Financial Performance Linked to Employee Satisfaction
If an employee-friendly culture were free, practically every business could compete for talent with the 100 Best Companies to Work For. But mention a budget, and senior leadership typically decides it could be spent more profitably on the business itself, or in the case of larger companies, on its shareholders.
But is a great company culture simply a fluffy perk that has no positive effect on company finances?
Thomas D. Bachmann, leadership development at Paychex, believes that, “If your organization is all about results, then it needs to understand that employee behavior drives those results.”
Dr. Andrew Chamberlain, chief economist for Glassdoor®, would likely agree. He showed attendees of the 2015 HR Technology Conference & Exposition scientific evidence that employee satisfaction actually drives financial returns. In fact, improving employee satisfaction by 1 star on a 1 to 5 star scale was related to a 7.9 percent higher market value on average, according to the University of Kansas study, Family Firms, Employee Satisfaction, and Corporate Performance.*
The Wisdom of Crowds
The study used crowdsourced, self-reported data collected from Glassdoor between 2008 and 2012 that assessed individuals’ overall satisfaction, as well as ratings for career development, compensation and benefits, work/life balance, senior management, and CEO approval.
You might be skeptical that self-reported data from non-experts can lead to scientifically accurate conclusions, but Dr. Chamberlain explained that the effect is well-known in the field of statistics as the central limit theorem, or what is sometimes referred to as the wisdom of crowds.
In general, it means that taking the arithmetic mean of a significantly large number of responses will produce an accurate result. In the case of the University of Kansas study, 100,000 surveys were analyzed. Using a full distribution can also help control for participants who try to sabotage the data, as errors tend to cancel in aggregate.
Does Money Buy Happiness?
While it’s been established that higher employee satisfaction can lead to greater company performance, how much of that effect is due to salary? According to a Glassdoor study of 221,000 users who contributed a company review and salary report, having a highly-rated culture matters more than pay when it comes to the top five contributors to employee satisfaction:
- Culture and values
- Career opportunities
- Senior leadership
- Work-life balance
- Compensation and benefits
In fact, culture and values contributed approximately twice as much to overall satisfaction as did compensation and benefits.
What These Studies Mean for Your Business
If you own a business, or are in a position of influence, you may want to classify expenses on company culture as a potential revenue source rather than as a cost center. As the studies show, real returns may be gained not just from increasing employees’ salaries, but by reflecting the value of your employees, offering them clear pathways for advancement, and providing leadership in which they can believe: all hallmarks of admired company cultures.
Bachman feels that Paychex is on the right track. “We are fortunate to have an executive staff who truly believes in the need for a values-based culture shaping initiative. They are convinced Peter Drucker was right when he said, ‘Culture eats strategy for breakfast.’”
*Huang, Minjie and Li, Pingshu and Meschke, Felix and Guthrie, James P., Family Firms, Employee Satisfaction, and Corporate Performance (July 15, 2015). Journal of Corporate Finance 34 (2015) 108-127. Available at SSRN: http://ssrn.com/abstract=2482003