Glassdoor Goldilocks Zone

How do Glassdoor ratings impact employees and investors?

Most candidates go to Glassdoor when evaluating job opportunities and some investors look at Glassdoor when evaluating investment opportunities. Glassdoor allows current/former employees to provide reviews of their employers which includes an overall company rating, if they would recommend it to a friend, and a CEO rating.

The summary result looks something like the below, but you can also look at all the individual ratings and comments.

Here are some highlights of Glassdoor ratings of the public software companies that I am tracking:

• Highest Overall Rating: SentinelOne at 4.7 stars

• Highest Rated CEO: Aaron Levie (Box) at 99%

• Lowest Overall Rating: Amplitude at 3.3 stars

• Lowest Rated CEO: Allan Thygesen (Docusign) at 47%

The Glassdoor Goldilocks Zone

Looking at the above Glassdoor ratings compared to shareholder returns over the past couple of years it looks like the correlation between them is really low. One issue is the past couple of years have been quite volatile and unusual for the stock market. The second consideration is that the impact of a bad rating probably takes a few years to really impact a company and therefore its stock price.

There is probably a Company Rating Goldilocks Zone for maximum shareholder value:

• If the company and CEO rating is too high then maybe they haven’t made enough hard decisions. May not always be true, but hard to get to $100M+ in revenue without making some folks upset enough to write a bad Glassdoor review. A company and CEO with a perfect rating sounds nice, but is it because they are too nice? —paying people too much, not firing under performers, not pushing for efficiency or higher expectations, etc.

• If the company rating is too low then it will be hard to attract top talent which then has a snowball effect — can’t hire A players so B players are hired and those people hire C players and so on…

I think as long as a minimum threshold of company rating/approval is maintained then the long-term correlation with stock returns is not that significant. While a really high rating might raise some questions, it’s possible that it is OK as well.

Investor Perspective

Having too low of a rating will cause a quick deterioration in the caliber of employees that can be hired which eventually effects culture, innovation, sales, profits, etc. This might play out over several years as a company’s rating starts to fall.

However, I don’t think each incremental increase in Glassdoor rating past a certain minimum threshold equates to a better performing company and investor returns.

Brian Feroldi (popular financial educator and writer) recently posted the below chart that compares “Fortune 100 Best Companies To Work For” stock returns to the Russell 3000 (broader market returns). In general the idea makes sense, but I wonder about the degree of causation…

Most people will think their company is awesome when the stock price is rocketing up and they are getting rich from all of their employee equity….Everyone then turns into a critic when the stock price drops.

Again, I think the general idea is true but it can be misleading. It’s less about how high the rating is but rather does it clear a minimum threshold.

Example: Box is one of the highest rated public software companies on Glassdoor and Aaron Levie is the highest rated CEO. But…Box stock price is up only 12% since it went public in 2015. Being awesome doesn’t necessarily equate to shareholder returns. Maybe Aaron is too highly rated?

Candidate/Employee Perspective

Most (>50%) of candidates check Glassdoor ratings before accepting an offer. If the rating are bad then any signs of issues may spook candidates in the interview process. Many candidates will filter for recent reviews and the bad reviews to find these potential issues.

Candidates need to take each review with a grain of salt because it could be just one person’s opinion and maybe that person doesn’t have all the facts. If there is a trend of similar comments then that might give you more reason to be concerned.

Regardless, simply ask about any concerns or red flags during the interview process. The response will hopefully either help ease or confirm your doubts. Usually if the company brushes off your concern or ignores the question then you should definitely be worried.

Dangers of Glassdoor Reviews

All rating system’s can be manipulated but there is generally useful information that can come from Glassdoor. People using these rating systems just need to understand the potential flaws. Below are some of the dangers of using Glassdoor ratings:

1. People are more likely to write reviews when they have a negative experience

Few people go on to Glassdoor to write positive reviews unless their employer pushes them to do so. Glassdoor is a great place to rant and feel heard while staying anonymous.

Companies encouraging employees to write reviews isn’t a bad thing as long as they aren’t pushing them to write only positive stuff (see the next point). It’s almost entirely for recruiting purposes though so most people understand the goal…

Fake or pressured Glassdoor reviews

In a recent blog post about a company called Skillz I wrote about the most egregious example I have seen of this. The below quote came from one of their Glassdoor reviews…

I just wanted to point out that the Glassdoor rating for this company was a 2.8 before Skillz forced 15-20 manager level employees to write positive reviews. They weren't even smart enough to have the reviews written on different days. Since then, the company has been asking all employees to write reviews (they are more spaced out now).

There continues to be either 5 star ratings that only says how awesome Skillz is or VERY negative reviews, but at least the negative reviews appear to be winning now.

The below review looks like it was written by a hostage being told they will be released if they provide a glowing Glassdoor review, but the hostage tried sending signals that they were in trouble.

Then there are posts like the below, which reference my article → We Were Warned - tales of bad companies. The negative reviews get all the “helpful” votes, and the 5 star reviews barely get any…

Make sure you review through the Glassdoor reviews and don’t just look at the overall rating or the most recent ones. You may need to dig a bit more to spot potential issues.

May not reflect current state of the company

Lots of things can change and Glassdoor reviews are historical looking. A new CEO, restructure, recent acquisitions, etc. may impact what the company actually looks like today versus what Glassdoor says.

Not reflective of the team you are joining

One of the problems with reviewing these Glassdoor ratings is that it might not be a good indicator of the team an employee is joining. An employee’s boss and team are the most important factor in that person’s experience. Glassdoor ratings may be biased to a certain department, location, etc.

Glassdoor Pay to Play

I don’t know the actual degree of truth, but I have been told by several people that if a company signs up for Glassdoor’s platform then there is more leeway in flaging and removing reviews that the company finds harmful…If you don’t pay then its basically impossible.

Concluding Thoughts

Glassdoor reviews are useful but understand their flaws and how they should be used. Happy employees are important for the long-term success of a company but the correlation past a certain minimum threshold appears weak.

---

Need a SaaS fractional CFO or bookkeeper referral? Reply to this email with what you need and I will try to make an intro