Reading the press, it’s easy to conclude that companies focused on maximizing shareholder returns aren’t doing much for employment, and if anything, new business models and innovations such as generative AI and other automation technologies tend to systematically kill jobs.
However, nothing could be further from the truth. When we compared shareholder value creation and employment growth—as measured by public companies’ full-time equivalent (FTE) figures—between 2009 and 2019, we saw a clear correlation (exhibit). Strong market performance goes hand in hand with economic and social prosperity.
Why? High-performing companies need to grow their workforces, which leads to more attractive wages to recruit and retain employees and, in turn, higher consumer spending. To stay competitive and maintain high morale, those companies also invest in upgrading their employees’ skills, which benefits everyone.
The slope of the correlation is not the same for all industries or time periods, of course. Metrics such as a ratio of FTEs to revenue will change over time, and companies may sometimes cut jobs to improve efficiency. However, the alternative would be disastrous to job creation, as businesses with uncompetitive cost structures would fall into a downward spiral: no innovative products, no profits; no profits, no investors; no investors, no jobs.
It is up to corporate managers to balance competitiveness and efficiency with developing a thriving workforce. Using TSR as a metric to measure both can offer an effective method for finding that balance.
Tim Koller is a partner in McKinsey’s Denver office, Marc Goedhart is a senior knowledge expert in the Amsterdam office, Rosen Kotsev is a director of client capabilities in the Waltham office, and Pedro Catarino is a capabilities and insights analyst in the Lisbon office.