A growing body of evidence points to the financial benefits of superior human capital management practices. Russell Investment Group has tracked the stock price performance of publicly quoted companies on Fortune’s 100-best list for several years, and its findings are persuasive. Someone who invested equal dollar amounts at the beginning of 2005 in the stock of publicly traded companies on the list would have ended the year up 12 percent, versus 4.93 percent for the Standard & Poor’s 500-stock index.
Over the longer term, the link between a high-quality working environment and stock market success is even more compelling. Russell found that the 100-best portfolio, adjusted annually to reflect changes to the list from 1998 to 2005, provided an annualized return of 15 percent, versus 5 percent for the S&P 500.
European companies were also scrutinized to see if there was a correlation between good employment practices and a consistent margin of outperformance in the stock price. Russell showed that if an individual had invested £100, or $175, over five years in the publicly traded companies on the 2005 list of the best workplaces in Britain, this investment would have produced nearly double the return on investment than the FTSE all-share cumulative index, or £157.48 versus £83.48.
“Companies that devote resources to their human capital have a competitive advantage as a result of the high trust relationships between employees and management,” said Ann Watson, head of human resources at Russell. “This advantage manifests itself in higher levels of cooperation, greater commitment, lower employee turnover and improved customer support.”