On Wednesday, Glassdoor, a Web site for employee reviews, salary content and job listings, released a report examining the correlation between companies that have been recognized for their cultures and their performance in the stock market. It found that over the past six years, investors who bought shares in companies on its annual Best Places to Work ranking, which is based on the anonymous employee ratings on its site, would have significantly outperformed the Standard & Poor's 500-stock index. The same held true for companies on Fortune's 100 Best Companies to Work For list.
Andrew Chamberlain, Glassdoor's chief economist, created several hypothetical portfolios to test the idea. "No matter how you juggled the numbers," he said in an interview, "they outperformed the S&P 500."
In one, imagine stocks of the public companies on the original 2009 list of companies on Glassdoor's list were bought at the start of 2009 and held through the end of 2014. If an equal investment was made in each company, the portfolio would have an average annualized return of 22.4 percent, compared with 14.1 percent for the S&P 500. In another hypothetical portfolio, say the stocks of the public companies on each year's Glassdoor list were purchased and held for one year until being replaced by the public companies that appear on the next year's list. That portfolio would have an average annual return of 21.3 percent. Finally, another approach looked at investing only in the repeat winners on Glassdoor's list, selling off companies when they fall off the ranking. It resulted in an 18.3 percent annualized return, still above the S&P 500's results.
A similar effect was found when looking at the companies on Fortune's list, Glassdoor reported. Buying the publicly traded companies on the magazine's 2009 list and holding them for six years would have produced a 20.4 percent annual return, on average. The report also looked at the 30 publicly traded companies on Glassdoor's site with the lowest ratings from employees as of Jan. 31 this year. It found that between 2009 and 2014, these unloved companies underperformed the market, showing only an 11.1 percent average annualized return.
There are several possible causes for the correlation, Chamberlain says, though he's careful to note the exact link is hard to identify without further study. It could be that fast-growing companies have enough cash on hand to make it easy to attract and retain good, satisfied employees. Or, poorly performing companies could put benefits and perks on the chopping block quickly, which could hurt employee morale. It's also possible that building a more satisfied workforce in itself leads to better results.
Whatever the link may be, Chamberlain hopes the results will give more weight to the value of corporate culture, which too often just gets tagged as a fuzzy nice-to-have. The results show "a really interesting validation between employee sentiment and the things investors care about," he said. "These measures of internal company culture are ignored at the peril of CEOs. There seem to be some real-world implications of employee satisfaction."