What really keeps employees loyal to their companies? Is it the comfort of routine, the stability of a steady paycheck or the authority they’ve built over time? Research seems to indicate that firms linking competitive financial incentives to a strong, supportive culture experience stronger retention, better results and superior market performance.
Companies with supportive work environments outperform competitors
The 2024 Management 250 from Wall Street Journal is based on data and analysis from the University of Bern. The research, built on data from the Drucker Institute’s model of corporate effectiveness, reveals that employees are most engaged when compensation and culture work hand in hand. Firms that pay competitively and cultivate environments of trust, learning and shared purpose don’t just keep their people longer—they outperform others that don’t.
Between 2018 and 2023, the researchers looked at how well different groups of companies performed depending on how they treated their employees. The companies that scored highest for employee engagement and development—meaning they offered good pay and a strong, supportive culture—earned an average annual return of 19.3%.
That’s much higher than the 12.1% average return of the S&P 500. Companies that focused only on high pay did almost as well, with a 19% return, but those that scored poorly on both pay and culture lagged far behind at 11.8%.
Highly engaged teams can be more productive and more profitable
Ask anyone why they stick with a company and they’ll mention the people, the atmosphere or the sense of purpose. That’s culture, and it’s now every bit as important as pay. Employees who experience trust and recognition tend to put in more effort and are more likely to stay.
According to Gallup research, highly engaged teams can collectively result in 23% more profitability, and companies with strong engagement can see turnover as much as 51% lower. Feeling like your work counts can make all the difference. Great Place to Work reports that employees who find real meaning in what they do can be 67% more likely to want to stay with their company for years to come.
Gallup says the most successful companies treat employees as partners in shaping their own careers and the company’s future. That means not just paying attention to outputs, but making sure people understand what’s expected, have what they need to succeed, can grow their skills and enjoy a supportive work environment.
Workplace culture shapes every aspect of employee experience
Workplace culture is more than décor and mission statements; it’s the product of shared beliefs and collective behavior. Culture shapes the experience of every worker, from the way meetings are run to how achievements are celebrated. When employees feel that their work has meaning and their contributions are valued, the organization thrives, and people want to stay.
Some of the world’s most admired companies are making culture a living breathing part of everyday work. Google, for example, at one time implemented a “20% time” program, in which staff were encouraged to dedicate a portion of their workweek to passion projects that align with both personal interests and company goals.
Autonomy like this can allow employees to explore creative ideas, develop new skills and feel a real sense of ownership over their work. Many successful products, like Gmail and Google News, originated from these projects, showing that when employees are trusted to follow their curiosity, both they and the organization flourish.
Culture and compensation work together
While culture drives engagement and loyalty, competitive pay remains a critical factor in today’s tight labor market. Rising inflation, cost-of-living pressures and increased competition for talent mean employees are weighing compensation more heavily than ever. Even the most supportive and meaningful workplace can struggle to retain staff if pay falls short of industry standards.
Pay can be a powerful motivator, but its impact primarily depends on how engaged employees feel. Gallup found that most employees would need more than a 20% pay increase to leave an employer who engages them. For employees who are highly engaged and genuinely invested in their workplace culture, money alone isn’t enough. It usually takes a significant pay boost to convince them to jump ship.
Regardless of the labor market conditions, employees who feel undervalued or underpaid are more likely to leave, while those who feel challenged, recognized and fairly compensated tend to stay and contribute more. Companies that balance culture and pay create a sustainable competitive edge, one that benefits both employees and the bottom line.
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