Why You Need To Look Out For “Happy” Companies To Invest In?

Recently, sociologists have concluded that a happy workforce can have a direct impact on the success of a business.

Happy employees are more efficient, motivated and productive. Companies that are highly regarded in this respect are not only able to attract top talent, but also have higher efficiency and productivity.

According to research from the University of Warwick, happiness made people around 12% more productive. The research team concluded that “positive emotions appear to invigorate human beings.”

Another report by Glassdoor found that companies rated highly by their employees outperformed the S&P 500 index by 122% over a five-year period between 2009 and 2014. On the other hand, those rated poorly underperformed the index by 29.5%.

All these seem to point to the fact that happy employees lead to happy investors ultimately.

What should investors look out for?

The link can be attributed to employees striving for excellence in work environments that reward them accordingly. The rewards can be through greater opportunities, job security or a chance of promotion. Teamwork and collaboration are also attributable factors that can keep workers engaged and motivated.

Numerous major companies in America have also begun developing a more comprehensive approach to improve employee happiness and engagement. Technology companies, once again, seem to be at the forefront in this regard.

One initiative among companies is to remove the hierarchal system that is found in most other corporate structures. By having a flat management structure, teams can communicate more efficiently and are effectively self-managed. This gives all employees a greater sense of control, regardless of seniority.

The Foolish bottom line

In a study comparing Fortune’s “Best Companies to Work For”, researchers found that companies who made the list consistently outperformed their counterparts in the stock market.

They also found that investors did not put sufficient value on finding companies that had positives intangibles such as employee well being.

Renowned economist Jan-Emmanuel De Neve summed it up nicely when he said, “There’s a philosophical argument about how looking after staff’s well being is the right thing to do, but there are also huge objective benefits.”

As investors, we should look out for companies that emphasise employee welfare as it not only gives us a clear conscience but may also reap us better long-term returns.

Meanwhile, for more (free!) investing insights, sign up here for your FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn't own shares in any companies mentioned.