By The Numbers: What Employee Engagement and Stock Price Performance Tell Us About Pre-Employment Assessments

The benefits provided by the use of pre-employment assessments, whether called workforce science, talent analytics or any other name, should be readily apparent and quantifiable. For example, has the rising use of pre-employment assessments created greater employee engagement? If pre-employment assessments are designed to find those employees with the best fit for the company culture, shouldn't companies who use those assessments outperform their peer companies who do not use the assessments?

Employee Engagement

Gallup defines “engaged” employees as those who are involved in, enthusiastic about, and committed to their work and contribute to their organization in a positive manner. The information in this section come from Gallup's State of the American Workforce 2013 report.

The report shows that 70% of American workers are “not engaged” or “actively disengaged” and are emotionally disconnected from their workplaces and less likely to be productive. Currently, 52% of workers are not engaged, and worse, another 18% are actively disengaged in their work. Gallup estimates that these actively disengaged employees cost the U.S. between $450 billion to $550 billion each year in lost productivity.

Having the vast majority of American employees not engaged with their workplaces is troublesome as the country attempts to recover ground lost during the financial crisis and get back on track to pre-recession levels of prosperity. Even more troubling is that workplace engagement levels have hardly budged since Gallup began measuring them in 2000, with fewer than one-third of Americans engaged in their jobs in any given year. 

So, notwithstanding the exponential growth in pre-employment assessments over the past 10-15 years, "workplace engagement levels have hardly budged" since 2000. Contrast the lack of growth in employee engagement with the marketing of pre-employment assessments, like this selection from the Kronos website:

Your employees are the face of your brand and the most vital asset of your business. They drive your productivity and profitability. What’s more important than selecting the right ones? Take the guesswork out of employee selection with industry-specific, behavioral-based assessments and interview guides [from Kronos].

Gallup’s research shows that employee engagement is strongly connected to business outcomes essential to an organization’s financial success, including productivity, profitability, and customer satisfaction. And engaged employees are the ones who are the most likely to drive the innovation, growth, and revenue that their companies desperately need. Yet, the purported benefits of pre-employment assessments have failed to move the needle on employee engagement, meaning companies have not received the promised productivity and profitability "bumps" from using pre-employment assessments.

Stock Price Performance

The chart below compares stock price performance of CVS Caremark (CVS) and Walgreens Co.(WAG) for the period from July 31, 2011 to January 11, 2014.

The reason for selecting the July 31, 2011 start date is that in July 2011, CVS and the Rhode Island Civil Liberties Union (ACLU) entered into a voluntary settlement addressing the ACLU’s complaint challenging CVS’s use of a pre-hire questionnaire that the ACLU claimed could have a discriminatory impact on people with certain mental impairments or disorders.

The settlement came after the Rhode Island Commission for Human Rights had issued a finding in February 2011 that there was "probable cause" to believe that the questionnaire used by CVS violated state anti-discrimination laws that bar employers from eliciting information that pertain to job applicants' mental or physical disabilities.Pursuant to the settlement agreement, CVS agreed to permanently remove the questions at issue from its online application. Since that time, CVS has not utlized online pre-employment assessments as part of its hiring process.

The reasons for comparing CVS stock price performance with Walgreens are (i) that Walgreens and CVS are direct competitors and (ii) Walgreens continues to use online pre-employment assessments, including personality tests similar to those CVS was using prior to the Rhode Island settlement agreement. CVS stock price performance is shown by the black line and Walgreens stock price performance is shown by the brown line.

The numbers don't lie, do they? Since eliminating the use of pre-employment assessments, CVS stock price performance has increased by approximately 90%. Walgreens, in contrast, continues to use pre-employment assessments and its stock price performance has increased by approximately 50%. As an investor, where would you have rather put your money? As a person with a mental illness or their family member, loved one, friend and colleague, where would you have rather shopped, at a company that engages in hiring discrimination against persons with mental illness or at one that does not (CVS)?