In his annual year-end letter, our CEO John Graham reflects on the Fund’s performance and key investments, what the year ahead may bring, and why Canadians can count on us.
The People Factor: How Investing in Employees Pays Off explores the role of labour practices in corporate value creation. The report analyzes how articulating employee-related commitments and following through with investments in employees impacts the ability of companies to deliver strong business outcomes. This new analysis should be of interest to a range of stakeholders, including corporate Boards of Directors, management teams and investors focused on long-term value creation.
The intent of this report is to make the case that following through on employee-centric commitments as stated in annual reports is associated with long-term value creation. Our goal is not to imply causation. While we conclude that companies walking the talk in their employee orientation create value, the causation debate remains open for further research. We also recognize that there are a number of non-financial factors that could contribute to lower annual employee turnover and, therefore, higher sales growth and return on invested capital (ROIC). These factors, which are often hard to measure and were not part of this study, include corporate mission/purpose, high-quality training, as well as meaningful interactions with — and developmental feedback from — managers and opportunities for professional growth.
Key takeaways:
Over a three-year period, committed employers – companies that back up talk about investing in employees with action – are associated with a 4.0% higher ROIC on an absolute basis than counterparts that did neither.
Similarly, over the short term (within one year), companies that are committed employers are associated with better outcomes than companies that neither communicate nor demonstrate committed investment in employees:
1.2% higher contemporaneous annual ROIC on an absolute basis,
0.5% higher contemporaneous annual sales growth on an absolute basis,
2.8% lower annual employee turnover on an absolute basis.
Investing in employees is about the sum of the parts: no individual sub-component (e.g., increasing wages; improving diversity, equity and inclusion (DEI); addressing benefits; and monitoring employee health & safety) contributed directly to value creation, but taken as a whole, these sub-components are correlated with long-term value.
A suite of measures that creates a high-performing, inclusive workplace where employees feel valued and inspired to do great work is associated with higher sales and lower costs and, by extension, superior returns.
Geographic and pre-/post-COVID analysis suggest a sharp uptick in the prevalence of employee-friendly talk in the U.S. pre-pandemic was not matched by similar levels of action, while levels of talk and action in Europe remained steady.
This report is a result of research conducted by FCLTGlobal in collaboration with the CPP Investments Insights Institute and the ESG Initiative at the Wharton School, University of Pennsylvania. A working group comprised of FCLTGlobal members provided additional perspectives. The research builds on Walking the Talk: Valuing a Multi-Stakeholder Strategy, a first-of-its-kind report published in 2022 that set forth the rationale for pursuing a multi-stakeholder approach to business by highlighting the value of delivering tangible outcomes to stakeholders (i.e., the walk) and presenting the firm as committed to stakeholder harmony (i.e., the talk). Stakeholders examined in that foundational report included communities, customers, employees, the environment, government, shareholders and suppliers.
Download the full report here and click here to watch a video with more insights on the report’s key findings.
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the more than 21 million contributors and beneficiaries of the Canada Pension Plan.CPP Investments is a co-founder of FCLTGlobal and launched the CPP Investments Insights Institute to create enduring value by using CPP Investments’ global investing expertise, partnerships, and convening power to advance how the global investment ecosystem addresses climate change, technology disruption and evolving stakeholder expectations.
FCLTGlobal’s mission is to focus capital on the long term to support a sustainable and prosperous economy. It is a non-profit organization whose members are leading companies and investors worldwide that develops actionable research and tools to drive long-term value creation for savers and communities. To sign up for FCLTGlobal’s newsletter, please click here.
The mission of the Environmental, Social and Governance (ESG) Initiative is, consistent with the vision of Joseph Wharton, to harness the power of business to “solve the social problems incident to our civilization.” The ESG Initiative conducts research that investigates the intersection of ESG factors and business and further advances Wharton’s best-in-class education of current and future practitioners, enabling them to serve a world undergoing tremendous change. To subscribe to news and updates from Wharton’s ESG initiative, please click here.
