(FORTUNE Magazine) – Apparently, you can make a killing by making nice. Each year, FORTUNE publishes the 100 Best Companies to Work For. The ranking, compiled by Milton Moskowitz and Robert Levering of the Great Place to Work Institute, rates companies based on pay, turnover, diversity, and employee morale. It turns out that these companies are not just great to work for, they're also fabulous to invest in.

Frank Russell Co. put together an index and discovered that, had you bought the public companies when the 1998 list came out, and reinvested in the new list each year, you would have earned 10.6% annually. That wallops the S&P 500's 5.7% annual return over the same period. Those numbers assume a market-cap-weighted index; weighing each stock equally would have provided an even more dazzling 18.2% return annually.

Happy companies make happy investments in part because they use their resources--people--wisely. Says Frank Russell COO Craig Ueland: "In a service economy, it may be increasingly true that what's good for employee morale also may be good for the shareholder."

For proof, look no further than Southwest Airlines (LUV, $18), which topped the inaugural 1998 list. LUV has been a standout in the ailing airline sector, returning 26% annually over the past four years. Other contented companies with chart-topping stocks include biotech giant Amgen (AMGN, $48), motorcycle maker Harley-Davidson (HDI, $53), and retailer Lowe's (LOW,$43), each of which returned an average of at least 40% annually.

There is one company that did little for overall returns: Enron, which made the list in 1998, 1999, and 2000. Moskowitz offers this explanation: Enron employees, like investors, "were really duped by management." Note that Enron didn't appear on the 2001 list. So, managers, be kind and honest. Your employees, and shareholders, will thank you. --Noshua Watson