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  • 11 March 2021

Does employee satisfaction influence companies’ financial performance?

Does employee satisfaction influence companies’ financial performance?

Does employee satisfaction influence companies’ financial performance? 1024 632 FinScience

written by Shanshan Zhu

The importance of “listening” to employees

Nowadays, environmental issues are undoubtedly the most investigated and most frequently addressed in the context of sustainable investing, as the threats posed by climate change and its detrimental effects are urging all actors and stakeholders worldwide to take action.

However, there is no doubt that social factors – concerning, for example, the company relationships with its workforce, the collectivity and stakeholders in general – should be taken into account by investors as these too can affect a company’s financial performance on the long-term. Let’s take for instance the case of Walmart, that has recently decided to stop selling certain guns and ammunition, becoming more attractive to socially-minded investors, as reported by S&P Global Market Intelligence.

In addition to consumers’ issues, labor factors are attracting global attention, as the consequences of labor-related litigation and challenges could result particularly harmful to the company. 

Moreover, employees’ satisfaction and perception related to the company they work for has been increasingly taken into consideration, as human capital is nowadays considered an important determinant of productivity and innovation (Zingales, 2000).

But is there a relationship between employee satisfaction and firm performance?

Many studies have recently found that companies with higher employee satisfaction tend to perform betterWhile at the beginning the studies were performed on a limited collection of survey data (Shnerider et al, 2003; Edmans, 2011; O’Reilly et al, 2014), lately the focus has moved towards ratings and reviews published on reviews websites such as Glassdoor.com, a website where employees anonymously rate and review companies and their management across several corporate value categories. In particular, by using text mining and topic modelling analysis, scholars found a significant correlation between overall employee satisfaction and corporate performance (Luo et al., 2016; Moniz, 2015).

Based on findings mentioned above, FinScience Alternative ESG Score – an innovative score based on both corporate internal data (corporate website, corporate balance sheets, sustainability/CSR annual reports, certifications and corporate social media) and external data (NGOs, news, blogs, forums, business review websites) – consider also criteria pertaining to employee treatment and satisfaction. In particular, by using text mining, sentiment analysis and text classification, FinScience Alternative ESG Score evaluates employee satisfaction across 4 four specific areas: Corporate Culture, Compensation, Management Evaluation and Work Satisfaction. This is done by considering data coming from different sources focused on employees’ reviews, satisfaction and happiness scores but also salary and pay-gap data.

The aim is to ‘listen’ to employees’ opinion on their employer in order to obtain a complete evaluation of the ESG performance of a company, and so predict its overall success on both a sustainable and financial point of view. This data can be indeed valuable both for its information content as a tool to identify the drivers of job satisfaction/dissatisfaction and thus its operational and managerial value, as well as for its predictive ability on firm financial performance.

Click here for more information on FinScience ESG Scoring.

References

Schneider, B., Hanges, P.J., Smith, D.B. and Salvaggio, A.N. 2003. “Which comes first: employee attitudes or organizational financial and market performance?” Journal of Applied Psychology, (88:5), p.836.
Edmans, A. 2011. “Does the stock market fully value intangibles? Employee satisfaction and equity prices.” Journal of Financial Economics, (101:3), pp.621-640.
O’Reilly, C.A., Caldwell, D.F., Chatman, J.A. and Doerr, B. 2014. “The Promise and Problems of Organizational Culture CEO Personality, Culture, and Firm Performance.” Group & Organization Management, (39:6), pp.595-625.
Zingales, L. (2000). In search of new foundations. The Journal of Finance, 55(4), 1623-1653.
Luo, N., Zhou, Y., & Shon, J. (2016). Employee Satisfaction and Corporate Performance: Mining Employee Reviews on Glassdoor.com. ICIS.
Moniz, A. 2015. “Inferring Employees’ Social Media Perceptions of Goal-Setting Corporate Cultures and the Link to Firm Value.”

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