Thursday, January 14, 2016
The Link Between Corporate Wellness Programs and Total Shareholder Return
Well, according to an expanding body of peer-reviewed scientific literature, shareholders should care.
First, some background. The Corporate Health Achievement Award (CHAA) was created by the American College of Occupational and Environmental Medicine (ACOEM) to recognize companies' workplace health and safety programs. It relies on a thousand point-based assessment system of multiple standards in four categories of 1) Leadership, 2) Healthy Workforce, 3) Healthy Environment (including Safety) and 4) Organization. Many of the companies that have participated in CHAA are household names.
In this study, the authors tracked the stock market performance of companies that applied for the CHAA from 1997 through 2014. As the Population Health Blog understands it, all the privately held companies as well as those that scored 175 or lower in Organization and lower than 350 combined in the Workforce and Environment categories were excluded from the analysis. Of the remaining publicly companies, those scoring at or above the 37.5 median percentile in the four categories described above (defined as high CHAA achievers) were placed in six hypothetical stock portfolios of 5 to 22 companies. The authors then mapped out what would have happened with a January 2001 investment of $10,000. As each year passed, new high scorers were added to "rebalance" the portfolios, while the stock of repeat high scorers were added.
The results? While the benchmark Standard and Poor's (S&P) return over the study period was 105%, the portfolios easily exceeded that with returns that ranged from just from over 200% to 333%.
This study builds on other studies that used the CHAA as well as other wellness award programs including Mercer's HERO Employee Health Management Best Practices Scorecard and the C. Everett Koop National Health Award.
Now that's total shareholder return.
In another demonstration of why peer-review is so important, Dr. Fabius and his colleagues correctly point out that correlation is not the same as causation. As a result, there is no evidence that importing wellness programs into other companies will translate into better stock performance. In addition, elementary statistics tells us that corporate wellness and TSR won't necessarily correlate over shorter periods of time for individual companies.
Bottom line? The PHB doesn't think investors in public companies are necessarily interested in "causation" as they are in market signals. It stands to reason that a commitment to company wellness is an important signal about where to put their money.
Which raises three questions....
1) This was raised by Fabius et al: should investors or regulators demand that companies publicly report whether they have employee wellness programs?
2) Should companies invest in a "Chief Health Officer?"
3) Why isn't corporate wellness part of the national conversation about capitalism in America?
Coda: For additional reading, see this link on the ten questions about employee wellness that should be asked by boards of directors.