Treating Employees Well Led to Higher Stock Prices During the Pandemic

Marcus Erb

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MARCUS ERB

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By Catherine Yoshimoto and Marcus Erb.

Every organization has struggled in some way over the past 12 months. But there is one factor – irrespective of a company’s size or sector – that is helping determine whether they are thriving or just surviving in the face of Covid.

We know anecdotally – and instinctively – that companies with a good workplace culture must be better equipped to deal with a global shutdown that has forced millions of people to adapt to radically new ways of working. Employees needed clear, consistent and caring leadership more than ever and companies are likely to see the benefit as more people flock to work there and are more productive when they start each morning.

The question is how can we measure the impact of this good culture on a company’s financial performance?

To test the idea, we looked at company rankings compiled by Great Place to Work, the global authority on workplace culture which puts together the annual Fortune 100 Best Companies to Work For®, and alongside it created a hypothetical index using data from FTSE Russell, the global index and data provider.

We had a hunch there would be a correlation but the result was clearer than we ever imagined. Our new “100 Best index” outperformed the broader market by 16.5% in 2020, returning 37.4% compared to a 20.9% return for the Russell 3000® Index – the broadest benchmark index for US stocks.

The 2020 performance bump mirrors a long-term trend of similar outperformance – the 100 Best index has had a cumulative return of 1,709% since 1998, as compared to a 526% return for the Russell 3000 Index for the same time period.

Behind the numbers: hard data and human insights

The 100 Best index combines the time-tested and well-respected methodology of two global leaders in their respective fields. FTSE Russell refreshes its hypothetical index each year on January 1 with the “100 Best” list of publicly traded US companies the previous year, while equally weighting the index across companies to ensure even representation.

Great Place to Work compiles its 100 Best Companies to Work For list through America’s largest ongoing annual workforce study, which draws on Great Place to Work’s 30 years researching workplace culture globally.

The 60-question survey is designed to measure companies on various factors, including employees’ ability to reach their full human potential, how employees experience company values, their ability to contribute ideas and their perception of company leader effectiveness.

Most remarkably, in 2020, the 100 Best broke records on measures of leadership credibility. Employees scored their leader’s trustworthiness the highest ever in Great Place to Work’s 33-year history of studying company culture.

Under the most challenging conditions of COVID-19 and racial injustice, overall employee experience scores improved compared to 2019 thanks to great supervisors, mid-level managers and executives.

“The ability to perform work from home is not the common denominator among this year’s 100 Best Companies,” said Michael C. Bush, CEO of Great Place to Work. “Instead, they shared a widespread faith in leaders committed to making things better for people – ALL people.”

“What inspires better employee engagement is when no matter who a person is, what pronoun they use (or don’t) or what they do for the company, all of these employees trust their leaders. Secondly, they feel their work positively impacts their customers and the broader social and physical environment,” said Michael.

The value of company culture based on positive employee experience

A wealth of research supports the notion that successful companies are propelled forward by happy employees. Company culture rooted in trust, transparency and caring helps give people clarity and a sense of purpose leading to higher employee engagement, better customer service, greater innovation and strong business results.

While company stock performance cannot be linked solely to company culture, the recent and long-term performance of the 100 Best index relative to the broad index begs a number of questions and certainly advances the argument for making workplace culture a central part of any organizational strategy.

The impressive relative long-term performance for the 100 Best index since 1998 suggests that employer branding and company culture, as experienced internally by employees and externally by investors, can make a substantial difference in company stock performance over time.

In addition, the significant outperformance by the 100 Best in 2020, as the world faced a year of lockdowns and struggled with the impact of the global pandemic, suggests that companies that have treated their employees well historically tend to fare well during difficult times.

In fact, we observed a similar trend during the global financial crisis of 2008-2009, when the 100 Best index outperformed the Russell 3000 Index.

A fair, caring and supportive culture strengthens businesses because employees feel trusted and empowered to do their best work, whatever the external factors may be. While this is a lesson companies should certainly implement for the bad times, it will be just as valuable in the good days to come.

Create a company culture that is better for business

Time and time again, the data shows us how treating employees well is better for all stakeholders. Reach out to us about how we can help you create a culture that puts you ahead of other organizations.

Source: FTSE Russell and Great Place to Work®, as of April 12, 2021. Returns shown are hypothetical and for analysis purposes only. Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. Back-tested performance is not actual performance, but is hypothetical. Please see the end for important disclosures.

Marcus Erb

Marcus Erb is vice president of data science and innovation at Great Place to Work®. He is a resourceful and collaborative analytics leader with a passion for turning data into actionable insights for executives building high-performing workplaces. Marcus uses Great Place to Work’s global employee survey data to develop leading insights for executives.  He has co-authored several research pieces, including Great Place to Work’s Innovation Insights Series and its 2018 book, “A Great Place to Work For All.”