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The People Factor: How Investing in Employees Pays Off explores the role of labour practices in corporate value creation. The report analyzes how articulating employee-related commitments and following through with investments in employees impacts the ability of companies to deliver strong business outcomes. This new analysis should be of interest to a range of stakeholders, including corporate Boards of Directors, management teams and investors focused on long-term value creation.
The intent of this report is to make the case that following through on employee-centric commitments as stated in annual reports is associated with long-term value creation. Our goal is not to imply causation. While we conclude that companies walking the talk in their employee orientation create value, the causation debate remains open for further research. We also recognize that there are a number of non-financial factors that could contribute to lower annual employee turnover and, therefore, higher sales growth and return on invested capital (ROIC). These factors, which are often hard to measure and were not part of this study, include corporate mission/purpose, high-quality training, as well as meaningful interactions with — and developmental feedback from — managers and opportunities for professional growth.
Key takeaways:
Over a three-year period, committed employers – companies that back up talk about investing in employees with action – are associated with a 4.0% higher ROIC on an absolute basis than counterparts that did neither.
Similarly, over the short term (within one year), companies that are committed employers are associated with better outcomes than companies that neither communicate nor demonstrate committed investment in employees:
1.2% higher contemporaneous annual ROIC on an absolute basis,
0.5% higher contemporaneous annual sales growth on an absolute basis,
2.8% lower annual employee turnover on an absolute basis.
Investing in employees is about the sum of the parts: no individual sub-component (e.g., increasing wages; improving diversity, equity and inclusion (DEI); addressing benefits; and monitoring employee health & safety) contributed directly to value creation, but taken as a whole, these sub-components are correlated with long-term value.
A suite of measures that creates a high-performing, inclusive workplace where employees feel valued and inspired to do great work is associated with higher sales and lower costs and, by extension, superior returns.
Geographic and pre-/post-COVID analysis suggest a sharp uptick in the prevalence of employee-friendly talk in the U.S. pre-pandemic was not matched by similar levels of action, while levels of talk and action in Europe remained steady.
This report is a result of research conducted by FCLTGlobal in collaboration with the CPP Investments Insights Institute and the ESG Initiative at the Wharton School, University of Pennsylvania. A working group comprised of FCLTGlobal members provided additional perspectives. The research builds on Walking the Talk: Valuing a Multi-Stakeholder Strategy, a first-of-its-kind report published in 2022 that set forth the rationale for pursuing a multi-stakeholder approach to business by highlighting the value of delivering tangible outcomes to stakeholders (i.e., the walk) and presenting the firm as committed to stakeholder harmony (i.e., the talk). Stakeholders examined in that foundational report included communities, customers, employees, the environment, government, shareholders and suppliers.
Download the full report here and click here to watch a video with more insights on the report’s key findings.
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the more than 21 million contributors and beneficiaries of the Canada Pension Plan. CPP Investments is a co-founder of FCLTGlobal and launched the CPP Investments Insights Institute to create enduring value by using CPP Investments’ global investing expertise, partnerships, and convening power to advance how the global investment ecosystem addresses climate change, technology disruption and evolving stakeholder expectations.
FCLTGlobal’s mission is to focus capital on the long term to support a sustainable and prosperous economy. It is a non-profit organization whose members are leading companies and investors worldwide that develops actionable research and tools to drive long-term value creation for savers and communities. To sign up for FCLTGlobal’s newsletter, please click here.
The mission of the Environmental, Social and Governance (ESG) Initiative is, consistent with the vision of Joseph Wharton, to harness the power of business to “solve the social problems incident to our civilization.” The ESG Initiative conducts research that investigates the intersection of ESG factors and business and further advances Wharton’s best-in-class education of current and future practitioners, enabling them to serve a world undergoing tremendous change. To subscribe to news and updates from Wharton’s ESG initiative, please click here.
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