This issue of JOEM reports the findings of three studies1–3 that examined the change in stock price for three portfolios of employers after they won awards for their employee wellness program or self-scored themselves as having a comprehensive program. In all three cases, award winners and those with high scores outperformed the Standard and Poors (S&P) index, at rates ranging from 7% to 16% per year.
The overall methodology for the three studies was similar. The statistical analysis was almost identical in the three cases, although the measures of high performance, number of companies in the portfolio, and years’ stock prices monitored were different. The awards and the self-scoring measures, the analysis approach, and the results are briefly described below. Readers are referred to the actual studies for more details.
SELECTION CRITERIA FOR THREE STUDIES
ACOEM Corporate Health Achievement Award (CHAA)
The CHAA was established in 1995 by the American College of Occupational and Environmental Medicine (ACOEM)4 to recognize the healthiest and safest employers in North America. Applicants for the CHAA are judged on 17 standards in four general categories: leadership and management, healthy workers, healthy environments, and healthy organizations. Candidates submit applications providing details in each of these areas and a panel of experts award points based on the information in the application and follow-up onsite validation.
For this study, employers who submitted applications between 1997 and 2014 were judged high performers on the basis of the scores awarded by the panel of experts in three categories: (1) health, (2) safety, or (3) health and safety, not based on their receiving the CHAA Award. This study analyzed the stock performance of six portfolios of employers, including those with high and extremely high scorers in each of the three areas. This resulted in 21 publicly-traded companies, most of which were recipients of the CHAA. Stock performance was tracked from the beginning of 2001 to the end of 2014, which represents 14 years.
The HERO Scorecard is an online tool developed in 2006 by the Health Enhancement Research Organization (HERO) to help employers improve their employee wellness programs by reflecting on their programs and self-rating their current performance.5 Version 3, released in 2009, scored questions in six core areas: strategic planning (10 questions), organization and culture support (six questions), programs (19 questions), program integration (eight questions), participation strategies (seven questions), and measurement and evaluation (three questions). Scores from the 745 employers who completed the questionnaire in 2009 to 2012 were used in this study. For the purposes of this study, high performers were those who had scores of 125 out of a maximum of 200, which roughly corresponded to 75th percentile rating. Four cohorts of companies were included in the study based on the year in which they completed the scorecard, for a total of 45 companies that were publicly-traded companies during the study period. Stock performance was monitored from the beginning of 2009 to the end of 2015, which represents 6 years.
Koop Award Winners
The C. Everett Koop Award was created in 1994 by the Health Project,6 with the goal of identifying employers who had demonstrated health improvement and cost savings through their wellness programs. Applications submitted by employers must describe the methodology used to measure health and cost savings in sufficient detail for the reviewers to confirm it is rigorous. Winners are selected on the basis of study methodology, participation rates, and the magnitude of health improvements and cost savings. For the purposes of this study, the 26 publicly-traded employers who were award winners from 1999 to 2014 were included in the analysis and stock performance was monitored from the beginning of 2001 to the end of 2014, which represents 14 years.
ANALYSIS AND SUMMARY OF FINDINGS
The analysis was almost identical in all three studies, and was developed on the basis of a methodology reported in a similar study by Fabius et al in 2013.7 In summary, stock price was monitored in the years after the award or high score, and dividends were re-invested quarterly. To minimize the impact of any one stock, the whole portfolio was rebalanced each year that a company already in the sample won an award or received a high score.
The portfolios of companies with highly rated programs outperformed the S & P Index of companies in all three studies.
The HERO Scorecard portfolio outperformed the S&P 235% to 159%, for a ratio of 1.48 to 1.00 over 6 years, or 8% superior performance per year. Also, the HERO Scorecard portfolio outperformed the S&P in 16 of 24 quarters.
The CHAA Award portfolio as a group outperformed the S&P 303% to 105%, for a ratio of 2.89 to 1.00 over 14 years, or 13% superior performance per year. Within the six categories, the annual outperformance ranged from 7% to 16%.
The Koop Award portfolio outperformed the S&P 325% to 105% over 14 years, for a ratio 3.10:1.00 or 15% superior performance each year. Also, the Koop Award portfolio outperformed the S&P in 11 of 14 years. The authors of this study examined the stock price to earnings ratio (P/E) to determine whether the high stock price was based on inflated or speculative stock pricing and found it was not, with the P/E ratio of 17.13 for the Koop Award portfolio and 18.27 for the S & P.
