Employee Engagement and Company Valuation
It’s official. Employee engagement has arrived as a business strategy. In his recent book, The New ROI: Return on Individuals, David Bookbinder takes on how employee engagement and company valuation are intertwined. Bookbinder knows what he’s talking about. He’s a valuation expert with over 25 years of experience.
In his article on ROI-NJ.com (no relation to the book!), Brett Johnson interviewed Bookbinder about his views on human capital and company valuation. Bookbinder states:
Every CEO on the planet has said, ‘Our people are our most valuable asset.’ But they don’t always necessarily believe it. And they don’t know how to behave in accordance with those comments. So, the book deals with that – things like teaming, improving employee happiness and identifying toxicity in your employees. All of these things contribute to engagement and getting discretionary effort from your people, which ultimately increases the value of your business.
He’s right about that. Research has shown for some time that organizations with engaged employees have better outcomes. Gallup noted that such companies have higher profitability, higher productivity, and higher customer satisfaction.
McBassi also found that “The grade that a company earned on the Good Company Index is a powerful predictor of stock prices.” Their research showed that companies ranking highly as good for employees, good for customers, and good for the community, had stock prices that “outperformed that of its competitor with the lower grade by an average of over 40 percentage points cumulatively over the 3-year period following the assignment of Good Company grades.”
So, while we typically think of employee engagement as good for people and good for company cultures, it is too often dismissed as a “soft” art relegated to HR. The reality is that what’s good for people and for company culture is also good for company value – and by extension investors and stakeholders. And those key, interested parties are catching on.
Bookbinder predicts, “The change will come when corporate America really starts to wrap their mind around the actual return on these types of investments, too. Even now, no one wants to be a company getting berated on social media for not doing the right things with their people. But I expect this will be taken as seriously in valuations as the data tells us it already should be.”
If your accounting firm, your employees, and your customers agree, it must be true. Companies that focus on being great employers and on inspiring the best work from their employees are more successful.
How can you impact culture and improve your company’s performance and value? Let’s talk.
Read more here about why: Employee Engagement is Not a Perk.