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Engaged Company Stock Index (ESCI)

Posted By Ira Ozer, CRP, CPIM with permission by Bruce Bolger, ED of the EEA, Monday, May 16, 2016

Research from virtually all of the employee engagement research companies, including Gallup, Hay Group, Sirota and others, indicates that a top cause of employee disengagement is that employees do not feel recognized for their work or above and beyond contributions to help their companies succeed.

Naturally, most recognition and engagement consultants, authors, trainers and agencies conclude from the research and from their experience, that having a “culture of recognition” with the proper platform and programs is essential to improving engagement. And to support this conclusion, RPI, the Recognition Professionals International Association, has created a curriculum and certification program based on the best practices of leading corporations with a culture of recognition. But there is a challenge – to convince the CEO of any company to make employee recognition a cornerstone of their corporate mission, vision and values and then prioritize it with day-to-day focus and time, while investing approx. $100 per employee per year to fund it – requires a proven Return-on-Investment (ROI). And although the research, experts, practical experience and even common sense indicates that recognizing employees for great work is beneficial for the company, it is still often considered a “soft” initiative impossible to conclusively prove…until now.

The Enterprise Engagement Alliance (EEA), an organization comprised of leading companies and associations across the spectrum of engagement, has worked with McBassi & Company, a human data analytics firm to create the “Engaged Company Stock Index” (ECSI). The ESCI tracks the long-term results of companies with high levels of customer, employee, and community engagement, known as “Good Companies,” determined by independent data sources as compared with S&P 500 companies in general and the results are amazing!

Since the ECSI started on October 1, 2012 until the most recent stock market results on March 31, 2016, “Good” companies outperformed S&P 500 companies in general by 21.3 percent.

According to Bruce Bolger, Founder and Executive Director of the EEA, The Good Company portfolio includes 43 companies with combined high scores as employers, sellers, and stewards of the community and environment. The composition of the portfolio is periodically updated (most recently on January 31st, 2016), based on new data from the Good Company Index. These Engaged Companies include:

Agilent Technologies
Alcoa
Allstate
Applied Materials
Boston Scientific
Bristol-Myers Squibb
Campbell Soup
CenterPoint Energy
Cisco Systems
Clorox
Cognizant Technical Solutions
Colgate-Palmolive
Costco
CSX
Cummins
Dominion Resources
DTE Energy
Ecolab
Eli Lilly
EMC
Estee Lauder
Exelon
Fluor
General Mills
Hershey
Hess
Humana
Intel
Johnson & Johnson
L Brands
Marriott International
Nike
Nordstrom
PepsiCo
PPL
Principal Financial
Prudential Financial
Qualcomm
Rockwell Automation
Southwest Airlines
UPS
Whirlpool
Whole Foods Market

Consistent with other stock indices, the EEA Engaged Company Stock Index provides a cumulative score that can be easily compared over time with other indices. McBassi’s Engaged Company Index uses the metrics outlined in the book, Good Company: Business Success in the Worthiness Era, which gives companies letter grades, with the best companies getting an A, and poor companies getting Ds and Fs. To study the impact on stock market performance, McBassi examined pairs of companies in the same industry in the Fortune 100 in which the companies’ Engaged Company grades differed by one or more full grade levels (for example, a grade of B versus a grade of C) over a two-year period.

Across the twelve pairs of companies that met this criterion, the stock price of the company with the higher grade outperformed that of its competitor with the lower grade by an average of 30.2 percentage points over the two-year period following the assignment of Engaged Company grades (an average annualized outperformance of over 14 percentage points).

Those companies with higher Engaged Company grades significantly outperformed in the first year and then further extended that outperformance in the second year. In addition, in 83 percent of the pairs (10 of 12), the higher-ranked company outperformed the other over the 24-month period.

For example, the stock value of IBM (Engaged Company grade of B+) increased by a cumulative 58.4 percent during the two-year period, compared to a decrease of 53.4 percent in Hewlett Packard (grade of C) over the same time, for a 111.8 percentage point outperformance for IBM. Similarly, Verizon (grade of C+) outperformed AT&T (grade of D+) by 21.7 percentage points during that period, 76.5 percent to 54.8 percent.

The Engaged Company Stock Index only tracks companies with high engagement, because there have been too many mergers, acquisitions, and other changes among the companies with low engagement scores to provide a predictive base of companies to track. Here is a link to all of the information: http://www.theeea.org/resources/engaged-company-stock-index/.

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