The financial ROI of employee experience: Stats for your business case
Est. Read Time: 5 min.
Most HR leaders have accepted the term employee experience (EX) as much more than just a conference room buzzword. It’s a real, strategic initiative that impacts engagement scores along with bottom and top line business results. But while you in HR may recognize this, the reality is your executive team may not. Getting the resources to improve EX can be a struggle when these initiatives are perceived by higher-ups as cost drivers instead of revenue drivers.
Although there’s research that shows the connection between a positive EX and benefits such as stronger employer brand, improved retention, and reduced turnover—these employee experience stats might not be enough on their own. To convince executives of the benefits of EX investment, you may need to show research that correlates a strong EX with financial results, such as profit, revenue and shareholder return.
To save you the trouble, we did the work. Read on for a brief overview of three hallmark studies that sought to prove the financial ROI of a strong employee experience.
Study #1: Experiential organizations have more than four times the average profit
The research: In 2017, Jacob Morgan, founder of The Future of Work University, interviewed 150 psychologists, economists, and business leaders around the world. The executives included heads of HR, innovation, IT, and diversity, and they represented a range of industries and sectors (tech, manufacturing, retail, professional services, education, startups, and others). Based on those conversations, he identified three areas of work that matter most to employees: the organization’s culture, the technology it uses, and the physical environment.
Next, he analyzed and surveyed more than 250 diverse organizations, drawing on the Fortune 100 and various “best workplaces” lists, to see how their employees rated them across the three components that make up employee experience.
The findings: Jacob found that while 23% of these organizations were making strides in all three areas, only 6% (15 organizations) were investing heavily in all three. These companies were considered “experiential organizations” and were shown to:
- Have more than four times the average profit
- Have more than two times the average revenue
- Outperform the S&P 500
Additionally, the experiential organizations were almost 25% smaller, which suggests they had higher levels of productivity and innovation than the non-experiential organizations.
Study #2: A better EX correlates with higher return on assets (ROA) and return on sales (ROS)
The research: Industrial-organizational psychologists and HR consultants from the IBM Smarter Workforce Institute and the WorkHuman Analytics and Research Institute set out to understand what makes an optimal employee experience and how EX impacts a company’s financial outcomes. They analyzed data from their 2016 WorkTrends™ survey of 22,000 workers in 45 countries and territories, and combined it with data from their 2017 international survey with UNLEASH of 247 HR practitioners.
From this research, IBM and Workhuman identified five aspects that contribute to employees’ personal experiences at work: belonging, purpose, achievement, happiness, and vigor. These five dimensions were the basis of their Employee Experience Index (EXI).
Next, they filtered the surveys by those in which respondents listed the name of the company they work for. This gave the researchers a list of 113 organizations. They examined the employee survey data for these organizations and compared them against their 2016 financial performance data.
The findings: The researchers measured the companies’ business outcomes in terms of return on assets (ROA), which shows how profitable a company is relative to its total assets, and return on sales (ROS), which shows how efficiently a company is generating profits from its revenue. According to the research, both ROS and ROA significantly correlated with EX.
- Organizations that scored in the top 25% on employee experience report nearly three times the ROA compared to organizations in the bottom quartile (fig. 1)
- Organizations that score in the top 25% on employee experience report double the ROS compared to organizations in the bottom quartile (fig. 2)
Study #3: EX is a strong predictor of financial results
The research: For the past 50 years, Willis Towers Watson has conducted an annual survey of more than 500 companies and nearly 10 million employees. This now totals a quarter of a billion employees. The researchers decided to dive into all this employee engagement data to define what a strong employee experience really means and determine if there’s a link between EX and business outcomes.
The researchers divided the 500 companies into average financial performers and high financial performers and compared employee engagement data across both groups. Based on the common characteristics of the high-performing companies, they developed the High-Performance Employee Experience model, which looks at 14 elements of EX (i.e., fair pay, trust in leadership, having a voice, etc.) divided into three categories:
- Essentials: foundational aspects of a good work environment that most organizations deliver on, such as fair pay and support for managers.
- Emphasis: elements of EX that start to set apart high performers, such as ensuring employees feel included and are given a voice.
- Excellence: the category that most differentiates high performers from average performers. In this group, organizations excel at instilling a sense of trust and creating a sense of drive among employees.
To determine the correlation between EX and financial performance, Willis Towers Watson surveyed employees at 120 companies, mapping questions to their HPEX model, and gave each company an EX score. Then, they mapped those scores against the organizations’ financial performance.
- Organizations with a strong EX saw a 4% growth in revenue while those with a poor EX had a 1% decline in revenue
- Organizations with a strong EX had a 3% growth in 1-year gross profit margin while those with a poor EX had a 10% decrease in 1-year gross profit margin
- Organizations with a strong EX had a 4% increase in 3-year gross profit margin compared to those with a poor EX, who had a 3% decrease in 3-year gross profit margin
The bottom line on bottom line results
It goes without saying that every organization has its own unique mix of factors that influence employee happiness, productivity and business outcomes—and no study is perfect or all-encompassing. But, as more and more research attempts to define what EX means and its link to financial success, the concept moves past being simply “the right thing to do” and closer to a proven business strategy best led by HR.
Want more stats and advice for building a business case for employee experience? Take our Digital Employee Experience Micro-course. It includes five 10-minute videos that discuss different considerations when designing the employee experience.
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About Jolene Nicotina
Jolene Nicotina is the Content Marketing Manager for North America at PeopleDoc, Inc. She works on making sure HR professionals have all the latest information they need related to HR service delivery, HR technology, and PeopleDoc, Inc. Prior to PeopleDoc, Jolene worked in marketing communications for the healthcare technology industry.