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Investment In Intangible Assets, Such As Employee Satisfaction, How Will It Turn Into The Ultimate Financial Gain?

2008/8/2 16:07:00 41731

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Alex Edmands, a professor of finance at Walton business school, has put forward a new view in his latest research paper, which is contrary to traditional industrial management theory: employee satisfaction is an important factor in final financial gains.

This new view also challenges the importance of short-term financial gains, and may have a certain impact on people who invest with the corporate social responsibility as the main consideration.

In this article, can the stock market really reflect the value of intangible assets?

In the papers on employee satisfaction and Does the Stock Market Fully Value Intangibles Employee Satisfaction and Equity Equity, Edmond surveyed some companies with higher employee satisfaction and compared the indicators with the market average level, which refers to a broader market, similar enterprises in the industry and companies with the same characteristics.

His research shows that companies whose employees are well received have gained more than two times the market average.

Edmond pointed out that according to the list of "100 most popular American companies" selected from Fortune magazine between 1998 and 2005, the annual earnings of these companies were 14%, while the average income level of the whole market was 6%.

Fortune also compared the results with a similar questionnaire in 1984.

Edmond said, "you probably think that the relationship between the two is obvious. You don't need to do any research to prove that the more satisfied the employee is, the better the company's performance is.

But in fact, the relationship between them is not so simple.

In the traditional management theory, employees are treated as ordinary variables to get maximum benefits from them at the least cost.

These management theories were formed in the age of industrialization. At that time, economic development depended heavily on industrial machinery.

In that era, workers had to do simple work and have high substitutability.

At that time, the company mainly used money to motivate employees, and paid them piecework wage. The more they produce, the more they get.

Edmond said that today's business world is supported by new technologies, knowledge and innovative thinking. Although the value of employees may not be directly measured, the value of each employee is much higher than before. "Now, the company produces more high-quality products than ever before, they focus on innovation, and hope to get additional value from employees rather than machines."

Because some key indicators, such as teamwork, customer relationship and innovation, are hard to measure, piecework pay is no longer applicable, which makes employee satisfaction an important driving force.

A good working environment can enhance employees' sense of belonging to the company, so that they will work harder, not just one contract.

In addition, this is also an effective means to retain excellent employees.

In order to prove his point of view, that is, the higher the employee satisfaction is, the better the company's performance. Edmond used the findings from the Great Place to Work Institute, published in Fortune magazine by the independent research institute of San Francisco, as a tool to measure employee satisfaction.

Edmond said the survey results are valuable in measuring employee satisfaction, because the survey is conducted directly inside the company, not just from the outside to observe relevant company policies.

Fortune magazine began publishing this questionnaire in 1998. Edmond also used a survey published in book form from 1984 to 1993.

"In this paper, I have proved by a lot of data and economic theory that the long-term benefits of companies that work hard to improve employee satisfaction are considerable," Edmond wrote in his paper. "These conclusions show that the market has failed to fully reflect the importance of intangible assets in stock prices, and authoritative investigation agencies have confirmed that such intangible assets do exist."

Edmond's thesis involves multiple variables, including industry income, company risk, and other variables related to the nature of the company, such as company size and company value.

But he also pointed out that the sample size of the survey is still too small, because only 100 companies accept research every year, of which only 65 to 70 companies are listed at the same time.

It is not a question of "2 election 1".

Edmond believes that in addition to the relationship between employee satisfaction and financial returns, there are other findings in this paper.

First of all, this survey focuses on investors who take the company's social responsibility as the main consideration. Edmond pointed out that such investments have become more and more popular in the past 10 years.

When investing in this kind of investment, investors should consider the company's social responsibility factors in addition to the company's financial return.

Edmond said, "the traditional view is that a company with a strong sense of social responsibility is often a decision of two choices."

For example, the return on shareholders of companies that aim to reduce air pollution will decrease because they need to spend a lot of money to control pollution emissions.

However, if investors consider whether the company treats their employees well as a consideration of whether to invest or not, studies show that socially responsible investors often do not have to sacrifice too much return on their earnings.

This finding is especially important for fund managers representing pensions consortium or employee welfare organizations.

Although Edmond's research has greatly encouraged those investors who take the company's social responsibility as the main consideration, he also worried that the study just emphasized the social responsibility factor of employee satisfaction.

The study did not point out other social responsibility factors that investors could consider, such as environmental standards or religious beliefs.

Another deeper discovery, Edmond said, is how management considers the short-term gains of the company.

Even if they agree that employee satisfaction will play a role in the long-term development of the company, they will not necessarily change the way they have always been, because they believe that the cost of investing in employees will reduce the company's short-term earnings.

Edmond pointed out, "a problem has been bothering people for decades. Is it that companies in the United States are so short-sighted?"