Employee wellbeing, productivity, and firm performance: Evidence from 1.8 million employees

Christian Krekel, George Ward, Jan-Emmanuel De Neve 21 April 2019

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A growing number of companies claim to place a high priority on the wellbeing of their workers, and there is a fast-growing industry of firms selling products related to employee wellbeing. But does investing in higher employee wellbeing actually lead to higher employee productivity and, ultimately, any tangible benefits to the bottom line of businesses? Experimental evidence (e.g. Oswald et al. 2015) suggests the answer is “Yes”. However, real-world evidence is largely missing at present. 

To begin to answer this question more systematically, we collaborated with the Gallup Organisation in order to look into its client database (Krekel et al. 2019). Gallup has been gathering data on employee wellbeing, alongside employee productivity and firm performance outcomes, since the mid-1990s. We conducted a meta-analysis of 339 independent studies accumulated by Gallup, including the wellbeing and productivity of 1,882,131 employees and the performance of 82,248 business units, originating from 230 independent organisations across 49 industries in 73 countries. 

Higher employee wellbeing is associated with higher productivity and firm performance

Figure 1 presents our main finding – it shows true score correlations between employee wellbeing (measured as employees’ satisfaction with the firm as a place to work),1 employee productivity, and firm performance as means, taken across all industries and regions. We focus on four key performance indicators, arguably the most important ones from a business perspective: customer loyalty, employee productivity, business unit profitability, and staff turnover.2

Figure 1 Correlation between employee satisfaction, productivity, and firm performance
(Gallup client database, 95% confidence intervals)

Notes: The figure plots adjusted average correlation coefficients between employee satisfaction and different performance outcomes originating from a meta-analysis of 339 independent studies that include observations on the wellbeing of 1,882,131 employees and performance of 82,248 business units. See Krekel et al. (2019) for more details. 

We find employee satisfaction to have a substantial positive correlation with customer loyalty (r = 0.31) and a substantial negative correlation with staff turnover (r = -0.25). The correlation with employee productivity is positive and strong (r = 0.2). Importantly, higher customer loyalty and employee productivity, as well as lower staff turnover, are also reflected in higher profitability of business units, as evidenced by a moderate, positive correlation between employee satisfaction and profitability (r = 0.16).3  

Some differences between industries, little between regions

Correlations differ somewhat by industry. Figure 2 shows true score correlations between employee wellbeing, productivity, and firm performance as means by industry, distinguishing finance, retail, services, and manufacturing sectors.

Figure 2 Correlation between employee satisfaction, productivity, and firm performance, by industry
(Gallup client database, 95% confidence intervals)

Notes: The figure plots adjusted average correlation coefficients between employee satisfaction and different performance outcomes, by industry, originating from a meta-analysis of 339 independent studies that include observations on the wellbeing of 1,882,131 employees and performance of 82,248 business units. See Krekel et al. (2019) for more details. 

For most outcomes – customer loyalty, staff turnover, and employee productivity – employee satisfaction is most important in finance, followed by retail, and then closely, by services. The correlation between employee satisfaction and business unit profitability appears to be somewhat stronger in the finance industry than in other industries, except manufacturing. In fact, for manufacturing, we find that employee satisfaction has the weakest correlation with employee productivity but the strongest with business unit profitability amongst all industry sectors. Note, however, that 95% confidence bands between industries are largely overlapping, pointing towards the universal importance of employee wellbeing across industries. We find little evidence for differences between firms based in the US and other world regions. 

The analysis suggests a number of potentially fruitful avenues for future research. One potential reason for the particularly strong link between wellbeing and productivity in the finance industry may have something to do with the working conditions in that sector, in particular, relatively higher stress and lower work-life balance, which may outweigh positive benefits of higher pay. This suggests that there is more room in the finance industry than in other sectors for employee wellbeing to unlock positive productivity outcomes. 

Manufacturing is highly focused on process efficiency and safety as primary metrics within plants, which relate directly to costs. Job attitudes are likely to relate to discretionary effort, which then impacts quality, efficiency, and safety within manufacturing plants and teams, possibly explaining the higher correlation between employee satisfaction and business unit profitability in the manufacturing sector. 

Why would higher employee wellbeing lead to higher productivity?

Of course, from this meta-analysis alone we cannot make any strong causal claim about the effect of employee wellbeing on productivity or firm performance. There exists, however, both theoretical and empirical literature that points in this direction. 

Human relations theory states that higher employee wellbeing is associated with higher morale, which, in turn, leads to higher productivity (Strauss 1968). Conversely, expectancy theories of motivation postulate that employee productivity follows from the expectation of rewards (including higher wellbeing) generated by eliciting effort (Lawler and Porter 1967, Schwab and Cummings 1970). Emotions theory argues that employees’ emotional states affect their productivity (Staw et al. 1994), and in particular, that positive emotions lead to heightened motivation, and hence better job outcomes and organisational citizenship (Isen and Baron 1991). A further channel is through positive, stimulating arousal, which can result in more creativity (Isen et al. 1987) or positive changes in attitudes and behaviour (Baumeister et al. 2007). 

