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High employee morale pays off in stock market gains

Strong employee morale once again paid off in 2005 for employers with motivated workforces. As in 2004, the stock prices of companies with high morale outperformed similar companies in their same industries by two-and-a-half to one, while the stock prices of companies with medium or low morale lagged behind their industry peers by greater than one-and-a-half to one.

The study was compiled by David Sirota, Louis Mischkind, and Michael Meltzer and focused on 24 publicly traded companies with a total of more than 750,000 employees where morale was surveyed over the last five years. The stock prices of these 24 companies were compared to the industry average stock prices for more than 5,500 other companies in the same industries.

"High morale" companies are those where more than 70 percent of employees express overall satisfaction with their jobs in Sirota's employee attitude surveys, while medium and low morale companies have overall employee satisfaction levels of 70 percent or lower.

Stock price increases are significant. The stock prices of the 11 high-morale organizations increased an average of 19.4 percent, while those of other organizations in the same industries increased by an average of only eight percent—a margin of almost two-and-a-half to one (240 percent). Similarly, the stock prices of the 13 medium and low-morale organizations increased by only 10 percent while those of others in their same industries climbed by an average of 19 percent—a difference of more than one-and-a-half to one (188 percent).

"Morale is a direct consequence of being treated well by a company, and employees return the 'gift' of good treatment with higher productivity and work quality, lower turnover (which reduces recruiting and training costs), a decrease in workers shirking their duties, and a superior pool of job applicants. These gains translate directly into higher company profitability," said Dr. David Sirota.

High-morale companies provide the three main things that matter most to employees: fair treatment; a sense of achievement in their work and pride in their employer; and good, productive relationships with fellow employees. "High-morale companies reasonably satisfy all three goals," said Sirota. "Employees who work for companies where just one of these three factors is missing are three times less enthusiastic than workers at companies where all elements are present, and are correspondingly less productive."

Source: Sirota Survey Intelligence;

For additional information on this and other HR topics, consult CCH Human Resources Management or Personnel Practices/Communications.

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