Does Culture Pay? Evidence from Crowdsourced Employee Engagement Data

Corporate culture is increasingly important for retention and employee motivation. First, using a new survey tool with PayScale.com, I show that culture is strongly correlated with employee engagement and both firm productivity and occupational skills. Moreover, a value-weighted portfolio of companies with high culture earns a monthly four-factor alpha that is 7.5% higher than their counterparts. Second, to understand the mechanism behind these correlations, I exploit plausibly exogenous variation in employees' outside options and find that employees are willing to give up 1.7% of their annual earnings ($1,159/year) for a standard deviation increase in culture