6 Studies Showing a Statistical Link Between Online Employee Reviews and Business Performance
Do companies with more satisfied employees — what we call Best Places to Work — really outperform their peers financially?
On the surface, it’s natural to think they would. It’s easy to imagine an army of satisfied and motivated employees posting stellar financial returns inside almost any company today. And also, it’s easy to imagine the opposite: A laggard employer struggling to turn a profit under the oppressive burden of a demotivated and unhappy workforce.
But in practice, the path from high employee satisfaction to company profitability isn’t so cut and dried. CEOs and business leaders today face hard choices. Every employer surely desires a more satisfied workforce. But they are often wary of spending the resources necessary to achieve it. Better benefits, pay and workplace policies that drive worker satisfaction often cost real money — money that could be spent on alternative investments instead.
Is it really worth it for employers to invest in becoming an amazing place to work? Over the past decade there’s been an outpouring of research on that question. Over and over, researchers have used Glassdoor’s database of employee reviews to study the financial impact of a more satisfied and engaged workforce.
A powerful lesson has emerged: Employees who are more satisfied — who feel like their job is rewarding, see an upward career path, and have great managers — clearly drive better financial performance for companies.
That basic lesson shows up both in studies that look at simple correlations between worker satisfaction and financial performance, and more sophisticated studies that go the extra mile to measure the causal link between the two.
But don’t take our word for it. Below are six quick summaries of recent studies pointing to the financial value of investing in better company culture. All six are based on Glassdoor reviews. And all six send a clear and consistent message: Investing in an engaged and inspired workforce can also be a solid financial investment for business leaders.
Study #1: Untangling Cause and Effect
In 2015, academics from the University of Kansas published a study in the Journal of Corporate Finance looking at the link between corporate performance and employee sentiment on Glassdoor.
The authors, Minjie Huang, Pingshu Li, Felix Meschke, and James P. Guthrie, analyzed more than 100,000 Glassdoor surveys collected between 2008 and 2012 to explore whether employee ratings predicted two measures of company financial performance: ”Tobin’s q” (which is a measure of a company’s current market value) and return on assets.
Using a method known as “instrumental variables,” the authors went beyond simple correlation. Their method allows them to estimate the causal link between employee satisfaction and subsequent company financial performance.
What did they find? The study revealed a statistically significant causal link between employee satisfaction and the market value of companies. For each 1-star increase in a company’s overall rating on Glassdoor, they found a 7.9 percent average jump in the market value of a company — a powerful financial impact.
In the authors’ own words: “Our results suggest that corporate culture, as assessed by employees, helps predict subsequent firm performance.”
Study #2: Employee Satisfaction Predicts Better Financials
Research conducted for a study published in the September 2015 issue of Personnel Review, determined that overall employee satisfaction — as well as specific satisfaction with senior leadership, compensation, and work/life balance — directly impacts financial and productivity performance.
The authors Santiago Melián-González, Jacques Bulchand-Gidumal, and Beatriz González López-Valcárcel, reviewed Glassdoor data for 475 companies to test the relationship between employee satisfaction on Glassdoor and financial and productivity performance.
They found a clear link between more positive employee ratings and several organizational performance measures, including operating margin, revenue per employee, and return on company assets.
“Our study… finds a direct and positive association between employee satisfaction and firm performance,” the authors write. The data reveal that employees who have a more empowered and satisfied relationship with their employers are “more motivated to perform.”
Study #3: Changes in Culture Predict Better Stock Performance
This 2017 study of more than one million employee reviews on Glassdoor found that employers who experience improvements in their Glassdoor ratings significantly outperform companies with declining ratings, underscoring how trends in employee satisfaction can reveal underlying improvements or deterioration in financial prospects for companies.
The authors — T. Clifton Green at Emory University, Ruoyan Huang at Moody’s Corporation, Quan Wen at Georgetown University, and Dexin Zhou at City University of New York — analyzed Glassdoor reviews for roughly 1,200 hundred employers to identify the relationship between crowdsourced employee reviews and financial performance.
Their research shows a statistically significant link between changes in employee satisfaction and stock returns — including a fascinating finding that portfolios of company stocks consisting of firms with the greatest quarterly improvements in Glassdoor ratings financially outperform those companies that experience declining quarterly Glassdoor ratings.
The authors conclude that shifting employer reviews on Glassdoor are a valuable predictor of company sales growth and profitability, and that they can be a valuable indicator to “help forecast future earnings announcement surprises.”
Study #4: Beating the Market with Great Culture
This 2015 research from our research team at Glassdoor found companies named to Glassdoor’s “Best Places to Work” list substantially outperformed the overall S&P 500 from 2009 to 2014. A simple stock portfolio of each new class of award winners earned higher returns than the overall market in 5 out of 6 years, and investments in Best Places to Work outperformed the S&P 500 by as much as 122.3 percent between 2009 and 2014.
These companies with high employee satisfaction also saw statistically significant jumps in stock performance in the days following their announcement as being included as a winner of Glassdoor’s annual award. By comparison, the study also found that the 30 lowest-rated public companies listed on Glassdoor had broadly underperformed the overall stock market during the same time period.
The data highlight an important economic link between intangible factors such as employee satisfaction and organizational performance. As we wrote in the study, “It clearly suggests the value of employee company reviews as a meaningful predictive indicator of financial performance.”
Study #5: Good Culture and Earnings Surprises
In 2016, Andy Moniz, a researcher at Erasmus University, reviewed more than 400,000 Glassdoor posts on 2,237 U.S. companies to find evidence of a “statistically significant relationship” between employee perception and a firm’s future earnings surprises.
In the study, Moniz used natural language processing to identify performance-related keywords, which assess everything from perceptions of work/life balance, salaries and benefits, to views on company strategy and management.
“Our study… builds on the growing body of evidence, which suggests that intangible information is not fully exploited by investors,” he writes. His research shows that employee sentiment is an important predictor of future financial success, and that investors should consider the impact of Glassdoor ratings on future earnings when making investment decisions.
Study #6: Happy Employees and Stock Performance
Finally, a 2017 study by three researchers at Norwich Business School at the University of East Anglia used more than 326,000 Glassdoor reviews to quantify the impact of employee satisfaction on the long-run stock performance of companies.
The authors found that a portfolio of companies with high employee satisfaction on Glassdoor significantly outperformed the overall stock market, earning 1.35 percent extra returns above the market — what researchers call “four-factor alpha” — over the eight-year period they studied. According to the study, “[E]mployees’ online reviews are good predictors of a firm’s financial results and, consequently, of value-relevance for investors.”
The study shows that paying attention to employee satisfaction can also be in the financial and economic self interest of companies. By treating employees like a key asset, organizations can achieve great performance over the long-term. According to the authors, “[E]mployees should not be considered expendable commodities … but rather key organisational assets who can contribute significantly to firm value through innovation and customer relationships.”
Learn more about companies focused on employee satisfaction: check out the Best Places to Work according to those who know best — the employees.