DanceIt’s a story we in the HR and recruiting communities tell ourselves every day: a great company culture leads to happier, more engaged employees; happier, more engaged employees are more productive and perform better than their less satisfied counterparts; when employees are more productive and perform better, the company performs better overall; therefore, great a company culture leads to a high-performing company.

It’s an inspiring story, but is it true? Or is it merely wishful thinking?

These are the questions that Glassdoor’s chief economist, Dr. Andrew Chamberlain, wanted to answer when he set out on the research that would lead to Glassdoor’s latest report, “Does Company Culture Pay Off?”

“The study is a first attempt to understand the economic impact of company culture,” Dr. Chamberlain says. “We’ve been asked many, many times, ‘Why should we care about company culture? Why should anybody pay attention to Glassdoor reviews? Is there any evidence that [company culture] affects bottom lines?’ Those were the big picture questions we wanted to address with this study.”

To address these questions, Dr. Chamberlain went through all of the winners of Glassdoor’s “Best Places to Work” awards past and present, found the publicly traded companies that have won the award, and put together three different portfolios containing combinations of stocks in these publicly traded “Best Places to Work.” Then, Dr. Chamberlain tracked the performance of these portfolios over time against the overall market.

“No matter how we looked at the numbers, all the ‘Best Places to Work’ companies significantly outperformed the overall market since 2009,” Dr. Chamberlain says. “So it’s not just a fluke, one-off thing.”

To further test the possible correlation between company culture and market performance, Dr. Chamberlain also tracked the financial performance of the 30 companies with the lowest employee satisfaction ratings on Glassdoor. These companies significantly underperformed against the overall market over time.

“It seems that the correlation goes both ways,” Dr. Chamberlain says. That is: great company cultures seem to correlate with higher financial performances, whereas crummier company cultures seem to correlate with lower performances in the market.

Dr. Chamberlain also compared the performance of Glassdoor’s “Best Places to Work” to the performance of companies on Fortune’s list of the “100 Best Companies to Work For.”

Research shows that companies [on the Fortune list] outperform the market, too, so we wanted to benchmark against those companies to make sure that the companies we highlight also outperform the market,” Dr. Chamberlain explains.

The result? Glassdoor companies not only outperformed the S&P 500, but they also, on average, outperformed the companies on Fortune’s list.

So, the Question Is: Why? Why Are Glassdoor’s ‘Best Places to Work’ Outperforming Everyone Else?

“There are several causal mechanisms that could be happening here,” Dr. Chamberlain explains. “In this study, we can’t really untangle those. This is just an observational study, so all we can show is the correlation.”

The being said, Dr. Chamberlain offers some possible answers as to why the “Best Places to Work” outperform the S&P 500.

“One story is the story that many HR and recruiting people like to hear, which is that when you have great company culture, you attract top talent away from your competition, and you become a high-performing company because you attract great people,” Dr. Chamberlain says. “Certainly, I think that explains part of the story.”

But other mechanisms may be at play, too, Dr. Chamberlain says. For example: if a company is a high-performing organization that is flush with cash, that company may simply have the luxury of being able to afford the sort of perks that make employees happy — perks like employee shuttles, free lunches, high-end office spaces, and so on.

“Conversely, if you’re a company that’s having financial troubles and you’re on the downswing, the first things you might cut from your policies might be workplace amenities that your employees are going to miss,” Dr. Chamberlain says. “So it might be that your financial performance starts to suffer, and employee satisfaction suffers right along with it because you’re cutting things that employees like.”

Ultimately, Dr. Chamberlain says he believes that some combination of these three mechanisms is responsible for the results of the Glassdoor study. Without a “careful experimental design,” however, Dr. Chamberlain can’t separate these mechanisms from one other.

“What I’m hoping for is that there will be other people who pick up on this research, take it to the next level, and answer some of these questions that we can’t get at,” Dr. Chamberlain says.

As for why the “Best Places to Work” also outperform Fortune’s “100 Best Companies to Work For,” Dr. Chamberlain says it may be the result of the very different selection processes behind each list.

Companies apply to be included on Fortune’s list. Once a company has applied, the Great Place to Work Institute surveys a random sample of employees from that company and uses this information to decide who makes the cut. The Glassdoor process, on the other hand, is decentralized: Glassdoor looks at the anonymous feedback left by employees on the website and makes decisions based on this data.

Glassdoor’s Employer Engagement Manager, Lisa Holden, adds that “the central difference is that companies have to apply to be on the Fortune list, and a company could make Glassdoor’s ‘Best Places to Work’ list without even realizing [it is] on Glassdoor, because it’s totally based on employee feedback.”

There may also be another reason why companies on Glassdoor’s list outperformed companies on Fortune’s list in the study: dumb luck.

“We have to be totally honest: partly, it’s just chance,” Dr. Chamberlain says. “This is historical research, and sometimes things just work out that way.”

The Good News Effect? What Happens to a Company’s Stock Prices Immediately After the Company Makes Glassdoor’s List

Personally speaking, one of the most interesting parts of the Glassdoor report was the section on Dr. Chamberlain’s “event study.”

“From my perspective, this is my favorite part of the paper,” Dr. Chamberlain agrees. “It’s quite wonky.”

An event study is a method used to estimate the effect of new information in the market on stock prices in the short term. In this particular case, Dr. Chamberlain was studying the effect of being named a “Best Place to Work” on a company’s stock prices. To do so, he compiled daily stock returns for every company ever named a best place to work. He then looked at how each company’s stocks performed in the ten days immediately after Glassdoor published the press release naming the company a “Best Place to Work.”

After controlling for overall market trends, Dr. Chamberlain found that, on average, each company saw a 0.75 percent jump in stock returns in the ten days after being named a “Best Place to Work.”

It’s a small amount, but it is statistically significant, according to Dr. Chamberlain. Moreover, if one were to annualize that ten-day interest rate, it turns out to be about 30 percent.

“Not as small when you think of it that way,” Dr. Chamberlain says.

So, what’s going on here?

“Basically, we get so much [media] attention when we call out these companies as ‘Great Places to Work,’ and there are a large number of algorithmic traders out there who, I believe, are watching these events, looking for good news, and trading on it,” Dr. Chamberlain explains. “I think that we’re picking that up in the daily stock return data for these companies.”

While Dr. Chamberlain calls this particular finding “quite a noisy estimate,” he does believe it is evidence of the direct effect that being publicly recognized as a place with a good company culture has on the way the market values a company.

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