Why Investing Smartly Means Choosing Companies With Happy Employees

How does good beget good? And what are you doing to tip the domino?

In his book, The HIP Investor: Make Bigger Profits by Building a Better World, R. Paul Herman lists employee satisfaction as an indicator of strong investment returns.  He points to Wharton finance professor Alex Edmans’ work identifying a “direct positive correlation over the long term between employee satisfaction and stock market returns for the companies they work for.”   Edmans found that companies appearing on Fortune‘s annual list of “The Best Companies to Work For” (1984-2005) gave shareholders 4% more value annually.

Here’s a run down of the reasons why happier employees lead to increased company revenue:

• Satisfied employees remain with a company longer, which means they–
  • build up a collective corporate knowledge;
  • contribute to long-term stability; and
  • reduce costs stemming from recruitment, training and lost productivity.
• Employees who are happy and engaged at work–
• produce more; and
• provide better customer service (a 1% increase in customer service has been found to boost revenues by 2%).

No doubt you’re nodding in obvious agreement; these aren’t  newly realized ideas or something that an eighth grader couldn’t deduce.  But what are you doing to realize them? Potential impact is huge: employees’ daily experiences, company quality and reputation and revenue.