Jun 122015
 

When choosing a potential investment to put our money in it’s important to look at all the usual financial metrics like profitability, management, history, and forecasts. But a less conventional measurement to consider and is usually harder to quantify, is employee sentiment. 😀

The world’s largest asset manager, BlackRock, which has more than $4.65 trillion of investments under management, includes employee happiness data into its models for evaluating holdings and investment prospects. “We look for companies that have solid employee rankings and want to buy companies that have improvements in employee opinions,” says Paul Ebner, a portfolio manager at BlackRock. “Happy and engaged employees lead to more wins and more sales opportunities.”

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It makes sense from a practical point of view. People who enjoy their work tend to be better at what they do and are more focused. And companies that are known to keep their workers happy will naturally attract the best talent in the industry. Research appears to back up the findings. Alex Edmans, an associate professor of finance at Wharton School of Business, discovered that companies that made Fortune Magazine’s list of the “100 Best Companies to Work For in America,” outperformed their peers by more than 2% on average annually between 1984 to 2009 (25 years.)

I have looked at the most recent Fortune list of best companies to work for. The top 3 publicly traded names are Google, Salesforce, and Roche (Genentech.) Over the last 5 years (from June 2010 to now) the stocks of all 3 companies have outperformed the Dow and the S&P 500 indexes. 🙂

  • GOOG = +118%
  • CRM = +197%
  • RHHBY = +115%
  • Dow Jones Industrial Average = +75%
  • S&P 500 = +92%

However other studies have shown there is little to no correction between employee happiness and the profitability of a company. Some critics say it’s an imperfect and unreliable indicator, arguing that the idea of happy workers is just fluffy. I’m not sure if we should gauge a stock by how happy its workers are, but I do think that disgruntled employees can create a toxic work environment which could lower a business’s earning potential.

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Random Useless Fact

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