Why a virtual portfolio of 42 Top Workplaces companies is outperforming the Standard & Poor’s 500 index.
It’s called the “virtuous cycle” and it works like this: A company’s corporate culture promotes well-trained, engaged employees; they deliver superior goods and services to customers, who develop loyalty to the firm’s products and services and that increases business, generating more rewards for employees and the company.
Doug Claffey, CEO of WorkplaceDynamics — the survey firm that for fours years has conducted the Star Tribune’s Top Workplaces project — decided to test whether this positive feedback loop would translate into superior financial performance. So Claffey developed the Top Workplaces Fund — a virtual portfolio of 42 public companies from around the country that have been named a Top Workplace at one of the 35 newspapers the survey firm partners with.
Since the Top Workplaces Fund was established on Oct. 20, 2008 through Dec. 31, 2012, the virtual portfolio has outperformed the Standard & Poor’ 500 index by 48 percent, Claffey reports.
“We were surprised to find that financial performance was not driven by the classic measures of employee engagement, namely pay, benefits, manager, training, and work/life balance,’’ Claffey said. “Instead performance was driven by having a healthy organization, with clear direction, great execution, and a sense of connection with employees.”
Even in periods of decline — including the depths of the Great Recession — ‘‘these healthy companies maintain a strong advantage.’’
To be included in the fund, a company had to be named a Top Workplace; be listed on the New York Stock Exchange or the Nasdaq stock exchange; have at least 1,000 employees, and score above a set level for ‘‘Organizational Health’’ as determined by the Workplace Dynamics survey.
Organizational health is measured from responses to three of the research firms six survey factors including company direction, execution and connection with employees.
Companies chosen for the virtual portfolio had strongest responses to 10 statements associated with those factors, which are highly correlated with organizational health and employee engagement. The statements include:
• ‘‘I believe this company is going in the right direction.’’
• ‘‘At this company we do things efficiently and well.’’
• ‘‘I feel genuinely appreciated at this company.’’
• ‘‘New ideas are encouraged at this company.’’
The Top Workplaces Fund includes companies from across the county and in a mix of industries including financial services firms (TFS Financial based in Cleveland and Enterprise Bancorp based in Lowell, Mass.); oil and gas companies (Anadarko Petroleum Corp. based in The Woodlands, Texas and EOG Resources based in Houston).
In an email, James Graner, Graco’s chief financial officer, said: “Years ago, Graco made a strategic decision to strengthen the engagement of our workforce by granting stock options to all U.S. employees. It is part of the reason we were named one of the best places to work, and it created a workforce of shareholders who have a vested interest in driving efficiency and ensuring quality.”
One Graco employee recently told surveyors: “I know that the decisions I make every day affect our customers and Graco’s future.”
Graco has a been named a Top Workplace each of the past four years. Since being included in the Top Workplaces Fund on June 18, 2012, the company has achieved a total return to shareholders (including dividends) of about 40 percent compared with 24 percent total return for the S&P 500 Index.
Top Workplaces companies outside the virtual portfolio also outperformed the S&P 500. There are five Minnesota-based public companies in this Top Workplaces issue: Graco, Proto Labs, H.B. Fuller, Mosaic, and U.S. Bancorp. On average they’ve had a total return of 33.9 percent since June 18, 2012.
Claffey said companies are added to the virtual fund the day after their name is published by a partner newspaper and would be removed if their name is not published or their scores on organizational health factors drop below the threshold. Companies in the portfolio are equally weighted.
Chris Puto, dean of the Opus School of Business at the University of St. Thomas, said the financial performance of Top Workplace Fund companies rings true in his experience.
“When workers are engaged in the well being of the company … they then map that onto a sense of their own well being,” Puto said. “That is when you get the performance kick.”
Puto points out that the feedback loop can work in the opposite direction, too.
“People feel connected until they feel like they are going to get laid off,’’ he said. “Then they don’t feel connected.”
“These factors are not overriding factors,” Puto said. “They actually integrate with other business and economic elements.”
But put all firms on a level playing field and Puto said: “I’m convinced that all else being equal, that higher engagement will absolutely outperform unengaged employees.”
Patrick Kennedy • 612-673-7926