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Culture vs Compensation: How Business and HR Leaders Can Strike the Right Balance

16 min read

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The Great Resignation was an avalanche triggered by long working hours, strict deadlines, and no me time. The solution of management was to offer higher paychecks. Did it work? If the answer is a “NO”, then what is the real answer?

Tony Hsieh, the founder of Zappos, dealt a similar blow to his organization when his organization was going through a financial struggle. His answer: place employee happiness and engagement at the forefront.

He adopted a unique approach and introduced “Zappos family core values”- a set of 10 core values that defined culture. Transforming the workstation to a place where employees were excited to arrive every day as their work had a purpose and a new meaning.

His approach was tested again during the 2008 recession, and Tony challenged conventional thinking when all the organizations were opting for the easier way out – layoffs. He offered his employees two options – a generous severance package or a comprehensive culture training program.

What did the employees choose?

Surprisingly, 85% chose to stay and trust Tony, making Zappos synonymous with exceptional customer service.

Tony’s culture-focused approach made Zappos the billion-dollar company it is today, and his faith in culture made thousands of leaders rethink their approach towards the culture vs compensation debate.

A Glassdoor survey reveals 94% of executives and 88% of employees feel workplace culture matters more than compensation when joining a new organization.

Let’s explore why culture matters more than compensation in today’s competitive landscape and how it helps enhance motivation, productivity, and loyalty.

Unleash culture: Move beyond paychecks

Let’s begin the quest to unlock the true potential of culture with profound insights from Maslow’s hierarchy of needs. The theory of needs discusses motivation as the driving force behind employee satisfaction and fulfillment. While compensation fulfills lower-level needs, culture plays a pivotal role in fulfilling higher-level needs.  

  • Meeting basic needs with compensation 

Compensation is the foundation for meeting the basic needs by providing stability and financial security with adequate pay, benefits and a secure work environment. Helping employees nurture their families creates a sense of overall well-being and satisfaction. 

  • Role of culture in belonging and esteem needs 

The theory states that once the basic needs are met, individuals carve a sense of belonging and esteem. That’s when culture acts as the differentiator – driving a positive work environment. An inclusive workplace makes the employee feel valued, respected and connected. A positive culture quenches their thirst for belongingness by promoting teamwork, collaboration and a shared purpose and direction. Establishing a culture of celebrating employee achievements enhances their self-confidence, thus fulfilling their need for esteem. 

  • Unleashing self-actualization through culture 

The highest level, in theory, is self-actualization – the realization of one’s true potential and culture helps employees achieve it. A culture of continuous learning helps fuel employee’s innovation, creativity, and risk-taking attitude aiding in their professional development and career progression. Organizations that invest in self-actualization inspire creativity and promote and instill a sense of realization of true potential among the workforce. 

employees life

Maslow’s theory of needs places company culture above compensation as it helps organizations create an environment that fosters a sense of belonging, enhances career progression, and improves the satisfaction and engagement of employees. All these factors lead to higher retention rates, increased productivity, and a strong employer brand that attracts top talent. 

Culture outshines compensation in the future of work

Traditionally compensation has been the main force behind the wheels of attraction and retention of top talent in organizations. Still, this notion has taken a backseat in the past decade as the concept of the future of work has taken the center stage. Companies now stress positive and inclusive culture over alluring pay checks for bringing the right talent on board. Here are the reasons why this paradigm shift is being noticed:

Culture the intangible force:

Silicon Valley, the startup that emerged as the new force against industry giants, offered lower paychecks but boasted a positive culture. The company always offered a lower salary but fostered a culture of innovation, continuous learning, inclusivity and personal growth. It was a new concept that attracted many top talents to pursue new purposes and meaning in their professional lives. In this scenario, culture trumped compensation by guaranteeing higher levels of employee engagement and innovation which led to the company’s success.

While compensation addresses the basic needs, it is purpose, fulfillment and a feeling of community that employees ultimately seek. So, culture prioritizing these factors compensates for lower salaries by promoting a rewarding employee experience.

Employee engagement:

Culture acts as fuel for employee engagement. Organizations prioritizing culture create an environment where employees are self-driven and motivated with a clear vision of the bigger organizational goals in the picture and contribute their best efforts. Engaged employees go the extra mile, resulting in enhanced productivity, higher performance and a positive work environment.

Boost employee loyalty:

Organizations that invest their time and resources in creating a supportive and inclusive culture gain employee loyalty as a byproduct. Employee loyalty in this scenario extends beyond the financial rewards as the employees are driven by the organization’s mission, vision and values. This helps forge deeper connections between the organization and its workforce, resulting in reduced turnover costs, saving new recruitment costs and a productive and stable workforce that contributes to a long sustainable organization.

Attracting high-potential candidates:

Top talent often seeks purpose in their routine work over a hefty paycheck. Organizations that promise an environment of continuous learning and development, inclusivity, mental and physical well-being, transparency and open communication, and alignment of individual goals with the overall organizational goals are the chosen hub for the top talent. Hence, companies can act as top talent magnets by showing their unique culture offering intangible benefits like work-life balance, mental well-being, and career progression opportunities.

Retaining the high performers:

High performers are like vibrating atoms constantly seeking personal growth and development, recognition, and a sense of purpose. Organizations that offer developmental opportunities through training and mentorship programs, encourage open and transparent communication and create a clear career progression path can stabilize their constant pursuit, retain them in the long run and benefit from their expertise, excellence, and dedication.

