Only 12 percent of HR respondents have a regular cultural assessment strategy for assuring their workplace culture stays on track, according to a 2021 Talent Management State of the Industry survey. This result is extraordinary because having a toxic work culture is ten times more likely than low pay to cause employee turnover. What then is the difference between a toxic culture and a thriving culture, and how do you develop a thriving culture?

According to the US Bureau of Labor Statistics, 47.4 million workers voluntarily quit their jobs in 2021. When layoffs and discharges are added the termination rate grows to 68.9 million workers. Meanwhile, 75.3 million workers were hired last year. That is a lot of churn in the US labor market. Churn that does not need to happen.

As the Great Resignation rolls on, business and human resources leaders struggle to make sense of the factors driving the mass exodus. More importantly, they are looking for ways to hold on to valued employees.

Many organizations are focusing on improving their recruiting practices and raising pay. In total, wages and benefits increased four percent in 2021—the biggest increase in over 20 years, according to BLS data. In 2022, the pace of pay increases is expected to continue. Many industries are seeing higher pay increases such as travel and transportation (8.4 percent), information (6.4 percent), and professional services (6.3 percent), according to the ADP Research Institute. Recruiters are paying increases of ten percent or more to lure away workers from competitors.

However, while having competitive pay is advisable for attracting employees, pay is not always the answer to retaining employees. Current and long-standing research shows that toxic cultures are the reason why employees choose to leave a company.

Earlier this year, MIT researchers uncovered that toxic organizational cultures drive employee turnover ten times more than pay.

The MIT researchers examined 34 million online employee profiles on Glassdoor to identify US workers who left their employer for any reason (including quitting, retiring, or being laid off) between April and September 2021. They found that attrition rates ranged from less than two percent to more than 30 percent across companies for the six months they studied. The industry was responsible for some of this variation, with retail, management consulting, internet, software, fast food, leisure, and healthcare industries leading the way.

The MIT researchers found that although much of the media discussion about the Great Resignation has focused on employee dissatisfaction with wages. How frequently and positively employees mentioned compensation, however, ranks 16th among all topics in terms of predicting employee turnover.

This result is consistent with a large body of evidence that pay has only a moderate impact on employee turnover.[i]

A toxic corporate culture is by far the strongest predictor of industry-adjusted attrition and is ten times more important than compensation in predicting turnover. Please see the chart below from the MIT researchers, Top Predictors of Attrition During the Great Resignation.

The MIT researchers found that the leading elements contributing to toxic cultures include the following:

  • Failing to promote diversity, equity, and inclusion
  • Workers feeling disrespected
  • Behaving unethically
  • Failing to provide adequate job security
  • Frequent reorganizations
  • Demanding too-long hours
  • Failing to recognize performance
  • Responding badly to Covid-19

The MIT researchers identified four actions that managers can take in the short term to reduce attrition. As in the graph above, each bar represents the topic’s predictive power relative to compensation. This time, the topics predict a company’s ability to retain employees compared with industry peers. Providing employees with lateral career opportunities, for example, is 2.5 times more powerful as a predictor of a company’s relative retention rate compared with compensation. Please see their graph below.

In addition to these short-term steps, organizations can implement to boost their cultures and retain employees, organizations need to take long-term steps to create thriving cultures that help them boost their productivity and innovation, and to retain their employees.

According to our research at InnovationOne, LLC,® these steps include the following

  1. Executives articulate their visions for innovation and growth and invite their employees and external partners to get involved. Vital organizations retain employees.
  2. Managers are empathetic, making sure all employees feel included, building collaboration and trust with their teams, and helping employees overcome obstacles.
  3. Talent management systems recognize employees for their contributions, provide ongoing organizational, competitive landscape, skill learning, and plan for their career development.

Organizations that score in the top quartile of our InnovationOne Culture Index© have 22 percent higher financial outcomes than the bottom quartile. To learn more about how your organization can have a thriving culture please read the Seven Traits of Highly Innovative Organizations that Drive Improved Financial Performance.

About InnovationOne®, LLC.

InnovationOne®, LLC, helps organizations worldwide build a culture of innovation and make it sustainable. InnovationOne® uses a scientifically developed assessment to measure, benchmark, and improve your company’s culture and capability to innovate and enjoy better outcomes and financial results. Companies scoring in the top quartile of our InnovationOne Culture Index© reported higher financial performance than bottom quartile performers by as much as 22 percent.

[i] A.L. Rubenstein, M.B. Eberly, T.W. Lee, et al., “Surveying the Forest: A Meta-Analysis, Moderator Investigation, and Future-Oriented Discussion of the Antecedents of Voluntary Employee Turnover,” Personnel Psychology 71, no. 1 (spring 2018): 23-65; and D.G. Allen, P.C. Bryant, and J.M. Vardaman, “Retaining Talent: Replacing Misconceptions With Evidence-Based Strategies,” Academy of Management Perspectives 24, no. 2 (May 2010): 48-64.