Many yellow Post-it notes on a board, with a special blue one with a happy face drawn on it
© Getty Images/iStockphoto

Happy employees often make for satisfied shareholders, according to a pioneering new study that shows the clearest link yet between staff wellbeing and financial performance in quoted US companies.

The analysis, conducted by academics Jan-Emmanuel De Neve and George Ward at the University of Oxford, and Micah Kaats at Harvard University, suggests that companies with greater profitability and higher stock market performance tend to have staff who report greater happiness, purpose and job satisfaction as well as lower stress.

The findings, published as a working paper this month, support the business case for investors to advocate for, and company executives to focus more on, staff wellbeing — a connection that has long been widely discussed but difficult to prove.

“This is the most comprehensive study to date linking employee wellbeing to financial and stock market performance,” said De Neve, professor of economics and behavioural science at Oxford’s Saïd Business School.

He stressed that the study does not prove causality, but goes further than previous work in pointing to the power of reported employee wellbeing to predict higher profits and share prices.

Diana Han, chief health and wellbeing officer at consumer goods group Unilever, said the study “adds to a growing body of research demonstrating the competitive advantages of a healthy and well workforce — if we look after our people, they will look after the business.”

Advocates for staff wellbeing have long sought to make a business case for promoting it and, since the start of the Covid-19 pandemic, there has been a proliferation of wellness programmes designed to retain employees and keep them motivated. However, evidence of their effectiveness on individuals, and the wider implications for business operations, remains limited.

Past studies have struggled to demonstrate with statistical significance the value of specific interventions or the link between wellbeing and corporate performance. Research was often focused on limited samples of self-selected employees, or on businesses and wellness programmes that were difficult to replicate and test at scale.

De Neve and his co-authors’ work is based on 15mn wellbeing surveys by employees at 1,636 publicly listed companies on the Indeed recruitment website. The site combines the survey results on work happiness, purpose, job satisfaction and stress into a wellbeing index rating. Company performance was measured using return on assets as well as market value as a multiple of asset replacement value.

The analysis showed that the wellbeing index not only correlates with gains in company performance, but is also predictive: investing $1,000 in companies with higher staff wellbeing scores in January 2021 would have generated a return of about $1,300 by the start of March 2023, compared with a return of roughly $1,100 from the S&P 500 stock index.

The authors found that company happiness scores are especially predictive of performance in the service sector and said that a “possible interpretation of this result is that employee wellbeing may be especially important for business success in consumer-facing industries”.

The study found that the connection between lower employee stress and stronger company performance was weaker than the links with employee happiness, satisfaction and purpose. The authors argued this may be because stress can have positive as well as negative effects on business outcomes.

Other organisations have sought to explore the business case for wellbeing. S&P Global, the rating agency, recently launched a Corporate Sustainability Assessment as part of its environmental, social and governance evaluation, which takes into account job satisfaction, happiness, stress, and purpose at work.

De Neve’s research builds on numerous past studies that have sought to calculate both the costs of ill health, and the connection between wellbeing and corporate performance.

Data collected from employees and employers for the annual Britain’s healthiest workforce project backed by Vitality, the health insurer, has shown a link between poor physical and mental health and self-reported levels of absenteeism and unproductive “presenteeism”. It highlights the importance of factors including inadequate sleep duration and quality, financial insecurity, and insufficient flexibility or autonomy in work.

A separate study published by De Neve this month of nearly 1,800 employees working in 11 call centres across the UK for BT, the telecoms company, showed that staff were more effective at converting calls into sales when they were in a better mood. It used better weather as a proxy for wellbeing.

De Neve and his co-authors argued that improved wellbeing could lead to better productivity, relationships, creativity, health, recruitment and retention.

He said: “Belonging is probably the best predictor of workplace wellbeing. People want to be treated as human beings [and] have friends at work. Those kind of measures of social capital [are] critical for what makes people happy at work and thus stay — more so than the pay cheque attached to the job.”

Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article