The link between caring and equity performance

Can data and data science be used to link caring and equity performance?

It may come as no surprise that caring plays a crucial role in fostering a positive and productive work environment. A caring workplace cultivates a sense of community and support among colleagues. When individuals feel that their well-being is valued, it creates a strong foundation for collaboration and teamwork. This supportive atmosphere enhances employee satisfaction and contributes to higher morale and motivation. When coworkers genuinely care about each other, they are energized to go the extra mile to assist one another, creating a harmonious and cohesive work environment.

Caring in the workplace contributes to employee retention and loyalty. When employers demonstrate genuine concern for their employees' personal and professional growth, it fosters a sense of loyalty and commitment. Employees who feel cared for are more likely to stay with an organization for the long term, reducing turnover rates and the associated costs of recruitment and training. A caring work environment also helps in attracting top talent, as word spreads about a workplace that prioritizes the well-being of its employees.

Caring also enhances overall well-being and mental health in the workplace. The demands and pressures of work can sometimes lead to stress and burnout. In a caring environment, there is an emphasis on mental and emotional support, creating a space where employees feel comfortable discussing challenges and seeking help. This proactive approach to well-being not only benefits the individuals but also contributes to a healthier and more resilient organizational culture. In turn, this can lead to increased creativity, higher levels of job satisfaction, and improved overall performance. Think of it as preventive maintenance.

The real surprise

The real surprise...genuine demonstrations of caring can help companies outperform the S&P 500.

A 2020 study, jointly produced by Energage® and Irrational Capital through their research collaboration, shows a credible linkage between corporate culture and equity performance. The study included 1,400 public companies recognized as Top Workplaces as determined by their employee engagement scores against Energage’s reference benchmarks. Analyzing 10 years of data, 80 million data points, 27 million employees and the companies’ daily stock returns, Irrational Capital created portfolios of these top workplaces and concluded that “culture driver” portfolios outperformed the S&P 500.

The study also looked at what drives Return on Culture (ROC), a metric indicating productivity as a function of stock market performance. They looked to see which companies were more profitable and why, and the link between how people felt about the company and its performance. The study concluded: “It’s really easy to beat the S&P 500. To do so, you need to ask employees questions and understand what is going on in the company.”

Specifically, this research sought to understand which culture drivers mattered the most during the pandemic The top three drivers, in order of importance were:

People managers who care, help and appreciate. This was the number-one driver of performance, accounting for more than 10% higher returns for Top Workplace companies over the S&P 500 during the period March through September 2020. Managers helped employees learn and grow, demonstrated their appreciation, and visibly cared about employees’ concerns.

Inclusive innovation. This means being open to new and diverse ideas, continuously looking for opportunities for improvement from employees. As a function of openness and flexibility, organizations must ensure all employees have a voice and are being heard, as well as provide autonomy and a sense of individual control. This also means accelerating new ideas and innovation and putting these ideas into practice. The enemy of this practice is indifference and perceived punishment for trying something new. Inclusion is evident in both the number of ideas and the continuously improving quality of those ideas.

Is the company moving in the right direction? Direction was seen as critically important during a period when so much is unknown. Employees needed to feel they were all working toward something. Employee buy-in to the mission of the company was viewed as especially important when employees were not physically co-located and were struggling with increased stress and distraction.

The data showed an increase in caring has a substantial tangible improvement on an organization’s economic performance during a crisis. During the first six months of the 2020 pandemic, Top Workplaces did not lose as much value as compared to other S&P 500 companies and outperformed the S&P 500 by three times during their initial recovery.

Just say, “Thank you!”

According to Dan Ariely, co-founder and partner at Irrational Capital:

[There is significant value in] recognizing that a person is more than their function at work. Demonstrating that as your manager, I care about you as a person and we understand each other’s needs, creates a reciprocal relationship in a dynamic, evolving way.

People don’t recognize the value of appreciation; simply saying, ‘Thank you.’ In an Intel study we conducted[,] we found that compliments from a manager or boss, even via email, generated higher returns and contributed to greater long-term value than spot bonuses or gifts. To put this into context, in this Intel study, saying ‘Thank you,’ compared to not saying thank you increased production performance in one manufacturing facility by 6%. That’s a big deal!

Caring is a catalyst for creating a work environment where individuals thrive both personally and professionally. It is fuel, producing energy for innovation, creativity, performance and production.

“If you think of corporate environments as a machine, there are forces that increase productivity and forces that decrease productivity. The same forces that influence stock market performance in big or public companies apply to similar measures of performance in small or private companies. The distribution of effects in private and small companies is even greater than in large or public companies,” Doug Claffey, Founder, Energage.

Is your check engine light on? We’d be happy to help you with a culture tune up. You can schedule one here!

This content was adapted from: People Economics: Defining and Measuring the True Value of Human Capital (2021), Laura Kellers Queen; Middle Market Press.