New research shows that there’s a strong link between the rating a firm receives from current employees on review site Glassdoor and the group’s performance.
The study “Employee Satisfaction and Corporate Performance in the UK” was conducted by Norwich Business School in East Anglia, UK and was commissioned by Glassdoor—one of the world’s largest recruitment sites. Researchers analyzed 35,231 employee ratings from 164 large companies using UK data on Glassdoor between 2014-2017. They only included firms with a minimum of 100 reviews within this time period. For the financial data, they used information from the Bureau van Dijk’s FAME and for the daily stock price and market index (FTSE 100) from Thomson Reuters Datastream.
The results showed that companies which garnered a higher score by their current employees in terms of satisfaction achieved “superior profitability compared to those rated lower.” In fact, the return of a stock portfolio for the top 25% rated companies in the UK Glassdoor sample showed that over a four-year period, the group of companies earned significantly higher returns than expected, according to standard asset pricing models.
Even when researchers controlled firm-specific characteristics, such as total assets, number of employees and firm age, in its analysis, there was still a “positive and statistically significant link to company profitability,” they said in the study.
“There is clear empirical evidence to suggest that employers should adopt a human-centered approach to running a business,” said Dr George Daskalakis, finance lecturer and report co-author at Norwich Business School. “Though it’s to their advantage to do so, most investors in the market are still not accounting for the impact satisfied employees can have on improving business results when assessing and valuing stocks.”
Financial firms may not be using Glassdoor data to assess company performance but hedge funds and private equity managers apparently mine the recruitment site for due diligence purposes (paywall.)