Asia-Pacific human resources research documents the consistent finding that compensation improvement outperforms engagement programs, wellness initiatives, and culture transformation exercises in retention outcomes, and the consistent organisational preference for the latter
HR Study: Best Retention Strategy Is Paying More, Which Companies Call Too Expensive While Spending More on Other Things
SINGAPORE — The Asia-Pacific Human Resources Research Institute released a study Wednesday confirming that competitive compensation improvement was the most effective single retention intervention across the 340 companies and 28,000 employees in its sample, outperforming engagement programs, wellness initiatives, flexible work arrangements, culture transformation exercises, and what three companies in the sample described as “employee experience journeys” in producing measurable reductions in voluntary turnover. The study also confirmed that compensation improvement was the intervention least frequently implemented when companies sought to address retention challenges, with 67 percent of companies responding to elevated turnover by implementing non-compensation programs first, and that the average non-compensation program expenditure per retained employee, calculated from the study’s cost-effectiveness data, exceeded the cost of the compensation increase that would have produced equivalent retention at a rate of 1.7 to one. The study’s lead researcher, Dr. Angela Yeo, described the finding as “consistent with prior literature and consistent with what HR practitioners privately acknowledge and publicly cannot always say.”
“Compensation works,” Dr. Yeo said at a Singapore briefing attended by HR professionals who confirmed this was true and executives who confirmed it was complicated. “The data is clear. When companies adjust compensation to market rate or above for employees at flight risk, retention rates improve. When they implement engagement programs for the same employees without adjusting compensation, retention rates improve less. When they implement wellness programs without adjusting compensation, retention rates improve less still. When they implement culture transformation exercises without adjusting compensation, the results are mixed in a direction that most companies are not in a hurry to publicise.” She confirmed she was not saying that engagement, wellness, and culture were without value. She was saying that their value as retention interventions, compared to compensation, was lower and their cost per retained employee was higher, “which is the specific comparison the study makes and which produces the specific finding that companies find most difficult to act on.”
The Cost Comparison
The study’s cost-effectiveness analysis tracked 847 retention interventions across the 340 companies, measuring cost per employee retained for 12 months beyond their identified flight risk period. The compensation increase intervention, defined as a market-rate adjustment for identified flight-risk employees, cost an average of USD 8,400 per retained employee annually, inclusive of the salary increase and administrative costs. The engagement program intervention — structured surveys, action planning, team activities, and manager training — cost an average of USD 12,200 per retained employee, with a retention rate 23 percentage points below the compensation intervention’s rate. The wellness program intervention — gym subsidies, mental health resources, flexible health benefits — cost an average of USD 6,800 per retained employee but showed a retention improvement of only 12 percentage points versus baseline, compared to the compensation intervention’s 41 percentage points, producing a cost-per-unit-of-retention-improvement figure that was higher than the compensation approach despite the lower absolute cost. Culture transformation programs, the most expensive category at an average USD 18,400 per retained employee in implementation costs, showed the most variable results: top-quartile implementations produced retention improvements comparable to the compensation approach, while bottom-quartile implementations produced no measurable retention improvement and in three cases negative outcomes attributed to what participants described as “the culture transformation creating more disruption than the turnover it was meant to address.”
Dr. Yeo said the cost comparison needed context. “Compensation increases recur annually. A wellness program implemented this year does not necessarily cost the same next year. Culture improvements, when they work, produce benefits beyond retention. The 1.7-to-one ratio is a snapshot calculation that does not capture all dimensions of the comparison.” She said she had included this qualification in the study and that “despite the qualification, the ratio remains above 1.0 by a significant margin, meaning the alternative interventions are more expensive per retained employee than compensation improvement on any timeframe the study examined.” She said the study “ran the numbers for three, five, and ten year scenarios” and that “the compensation approach remained the most cost-effective retention intervention at all three horizons.”
Why Companies Choose the Other Interventions
The study surveyed HR directors and senior executives at companies that had chosen non-compensation retention programs as their primary response to turnover. The explanations fell into three categories. The first, offered by 54 percent of respondents: “compensation increases are permanent costs while programs are more flexible,” a financial framing that the study’s economists note is “accurate about the flexibility difference and incomplete about the cost comparison, since a permanent cost that retains talent is cheaper than a flexible cost that retains less talent.” The second, offered by 41 percent: “we want to address the root cause of turnover rather than just pay more,” a response that the study found was not consistently supported by exit interview data, which in 67 percent of companies cited compensation as a primary or secondary departure reason. The third, offered by 28 percent: “our compensation is at market rate and turnover is still high,” a situation that the study found was factually true in 34 percent of those cases and factually inaccurate — meaning compensation was below market rate — in 66 percent, based on compensation benchmarking conducted as part of the study.
Dr. Yeo described a fourth factor not offered by respondents but visible in the data: “the internal politics of compensation decisions, which require approval through different channels and face different objections than program expenditure, meaning the path to implementing a culture transformation exercise is practically easier than the path to implementing a compensation adjustment, regardless of which is more effective.” She said this was “the most honest explanation” and one that “no respondent offered without prompting, but that 78 percent confirmed when asked directly.” She said this suggested “the barrier is not conceptual — most HR professionals understand the compensation finding — but structural, and structural barriers are the kind that additional research findings do not resolve but that internal advocates, external labour market pressure, and the accumulated cost of ineffective alternative programs occasionally do.”
