Does Higher Employee Engagement Really Produce Better Bottom Line Results?

In October 2012, the Employee Engagement Alliance created a stock index (ECSI) to attempt to show a connection between a company’s performance in the stock market and employee engagement.  Engaging the services of McBassi & Co (an HR analytics expert) the EEA developed the ECSI based on McBassi’s Good Company Index which tracks several hundred public companies based on their levels of customer, employee and community engagement collected from about a dozen different sources.

From the Good Company Index list of companies, the EEA extracts about 45 each year to form their ECSI.  Traditionally it turns over about 40% of that list as it calculates new scores.  The methodology for the Good Company Index can be found here.

The current ECSI showed it outperformed the S&P by 21.4% over four years. Obviously from this perspective, you may want to conclude that the companies with higher employment engagement, as measured by McBassi, had great bottom line results than those that don’t.  However the stock market has volatility based on a number of various factors.

 

Is this a case of the tail wagging the dog?  Maybe.  Is this empirical proof that recognition and employee engagement produces better bottom line results?  No.  Are ECSI companies cherry picked to skew the outcomes?  Probably not.  

Or is this the case of the cart before the horse?  Possibly.  And while we are certainly not experts in analyzing the methods or strategies used to develop the ECSI, we are pleased that the EEA has made the attempt to connect the dots between employee engagement budgets and bottom line results. 

As one of these articles mentions “Companies that ignore stocks selected based on environmental, social and governance factors (ESG sector) do so at their peril…Good corporate governance plays a winning hand in capital allocation and is critical to corporate longevity.”  

From our experience we know that highly motivated and satisfied employees will produce dramatic results.  And that employee recognition is the cornerstone of a highly satisfied employee. 

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