Most folks are as happy as they make up their minds to be.
-Abraham Lincoln
Whatever your thoughts on the matter on what is the key to sustained happiness, perhaps not surprisingly the issue of happiness does have tangible effects at the workplace.
Study after study points to unhappy employees leading lives of unproductivity, which hurts company profits. Gallup recently estimated that symptoms of employee unhappiness - high absenteeism, chronic turnover, quality control issues, lost productivity – cost companies an eye-popping $550 billion a year.
Tony Hsieh, CEO of Zappos.com (which sold for a $1.2 billion to Amazon), knew the importance of having happy employees at his company, not just for moral reasons but for profitability concerns as well. In fact, Zappos will pay new employees $2,000 to quit if they aren’t completely happy upon starting a new position with the company. Incidentally Amazon will pay new employees $5,000 to quit if they are unhappy.
But is there evidence that overall happiness of employees can actually make a company more profitable? That’s what Alex Edmans, associate professor of finance at the Wharton School discovered when examining stock market returns of companies and correlating them with measures of employee happiness.
Edmans discovered that firms listed in “100 Best Companies to Work For in America” have outperformed their industry peers in annual stock market growth by two to three percentage points. In the attached video, Edmans explains the methodology for finding a correlation between employee happiness and stock market return was quite simple.
“What I looked at was the list of 100 best companies to work for in America, which is luckily published in Fortune magazine,” he says. “The advantage of this list is that it’s been available since 1984, so this is a long period of time which includes both booms and recessions.” He looked at the returns to the companies on this list and compared them to other similar firms in the same industry or with similar characteristics to isolate the impact of employee satisfaction rather than other factors.
According to Edmans, there are many discrete factors that contributed to employee happiness. “Employee satisfaction is not something that can be reduced to one variable. This is why the best companies list is so well respected, its highly sophisticated.” Edmans notes the study looks at 57 questions of employees, across a number of different dimensions such as pride and camaraderie, fairness and equality, and the effectiveness of management communication. “So it’s not just extrinsic things such as pay or benefits, but many other things such as equality and communication,” he says.