UK Study Confirms ROI of Employee Experience
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An analysis of the 23-year stock performance of the United Kingdom’s Best Workplaces outperforms the FTSE stock index by 400%.Click here for links to information about EEA sponsors; here to subscribe to ESM weekly; here for an ESM media kit.
In this 2024 study, a hypothetical stock portfolio of UK-based, publicly traded companies from the Best Workplaces™ lists significantly outperformed the FTSE (Financial Times Stock Exchange) All-Share Index over a 23-year period from 2001 to 2023. Investing only in the largest companies in the portfolio would have generated an even higher alpha. Click here for the complete study.
The study was conducted by Alex Edmans, Professor of Finance at the London Business School, of companies designated Great Places to Work using similar methodology used in a study of US Great Places in the 2010s. That research, published in his book Grow the Pie: How Great Companies Deliver Both Purpose and Profit and in the Harvard Business Review, found that “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 – even after controlling for other factors that drive returns. Moreover, the results suggest that it’s employee satisfaction that causes good performance, rather than good performance allowing a firm to invest in employee satisfaction.” (Note that Grow the Pie and Edmans’ work is part of the Enterprise Engagement Alliance stakeholder management curriculum.)
The UK study finds that “a value-weighted (equal-weighted) portfolio of the publicly traded companies on the list generated returns of 1,047% and 894% respectively, compared to 231% for the FTSE All-Share index. For example, if you started in 2001 and held the FTSE All-Share Index with £100 ($123), then over the 23-year period this would have grown to £330 ($407) reinvesting dividends. But if you bought the UK’s Best Workplaces, and then every time a new list came out you would refresh that list over the same period, then you would get £993.51 ($1,225). That is what's known as an equal weighted portfolio – investing in all the Best Workplaces equally.”Reporting a similar relationship between employee experience and stock performance in this UK study, Edmans notes that “If you had started a stock portfolio of the UK’s Best Workplaces™ in 2001, with an investment of just £100 ($123), you would have seen more than four-times the returns of a similar investment in the FTSE All-Share.” Edmans “acknowledges that while stock price is not the only measure of performance, conducting this type of study allows one to control for many other factors – such as controlling for risk.”
“If you do really care about financial performance, then you’d want to care about the biggest driver of financial performance – which is your human capital,” says Edmans.
These results, he adds, combined with his US research, “provide suggestive evidence that being a Great Place to Work is associated with higher firm value and, because this firm value is not immediately incorporated into the stock market, it may be a particularly relevant investment criterion for shareholders”.
The study identifies four factors contributing to higher financial performance.
1. Great workplaces enjoy better retention. It’s estimated that UK employers will need to spend, on average, £3,800 ($4667) to replace a single employee working on an hourly wage of £11.44 ($14.05).
2. Great workplaces foster psychological safety, which fosters a culture of sharing ideas, questions, and concerns, fostering greater organizational agility.
3. Great workplaces innovate faster. “When employees trust their employer, they work harder, contribute more, and drive higher levels of innovation and productivity.”
4. Great places to work foster less employee burnout, leading to higher quality and productivity.
Enterprise Engagement Alliance Services
Celebrating our 15th year, the Enterprise Engagement Alliance helps organizations enhance performance through:1. Information and marketing opportunities on stakeholder management and total rewards:
- ESM Weekly on stakeholder management since 2009. Click here to subscribe; click here for media kit.
- RRN Weekly on total rewards since 1996. Click here to subscribe; click here for media kit.
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Management Academy to enhance future equity value for your organization.3. Books on implementation: Enterprise Engagement for CEOs and Enterprise Engagement: The Roadmap.
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5. Permission-based targeted business development to identify and build relationships with the people most likely to buy.
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