Matt Palmquist* says a major international study has found firm evidence that the cost of benefits for workers is money well spent.
Does it pay to have happy employees?
Companies in the tech sector such as Google, Yahoo, Netflix, and Microsoft have historically led the way in showering employees with perks.
These range from free meals and generous vacation packages to on-site gyms and movie theatres.
Other industries are following suit.
The Virgin Group implemented a paternity policy that gives dads up to 12 months of paid leave, for example.
Firms in many countries have recently been experimenting with four-day work-weeks and other flexible schedules.
Still the fundamental debate rages.
Do the presumed advantages in recruitment, retainment, and employee motivation that come from offering these perks show up in the bottom line?
Or are they wasteful indulgences?
A new study aims to settle the question by analysing a huge data-set on employee relations and company performance.
It covers almost 3,500 organisations in 43 countries from 2002 to 2014.
The data came from Thomson Reuters’s ASSET4 database, which assesses several aspects of workplace culture.
The sample consists mainly of large companies from a wide range of industries.
The authors focused on five categories that, taken together, are meant to represent how well firms treat their employees.
The first category is employment quality, which measures on a numerical scale the quality of a firm’s benefit packages and job conditions.
The second gauges the health and safety of the workplace.
Training encompasses management’s commitment to providing development and educational opportunities for its workers.
The fourth category is workplace diversity, which includes equal opportunities for career advancement.
The fifth is respect for human rights and labour laws.
The authors note that their sample is broad, comprehensive, and doesn’t contain many extremes.
On one hand, very few companies in the sample experienced strikes that resulted in lost workdays (a sign of an unfriendly workplace).
On the other hand, only 10.8 per cent of firms were included in Fortune’s Best Companies to Work For list.
About 74 per cent of the companies had a diversity program, and 62 per cent provided skills training for their employees.
More than 55 per cent established goals based around employee health and safety, while only 33 per cent had policies addressing human rights.
After controlling for several variables, the authors found that treating employees well pays off.
Firms with a higher employee friendly (EF) culture score tended to see better returns on both assets and equity than did companies with average or low EF scores.
Those with stronger EF workplaces also had higher sales-to-assets ratios, lower expenditures, and filed more patents.
Overall, the findings are consistent with the concept that treating employees well leads them to work harder, be efficient, and do more for the organisation.
The impact of EF culture on firm value was also stronger in nations with more stringent protections for investors and at companies that had better board governance.
Of course, one could argue that the companies with higher EF valuations can simply afford to spend more on their employees to create a more satisfactory workplace.
However, the authors note that the period of their study allowed them to analyse the effects following the enactment of laws requiring more lenient parental leave in several European countries.
The authors found that the implementation of more generous leave guidelines had a positive effect on the value of firms, especially for those with relatively poor parental leave policies before the laws took effect.
*Matt Palmquist is a freelance business journalist.
This article first appeared at Strategy+Business.com
