High-Morale Companies Returned 368% More to Shareholders Than Their Industry Peers

NEW YORK - Oct. 8, 2013 - PRLog -- High-morale companies outperform their industry competitors by 368% when considering year-over-year stock market returns, say the authors of the 2^nd edition of “The Enthusiastic Employee: How Companies Profit by Giving Employees What They Want” (Pearson, 2013).

David Sirota and Douglas Klein found that companies with high morale (those with scores at the 75th percentile or higher who ask “overall satisfaction with the company” on their annual employee attitude surveys) had stronger year-over-year stock performance than their industry counterparts. These high-morale companies averaged a 15.1% improvement in their stock price, while their matched industry comparisons averaged only a 4.1% year-over-year improvement (a difference of 11 percentage points) or 368%.

Moderate-morale companies (companies scoring between the 25^th and 75^th percentile in their employee attitude surveys) ostensibly matched their industry counterparts (only 0.8 of a percentage point difference), and the low-morale companies were 166% (or 13 percentage points) lower than their industry counterparts.

“While employee morale is often considered a ‘soft’ concept, it clearly has a profound impact on company performance,” say the authors.

“Because different industries perform differently on the stock market in the course of a year, and the companies in our morale categories differed considerably by industry, it was necessary to compare the performance of each of our companies against the year-over-year performance of its industry sector average,” say the authors. The authors say they don’t often see this type of research, controlling for industry in the way they did.

Are these results a fluke, a chance occurrence in this particular period? The authors have been able to replicate the results in every year they have analyzed their morale measures against companies’ stock market performance. For example, they reported in the 1^st edition of their book that in 2002 – in contrast to 2012, a down period for the market – that the companies with high morale outperformed their year-over-year industry benchmarks by more than 1,000% (or about 20 percentage points) — actually showing a slight increase in stock market value in a bad year for the overall market. The moderate and lowest morale companies performed somewhat worse than their industry year-over-year comparisons, by about 5 percentage points.

Why is high employee morale so strongly related to performance, in this case, stock price performance? Some claim that it is high performance that leads to high morale rather than vice versa: people are happy when their companies are doing well. The authors find that the causality is actually two-way. An example of how this works is in relation to the company’s customers: “Satisfied employees lead to satisfied customers, which results in higher sales. Satisfied customers and higher sales, in turn, result in proud employees who can then enjoy the material benefits that come from working for a successful company. It’s a ‘virtuous circle’,” say the authors.

And, what, in addition to performance, are the policies and day-to-day practices that make for a high-morale workforce? The book reports in-depth analyses of more than 42 years of survey research, covering over 13.6 million employees at all levels working for more than 840 companies in all industries. Their analyses show clearly that high-morale companies satisfy the three main goals of the overwhelming majority of workers – regardless of gender, race, nationality, or age. These goals are:

Equity: To be treated fairly in relation to the basic conditions of employment, such as pay, benefits, and fundamental respect for people.

Achievement: To take pride in one’s accomplishments by doing things that matter and being enabled to do them well; to receive recognition for one’s accomplishments; and, to take pride in the organization’s accomplishments.

Camaraderie: To have warm, interesting and cooperative relations with others in the workplace.

The three goals are best satisfied by specific policies and practices that, taken as a whole, comprise what the authors call a Partnership Culture. “It is a culture in which employees are treated as genuinely valued assets rather than as enemies to be fought, or children to be coddled, or disposable parts that can easily be replaced. As described in detail in the book, it is the culture that is characteristic of high-performing companies such as Southwest Airlines and Costco, and, in the nonprofit sector, of Mayo Clinic,” say the authors.

“In these companies, relationships between management and employees are based on: mutual obligations; grounded in performance; with high levels of trust, transparency and collaboration; and shared rewards. In both good and difficult business conditions, the employee enthusiasm generated by this kind of corporate culture is a huge factor in their business success.”

About Sirota

Since 1972, Sirota has provided many of the world’s leading organizations with census, pulse, on-boarding, exit, 360, culture, engagement, ethics and other employee surveys. Sirota’s solutions help clients make a sustainable impact on their business performance by better understanding their stakeholders, and by uncovering the internal obstacles to strategy execution.

Sirota’s multi-national, multi-industry database comprises data from millions of employees collected through the firm’s employee survey research (predominantly among the Fortune 500).

The major results of their surveys have, in 2013, been summarized in the second edition of The Enthusiastic Employee: How Companies Profit by Giving Workers What They Want by David Sirota and Douglas Klein.

For more information about the book, its authors or Sirota, please call (914) 696-4700, or visit http://www.amazon.com/The-Enthusiastic-Employee-Companies-Workers/dp/0133249026/ref=sr_1_1?ie=UTF8&qid=1377536372&sr=8-1&keywords=enthusiastic+employee