Treat Employees Well, See Stock Price Soar

Shares outperform for employers on Fortune's "100 Best Places to Work" list.
David McCannApril 21, 2014
Treat Employees Well, See Stock Price Soar

There are, seemingly, about as many Best Places to Work lists as there are, say, Starbucks outlets. It would be understandable if that ubiquity created jaded views of the lists’ significance. But is there anything important to learn from them?

It depends on the list, certainly. They have different inclusion criteria. Some are industry-specific. Many are regional. But how about the one that’s generally considered the gold standard? That would be Fortune’s annual 100 Best Companies to Work For list, created for the magazine by a company called, fittingly, Great Place to Work, a research, training and human-resources consulting firm.

Great Place to Work commissioned Russell Investment Group to study stock-market returns for publicly held companies on the Fortune list. They compared that performance to those of other public companies included in major market indexes. The study looked at average annual returns for companies on each year’s list, over 17 years, 1997 through 2013.

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The results: Best Companies to Work For, 11.8 percent; Russell 3000 Index, 6.4 percent; and S&P 500 Index, 6.0 percent.

The 13 public companies that have been on the Fortune list every year since the beginning have scored a cumulative return of 495 percent, compared to 170 percent for the Russell 3000 and 156 percent for the S&P 500.

Those results may not seem surprising. Indeed, they decidedly suggest that striving to be a great place to work is a sound business strategy. Many companies understand that, but fewer grasp the link to stock price, says Richard Guha, one-time president of a Fortune 50 company, Reliant Energy, who runs a consulting firm called Max Brand Equity.

Guha and a business partner, Rosalene Glickman — president of The World Academy of Personal Development and author of the best seller “Optimal Thinking” (John Wiley & Sons, 2002) — recently queried 43 CEOs, CFOs and human-resources executives about their awareness of the shareholder-value growth that can accompany being a superlative employer.

“They generally accepted the individual components [of the value-add]: for example, that it helps you recruit, helps keep turnover low, helps your standing in your community,” says Guha. “But they haven’t translated that into stock-market value; 88 percent did not believe that being on a best-places-to-work list accelerates value growth.”

According to Guha, companies can actually start a campaign to be a better employer by proactively trying to get on such a list (aside from the Fortune list, other well-recognized ones are published by entities as dissimilar as American Business Journal and Motley Fool, as well as city-specific ones by the various Crain’s Business Journals).

First, target one or more specific lists, he advises. For example, a hospital shouldn’t aim to be on a national list, but rather on a regional one and also a health-care-industry one. Then size up the criteria for inclusion as a partial guide for what to work on.

But a more important starting point is simply an “open and honest” survey of employees. “Lots of companies do surveys but don’t share the results with employees,” Guha says. “You have to do that, even if there’s stuff you don’t like. If employees say something is not working, admit it. It’s part of building mutual trust. And it’s not brain surgery.”

Importantly, don’t have HR involved in the survey, he adds. Hire an outside market-research firm instead.

Taking strong action of that sort will help achieve all kinds of positive things for the business, Guha notes. If it gets you on a best-places-to-work list, the effect becomes much more powerful.

In addition to helping with recruiting, turnover and community standards, Guha lists these benefits from being a good employer:

  • Employees will more often give more than what’s expected of them.
  • Employee loyalty drives customer loyalty.
  • Safety records are better where employees care passionately about the company.
  • Greater visibility in the marketplace, as companies that are good to work for generate buzz.
  • Employees act as ambassadors, talking to friends and neighbors about the company.
  • A higher likelihood of good relations with legislators and regulators.

Meanwhile, the Russell research included an industry-by-industry look at average stock returns of best-places-to-work companies versus others, over the 17-year period. The greatest proportional disparities were in health care (17 percent versus 6 percent) and professional services (26 percent versus 10 percent). The least were in financial services (13 percent versus 10 percent) and hospitality (38 percent versus 25 percent).

The 13 public companies that have been on the Fortune list every year since 1997 are Cisco Systems, Four Seasons Hotels, Goldman Sachs Group, Marriott International, Microsoft, Nordstrom, Publix Super Markets, Recreational Equipment, SAS, TDIndustries, W.L. Gore & Associates, Wegmans Food Markets and Whole Foods Market.