It seems logical that happy employees would do better work for their companies.
But what if you could quantify job satisfaction in dollars and cents?
A professor of finance from the London Business School asked that question, and says that you can.
The Tangible Value of Job Satisfaction
Alex Edmans looked at stock prices over the last 28 years and found that happiness (or at least its organizational sibling – job satisfaction) adds up to specific financial returns.
Combing through stock prices of Best Companies over the last 28 years, he found that, “firms with high employee satisfaction outperform their peers by 2.3% to 3.8% per year in long-run stock returns – 89% to 184% cumulative,” he wrote on HBR.com, “even after controlling for other factors that drive returns.”
The author bases his conclusions solely on the profit end of the equation, even weeding out the influence of what might be called the winning-team effect – the notion that being in a profitable group might be as likely to cause job satisfaction as job satisfaction is to cause profits. But he also notes the “double-edged sword” of lag time in the stock market’s response, and the fact that it may cause some employers to fail to recognize (or at least immediately react to) the real, positive value. “While investing in employee satisfaction does pay off,” he says conclusively, “it takes the market a long time to recognize its benefits.”
The Value of Job Satisfaction in the Here and Now
But future gains should be considered only part of the equation. We know there are operational advantages to being a positive culture that definitively exists in the here and now. Turnover, for example, is much on employers’ minds these days, with the quit rate rising in 2015 for the sixth consecutive year. Adding to the concern is the estimate that it’s been said to cost an average of 150% of employees’ salaries to replace people.
The recent Dream Company study at Bright Horizons showed that among employees at organizations they rated as Dream Companies – those in which employees reported their employers cared about the triple threat of well-being, work/life balance, and career development – job satisfaction was substantially higher, with 72% of Dream Company employees reporting such satisfaction, versus barely a quarter of those not in Dream Companies.
Not surprisingly (since one would argue an employee would want to stay at a company in which she is satisfied), retention rates at these companies were higher, too. Less than 1/6th of employees at Dream companies reported looking for a job “often” or “very often,” verses more than half of employees at less highly rated non-dream companies. Additionally, 75 percent of employees at Dream Companies saw a long-term future at their employer, versus only 29% of those not in Dream Companies.
Not to be under-appreciated, the standard of performance at these employers is also greater, with employees in Dream Companies reporting greater joy in their jobs, greater pride, and a greater quality of work.
What Makes a Dream Company
What this says is that employee satisfaction — and so being a Dream Company — has benefits in both future profits and today’s performance. So the obvious question is – what makes a Dream Company? The laser focus on a few big names in the high-tech field might lead one to believe it comes down to things like products, “sexy” image, or the ability to bestow dream jobs. The implication is that such companies are made if not by good fortune, than by predetermined qualities that can’t be altered.
But in fact Dream Companies have tangible – and malleable — qualities that can be installed. Current Dream Companies have invested substantial effort in their infrastructures specifically to become best places to work. Among undertakings, they train mangers to be responsive; they provide well-organized career tracks; and they offer more access to non-core benefits such as flexible work arrangements, child and elder care, and help to advance employees’ education.
Perhaps most heartening, since working for a Dream Company beat out the condition of merely having a dream job, there’s opportunity. As the Dream Company report points out, not every position in an organization can be a dream job, but all organizations have the potential to become Dream Companies. With that in mind, it turns out you can not only quantify the value of job satisfaction, you can actually bottle it, too. Or as Alex Edmans put it, when it comes to providing employee benefits, do the advantages support the investment?
“The answer,” he wrote, “is a resounding yes.”