Why engage?

Many studies show a positive correlation between employee relations and a company’s financial performance. 

Employee satisfaction also positively correlates with stock returns in markets with high labour flexibility. 

Employees are crucial for all companies, but they are particularly key in the retail sector because most employees are in constant contact with customers. As a result, they have a more direct impact on customer satisfaction and sales compared to other sectors. An analysis of a large retailer found that one additional dollar invested in an employee would lead to between four and 28 dollars in new sales.6 US retailers Costco, QuikTrip, and Trader Joe’s as well as the Spanish retailer Mercadona all invest significantly more in their employees than other retailers while being highly profitable.

Many retailers still report little to no information on how they manage this issue, despite this growing body of evidence supporting the link between good employee relations and business success. Organisations such as the National Association of Pension Funds (a UK body promoting the interests of pension funds), note that “there is very limited quantitative or qualitative reporting by companies on their approach to managing their workforce”. Researchers at UBS found that many companies and investors still underestimate the importance of employee relations because “markets may fail to recognize underinvestment in the workforce as a negative signal”. 

Background to the PRI-coordinated engagement

Based on this larger context and on interest from PRI signatories, the PRI initiated a collaborative engagement on employee relations in the retail sector. In 2013, the PRI Employee Relations Steering Committee10 identified 30 academic and industry research papers and books looking at the materiality of employee relations in the sector. From this, the four key performance indicator (KPI) categories that were most strongly correlated with financial performance were identified:

• Employee turnover
• Employee absence
• Employee training
• Employee engagement

Baseline research was undertaken on the reporting and performance of 80 global retailers against those indicators, as well as reporting on additional indicators the steering committee considered important, such as board and CEO remuneration and labour rights. Using this research, the steering committee developed an engagement programme that aimed to:

• Identify and assess existing company practices
• Encourage improved company practices
• Encourage enhanced company assessment and reporting
• Heighten board and senior management attention regarding the issue

In 2014, 24 PRI signatories with combined assets under management of US$1.5 trillion initiated engagement with 27 global retail companies on the issue. The companies included retailers with a very large workforce, companies that were lagging behind their peers, and those with inconsistent reporting on the topic.

Investors sought dialogues with the retailers’ human resources departments, boards, sustainability and investor relations teams, with the aim of better understanding their employee relations strategies and encouraging improved disclosure and performance on the issue.

In 2015, after 16 months of engagement, the reporting and performance of the 27 companies were re-evaluated. Details on the outcomes can be found in appendix 2, and recommendations for further engagement in chapter 3.