Good Job Score Reflects Strong Correlation Between Workplace Quality and Financial Performance

FoW Partners' December 2024 Report: "The Good Job Score Assessment Tool in Practice"

FoW Partners recently published their December 2024 report titled "The Good Job Score Assessment Tool in Practice," detailing their findings after expanding their research on workplace quality measurement and its relationship to business performance. The report presents compelling evidence that companies providing better quality jobs achieve superior financial results, validating the practical business case for investing in workforce quality.

The Good Job Score (GJS) Assessment Tool, developed by FoW Partners (formerly Two Sigma Impact), Two Sigma data scientists, and PwC, has evolved from its initial launch in April 2023 into a more robust analytical framework with established sector-level benchmarks and clearer validation of the relationship between job quality and company performance. This analysis examines the key findings, implications, and real-world applications of this assessment tool.

The Good Job Score: Quantifying Job Quality

The Good Job Score measures workplace quality across four key dimensions:

• Leadership: Senior leadership's skills, capabilities, and genuine desire to engage the workforce
• Purpose: Clarity of company mission and values and their connection to employees' work
• Growth: Employee access to feedback, support, and opportunities for career development
• Fairness: Workplace safety, fair compensation, and sufficient flexibility for work-life balance

FoW Partners has now surveyed over 9,000 employees from 186 companies across seven sectors, representing approximately 23% of the Russell 1000 universe and over 60% of the workforce within these sectors. This expanded dataset enables more meaningful benchmarking and analysis than was previously possible.

Sector-Level Benchmarks and Patterns

The research reveals notable variations in the Good Job Score across different sectors and industry groups. The average GJS in the sample is 3.86, with scores ranging between 3.25 and 4.30. Consumer sectors (Discretionary and Staples) consistently lag behind other sectors, while companies in sectors like Information Technology and Industrials tend to score higher.

Within sectors, significant differences emerged. For example, Consumer Distribution and Retail industry groups have lower scores compared to Consumer Services and Consumer Products in their respective sectors. Financial Services shows larger variation in scores compared to Banks and Insurance companies.

These benchmarks provide important context for companies seeking to understand how their workplace quality compares to peers, enabling more targeted improvement efforts.

Employee Characteristics and GJS Differences

One of the most revealing aspects of the research is how perceptions of job quality vary across different employee groups. While the differences by gender and race were statistically significant but relatively small (0.07), much larger disparities (0.3-0.4) appeared between employees with different education levels and organizational roles:

• Employees without college degrees scored lower than those with degrees
• Front-line employees and supervisors/managers scored lower than VPs, directors, and executive leadership

These patterns varied somewhat by sector. Consumer Staples and Consumer Discretionary showed greater differences across education levels compared to other sectors, while the Financial sector exhibited larger gender-based disparities. These findings highlight potential equity issues within organizations that may require targeted interventions.

The Business Case for Better Jobs

The most compelling aspect of FoW Partners' research is the clear correlation between the Good Job Score and financial performance. The study found:

• Moderate positive correlation (30-40%) with gross profit margin and free cash flow to revenue ratios
• Slightly weaker but still significant correlation (20-30%) with other profitability metrics like operating margin, EBIT margin, EBITDA margin, and operating cash flow margin
• Moderate negative correlations (-30-40%) with capital expenditure to cash flow and debt to market capitalization ratios, suggesting companies with higher GJS tend to be financially healthier

When comparing companies in the top 20% of GJS scores (above 4.05) against those in the bottom 20% (below 3.7), the financial performance differences were substantial:

• ~1.5x higher Gross Profit margin
• ~2x higher Operating margin
• ~4x higher EBIT margin
• ~1.8x higher EBITDA margin
• ~5x higher Free Cash Flow to revenue ratio
• ~1.75x higher operating cash flow margin
• ~2x greater share price return over a 12-month period

These findings remained consistent even after controlling for sector differences. Companies with higher GJS were 30% more likely to outperform sector averages on gross profit margin and 20% more likely to outperform on EBIT margin, free cash flow margin, and operating margin.

Case Studies: The GJS in Practice

The report includes two illuminating case studies demonstrating how FoW Partners has applied the GJS Assessment Tool within its investment portfolio:

Case Study 1: Community Medical Services (CMS)

FoW Partners invested in CMS, an opioid use disorder treatment provider, in December 2021. Annual GJS assessments revealed that frontline counselors scored significantly lower (3.5) than corporate employees (3.9), particularly on the Growth dimension. This finding, combined with data showing high turnover and low productivity, prompted a deeper investigation.

Through listening tours, focus groups, and surveys, the team identified two key issues:

1. Lack of clarity around counselor goals and limited access to training
2. Inefficient workflows with significant administrative burden

These insights led to targeted interventions, including upgrading the training program, developing operational playbooks and digital dashboards, and procuring technology tools to reduce administrative burden. Early results have been promising – counselors' GJS increased to 3.8, turnover decreased significantly, and patient care improved as counselors could dedicate more time to patient-facing services.

Case Study 2: ResiXperts Due Diligence

FoW Partners formed ResiXperts, a consumer services platform for residential heating, cooling, plumbing, and electrical services, in May 2023. Before making its first acquisition, FoW Partners ran the GJS Assessment at Rescue One Air, a target company.

The assessment revealed that Rescue One Air scored above the industry baseline, with particularly strong scores among frontline technicians and installers. This aligned with the company's lower-than-industry-average turnover rates – a significant competitive advantage given industry-wide shortages of skilled technicians. These findings contributed to FoW Partners' decision to acquire Rescue One Air as ResiXperts' first investment.

The GJS Assessment has now become an embedded part of FoW Partners' due diligence process for potential acquisitions, demonstrating its practical value beyond theoretical research.

Methodological Considerations and Limitations

While the GJS research presents compelling evidence linking job quality to financial performance, several methodological considerations deserve mention:

1. Correlation vs. Causation: The study establishes correlation between GJS and financial metrics but cannot definitively prove causation. While it seems logical that better job quality contributes to better performance, it's also possible that financially successful companies simply have more resources to invest in workplace quality.
2. Sample Representation: Despite the expanded sample size, some sectors and employee groups have more limited representation, potentially affecting the reliability of specific comparisons.
3. Score Range Compression: The overall GJS scores fall within a relatively narrow range (3.25-4.30) due to the averaging effect across many employee responses. This compression may mask more significant variations within organizations.
4. Self-Selection Bias: Companies that choose to participate in GJS assessment may already be more committed to workplace quality, potentially skewing the sample toward better performers.

Implications for Business Leaders and Investors

The findings from FoW Partners' research offer several important implications for various stakeholders:

For Business Leaders:

1. Financial Justification for Workplace Investments: The strong correlation between GJS and financial performance provides tangible justification for investing in workplace quality improvements.
2. Targeted Intervention Areas: The four dimensions of the GJS (Leadership, Purpose, Growth, Fairness) offer a framework for identifying specific improvement areas.
3. Equity Considerations: The significant differences in GJS scores across employee groups highlight potential equity issues requiring attention, particularly regarding growth opportunities and fairness for frontline workers and those without college degrees.
4. Benchmarking Value: Sector-specific benchmarks allow companies to compare their performance against relevant peers, identifying competitive advantages or gaps.

For Investors:

1. Due Diligence Tool: As demonstrated by the ResiXperts case study, the GJS Assessment can function as a valuable due diligence tool, identifying potential operational strengths or risks in target companies.
2. Leading Indicator: GJS scores may serve as leading indicators of future financial