Two things surprised me about these findings. First was the extent to which all three portfolios outperformed the S&P. To put the magnitude of outperformance in perspective, if you are 65 years old, getting ready to retire and you were able to save $500 per month since you were 35 years old (in 1984) and you put it in the bank and earned 3% interest each year, you would now have $285,454.92. If you instead invested it in an S&P index fund every month, earning the 11.22% annual compound growth rate (CAGR) of the S&P between January 1, 1984 and December 31, 2014,8 you would now have $1,245,655.93. If you were able to add the extra 8% experienced by the HERO Scorecard portfolio, for a CARG of 19.22%, you would now have $6,062,541.93. If you were able to add the extra 13% experienced by the CHAA portfolio, for a CARG of 19.22%, you would now have $16,561,178.53. If you were able to add the extra 15% experienced by the Koop Award portfolio, for a CARG of 26.22, you would now have $54,793,613.61.9 In summary, adding 8% to 15% to the annual performance of your investment portfolio is a very big deal.
Second, I was surprised to see that the relative performance of the three portfolios was consistent with the difficulty of being a member of the three portfolios in the three studies. The Koop Award and the CHAA have the more rigorous standards of and those portfolios of winners outperformed the market the most 15% and 13%, respectively. In contrast, the HERO Scorecard is less rigorous in that it is completely self-scored, with no external review, and that portfolio of companies outperformed the market 8%. This pattern of higher rigor being associated with better stock market performance did not hold up within the CHAA award categories. For example, within the Health category, the high scorers outperformed the extremely high scorers (16% to 7%), and in the Health + Safety category, the high scorers outscored the extremely high scorers 16% to 13%. Only in the Safety category did the extremely high scorers outperform the high scorers (15% to 14%). It is important to note that the number of companies in each category was small.
MECHANISMS LINKING PROGRAMS, AWARDS, AND STOCK PRICE INCREASE
Considering the study findings and methodology, what can we conclude from this study? We can conclude that stock price of publicly-held companies whose wellness programs won awards or were self-scored as comprehensive outperformed the market after the award or self-scoring. That's a lot, but that's all. There is no evidence that the wellness program or the award or self-scoring did or did not cause the stock to rise. The discussions of possible mechanisms linking the programs and awards with the stock price by the various authors are creative and interesting, but, as the authors acknowledge in their discussion of limitations, the study design does not allow us to draw any conclusions about why the stock prices rose for these companies. The most likely mechanism, in my opinion, is that employers who are sufficiently capable and determined enough to develop excellent wellness programs, evaluate those programs, seriously reflect on the quality of their program, and/or apply for and win awards also understand how to manage their core business in such a way that revenues and profits will grow … which in turn causes the stock value to outperform the market. This is very close to the suggestion by Grossmeier et al3 that having a great program is a “proxy for other types of highly-effective business practices.” Maybe it is a proxy measure of great management. That is good enough, because great management is what makes companies perform and great management is what makes sophisticated investors invest.
Given these somewhat modest conclusions, are these findings likely to make a difference? I think so. First, the findings will create a buzz, probably even in the popular media, but especially among human resource leaders. Equally important, it is likely that some CEOs, COOs, and CFOs (senior members of the C-Suite) may notice these studies because they care about stock prices, probably as much as they care about anything in their businesses, and maybe sometimes as much as they care about effective management of their business. We like to think that CEOs are very involved in wellness programs, and some of them are. But even for the most involved CEOs, the wellness program is probably not among the 100 most important issues they deal with in the course of a year. Medical costs are in the top 100 issues, and sometimes in the top 10 issues, but wellness programs are not. Wellness programs are such a minor expense, about the same cost as landscaping or interior decorating, or equipment maintenance, that they do not reach the top 100 for most CEOs. However, I suspect that these studies, if shared properly, might push wellness programs into the top 100 for a growing number of CEOs. The reason is that they care about increasing stock price because it represents a large portion of their compensation, and sometimes, most of their compensation. The same is true of members of the board of directors. From a broader perspective, the primary purpose of any publicly-held corporation is to serve the shareholders, and the primary way to do this is to increase the stock price or pay large dividends. Equally important, the biggest individual shareholders are usually CEOs, founders, and board members.
If my analysis about the reaction of the C-Suite to this study is correct, does this mean that CEOs will invest in programs because they think it will increase stock prices? No. They will not believe for a second that investing in a wellness program will make their stock price increase. They will believe that investing in a wellness program, especially a great program, and conducting a comprehensive evaluation, will not make the stock price drop. Expressed in different terms, if they embrace the findings of these studies, they will be more likely to believe that doubling or tripling the program budget of a mediocre program, or allocating more executive-level support to make the program thrive, will not represent squandering of organization resources, in fact, it will be prudent management consistent with an increasing stock price. They are more likely to believe that enhancing health and employee engagement will be the short-term benefits of a program, followed by mid and long-term reduction in medical costs and enhancement of productivity, and none of this spending will have a negative impact of their personal goal of enhancing the stock price.
