Happy employees yield happy investors

The Drucker Institute found social value drives stock outperformance.

  • By Laura Forman,
  • The New York Times News Service
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It’s official: Happy employees equal happy shareholders—especially for tech companies.

According to the Drucker Institute, stocks with higher social values generated higher returns versus the broader S&P 500 (.SPX) over the past month, year, three-year and five-year periods. In the year to date, social standouts returned 17.4% versus the S&P at 14.7%.

The Drucker Institute Corporate Effectiveness Index, launched in February in conjunction with S&P Dow Jones Indices, includes 100 companies with a median market capitalization of just under $41 billion across industries. Those selected for the index are best performers over the past six years. Technology stocks comprise the highest percentage of the index at 34%, including eight of the top 10 stocks by weight. Apple (AAPL), Microsoft (MSFT) and Google parent Alphabet Inc. (GOOGL) are there.

The index evaluates its stock components by weighting social scores twice as heavily as fundamentals. Social factors include customer satisfaction, employee engagement, innovation and social responsibility. Fundamentals considered were return on equity, earnings quality and leverage.

Company culture might be the most important contributor. Last year, a U.K. study by Glassdoor of over 35,000 reviews across 164 employers found companies with more satisfied employees returned roughly 16% more than companies with less-satisfied employees, after accounting for other factors. In the U.S., from 2009 to 2015 a portfolio of companies across Fortune’s “Best Companies to Work For” outperformed the S&P 500 by over 84 percentage points, while a similar portfolio of Glassdoor’s “Best Places to Work” outperformed the broader market by more than 115 percentage points, according to Glassdoor.

Tech employees enjoying free meals, cooking classes, massages and fertility treatments can breathe easy. Taking those perks away would be a bad business decision, it seems.

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