EMPLOYEE SATISFACTION AND ITS IMPACT ON ANNOTATION The main subject of this dissertation is employee satisfaction and its impact on company value. The investigation of working circumstances ...

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    UNIVERSITY OF LATVIA

    FACULTY OF ECONOMICS AND MANAGEMENT

    HANS-JRGEN FRANZ BRENNINGER

    EMPLOYEE SATISFACTION AND ITS IMPACT ON

    COMPANY VALUE

    DOCTORAL THESIS

    Submitted for the Doctors degree in Management science (Dr.sc.admin.)

    Subfield Business Management

    Supervisor: Prof. Dr. Josef Neuert

    Riga, 2015

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    The doctoral thesis was carried out at the Chair of International Economics and Business,

    Faculty of Economics and Management, University of Latvia, from 2011 to 2015.

    Form of the thesis: Dissertation in Management science, Business Management.

    Supervisor: Prof. Dr. Josef Neuert, Professor at Fulda University, Germany.

    Reviewers: Professor of University of Latvia, Dr. oec. Signe Balina

    As. Professor Vidzemes Augstkola Dr. oec. Ligita Melece

    Professor of University of Augsburg Dr. Oec. Johann Lachhammer

    The thesis will be defended at the public session of the Promotional Council of the

    Management Science and Demography, University of Latvia, on 11th

    of September, 2015,

    Aspazijas blvd.5, Riga.

    The thesis is available at the Library of the University of Latvia, Kalpaka blvd. 4, Riga.

    This thesis is accepted for the commencement of the Doctor`s degree in Management Science

    on 20th

    March 2015 by the Promotional Council of the Management Science and

    Demography, University of Latvia.

    Chairman of the Promotional Council Professor, Dr. habil. oec. Juris

    Krmin

    Secretary of the Promotional Council M.b.a. Kristne Brzia

    University of Latvia, 2015

    Brenninger, Hans-Jrgen, 2015

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    ANNOTATION

    The main subject of this dissertation is employee satisfaction and its impact on company

    value. The investigation of working circumstances and conditions and their influence on

    employee satisfaction and company value is the main theme.

    In the dissertation, a comparison is based on different leadership styles, workplace

    environment and circumstances. The study Great Place to Work 2007 and 2009 and the

    best companies who won the contest will be the basis of further research activities. For the

    dissertation, a comparison between the financial results and the employee satisfaction of the

    winning companies will take place. The preeminent research question focuses on the

    relationship between employee satisfaction (including leadership style) and company value.

    The main task of the dissertation will be to prove that there is a relation between employee

    satisfaction and company value. This dissertation is based on a deep theoretical research

    through literature regarding workplace environment, leadership style, management methods,

    employee satisfaction and company value. Based on this fundamental research which also

    includes a secondary data analysis from the USA, in which the results of Great Place to

    Work were compared with financial results. In a primary data analysis conducted in

    Germany this dissertation evaluates the relation between employee satisfaction and company

    value and shows the empirical findings. Based on an employee survey and a culture audit,

    attending companies where ranked from 1 to 100. In this research the author will compare the

    financial results from 30 randomly selected companies which attended the Great Place to

    Work contest 2007 and 2009 with 30 randomly selected companies which didn`t attend the

    contest. Additionally, in a research case study, the relation between equity value and Great

    Place to Work Scores of 11 companies randomly selected from the Great Place to Work

    Institute were analyzed.

    To consolidate and strengthen the results of the research some additional statistical research

    methods were used.

    The main results of this research are that there is evidence about the relation between

    employee satisfaction and company value.

    Key words: Employee satisfaction, company value, secondary and primary empirical

    analysis

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    LIST OF CONTENTS

    Annotation .................................................................................................................................. 3

    List of figures ............................................................................................................................. 6

    List of formulas .......................................................................................................................... 7

    List of tables ............................................................................................................................... 8

    List of abbreviations ................................................................................................................. 10

    Introduction .............................................................................................................................. 12

    1. Theoretical framework for the research area of Employee satisfaction and its impact

    on company value ..................................................................................................... 22

    1.1. Influencing factors on the level of company value .................................................... 22

    1.2. Basic research question: Employee satisfaction has an impact on the level of

    company value ............................................................................................................ 29

    1.3. Literature review to basic determinants of employee satisfaction ............................. 31

    1.3.1. Leadership and management styles ............................................................................ 33

    1.3.2. Workplace environment ............................................................................................. 43

    1.3.3. Monetary compensation ............................................................................................. 47

    1.3.4. Training on the job ..................................................................................................... 53

    1.3.5. Interconnection of several determinants of employee satisfaction and general aspects

    of job satisfaction ....................................................................................................... 56

    1.3.6. Findings of determinants of employee satisfaction ................................................ 61

    1.4. Literature review to employee satisfaction and financial results ............................... 63

    1.4.1. Corporate responsibility, employee satisfaction, company results ............................ 63

    1.4.2. Effects of employee turnover and employee attitudes and their impact on customer

    satisfaction and profitability ....................................................................................... 67

    1.4.3. Findings of employee satisfaction and financial results ............................................. 73

    2. Theoretical model and set of hypotheses concerning Employee satisfaction as the

    independent variable and its impact on company value as the dependent variable . 75

