Study Sees Link Between Morale and Stock Price

By Staff Report

Mar. 6, 2006

A corporation that’s filled with happy, motivated employees isn’t just a pleasant place to work; it’s also likely to be more profitable.

Stock prices of 11 high-morale companies increased an average of 19.4 percent in 2005, outpacing the 8 percent rise attained by competitors in their industry, according to a recent study by Sirota Survey Intelligence. Conversely, the stocks of 13 companies with medium or low morale increased only 10 percent, or 9 percentage points less than their peers.

Intuit, Bank of America, American Express, Barron’s magazine and the Mayo Clinic were among the high-morale companies in the survey.

“The success of an organization is dependent upon the competence of senior management and the morale of the workforce,” says David Sirota, founder and chairman emeritus of the research firm that bears his name.

In the study, a company was defined as having high morale if more than 70 percent of its employees expressed overall job satisfaction. At medium- and low-morale companies, the figure was below 70 percent. In Sirota’s formula, high morale results when employees are treated fairly, they’re proud of what they do and they have camaraderie with their colleagues.

Most employees start off with an affinity for their employer or else they wouldn’t have agreed to work for the company in the first place. But after they walk through the door, the relationship too often breaks down, Sirota says.

Problems occur when companies practice “transactional management,” in which employees are paid but not nurtured, Sirota says. Motivation also declines when employers fail to recognize achievement, treat employees “like children or criminals” or fail to give them the resources they need to do their jobs.

“It’s not ‘How do you motivate people?’ It’s ‘How do you keep management from destroying the workforce?’ ” Sirota says. “The lack of loyalty one sees now (from employees) is due to the lack of loyalty by management. If you treat people as if they’re part of the solution and not part of the problem, you get tremendous results.”

Achieving high morale, though, is not just the responsibility of the employer, says Michael Warech, U.S. organization effectiveness practice leader at Watson Wyatt.

Company leaders and employees must determine the firm’s “value pro­position,” which could center on offering challenging work, education and training opportunities or autonomy. The employee must be willing to contribute as much to the equation as the employer does.

“Good companies understand it can’t be a one-way street,” Warech says. “They make sure their employees know that they have to have a little skin in the game. This isn’t about how the big company is going to make you happy.”

A Watson Wyatt study last year indicated that a company with highly engaged employees typically achieves a financial performance four times better than a company with poor employee attitudes.

While the effects of morale are consistent, so are its characteristics. The factors that make employees happy transcend culture, age, sex and ethnicity, Sirota says. So don’t try to delineate the differing work attitudes of baby boomers and Generations X and Y.

“That’s all malarkey,” Sirota says. “That’s a confusion of tastes with basic goals.”

Mark Schoeff Jr.

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