It is not often that a piece of research comes to light that grasps the shoulders of employee development and shakes it for all it is worth. Does anything fall out? Are investments in employee development worth it? Does it make any difference? Well here is a paper that does just that, asking <Are the 100 Best Companies to Work For really the best?>
Employee development should improve employee engagement -right?
For those of us for whom employee development is an important part of our outlook there is an implicit assumption that positive employee relations provides an intangible and enduring asset, a source of sustainable competitive advantage.
It is an assumption though that is based in our hearts. Although not widely publicised there has been virtually no literature to support a research link between job satisfaction and job performance. Job satisfaction is strongly associated with employee commitment and intentions to quit, but it is not strongly linked to job performance. The link is at best very weak. This is despite concerted efforts through the late 90s using meta-analysis to find a stronger link - not for the want of trying then!
However, a gem of a piece of research that emerged in 2003 (1) looked at company level data and here the picture changes. Aggregate employee relations in the company as a whole does start to show a stronger link to aggregate company performance.
Summary of the research paper
The key to this research is that it used a robust methodology to test the link between employee relations and company performance. It took the US-based Fortune 100 Best Companies to work for and measured company performance using annual and cumulative equity shareholder returns. It then took two comparison measures. The first was the annual and cumulative stock returns of the index (combining the NYSE, AMEX and NASDAQ), and it took the annual and stock returns of a group of matching firms - firms that were comparable to the 100 Best companies.
Matching firms
The group of matching firms were companies that were NYSE, AMEX or NASDAQ listed and were matched to the 100 Best companies using company size, industry and operating performance. None of the matching firms had ever been members of the 100 Best Companies (no published employee rated reputation).
Research results
The results of the comparison of shareholder returns is shown in the table. The 100 Best companies beat the index by a long shot. In the five years from 1995 to 2000 the 100 Best beat the index by 183%. In the same five years they also beat the matching firms by 174%. Over this five year period, a strategy of developing an attractive workplace, as judged by the employees themselves, provided substantially better performance than that of rival competitors.
Does it work in a recession?
It would be interesting to see whether the same conclusion would hold true during the current bleak economic times. To what extent might a strategy of investing in employee relations insulate companies to adverse performance in a recession?
1). Fulmer, I.S., Gerhart, B. & Scott, K.S. (2003) Are the 100 best better? An empirical investigation of the relationship between being a <Great Place to Work?> and firm performance. Personnel Psychology. 56(4), pp965-993
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