• Katica Roy

Compensation Or Culture: Which Wins In The New War For Talent?


Welcome to my weekly Q&A roundup. (Scroll down to find the Q&A.)


If this is your first time here, welcome. I spend a fair amount of time speaking at events and conferences. At the end of my presentations, I leave space for audience members to ask questions—tough questions, brave questions, you name it. The level of candor and curiosity always inspires me, and I want to share that sentiment with you. So each week, I pick one question that I believe others would find most instructive and publish my response to it here.


The purpose of this weekly tradition is transparency and inclusion.

  • Transparency: a behind-the-scenes look at my day-to-day.

  • Inclusion: bringing others along on the journey.


Be Brave™


 

Culture vs. Compensation During The Great Resignation


Question:


As a manager who oversees 1,000+ employees, I want to know which is better in the war for diverse talent à la Great Resignation: having an excellent culture or offering competitive compensation?


Answer:


To answer this question, I’ll do what I always do. Turn to the data. Let’s use it to build a foundation for the problem we’re solving.


Here’s What We Know About The Great Resignation

  • 19+ million Americans quit their jobs between April and August 2021.

  • The August quit rate rose to 2.9%, representing nearly 4.3 million workers total.

  • 2 out of 5 employees are likely to quit their jobs in the next six months.

  • 1 out of 3 women of color plans to leave their jobs by 2022.

  • 88% of executives are experiencing higher-than-normal employee turnover.

  • 64% of employers expect employee turnover to continue or increase in the next six months.


To make matters worse, the labor pool has shrunk by more than four million workers since the start of the pandemic—with women constituting 2.76 million of those missing workers. In September alone (the month we were supposed to see a spike in women’s labor force participation rate), 309,000 women left the labor force.


The economy is operating at 1988 levels in terms of gender equity in the labor market. For context: women’s labor force participation rate in September 2021 was 57.1%. In February 2020, it was 59.2%.

Now that we have a foundational understanding of the problem, we need additional data to know the impetus for these attrition rates. Luckily, we have reliable sources that give flavor to the numbers above.


Why Are Employees Leaving Their Jobs?


According to McKinsey research, the top three reasons employees cite for quitting or considering quitting their jobs are:

  1. Not feeling valued by their company

  2. Not feeling valued by their managers

  3. Lacking a sense of belonging at work


Additional research shows that among those actively seeking different jobs, 46% of women compared to 34% of men are looking for higher salaries. Among women of color considering leaving their jobs, 47% say better salary is driving their decision to leave.


As for what’s driving women’s labor market attrition*, we’re still parsing through the data to identify the true causes. However, we already know that workplaces don’t value women and people of color equitably.


Such inequity manifests in the infamous pay gap, which itself is a build-up of years of bias. For instance, only 19% of Black women have received job or executive leadership training in their careers compared to 30% of White women and 33% of White men.


Believing and investing in someone’s potential matters because it influences the likelihood of them earning a promotion and a pay raise—i.e. becoming more valuable in the paid labor market. It shouldn’t surprise us that women (especially those in two-income households) overwhelmingly left the workforce to account for the spike in unpaid labor during the pandemic.


So that’s what the data tell us about workforce turnover during the Great Resignation. What does it mean for you, a talent leader, who wants to reduce churn and attract the best talent?


How To Interpret The Data To Attract & Retain The Best Talent


Let’s return to the three factors cited by the McKinsey research. Employees are quitting because they:


  1. Don’t feel like their work is valued by the company.

  2. Don’t feel valued by their managers.

  3. Lack a sense of belonging at work.


Feeling valued is a function of culture AND compensation. When someone values your contributions equitably, you don’t have to question your worth. You don’t have to perform the mental gymnastics of wondering if your contribution matters.

You aren’t wondering if your performance review will say you spoke too “aggressively” because you voiced your opinion during a meeting. You don’t have to stay silent in the face of workplace harassment for fear of retaliation. You don’t have to get a second job to make ends meet. You aren’t searching for other jobs that will pay you better. You belong because you are valued.


I’m a researcher at heart, so I’ll simplify this into an equation:


Value Is A Function Made Up Of Inputs And Outputs


The inputs =

  • Proximity to power

  • Access to resources

  • Performance reviews

  • Evaluations of potential

  • Opportunities for advancement


The output =

  • Pay


Make the inputs to value equitable and you’ll get an equitable output. The inputs derive from your culture.

  • Do you evaluate employee performance fairly?

  • Are employees evaluated based on the number of hours in the office (i.e. employee presenteeism) or based on the work they deliver?

  • Do managers believe in the potential of their employees by giving them access to leadership and training so they can advance within the organization? So they can earn better compensation?


Key takeaway: There is no trade-off between compensation and culture when it comes to attracting and retaining talent. Without a strong culture of equity, you can’t offer competitive compensation for all your employees. And without fair compensation for all employees, you can’t foster a bona fide culture of inclusion and belonging.


 

*It’s worth noting that women are the most educated cohort in the US. In 2015, they earned 57% of all bachelor’s degrees and above. Black women in particular have been outpacing white women, Latinas, Asian/Pacific Islanders, and Native Americans as a share of female postsecondary degree earners and represent over half of all Black postsecondary degree earners. Now is not the time to disregard the most educated cohort with inequitable workplace norms.

 

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© 2021 Katica Roy™, Inc.