Thus, culture is the transformative power that drives employee engagement, loyalty, and performance, leading to increased productivity and reduced turnover rates. It also helps organizations attract and retain top talent in the marketplace by providing a sense of purpose, belonging, and growth opportunities. As the modern workplace evolves, organizations prioritizing culture over compensation will be the new industry leaders for employees to thrive and excel in their fields.

A holistic approach integrating culture, compensation and growth

Many business leaders, startup founders and industry experts believe a positive culture is the best way to attract and retain the top talent.  

But will a great company culture truly outshine a lousy paycheck?  

Maybe not, we need to have a balanced approach integrating culture, compensation, and growth strategies to stand apart from the competition and ensure a holistic experience for the workforce.  

One notable example of this instance is the story of Paty McCord, former Chief Talent Officer at Netflix. She made Netflix a trailblazer in shaping the future of work, the market leader and a talent magnet with the famous ‘Netflix Culture Deck’. The core components of the approach: 

  • Culture: The foundation of success 

The approach focuses on creating a culture that empowers employees, aligns with the mission, vision and values, values transparency and promotes accountability and responsibility. This approach stresses culture as the driver behind productivity, employee engagement, and business profitability. Patty strongly voices that a vibrant and open culture can compensate for lower salaries by ensuring the workforce feels motivated, inspired, and respected. 

  • Compensation: Align with the worth of talent 

The ‘Culture deck’ takes a whole new approach while addressing compensation. Instead of complex compensation structures, they offer top-of-market salaries to ensure the workforce is rewarded and recognized for their efforts and contributions. This helps them incorporate compensation as a component of culture rather than a separate entity, promoting fairness, removing potential distractions and driving employees toward excellence. 

  • Growth: Nurture true potential 

Netflix emphasizes continuous learning, adequate resources for skill enhancement and establishing a commitment towards curiosity and improvement among the workforce. Enabling an environment where employees are encouraged to take risks and identify the true potential contributing to the company’s expansion. This is the perfect example of interwoven growth strategies with culture impacting development and being an integral part of every great company’s success equation. 

balance between culture compensation and growth

Netflix Culture Deck continues to inspire numerous companies to embrace a balanced framework of culture, compensation, and growth to create workplaces where employees can unleash their true potential and drive business success. 

How can business and HR leaders lead the charge? 

Embracing a cultural transformation requires tackling challenges and finding smart solutions. Undergoing a cultural shift might seem complicated, but it’s the only way to build a sustainable organization for the future workforce.

Here are the key challenges that the leaders face and strategies that help them tackle these with ease:

  • Resistance to change

Every small change is initially met with resistance, and cultural transformation undoubtedly faces strong opposition from the few stakeholders who are comfortable in their job roles and responsibilities and their status quo.

Communicate the WHY: Leaders must communicate their vision and purpose behind the shift, stressing its impact on individuals and organizations. Transparent and continuous discussion with the various stakeholders eases the process and inspires the employees to embrace it.
  • Striking a balance between culture and financial constraints

Leaders often grapple with balancing financial stability while creating an ideal culture. It’s essential that the leaders don’t overlook their financial constraints while investing in a rich culture.

Strategic resource allocation: Leaders should evaluate and focus on the most impactful cultural initiatives aligning with the organization’s vision and goals. This approach allocates resources to the essential areas and drives cultural transformation with financial stability.
  • Creating a shared purpose and vision

Due to diverse perspectives and conflicting interests, aligning every stakeholder under a single vision and purpose is tricky. Integrating the priorities and interests of every stakeholder is necessary to foster a collective commitment to transformation.

Employee involvement: Leaders should involve the employee’s ideas, thoughts, and opinions while shaping the culture of the organization. This promotes a feeling of ownership, inclusivity and acceptance of the new initiative. Leaders can gather employee feedback through surveys, focus groups and feedback sessions.
  • Measuring the impact of culture

HR leaders often struggle to quantify the impact of culture on employee engagement, productivity and business outcomes. Thus, they need accurate data to justify building a positive culture.

Defining key metrics and feedback loops: A constant feedback loop to collect data and feedback regularly. Using pulse surveys and performance analysis helps track the changes and identify areas of improvement to start a data-driven cultural transformation.
  • Sustaining the transformation

Organizations start a cultural transformation but struggle to sustain it in the changing business environment. The organization needs a strong commitment and an ongoing effort of the organization to make the desired culture a part of its DNA.

Acknowledging these challenges and implementing appropriate strategies to handle them helps Business and HR leaders accelerate the cultural transformation journey. This enhances employee engagement, nurtures innovation, and drives the organization toward sustainable success.

Ready to take the plunge?

In a nutshell, though compensation plays an important role the role of workplace culture cannot be overstated in talent attraction and retention, driving employee engagement, and boosting employee loyalty and motivation.

Business leaders are an integral part of the cultural transformation process of any organization. They play a crucial role in adopting a balanced approach by integrating the three components of culture, compensation and growth, unleashing the workforce’s true potential and ensuring sustainable business success.

Keka HR is a comprehensive HR management platform that assists leaders in their journey to create an exceptional work environment. With features like performance management, learning and development, pulse surveys, insightful reports and many more, it helps you to align your culture and organizational goals. Additionally, the robust system helps employees to set KPIs and OKRs and align them with the organizational objectives.

What are you waiting for? Take the plunge today and visit our website to request a demo and begin your organizational transformation journey!

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    Meet the author

    Anwesha Panja

    Content Writer

    Anwesha Panja is a Content Writer at Keka Technologies. She has a passion for crafting captivating pieces around the latest HR trends. With a love for mysterious and spine-tingling things, she spends her free time exploring haunted locations. She is also a bookworm and an avid Sherlock fan.


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