Saturday, January 26, 2008

Companies with happy employees have better stock returns

Employee satisfaction is correlated with higher stock returns, according to an award-winning paper by Alex Edmans, finance professor at the University of Pennsylvania's Wharton business school.

Edmans found that firms making it onto Fortune's 100 Best Companies to Work For list earned more than double the returns of the overall stock market between 1998 and 2005, and also consistently performed better when matched directly against companies in the same industries and with similar characteristics.

The 100 Best list, which is two-thirds based on employee satisfaction surveys, is full of employers who offer high pay, great benefits-- like fully-paid health insurance, on-site child care, and paid sabbaticals-- and a committment to their employees' work-life balance. But while some might expect that these sorts of pricey investments in workers would hurt a company's bottom-line, and urge policies that keep wages and benefits low and work hours high, Edmans' study suggests otherwise.

Workers' satisfaction and well-being is just one of my priorities for socially responsible investing (SRI), but it's an important one. Some of my retirement money is in the Parnassus Workplace Fund (PARWX), which invests in companies with happy, satisfied employees and is advised by the co-author of the Fortune 100 Best list. I chose it for its social returns, not its financial returns-- but I have to say it doesn't hurt to hear that it's probably financially smart as well!

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