How Employee Engagement Actually Drives Stock Price

One of the hottest issues in human resources is the need to develop high levels of employee engagement and satisfaction.  We all know that organizations with happy people have lower turnover, deliver better customer service, and tend to be more innovative and responsive.  But can we translate this into stock price or financial results?

Bersin & Associates is in the final stages of publishing a major research paper on this topic, which will discuss the importance of “fit” in hiring and coaching – and you will see from this research that companies which understand their core culture can far outperform their peers by building a set of staffing and management programs to reinforce this culture.  And what this research clearly shows is that employee engagement (or employee satisfaction) is directly related to leadership and culture:  the company must understand the culture it wants to create, hire for that culture, and manage around that culture.  (ie.  are you an innovator? a service culture?  a fast follower?  a quality manufacturer?)

Which leads me to the topic of this article.

Last week I was at Qualcomm, one of the highest-performing technology companies in the world. Qualcomm competes with companies like Intel, AMD, Texas Instruments, Broadcomm, and ADI.  These six companies all design and manufacture semiconductors – and while they play in different markets, they essentially compete for talent and financial capital.

Recently Bernstein Research, an esteemed financial analyst firm, recently published a comprehensive report on projected stock price for these companies.  (This is proprietary research, so we cannot actually quote it here.)  Their analysts, who know the market and the financial performance of these companies well, looked at these companies in detail – and one of the factors they considered in the projected stock price is the company’s talent and talent pipelines.

It turns out that despite the recession, the technology and telecommunications industry is still going through a tremendous war for talent.  There is a growing shortage of engineers in many parts of the world (Germany projects that they already have have a shortage of 400,000 engineers today and this is growing), plus many of the senior technical talent in their 60s are retiring.  So companies like Qualcomm, Intel, TI, AMD, Broadcomm, and ADI are all competing for senior technical people – and they must not only offer competitive wages, but also working conditions and career opportunities that appeal to these people.

In addition to the war for talent, we also know from our High-Impact Learning Culture research that innovation and time to market is driven by many subtle internal things.  These including management practices like empowerment, clear lines of decision-making, being open to discuss bad news, and many others.  (All 40 of these are available in this research.)  So in this high-tech group of companies, the ones which outperform the others are likely to have different management practices and leadership approaches.

Bernstein, which is not a human resources consulting firm, wanted to assess the nature of these practices in their report.  So rather than try to interview hundreds of engineers and understand the nature of management and HR, they went to Glassdoor.com.

Enter GlassDoor.com

For those of you who have not heard of it, Glassdoor.com is one of the most powerful and amazing websites in human resources and talent management.  This website enables and encourages employees to confidentially rate and discuss their work experiences in a particular job at a particular company.  (I greatly encourage you to look at it and see how your own company stacks up.)

It turns out that in these high technology companies, many employees have rated their jobs, the CEO’s, and the company culture itself.  So what Bernstein did was go to Glassdoor.com and analyze the ratings of the internal employees from these six companies.  This is actually a fairly easy process – anyone could do this on their own.

What Bernstein essentially found was that among these six companies, there is a distinct difference in the level of employee satisfaction, their approval rating of the CEO, and their happiness with various management practices.  I am not in a position to talk about what their findings actually were, but what they essentially did was create a new criteria for stock price based on this employee engagement information.

Qualcomm actually does outperform these other companies in most employee engagement measures on Glassdoor.  The company is very well managed (we’ve written many case studies on Qualcomm) and has a true passion for creating an enriching and exciting environment for technical professionals.  (Plus it is located in San Diego, which helps with the lifestyle factor.)

It turned out that Bernstein had, in fact, rated Qualcomm a more attractive stock buy than these other companies (under various conditions which I won’t try to explain.) – and much of their recommendation was based on employee engagement and the talent strategies they identified.

The bottom line here is this:  while most financial professionals and investors have very little understanding of leadership, training, and human resources strategies, they do understand the concepts of employee satisfaction and turnover.  And with a tool like Glassdoor.com out there (and I expect many more of these to come), your employee engagement will now become a very direct driver of stock price and your ability to attract talent.

Employee engagement is a complex topic, but one that cannot be ignored. It is driven by leadership, management, human resources, learning, and a variety of important cultural strategies. In the coming year, if you work for a public company, do not be surprised if you hear from your CFO or investor relations team asking you how they can help you improve employee engagement to drive higher stock price.

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  • A very interesting piece of research, Josh. Thanks.
    It adds some good concrete evidence to the argument that a satisfied workforce is more likely to be productive than one driven by carrots and sticks.

  • Thanks for the insight – the “Office Space” days of dimly lit cubicles and clueless managers are nearing an end, and only those who are highly innovative in the HR sphere will remain profitable. I do worry about certain critical areas lagging behind others – Gary Hamel mentioned education and healthcare as two industries who have yet to see the variety and depth of HR innovation others have enjoyed. With political debates raging, perhaps we need to find a louder voice to express the chance to make systems and people more efficient using HR strategies instead of pursuing fruitless policy arguments?