Most people would like to believe that there's a kind of economic karma: Companies that treat employees well will see their stock prices rise, and those that treat employees badly watch their stocks fall.
If only it were that simple.
In theory, benevolent employers should have an advantage. "To me, it's absolutely true," says Jerome Dodson, manager of the Parnassus fund. "If a company treats its employees well, the business should prosper and that should show up in the stock price," Dodson says.
It's a philosophy Dodson embraces in his own company. "When you have reduced employee turnover, it makes a huge difference in earnings," he says. "We don't need as many people, we don't have to hire headhunters, we're not continually retraining people."
And, in fact, there's fairly solid evidence that companies that treat employees well see their stocks prosper. It's just that some companies that aren't noted as great workplaces can see their stock prices rise, too.
Consider Google, nearly universally acclaimed as a great place to work. Its stock has soared about 700% since its public debut in August 2004.
Google's offices abound with areas designed to promote interaction, from a bowling alley in Mountain View, Calif., to a pub lounge in Dublin, Ireland. The computer search company has a great health plan, a college reimbursement plan, legal aid, even travel assistance. Heck, if an employee dies, Google will continue to pay 50% of the deceased's salary to his or her family for a decade.
Or consider Marriott, which offers employee discounts at its thousands of hotels worldwide. Work there 25 years, and you get free stays at the company's hotels and timeshares. Marriott has gained an average 11.3% a year for the past decade, vs. 7.9% for the Standard & Poor's 500-stock index with dividends reinvested.
The argument for companies that treat employees well, however, is not simply because people like to get benefits, although they do. "The data strongly support the fact that organizations that focus on the engagement of their employees deliver stronger performance," says Julie Gebauer, managing director for talent and rewards at Towers Watson. "It's not just making them happy -- that's not a business issue. Engagement is."
Employees who feel engaged tend to do better jobs and are more willing to put in the extra hours, Gebauer says. They also tend to stay at the company -- and that, too, is a good thing, says Dodson. "There's all kinds of cost savings when there's low turnover," he says. At his company, 10-year employees become owners, and that, too, trickles down to the bottom line. "It motivates them to save us money," he says. (continued...)
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