By Rick Wartzman and Kelly Tang

In the 1940s, as Peter Drucker got a close-up look at General Motors, he was struck by how unmotivated many of the company's employees were, especially considering that most were making decent money.

"For the great majority of automobile workers, the only meaning of the job is in the paycheck, not in anything connected with the work or the product," Drucker observed in his landmark study of GM, "Concept of the Corporation." "No wonder that this results in an unhappy and discontented worker," he wrote.

Eight decades later, these words ring as true as ever. If a company wants to attract and retain the talent it needs to thrive, it can't skimp on compensation. But neither can it neglect culture.

This is the key finding from new research conducted by a team at the University of Bern in Switzerland, using a measure of corporate effectiveness created by the Drucker Institute at Claremont Graduate University. Anchored in Peter Drucker's central teachings, the model draws on 35 separate indicators to assess five essential functions: customer satisfaction,

innovation, social responsibility, employee engagement and development, and financial strength.

Companies are compared in each of these five areas, as well as in their general effectiveness, through standardized scores with a range of 0 to 100 and a mean of 50. Drucker defined "effectiveness" as "doing the right things well."

Each year, the best-scoring companies from the institute's ranking are published in partnership with The Wall Street Journal as the Management Top 250. Bendable Labs, a private firm, worked with the institute to perform the calculations and interpret the results for 2024, which came out in December.

Returns ranked

In an earlier analysis, the researchers in Bern constructed investment portfolios that were composed of the 15 top-scoring companies in all of the Drucker Institute rankings categories, except for financial strength. To be included, the company also had to be part of the S&P 500 stock index. Each portfolio was rebalanced annually.

Over an 11-year span, from 2013 through 2023, the employee engagement and development portfolio easily outpaced the others, with an average total annual return of 21.3%. It also eclipsed investment returns for a portfolio of companies with the highest scores in general effectiveness.

This time, using the same methodology, the researchers built portfolios not only out of the highest scorers in employee engagement and development but also out of the firms that scored best in each of the different individual metrics that make up the category.

Broadly speaking, these metrics cover two distinct aspects of the employee experience: how pay and benefits stack up and how people feel about their company's culture, including the values of the organization, opportunities for professional growth and confidence in leadership.

Notably, the portfolio that fared best was the one for the overall category, with an average total annual return of 19.3%. That smashed the 12.1% generated over the same span by the S&P 500. (Because of certain data limitations, the researchers could only examine a six-year period, from 2018 through 2023.)

The second-best portfolio, built around a Payscale metric on how well a company compensates its workers compared with their industry peers, had an average annual return of 19%. At the same time, the worst-performing portfolio, at 11.8%, was formed around a pay-and-benefits indicator from CSRHub. A handful of other portfolios, based on various gauges of corporate culture, fell in between.

The overall portfolio, of course, reflects compensation and culture -- not one or the other. This led the researchers to conclude that, when it comes to spurring investment returns over the long term, companies need to focus on both.

Everything is important

Also telling was that a portfolio of companies that scored more consistently across the different employee engagement and development indicators had a significantly higher average total annual return than those with greater variability among the metrics -- 20% versus 17.8%.

"It really looks like all of these components are important, and the whole is more than the sum of its parts," says Jonathan Matzinger, who helped spearhead the research in Bern.

Jim Harter, chief scientist for workplace management and well-being at Gallup, agrees. Stars, in particular, will leave a company if not compensated adequately, he says. But a good culture, where workers have a sense of purpose and voice and are able to learn and advance, has its own value.

Specifically, Gallup has found that nearly three-quarters of disengaged employees will change jobs for a 20% bump in pay. But for those who love the culture and are highly engaged, it typically takes more than a 30% increase to lure them away.

"There is a tendency for us to think of pay as strictly objective because it is numerical," Harter says. "But pay is also deeply psychological and interpreted alongside workplace culture."

Pay and culture

Some companies explicitly link compensation and culture, leveraging the former to reinforce the latter. At Autodesk, bonuses and raises depend on performance reviews that evaluate two things: how people have met their business goals and how well they've represented the company's expressed values -- "being optimistic, relentless, brave, ingenious and trusted" -- while acting collaboratively.

"We look at them equally," says Julie Ann Overcash, vice president of performance and total rewards at Autodesk, which provides engineering, 3D-design and entertainment software. By tying pay to these core principles, "we're not just putting them out there on a piece of paper," she adds. "We're building them into the fabric of the company."

Mastercard has taken a similar approach. Last year, it started to "reward employees for both what they deliver and how they deliver," explains Susan Muigai, the company's chief people officer.

In practice, this has required setting up new mechanisms to garner feedback from colleagues and a new rating system to align year-end compensation with behaviors that Mastercard has identified as central to its culture. Among them: "prioritize what matters," "move fast" and "say what you mean."

"This is a great example of where culture and compensation come together, " Muigai says. "We intentionally fuse the two because we know the value each plays in driving employee engagement."

It is no coincidence that Autodesk and Mastercard have consistently scored in the top 10% in the employee engagement and development category over the years. In 2024, Autodesk came in at No. 8 out of 660 ranked companies, Mastercard at No. 21.

Rick Wartzman is co-president and Kelly Tang is chief data scientist at Bendable Labs. They are also both senior research fellows at Claremont Graduate University. They can be reached at reports@wsj.com.

(END) Dow Jones Newswires

October 07, 2025 13:00 ET (17:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.