Great Place To Work® has been surveying employees around the world about their workplace experiences for 30 years. We have developed a set of themes and metrics that not only predict whether employees feel their workplace is great, but predict retention, agility, and overall business success.

Using our proprietary Trust Index™ survey, we measure the core of what we know creates great workplaces — key behaviors that drive trust in management, connection with colleagues, and loyalty to the company.

The survey enables employees to share confidential quantitative and qualitative feedback about their organization’s culture by responding to 60 statements on a five-point scale and answering two open-ended questions.

Employees tell us whether leaders are accessible, communicate honestly and clearly, and if their actions match their words. They tell us whether they feel respected as individuals, if they receive training benefits, appreciation, support for their well-being and opportunities to contribute. They tell us whether they believe their company is fair related to pay, profits, promotions, recognition, favoritism and opportunities. They tell us if they are proud of their work, their team, and their company and if they feel they make a difference, and their work is meaningful. And they tell us whether they enjoy the people they work with, feel cared for and can be themselves.

List rankings are based on this employee feedback, which we analyze to determine the extent to which this experience is shared by the full workforce. Great Place To Work measures the differences in survey responses across demographic groups and roles within each organization to assess both the quality and consistency of the employee experience. Statements are weighted according to their relevance in describing the most important aspects of an equitable workplace.

The best companies create great work experiences not just for management, but also for their part-time employees on the front lines, for those who’ve just joined and those who’ve spent their whole career there, for every race and ethnicity, gender, neurotype, or other demographic in the organization – we look at it all. Companies with the broadest set of employees who report positive workplace experience receive the highest rankings on lists.
In addition to analyzing employee feedback for the Best Workplaces™ in Vietnam 2024 list we also consider what a company can tell us about their programs and workplace strategy. Each company also answers six essay questions that provide greater insight into how, and why the organization is great for all people. Responses are rigorously evaluated and cross-reviewed according to Great Place To Work’s research-driven criteria. From what companies share in datapoints and essays, we identify the organizations that offer the most generous, caring and innovative programs reflecting a genuine commitment to meet the diversity of their people’s needs inside and outside the workplace as validated by what employees themselves report in survey results.

Surveys must meet strict requirements for how they are distributed and the percentage of employees who respond to ensure they accurately represent honest feedback from the company’s full population. While essay responses provide important context for rankings, only survey data can garner a list placement. In the last year, Great Place To Work® surveyed companies employing more than 135,000 people in Vietnam and received more than 125,000 survey responses.

Great Place To Work identifies Best Workplaces in Asia™ by surveying 2.1 million employees in Asia and the Middle East about the key factors that create great workplaces for all and analyzing company workplace programs impacting 5.9 million employees in the region.

To be considered, companies must first be identified as outstanding in their local region by appearing on one or more of our Best Workplaces lists in Bahrain, Greater China (including China, Hong Kong and Taiwan), India, Indonesia, Japan, Kuwait, Oman, Philippines, Qatar, Saudi Arabia, Singapore, South Korea, Sri Lanka, UAE, Vietnam during 2022 or early 2023.

Companies rank in three size categories: Small and Medium (10-499 employees); Large (500+); and Multinational. Multinational organizations are also assessed on their efforts to create great workplaces across multiple countries in the region. They must appear on at least two national lists in Asia and the Middle East and have at least 1,000 employees worldwide with at least 40% (or 5,000+) of those employees located outside the headquarters country.

To determine the 2022 Vietnam Best Workplaces™, Great Place To Work®️ analyzed confidential survey feedback representing nearly 20,000 employees across different industries in Vietnam. Employees responded to over 60 survey questions describing the extent to which their organization creates a Great Place To Work For All™️.

85% of the evaluation is based on what employees say about their experiences of trust and reaching their full human potential as part of their organization, no matter who they are or what they do. Great Place To Work analyzes these experiences relative to each organization’s size, workforce make up, and what’s typical in their industry. The remaining 15% of the rank is based on an assessment of all employees’ daily experiences of innovation, the company’s values, and the effectiveness of their leaders, to ensure they’re consistently experienced.

To be considered, companies had to meet the Great Place To Work-Certified™ standard. To ensure survey results truly represent all employees, Great Place To Work requires that Trust Index©️ survey results are accurate to a 95% confidence level with a 5% margin of error or better. We review any anomalies in survey responses, news and financial performance to ensure there aren’t any extraordinary reasons to believe we couldn’t trust a company’s survey results. 

Companies with 10-99 people were considered for the Small category, companies with 100-999 people were considered for the Medium category and companies with 1000+ people were considered for the Large category.