His study examined the stock returns of companies from Fortune’s “100 Best Companies to Work for in America” between 1998 and 2005 and found they had higher financial returns – more than double those of the overall market.
According to Edmans, “One might think this is an obvious relationship – that you don’t need to do a study showing that if workers are happy, the company performs better. But actually, it’s not that obvious. Traditional management theory [still] treats workers like any other input – get as much out of them as possible and pay them as little as you can get away with.”
Part of the problem is rooted in managers’ short-term thinking as they are measured and rewarded on short-term results. Investing in employees, however, is considered to be a long term proposition … despite the fact that it can pay off.
Edmans’ research is the latest of numerous studies citing the financial impact of employee satisfaction. One of my favorites is the 1997 classic The Service Profit Chain, by Harvard B-school professors James L. Heskett, W. Earl Sasser, and Leonard A. Schlesinger, that documented the self-reinforcing relationship between employee satisfaction, customer satisfaction, and the bottom line. While a lot has changed in the 10+ years since the book was published, the need to pay attention to employees is as important as ever.