This "Best" List Yields Great Stock Ideas

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Happy employees create happy customers; this virtuous circle of cause and effect helps create the healthiest businesses.

Every year, Fortune compiles its "100 Best Companies to Work For"; its 2012 list is available now. Given the connection between well-treated employees and factors like customer satisfaction and higher levels of productivity, investors should add this resource to their arsenal when scouting out great stock ideas.

Common sense creates competitive edge
The fact that satisfied employees help create a solid foundation for better businesses is common sense, but research backs up the theory, too.

In 2009, Kansas State University researcher Thomas Wright revealed data showing that employees who exhibited high levels of psychological well-being and job satisfaction outperformed those who didn't, and were less likely to quit their jobs.

According to Wright, "Since higher employee performance is inextricably tied to an organization's bottom line, employee well-being can play a key role in establishing a competitive advantage."

Along similar lines, University of Pennsylvania's Wharton business school recently pointed out that corporate managements that slash worker pay and benefits in difficult economic times could pay a major price later. Although such cost cuts are often used to boost the bottom line in the near term, the long-term damage could be devastating to companies and their shareholders.

According to Wharton's Peter Cappelli, "Despite the bottom-line focus, companies are not yet calculating the cost that repeated downsizing, benefit trimming and pay freezes may have on employee performance, engagement and turnover."

Wharton's Adam Cobb argues that treating workers better in tough times may in reality pay the best future dividends. A recession "might be a really good time to give people a small raise, or maybe a bonus. I think the evidence would show that having a good relationship with your workers is actually a strategic advantage for firms, but I don't think that's an attitude that is shared among many CEOs, because the easiest thing to do is cut labor costs. It's tough, and it takes courage ... to believe that the path to success is not making these cuts" -- and giving rewards to workers instead.

Where happiness rules
Fortunately, some companies understand that treating employees well is an important part of building the most competitive organizations. Fortune highlighted corporations of all stripes in its list of exemplary employers. Pick through the list and you'll find household names as well as less common ones, and often some unexpected perks that help employees love their work.

Google (NAS: GOOG) topped the list, having climbed to the pinnacle from No. 4 last year. Workers cite the mission and the culture, and another big plus is the constant availability of free food provided by 25 company cafes on the Google campus. Nobody's going hungry at Google, for sure.

Intuit (NAS: INTU) gives its workers a lot of creative latitude. They're encouraged to have "idea jams," and are given four hours of "unstructured" time every week to let their imaginations run wild.

Men's Wearhouse (NYS: MW) made the list due to some shocking retail perks. After they've clocked five years, employees are eligible for a three-week paid sabbatical as well as three weeks' worth of vacation time every year, among other worker-centric innovations.

Nordstrom's (NYS: JWN) renowned for amazing customer service, but it serves its employees well, too. The average retail worker's hourly pay is $12, but at Nordstrom, it's $19.18. Some Nordstrom workers can make as much as $200,000 per year including commissions.

Many privately held companies made the list, too; take grocer Wegmans, which made the No. 4 spot and has never laid off an employee.

The logical first step
As is common in investing, no one metric automatically makes a perfect investment idea, of course. This list of worker-friendly companies makes a great starting point for finding great investment ideas, but investors should still weigh many factors before they commit to any stock.

For example, Chesapeake Energy (NYS: CHK) made the list, boasting perks like a brand-new child-care center on campus. Dig a bit deeper, though, and you'll find that Chesapeake not only treats its workers well, it has historically treated its CEO very well, and in fact egregiously so from the corporate governance perspective. My Foolish colleague Matt Koppenheffer has frequently outed CEO pay problems and disregard for shareholder rights at Chesapeake.

Still, an eye on exemplary worker relations is a logical first step in finding solid stock ideas. Corporate managements that bestow respect and appreciation on their workforces are laying the most solid foundation for long-term business success. If workers are happy, there's a good chance that over time, shareholders will be, too.

If you're on the lookout for additional solid stock ideas, Motley Fool analysts recently identified three companies set to take emerging markets by storm. The new report, "3 American Companies Set to Dominate the World," is available for free right now.

Check back atFool.comevery Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.

At the time this article was published Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google and Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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