In line with these predictions, Oswald et al. (2015) show in a laboratory experiment that increases in wellbeing were strongly associated with increases in productivity of up to 12% in an incentivised real effort task. In another study, De Neve and Oswald (2012) find that individuals who reported higher levels of life satisfaction at ages 16, 18, and 22 have significantly higher levels of earnings later in life. This holds even when comparing between siblings and holding constant a wide range of observables including education, intelligence, physical health, and self-esteem. 

Employee wellbeing also seems to pay off on the bottom line of business: Edmans (2011, 2012) studies the relationship between employee satisfaction and long-run stock market returns using a value-weighted portfolio of the “100 Best Companies to Work for in America”. The author shows that, during the period 1984 to 2011, these companies had between 2.3% and 3.8% higher returns than the industry average. 

Concluding remarks

The work presented here is suggestive of a strong, positive correlation between employee wellbeing, productivity, and firm performance. The evidence-base is steadily mounting that this correlation is, in fact, a causal relationship (running from wellbeing to productivity). But clearly, there is a need for more field and/or natural experiments in real-world firm settings in order to make the business case for improving employee wellbeing clear-cut. 

This calls for more consistent measurement of employee wellbeing in firms, alongside productivity and firm performance outcomes. Interventions aimed at raising productivity should target the key drivers of wellbeing at work, such as social relationships, making jobs more interesting, and improving work-life balance (Krekel et al. 2018). They should be rigorously evaluated (ideally by means of randomised controlled trials), and costs should be reported upon to identify the most cost-effective ways of raising employee wellbeing, productivity, and ultimately, firm performance.

Authors’ note: We are particularly grateful to James Harter and the research team at Gallup for their help with the meta-analyses on employee wellbeing and firm performance.

References

Baumeister, R F, K D Vohs, C N DeWall and L Zhang (2007), “How emotion shapes behavior: Feedback, anticipation, and reflection, rather than direct causation”, Personality and Social Psychology Review 11(2): 167-203.

De Neve, J-E, and A J Oswald (2012), “Estimating the influence of life satisfaction and positive affect on later income using sibling fixed effects”, Proceedings of the National Academy of Sciences 109(49): 19953-19958. 

Krekel, C, G Ward and J De Neve (2019), “Employee wellbeing, productivity and firm performance”, CEP Discussion Paper 1605.

Edmans, A (2011), “Does the stock market fully value intangibles? Employee satisfaction and equity prices”, Journal of Financial Economics 101: 621-640. 

Edmans, A (2012), “The link between job satisfaction and firm value with implications for corporate social responsibility”, Academy of Management Perspectives 26(4): 1-19. 

Krekel, C, G Ward and J-E De Neve (2019), “Employee wellbeing, productivity and firm performance”, CEP Discussion Paper 1605. 

Krekel, C, G Ward and J-E De Neve (2018), “Work and wellbeing: a global perspective”, in J Sachs (ed.), Global Happiness Policy Report. 

Lawler, E E III, and L W Porter (1967), “The effect of performance on job satisfaction”, Industrial Relations 7: 20-28. 

Hunter, J E, and F L Schmidt (2015), Methods of meta-analysis: Correcting error and bias in research findings, Newbury Park, CA: Sage. 

Isen, A M, and R A Baron (1991), “Positive affect as a factor in organizational behavior”, Research in Organizational Behavior 13: 1-53. 

Isen, A M, K A Daubman and G P Nowicki (1987), “Positive affect facilitates creative problem solving”, Journal of Personality and Social Psychology 52(6): 1122-1131. 

Oswald, A J, E Proto and D Sgroi (2015), “Happiness and productivity”, Journal of Labor Economics 33(4): 789-822. 

Schwab, D P, and L L Cummings (1970), “Theories of performance and satisfaction: A review”, Industrial Relations 9: 408-430. 

Staw, B M, R I Sutton and L H Pelled (1994), “Employee positive emotion and favorable outcomes in the workplace”, Organisational Science 5: 51-71. 

Strauss, G (1968), “Human relations – 1968 style”, Industrial Relations 7: 262-276.

Endnotes

[1] Employee wellbeing was measured by a single-item five-point Likert scale question asking respondents: “How satisfied are you with your organisation as a place to work?” Answer possibilities range from one (“extremely dissatisfied”) to five (“extremely satisfied”).

[2] Customer loyalty measures included fairly standard customer loyalty metrics such as the likelihood to recommend or repurchase a product or service, the ‘net promoter score’, or simply the number of repeated transactions. Employee productivity measures included mostly financial indicators such as revenue or sales per person, growth in revenue or sales over time, quantity per time period, labour hours, or performance ratings. Profitability measures included the percentage profit of revenue or sales, or the difference between current profit and budgeted profit or profit in the previous time period. Staff turnover was defined as the percentage of (voluntary) turnover per business unit. 

[3] To arrive at these findings, we applied meta-analytical methods (Hunter and Schmidt 2015). More specifically, after calculating the correlation between employee wellbeing and the respective outcome at the level of each business unit, correlations were aggregated and adjusted for differences in sample size, measurement error, and other statistical artefacts or idiosyncrasies between the 339 original studies, to obtain true score correlations.

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Topics:  Labour markets Productivity and Innovation

Tags:  labour, organisational psychology, wellbeing, worker satisfaction, productivity, job satisfaction, pschology

Assistant Professor in Behavioural Science, London School of Economics

PhD student, MIT

Associate Professor of Economics, Saïd Business School, University of Oxford

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