Why Culture, Not Pay, Drives Employee Retention

Are companies prepared to pay new hires 31% more than their current employer? That’s what engaged employees satisfied with their roles are looking for. 

Even if employees trade in job satisfaction for (a lot) more money, we must be realistic about what happens after they settle in. Where else do they derive motivation? How productive are their collaborations, and do they feel valued?

Higher pay is an attractive proposition that loses its shine without a culture built to support and retain great talent. Companies that know how to improve employee retention invest in an engaging, growth-oriented environment.

How does culture affect employee retention?

Culture promotes a sense of belonging, and when employees lack this, it’s easier to move on. That’s what we already know. The answer becomes more nuanced when money becomes a stand-in for a favorable workplace culture. 

An employer may increase pay further to improve retention. The assumption is that getting paid more money for a role makes the job worth sticking with. However, many employees consider this compensation for tolerating cultural deficits, not their output. 

“I’ll put up with the way they talk to me if they pay me extra,” and similar sentiments are more heavily associated with the environment, not their duties. The moment a competitively compensated job opens up, the pay increase loses much of its appeal. 

Research consistently backs the notion that employee experience is often as crucial as pay. SHRM’s 2024 report, The State of Global Workplace Culture, reveals that only 15% of employees working within a positive company culture plan on leaving. 

More than 50% dissatisfied with their workplace culture are looking elsewhere. 

5 culture-first employee retention strategies

Top talent can find the money they want in various places. When they chase it, it breaks bonds and sends a disturbing message to the coworkers left behind: “This isn’t the best place to be.”

Here are the essential factors of a culture that nurtures higher engagement, job satisfaction, and employee retention rates.

1. High-quality recognition

Some may be familiar with Gallup’s 2024 longitudinal study. It states that employees who feel adequately recognized are 45% less likely to leave their position. The word “adequately” is as important as recognition here, as frequency, source, and delivery matter.

Here are a few ways to measure the quality of employee recognition:

Authenticity–Meaningful, honest praise boosts confidence. Specific observations that employees can feel personal ownership over have a far greater impact than simple compliments (“Good work” versus “Your resilience made this happen”).

Frequency–How often should an employee be recognized? It depends on the setting, processes, and average number of interactions with others at the company. However, past polling shows that employees with higher levels of job satisfaction can recall receiving recognition in the last week. 

Personalization–Besides having their specific contributions highlighted, employees care how they get it. A private comment may not have the same impact on someone who would prefer to revel in that praise during a meeting with colleagues.

Logic–Who gets recognition and why will seem natural to an engaged, satisfied employee. Recognition won’t appear as though it’s reserved for certain employees. At the same time, the type of recognition everyone receives is a good fit with the company’s core values and objectives. 

2. Team rituals 

There is no culture without community. Familiarity with the personalities, strengths, habits, and customs surrounding them enhances an employee’s sense of belonging.

With the prevalence of remote work, leading an asynchronous team is no longer an excuse for geography-based disconnects. This has been a refreshing development for team-building. A diverse, more easily accessible array of exercises and events boosts participation and provides more chances for coworker camaraderie.

Rotating a series of activities can reveal which team rituals resonate most with teams:

• Weekly team calls
• Off-site experiences and trips
• Monthly happy hours
• Work anniversary celebrations
• Post-project debriefs
• Collaborative brainstorming sessions

3. Growth without a ladder 

Promoting from within is welcome. But employees can find growth within their current roles equally gratifying. 

Taking on new responsibilities within an existing role doesn’t always mean a greater workload. Trusting an employee with a task that typically doesn’t cross their desk displays confidence in their abilities. 

Employees also find it adds interest to their role, enhancing engagement and motivation. New responsibilities prevent monotony and make people more hopeful for the future of their careers.

Stretch projects are a terrific way to infuse growth opportunities. These opportunities intentionally stretch an employee’s skills outside of their comfort zone, giving performance, visibility, and development a booster shot. 

4. Voice & visibility 

You cannot feel valued without a voice.

Hopelessness and powerlessness are strong words, but they come up again and again among employees open to other offers. They feel little hope that conditions will improve, and they are powerless to change it.  

These feelings intensify when employees have suggestions and ideas, but don’t feel welcome to share. Worse yet is the perfunctory offer to submit feedback, only to see no acknowledgment of (or results from) their contributions. 

Engaged employees who stay at their jobs know that their voice matters. When they share, they feel seen and listened to. If they are not involved in decision-making, they have a clear idea of who is, as well as a basic understanding of how those decisions are made. 

5. Work-life respect 

Employers acknowledging the need for work-life balance may believe they have this one under control, but work-life respect is different. 

Work-life balance draws a boundary between work and personal time. Work-life respect is about remaining flexible to accommodate an employee’s needs outside of work. An example:

Balance (boundary): Employer honors an employee’s desire to unplug from work-related communications after 5 pm. 

Respect (flexibility): Employer adjusts the employee’s schedule so they are available to take their child to ongoing medical appointments.

Promoting the importance of balance is excellent for the personal well-being of employees. However, respect is a true hallmark of a supportive work culture because it addresses more than the needs of the employee. It shows consideration for their world outside of work and what matters to them most. 

The alignment in values strengthens their connection to their role in the company and its culture.   

Culture vs. compensation in improving employee retention 

Everyone loves the idea of more financial compensation. But if a company is targeting better employee retention rates, the environment and experience are key to long-term satisfaction.

A study by MIT Sloan even finds that toxic corporate culture is 10 times more indicative of turnover than pay. When candidates and employees make those pro and con lists, cultural factors will dominate. 

“Culture” isn’t as amorphous in concept when we build it in the workplace. It’s also more cost-effective than most monetary retention efforts. 

Recognize employees frequently and specifically, ritualize recognition and other team activities, and reward meaningfully. These make the difference between paying people off to tolerate another week, and fostering pillars of your company’s community.