Again, if my analysis is correct, how should wellness advocates present these results? Keep it simple and conservative. Do not say that investing in a wellness program will make stock prices go up. Do not even say that creating a great wellness program will make stock prices go up. Do say that investing the funds necessary to create a great wellness program will not make stock prices go down … and let others discover this is a very conservative this statement.
Do not repeat the mistake made about ROI by health wellness supporters, or more accurately by wellness vendors. Decades ago, ROI studies started showing that comprehensive wellness programs were associated with reductions in medical costs and absenteeism, that savings that were sometimes greater than the cost of the program, and in some cases savings were three times the cost of the program. Program vendors seized on these findings and starting making claims that employers would save three dollars for every dollar invested in a wellness program. They should have said something like the following: (1) Workplace wellness programs provide a cost-effective strategy to improve employee health and vitality and prevent future more serious health problems, (2) Comprehensive programs have the potential to reduce medical costs and absenteeism, and (3) A growing number of studies are showing that the savings exceed the program costs, sometimes by a factor of 2 or 3. That series of statements would have been, and still are, more than enough to persuade the vast majority of employers to invest in comprehensive programs because those statements cannot be made about any other employee benefit program, and because the cost of a comprehensive program is so low.
From another perspective, are these studies likely to influence professional and individual investors decisions? Maybe, and hopefully not, respectively.
Professional investors may take notice of these studies because they are always looking for consistent predictors of future stock performance. The most sophisticated investors build complex models that incorporate multiple factors, with the goal of choosing stocks that will outperform the market, even by a few percentage points. Using indicators related to corporate social investments is not unusual. Grossmeier et al3 point out that the Panassus Endeavor Fund, a portfolio of companies that are widely recognized as good employers to work for, which has consistently outperformed the market since it was created in 2005. Similarly, Goetzel et al2 point out that stock performance has been repeatedly tied to companies with high ratings for corporate social responsibility, employee job satisfaction, being rated as a best place to work, and more spending on human resources. It will be interesting to see if professional investors take note of this study and if a wellness investment fund emerges.
What about individual investors? What about me? I would like nothing more than to invest all of my savings in companies that embrace my passion in life, namely, workplace wellness. ManoMano! If I had $54 million in my pocket right now because I invested in a Koop portfolio of companies, instead of the $285 thousand I earned putting my money in the bank, I could have some serious fun! Big IF. In reality, there is one thing I would like more than investing in workplace wellness, and that is to have a financially secure retirement. So, I am going to move cautiously. I am going to take a look at investing some money in companies that have great wellness programs. Actually, I am going to ask experts I know about investing some money in this way. If I do move forward, I will take note of the fact that Goetzel et al2 and Grossmeier et al3 pointed out that the Koop Winners and HERO Scorecard portfolios outperformed the S&P companies in 11 of 14 years and 16 or 24 quarters. That means they underperformed the S&P in 3 of 14 years and 8 of 24 quarters respectively. Similarly, some of the individual companies outperformed the S&P but others underperformed. In fact, some of the companies have ceased to exist for one reason or another. If I do move forward, I will remember one of the most important things in investing for non-professional investors … diversification and patience. I will invest in a portfolio of companies, not one or two, and I will move in and out of these investments with care.
1. Fabius R, Loeppke RR, Hohn T, et al. Tracking the market performance of companies that integrate a culture of health and safety: an assessment of corporate health achievement award applicants. J Occup Environ Med
2. Goetzel RZ, Fabius R, Fabius D, et al. The stock performance of C. Everett Koop Award winners compared with the Standard & Poor's 500 Index. J Occup Environ Med
3. Grossmeier J, Fabius R, Flynn JP, et al. Linking workplace health promotion best practices and organizational financial performance: tracking market performance of companies with highest scores on the HERO scorecard. J Occup Environ Med
4. Peterson KW, Yarborough CM III, Ferguson EB, Matthew SJ. ACOEM award: the American College of Occupational and Environmental Medicine's Corporate Health Achievement Award. J Occup Environ Med
5. Goetzel RZ, Henke RM, Benevent R, et al. The predictive validity of the HERO Scorecard in determining future health care cost and risk trends. J Occup Environ Med
6. The Health Project. C. Everett Koop National Health Awards. Available at: http://thehealthproject.com
. Accessed October 14, 2015.
7. Fabius R, Thayer RD, Konicki DL, et al. The link between workforce health and safety and the health of the bottom line: tracking market performance of companies that nurture a culture of health. J Occup Environ Med
8. Moneychimp. Compound Annual Growth Rate & CAGR of the Stock Market. Available at: http://www.moneychimp.com/features/market_cagr.htm
. Accessed October 11, 2015.
9. Investor.gov. US. Securities and Exchange Commission. Compound Interest Calculator. Available at: http://investor.gov/tools/calculators/compound-interest-calculator
. Accessed October 11, 2015.