Corporate Responsibility

Retaining Knowledge Workers: Can Employee Satisfaction Create Value for Investors?


It’s reasonable to assume that working a job you love in a workplace that provides for—or even exceeds—your needs as an employee could lead to increased productivity, motivation, and performance. That, in turn, could make your company perform better and produce more value for investors.

And if all workers in an organization experience high job satisfaction and the resulting boost in productivity, could that fundamentally benefit the firm? A company’s dedication to retaining knowledge workers might even help attract better workers as their reputation as an employer of choice spreads. And having a team composed of high-talent, high-performing individuals could positively impact firm performance.

If this is true, then job satisfaction among a company’s employees may eventually lead to higher stock prices. But the question remains for investors: While the idea makes sense in theory, does it hold up in the markets?

Why Does Job Satisfaction Matter?

Alex Edmans, assistant professor of finance at the Wharton School, sought to go beyond theory and find the practical connection between job satisfaction, companies that invest in retaining knowledge workers, and benefits for shareholders—that is, if any such connection existed.

His paper, The Link Between Job Satisfaction and Firm Value, With Implications for Corporate Social Responsibility, looks at company performance (rather than measures of individual employee productivity) by evaluating the stock market returns of corporations listed on Fortune magazine’s “100 Best Companies to Work For in America.”

Edmans found that companies on the list provided an annual return of 2.3 to 3.8% higher than their peers. His findings may indicate that job satisfaction does play a role in overall firm value—which means that investors may be able to benefit financially by supporting companies that actively work to create satisfying workplaces for their employees.

How Retaining Knowledge Workers Increases Value for Investors

The results of the paper show that employees—and how they feel about their companies—are extremely valuable. In fact, based on his findings, Edmans argues that employees are the key source of value creation in a modern corporation. This is particularly true, he notes, in knowledge-based industries like pharmaceuticals and software.

But companies always run the risk of losing talented employees to competitors, or even to other industries. Employees can always walk out the door. That’s why job satisfaction is critical.

Employee welfare is one aspect of corporate social responsibility that may impact results for investors. “A firm’s concern for other stakeholders, such as employees, may ultimately benefit shareholders,” Edmans states. He also explains that in the short term, the market doesn’t often recognize this value because it’s intangible, but it may be felt over the long term.

Understanding the Caveats: Job Satisfaction for Workers Does Come with Costs

All that said, investors should be aware of the potential downsides for companies that want to pursue increased job satisfaction. For example, firms that invest in employee job satisfaction do incur more costs, which could impact a stock’s portfolio value.

And Edmans points out that even if job satisfaction does improve individual job performance and help the company increase its overall performance in turn, it may still reduce the company’s value net of costs thanks to increased labor costs. This is a potential pitfall that companies have to carefully navigate.

Human capital is a key component of many ESG rating methodologies. While it’s often difficult to measure social impact, investors may want to consider how organizations’ commitments to worker satisfaction could impact financial outcomes.

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