Why does making your employees happier get results?

The world of management is always open to new ideas and perspectives to make companies more efficient and profitable. Some recommendations have merit, but others are seen, both inside and outside companies, as fads, passing trends that managers put up with until they abandon them when looking for the “next big thing”.

One anti-modism management is: to increase business performance, increase the happiness of the people who do the work. Recent research, including studies conducted by independent academics and companies themselves, shows that understanding well-being and maximizing it through management practices not only improves employees’ quality of life — it also significantly increases productivity and profitability.

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You might think that this idea is as old as humanity, and you would be right, but if it were so obvious and simple to apply, all companies would already do it. Many leaders are also skeptical of this claim. Sure, a company should treat its employees well, but shouldn’t the main focus be productivity and profit? How can leaders be sure that employee happiness will lead to business success?

There’s one company that points to answers: investment firm Irrational Capital conducts research on the happiness-to-success theory. Using public and private data sources on employee satisfaction, its researchers found that over an 11-year period through March 2025, S&P 500 companies that ranked in the top 20% on several key measures of employee happiness outperformed (in stock price) those bottom 20% by nearly six percentage points. Meanwhile, the top 20% in “extrinsic” rewards like salaries and benefits outperformed the bottom 20 by just 2.07%.

Researchers at Irrational Capital have identified six specific factors behind employee satisfaction. In order of positive impact on company performance, they are:

1. Innovation: openness of managers to ideas and contributions
2. Direct management: clarity and truthfulness in communication
3. Organizational effectiveness: efficient and bureaucracy-free management
4. Engagement: leadership that supports learning and growth
5. Emotional connection: culture that promotes friendships between colleagues
6. Organizational alignment: correspondence between external mission and internal company culture

These six factors imply six objectives for managers who want to increase employee satisfaction and thus improve company performance. Here are three “Happiness Exercises” to help put these goals into practice.

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Look for a new way to solve a bothersome problem

Leaders tend to think that asking for advice is a sign of weakness. In fact, this is the opposite of innovation. Even if the final decisions are theirs, it’s helpful to recognize that you don’t have all the answers. Turn to your senior team for ideas and advice. This week, ask an employee for advice.

– First, identify a problem that has been bothering you.

– Then, explain to a member of your senior team how you are thinking about solutions — but specifically ask for a different solution and whether they see any blind spots in your approach.

Sure, you might not solve the problem until next week, but you will discover a new way of thinking about it. Best of all, if you ask for advice honestly, you’ll signal to the employee that you’re open to their advice. innovation — Irrational Capital’s key driver of happy employees and profitable companies.

A difficult part of direct management is acting and speaking with complete clarity and truth. Especially in times of uncertainty, employees notice dubious and unclear speech. Always be truthful and clear about what they need to know for their jobs and careers. They can handle “I don’t know what’s going to happen” as long as it’s the truth.

Over the past few weeks, you’ve probably put off a difficult conversation with an employee. Maybe it’s an uncomfortable disciplinary conversation; you may need to deny a request for a raise or reduce a bonus; or discuss uncertainties about the continuity of a project, without concrete answers. These are difficult conversations that can lead to disappointment and difficult questions, but evidence shows that being direct has real benefits. This direct management style is strongly correlated with employee happiness: the latest data from Irrational Capital shows that large companies that excel at direct management outperform their competitors (in share price) by more than 7%.

So this week, stop avoiding this difficult conversation. Approach your employee with clarity and truth, rather than remaining in a state of silent uncertainty.

Schedule a team lunch… and don’t show up

Research has long shown that people who have friends at work are more engaged, productive and less likely to leave the company. Upon hearing this data, many leaders schedule mandatory meetings and place themselves at the center of the ecosystem.

Unfortunately, scholars have found that spending time with your boss generates more negative emotions for employees than anything else during the average day. (These researchers have shown that time with your boss triggers more negative emotions than commuting or doing chores, for example.) This doesn’t make you, the boss, a bad person; It’s human nature to not feel completely comfortable around someone who has power over you.

This week, take this data seriously: schedule and pay for an agenda-free team lunch. But here’s the thing: you’re not invited. To start creating an organic culture of friendship — and happier employees — you must help build the ecosystem and then get out of the way.

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