Companies set great store by a listing in one of The Sunday Times 100 Best Companies to Work For rankings, compiled annually by workplace engagement specialists Best Companies. Small, medium and large companies each get their own listing, and this year Best Companies introduced an accreditation scheme similar to the Michelin star system for top restaurants as an added incentive to firms striving for employment excellence.

Companies on the list claim that it brings a range of benefits, not least an enhanced ability to attract and retain top talent. This is important, particularly given the current "war for talent" and the cost of recruiting and retaining the best talent. Indeed, a recent survey among members of the Institute of Directors by Director, HSBC and the Institute of Risk Management found that attracting and retaining skilled employees was deemed to be the highest "risk" to employers.

But it is more difficult to establish whether being a "Best Company" leads to increased profits. This may be because the companies that make the list are already highly successful. But despite a wealth of anecdotal evidence, there is no empirical evidence to demonstrate that being "a good employer" is good for the bottom line.

"There is compelling evidence to suggest that getting things right for your workforce is also good for your wealth," says Alysoun Stewart, director of growth and strategic services at financial and business adviser Grant Thornton. "For example, the total costs of recruitment average around £30,000 a head, so being able to reduce those through better retention will in itself lead to considerable savings. Also, the performance of the publicly-quoted businesses in The Sunday Times 100 Best Companies to Work For rankings is markedly better than that of the FTSE-100 index over the past five years."

Three times better, according to Best Companies chief executive Jonathan Austin, who adds that listed companies in the US Best Companies rankings perform four or five times better than those in the Standard & Poor's index.

Yet Pete Bradon, head of research at Best Companies, admits it is difficult to demonstrate a causal link. As he points out, the reason Best Companies outperform the stockmarket could be more to do with the fact that they are well run and people oriented than with any advantages conferred by the listing itself. What's more, the diverse range of organisations that make up the Best Companies list, combined with the variety of different measures of growth and productivity they use, make direct comparisons difficult.

Many of the companies on the Best Companies lists are evangelical about the effect motivated, enthusiastic employees have on their bottom line performance. Best Companies is planning to plug the empirical evidence gap with research that proves beyond reasonable doubt that good employers are more profitable.

One example is Tower Homes, a London housing association, which came top in this year's list of small companies. As a charity, Tower Homes doesn't have shareholders, and the surpluses it generates go into providing more homes. Chief executive Steve Walker believes that its employees have played a fundamental role in the charity's success and growth. "It has taken us years to create a culture where everyone is pointing in the right direction, is really clear about their role and has a positive attitude, but the bottom line has improved accordingly," he says.

Walker claims that growth and productivity have increased every year, while costs have fallen. Staff turnover is seven per cent, compared to an industry average of 16 per cent. Absence fell from 1.3 per cent last year to 0.7 per cent in the first four months of this year, compared with an industry average of four per cent. "That all comes from staff believing in what they do and wanting to be part of a great company," he says.

Uxbridge-based Rackspace Managed Hosting, which came seventh in this year's small companies list, is an IT support company known for its quirky approach to looking after staff and customers. It believes that the more aligned the motivations and objectives of individuals and their employer are, the more successful the organisation will be. Therefore, rather than filling positions, it looks to recruit people who will fit the company's distinct culture and then finds roles for them. As Jacques Grayling, the UK managing director, says: "You can't teach someone attitude; it needs to be there from the beginning."

Rackspace has grown by over 80 per cent a year during the two years since it was first listed as a Best Company. Staff turnover is about seven per cent. But its customer satisfaction score is the most telling indicator of its success. It uses the Net Promoter Score (NPS) system, which looks at whether customers would recommend you to someone else or not. Rackspace's NPS stands at nearly 80 per cent, compared with an average of 14 per cent across industry and commerce as a whole.

"You don't get engaged customers without engaged employees," says Grayling.

Manchester-based law firm Pannone LLP has appeared in the mid-tier company ranking of The Sunday Times 100 Best Companies to Work For listing for three consecutive years. This year it came third, as well as being awarded three stars under the new accreditation system. Managing partner Joy Kingsley says staff engagement and retention have increased as a result of the listing, and this has had a positive impact on growth. Billings have risen from around £29m to £39m in the past two and a half years, and staff turnover is eight per cent, around half the average in the legal profession. 

"Interest in our firm has increased considerably since we got involved with Best Companies, and that has affected recruitment," says Kingsley. "The number of trainee applicants has doubled from 600 to 1,200 for around 10 to 15 places annually, and the quality of applications and appointments has improved too."

Pannone LLP enjoys the highest staff satisfaction score for pay and benefits in the Best Companies mid-tier ranking, at 87 per cent. It even provides free private healthcare. But research by Grant Thornton suggests that the potential competitive advantage companies can gain from offering such rewards could be short-lived.

A recent survey by the firm among companies in the Best Companies listings found that only 38 per cent of director-level respondents believe their staff reward and remuneration structure to be "highly effective" in motivating and engaging their workforce. The reason seems to be that staff quickly come to judge incentives such as life assurance, an increase in basic salary and enhanced maternity and paternity benefits as their due, rather than a mark of generosity by their employer.

By contrast, Grant Thornton found that flexible working, offered by 89 per cent of survey respondents, was the most effective benefit in securing employee engagement. This was followed by formal recognition (offered by 86 per cent of respondents), ad-hoc benefits such as Christmas parties (offered by 79 per cent), performance-related bonuses (78 per cent) and extra holidays (74 per cent).

But Alysoun Stewart warns against a tick-box approach. "You get companies asking what difference it will make to their profitability if, for example, they introduce flexible working arrangements, and whether these might just encourage staff to take time off," she says. "But business success does not derive from one isolated element of performance or differentiating characteristic."

According to Stewart, what does deliver results
is introducing flexible working arrangements in conjunction with a performance management and reward system that ensures all staff are clear about what's expected of them and that they are rewarded for it.

"If you combine that with other elements that promote commitment by people to their team, pride in the profile of the company they work for and strong leadership and management, then your ability to recruit, motivate and retain staff increases. This enhances performance, reduces recruitment, induction and training costs, and, ultimately, leads to higher profits," she says.

But not all the organisations in the Best Companies lists have seen their listing translate into higher profits. Claire Walker, director of public relations agency Firefly Communications, which came ninth on the small companies list this year, says: "I'm disappointed that being a Best Company has not turned us into a more profitable company. We outperform some other agencies that are the same size as we are, but under-perform others. I think striving to be a better workplace and offering competitive benefits and support to our employees compromises our profitability."

But maybe, at the end of the day, Best Companies are prepared to sacrifice profits for a happier and more motivated workforce. After all, the notion of profit as the most important criterion of success is increasingly being questioned. As Walker concludes: "I would rather have things this way round than run our staff into the ground and have people signing off with exhaustion."