The Business Imperative for Worker Wellbeing

By Professor Jan-Emmanuel De Neve, PhD

Editor's Note: The Work Happiness Score and work happiness survey are now the Work Wellbeing Score and work wellbeing survey, respectively. Learn more and access our most up-to-date resources.

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Key Takeaways:

• New research shows a positive and significant relationship between employee wellbeing and company performance.
• Greater employee wellbeing is tied to:
  • Higher company valuation 
  • Higher return on assets
  • Greater profits
  • Overall better company performance today
  • Overall better company performance in the future
• Companies with higher levels of employee wellbeing outperform the stock market.  
• Six primary channels help explain how wellbeing can impact both individual and organizational performance: (1) productivity, (2) relationships, (3) creativity, (4) health, (5) recruitment, and (6) retention. Investing in wellbeing leads to better outcomes in all of these key areas, which leads to better company performance overall.

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Is there a business case for employee wellbeing? 

New research from Indeed and Oxford shows that there is — and it’s a strong one. In fact, there is a positive and significant relationship between employee wellbeing and company performance today — and in the future.

Our deep-dive analysis into company performance and wellbeing data shows that:

1. Greater employee wellbeing is clearly tied to higher company valuation, higher return on assets, and greater profits, even when controlling for the number  of employees, number of reviews, past period assets, capital expenditures, year-fixed  effects and industry-fixed effects.

2. Higher company wellbeing levels not only are linked to better company performance today but are also predictive of future performance. For example, when we look at data prior to March 2020, before the onset of the pandemic in the United States, we find that those company happiness levels predict higher subsequent firm valuations, return-on-asset ratios and profits throughout the following year, even as companies navigated the pandemic. 

3. Companies with higher levels of employee wellbeing outperform the stock market.  To determine this, we created our own “Happiest Places to Work” list by identifying the top 50 happiest companies in 2020 according to crowd-sourced Indeed data. Then, we simulated an investment strategy of investing an equal amount in each over the course of the following year. We found that those investments outperformed major benchmarks such as the S&P 500, Nasdaq 100, and Dow Jones Industrial Average indices.  

We started examining employee wellbeing back in 2019, when Indeed started collecting a wealth of self-reported data on the subject and its drivers. We did this through a survey that aligns with academic consensus around how to define and measure wellbeing, and since then, Indeed has amassed upwards of 7 million individual reviews from job seekers, creating the world’s largest data set on happiness in the world. Using these data, we sought to show exactly if and how greater levels of wellbeing relate to better company performance. 

We set some parameters, focusing on responses from October 2019–December 2021, dropping responses from workers not currently employed at the companies they were reviewing and including only companies listed on the two largest stock exchanges in the US—the Nasdaq and the New York Stock Exchange. We also dropped responses for companies with fewer than 20 employees to ensure that the wellbeing levels are broadly representative. The results that we previewed above, which will be published in full later this year, show that the business case for wellbeing is very strong.

Building on existing evidence

Of course, we’re not the first to study this subject. As we describe in the report, the most compelling existing evidence of the link between employee wellbeing and firm performance shows that companies with higher aggregate wellbeing sell more products, generate greater profits, are more valuable and grow faster than their competitors. These effects stand even after accounting for firm characteristics, industry benchmarks and a host of other relevant controls. 

But that evidence is limited in two key ways: 

• Most existing studies consider only a small cross-section of high-performing companies, a potentially unreliable guide to understanding the link between wellbeing and performance in the wider and more diverse economy. 
• Much of the existing research relies on proxies for employee wellbeing — e.g., “Best Places to Work” lists or company star ratings. These signals can provide broad indications of positive company culture but fall short of being able to confirm a direct link between how employees actually feel about working at an organization and its general performance.  

Indeed’s crowd-sourced data set allows us to dig deeper and go broader. Instead of using proxies, we are able to study employee happiness, purpose, satisfaction, and stress for more than 700 publicly listed companies from 2019 to 2021, making our conclusions that much more relevant to understanding the business case for investing in employee wellbeing.

Creating happiness at work

So now that we’ve established the business case for happiness, what explains that link? And how does a company increase employee wellbeing and improve their performance in the process?

Our research has shown that six primary channels help explain how wellbeing can impact both individual and organizational performance: (1) productivity, (2) relationships, (3) creativity, (4) health, (5) recruitment and (6) retention.

Essentially, these studies show that happier employees are more productive, creative, collaborative and cooperative. They are more likely to have strong and supportive relationships with coworkers and supervisors and less likely to experience poor mental and physical health — each of which can result in damaging levels of absenteeism and presenteeism. Happier companies are also more likely to be successful at attracting talented workers and retaining those workers over time. 

The studies are not perfect. The evidence for each category is not equally strong, and different pathways may be mutually reinforcing (happiness may improve performance, which improves happiness, which improves performance). But it’s clear that investing in wellbeing leads to better outcomes in all of these key areas, which leads to better company performance overall. 

A fundamental shift in business

Our research shows that employee happiness proves to be a strong and significant predictor of performance across companies. Yet the case could be even stronger. We controlled for many factors to mitigate the challenges around crowd-sourced data. But future research would benefit from further validating the Indeed data by comparing it to other employee wellbeing data such as internal company surveys. And by using data only from October 2019–December 2021, we were limited in our ability to identify longitudinal links between wellbeing and performance. As data collection continues, it will be worth revisiting these analyses with a longer time series of data and additional employee reviews to check the robustness of our results presented in this report. 

Yet these results add to a growing body of work that is poised to change the nature of business itself. Leaders and investors have already begun incorporating nonfinancial measures of company performance into their decision-making, a radical shift from the corporate thinking that dominated the second half of the twentieth century. It reflects not only changes in what investors say they value but also changes in what firms are expected to provide as evidence of positive social impact. In the coming years, the ability of firms to demonstrate social value is set to become an even more important driver of investment decisions (the “S” in ESG). As more information on organizational wellbeing becomes available to investors and consumers, a fundamental part of this project will likely be to ensure that employee wellbeing is prioritized and supported.

All of these endeavors can help shed new light on one of the oldest mysteries in organizational research — the relationship between wellbeing and performance. Across employees, between companies and over time, happiness is proving to be an ever more important predictor of company performance. Organizations seeking to be successful in the new world of work would be wise to take note. 

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Jan-Emmanuel De Neve

Jan-Emmanuel De Neve is an economist and professor at the University of Oxford, where he directs the Wellbeing Research Centre.

Note: This research was commissioned by Indeed and the author acknowledges working on this report as a consulting engagement. Indeed checked the report for accuracy of data reporting and for any breaches of data anonymity, but not for any of the report's substantive content or results.