictors of a firm’s financial results, and so of value-relevance for investors.
However, they find that positive employee satisfaction is not fully reflected in equity prices on the stock market and attention to this could be better used as a trading strategy. Firms characterized by high levels of employee satisfaction in the long term achieved statistically higher returns.
The lead author said the findings have significant implications for both managers and investors: “Increasingly researchers from a wide range of disciplines argue that in the current knowledge-based economy, employees are a particularly valuable organizational asset as they can contribute to firm value through innovation and customer relationships.
“Therefore, ensuring their wellbeing and general satisfaction should be a major concern for businesses. This human-centered view of the firm is in direct contrast to the traditional view, according to which employees perform unskilled tasks and, therefore, are expendable commodities. Obviously, this is an issue of the utmost importance for both managers and investors.”
The study analyzed more than 326,000 employee ratings of 313 US public companies from 2009-2016. The sample only included firms that had more than 500 reviews during the period studied, with quarterly financial data also collected for each firm. All this was compared with movements in their stock prices over the period.
The co-author said: “Our results provide empirical support for a human-centered view of the firm. Interestingly, however, it seems that this is not wholly recognized by equity investors, providing further evidence that intangibles are not fully priced in the stock market and, most importantly, that this is not due to lack of information since we measure employee satisfaction on the basis of freely available online reviews.
“The reason we find abnormal portfolio returns and, therefore, conclude that this intangible is not fully priced in the stock market, could be because equity investors don’t believe that employee satisfaction is value-relevant for firms or perhaps because it is difficult to actually quantify its value.”
So what? Well, what a surprise! Just when so many firms and companies are deciding that they don’t need or want humans anymore they find that employee satisfaction adds to the bottom line. Just goes to show that they’ll miss us when we’re gone.