    2.1. The independent variable Employee Satisfaction ................................................... 76

    2.1.1. The five dimensions of a Great Place to Work ......................................................... 77

    2.1.2. The Great Place to Works assessment criteria for the Culture Audit

    ................... 81

    2.2. The dependent variable Company Value ................................................................ 87

    2.2.1. The discounted cash-flow-model ............................................................................... 88

    2.2.2. Concept of weighted average cost of capital .............................................................. 90

    2.2.3. Corporate value model ............................................................................................... 92

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    2.2.4. The EBIT-multiple model .......................................................................................... 93

    2.3. Summarizing explication of the theoretical model and basic hypothesis .................. 96

    3. Empirical investigation into the research hypothesis Employee satisfaction as the

    independent variable has an impact on the level of company value as the dependant

    variable ..................................................................................................................... 99

    3.1. Prior research findings and secondary data analyses summary ................................. 99

    3.2. Primary data analysis based on the results of the Great Place to Work

    Contest 2007

    / 2009 in Germany .................................................................................................... 106

    3.2.1. Testing statistics and findings .................................................................................. 109

    3.2.2. Summarizing correlation analysis and additional statistical findings ..................... 118

    3.3. Intermediate conclusions and recommendations out of the empirical investigation 124

    4. Validating empirical case investigation for additional review of research findings 126

    4.1. Operationalization of employee satisfaction ............................................................ 127

    4.2. Operationalization of equity value ........................................................................... 128

    4.3. Validating statistical correlation analysis and testing statistics for equity value and

    employee satisfaction ............................................................................................... 131

    4.4. Summarizing findings from the research case ......................................................... 144

    Conclusions and suggestions .................................................................................................. 146

    Bibliography ........................................................................................................................... 150

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    LIST OF FIGURES

    Figure 1.1: Basic model of cause-effect based on Wright ........................................................ 58

    Figure 1.2: Dependencies and relevant factors of employee satisfaction and dissatisfaction .. 61

    Figure 1.3: Issues influencing on financial results of companies ............................................. 72

    Figure 2.1: Corporate values DCF ............................................................................................ 90

    Figure 2.2: Company Value Models......................................................................................... 96

    Figure 2.3: Cause Effect Relations ........................................................................................... 97

    Figure 4.1: Exemplary Correlation analysis diagram done by SPSS ..................................... 136

    Figure 4.2: Comparison of Great Place to Work

    and randomly selected normal

    companies with correction of negative EV............................................................................. 140

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    LIST OF FORMULAS

    Formula 1.1: Theoretical standard regression function ............................................................ 28

    Formula 1.2: Theoretical regression function........................................................................... 28

    Formula 2.1: Computing cash flow .......................................................................................... 89

    Formula 2.2: Practical method for computing cash flow ......................................................... 89

    Formula 2.3: Market value of total capital ............................................................................... 91

    Formula 2.4: Present value ....................................................................................................... 92

    Formula 2.5: Weighted average cost of capital ........................................................................ 92

    Formula 2.6: Weighted average cost of capital ........................................................................ 92

    Formula 3.1: Theoretical standard regression function .......................................................... 119

    Formula 3. 2: Theoretical Regression function ...................................................................... 120

    Formula 4.1: Kendall coefficient ......................................................................................... 133

    Formula 4.2: Spearman correlation coefficient ...................................................................... 134

    Formula 4.3: Spearman correlation coefficient ...................................................................... 135

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    LIST OF TABLES

    Table 1.1: Leadership styles ..................................................................................................... 34

    Table 1.2: Main leadership traits and skills identified by Stogdill in 1974 .............................. 35

    Table 1.3: Character of autocratic leader dictator ................................................................. 35

    Table 1.4: Character of bureaucratic leadership style by the book ....................................... 36

    Table 1.5: Character of charismatic leadership style follow me ........................................... 36

    Table 1.6: Character of democratic leadership style participative ........................................ 37

    Table 1.7: Character of laissez faire leadership style let it be............................................. 37

    Table 1.8: Character of people-orientated leadership relations-oriented .............................. 37

    Table 1.9: Character of servant leadership support everyone ............................................... 38

    Table 1.10: Character of task-oriented leadership get it done .............................................. 38

    Table 1.11: Leadership Matrix by Covey ................................................................................. 39

    Table 1.12: Advantage and disadvantages of a shift to a more participative style................... 39

    Table 2.1: 66 questions GPTW five dimensions ................................................................... 80

    Table 2.2: Sample calculation for Equity Value ................................................................... 94

    Table 2.3: EBIT and turnover multiples for computing company value, May 2011 ............... 95

    Table 3.1: Best companies included in study by industry classification ................................ 102

    Table 3.2: GPTW scores 2007/2009 ...................................................................................... 110

    Table 3.3: GPTW companies - 12 different industries ........................................................... 112

    Table 3.4: Average EBIT and EV of 30 randomly selected GPTW companies in Germany

    with correction of negative EV ....................................................................................... 113

    Table 3.5: normal German companies - 10 different industries ......................................... 114

    Table 3.6: Average EBIT and EV of 30 randomly selected normal companies in Germany

    w...

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