Employee engagement plays a greater role than compensation in keeping employees loyal to their organizations, according to a new study conducted by researchers from Universitas Halu Oleo and Universitas Karya Persada Muna in Indonesia. Published in 2026 in the International Journal of Global Sustainable Research (IJGSR), the research provides new evidence that while fair compensation remains essential, employees are significantly more likely to stay with an organization when they feel engaged, valued, and connected to their work.
The study was led by Nurwati, Yuyun Nirwana Subair, Ayu Naningsi, Mika Sugarni, Dewi Kurniati Aifu, and Sutriasi Umar. The researchers investigated permanent employees working across Indonesia's service sector, offering timely insights as organizations worldwide continue to face rising employee turnover, talent shortages, and increasing competition for skilled workers. Their findings suggest that organizations seeking long-term workforce stability should focus not only on financial rewards but also on creating workplaces where employees feel motivated, recognized, and personally invested in their roles.
Why Employee Retention Matters More Than Ever
Employee retention has become one of the most important challenges for organizations operating in today's rapidly changing labor market. Replacing experienced employees is expensive, often requiring significant investments in recruitment, onboarding, and training. High turnover can also reduce productivity, weaken teamwork, and diminish service quality.
For many organizations, compensation has traditionally been viewed as the primary strategy for retaining employees. Competitive salaries, bonuses, and benefits are expected to encourage workers to remain with their employers. However, modern workplace research increasingly suggests that employees also seek meaningful work, opportunities for professional growth, recognition from leaders, and a sense of belonging within their organizations.
The Indonesian study explores whether these psychological factors may actually outweigh financial incentives when employees decide whether to remain with an employer.
How the Research Was Conducted
The researchers carried out a quantitative cross-sectional survey involving 60 permanent employees from service-sector organizations in Southeast Sulawesi, Indonesia. Participants represented industries including banking, finance, retail, telecommunications, consulting, and other professional services.
Employees completed validated questionnaires measuring three key areas:
- Compensation
- Employee engagement
- Employee retention
The research team analyzed the responses using multiple linear regression to determine how strongly compensation and engagement independently influenced employee retention. Statistical quality checks confirmed that the collected data were reliable and suitable for analysis.
Employee Engagement Emerged as the Strongest Predictor
The study found that both compensation and employee engagement significantly improve employee retention, but employee engagement produced the much stronger effect.
Key findings include:
- Employee engagement showed the strongest influence on retention (β = 0.519).
- Compensation also had a significant positive effect (β = 0.312).
- Together, both factors explained 64.7% of the variation in employee retention, indicating they account for most of the reasons employees choose to remain with their organizations.
- Employees who experienced higher enthusiasm, dedication, and meaningful work reported stronger intentions to stay with their employers.
The findings demonstrate that while competitive pay remains important, organizations gain even greater retention benefits by fostering positive workplace experiences that strengthen employees' emotional commitment.
Fair Pay Alone Is Not Enough
The researchers emphasize that compensation should not be viewed as a complete solution to employee retention.
Fair salaries, transparent compensation systems, and equitable benefits create trust between employees and employers. However, financial rewards alone cannot generate the deeper psychological attachment that encourages employees to remain committed over many years.
Instead, organizations should simultaneously invest in initiatives such as:
- meaningful job design,
- employee recognition,
- career development opportunities,
- supportive leadership,
- constructive feedback,
- autonomy in daily work, and
- positive workplace relationships.
Combining these approaches produces better retention outcomes than relying exclusively on salary increases.
Implications for Businesses and Policymakers
The research offers practical recommendations for organizations seeking to reduce turnover and improve workforce stability.
For employers, the findings suggest that retention strategies should integrate both financial and psychological support. Human resource departments can strengthen employee loyalty by ensuring compensation systems are transparent and performance-based while simultaneously investing in employee development and engagement programs.
Business leaders may also benefit from tailoring retention strategies to different generations of workers. Younger employees often place greater value on career growth, organizational purpose, flexibility, and recognition than on salary alone.
For policymakers and educational institutions, the study highlights the importance of promoting workplace practices that improve employee well-being alongside economic productivity. Organizations that cultivate engaged employees may experience lower turnover, stronger organizational performance, and improved service quality across the broader economy.
Expert Perspective
According to Nurwati, Yuyun Nirwana Subair, Ayu Naningsi, Mika Sugarni, Dewi Kurniati Aifu, and Sutriasi Umar from Universitas Halu Oleo and Universitas Karya Persada Muna, the findings demonstrate that employee retention depends on complementary factors rather than a single solution. Their analysis indicates that equitable compensation and strong employee engagement work together to build lasting organizational commitment, with engagement providing the greatest influence on employees' decisions to remain with an organization.
About the Authors
Nurwati is a researcher affiliated with Universitas Halu Oleo, Indonesia, specializing in human resource management and organizational behavior.
Yuyun Nirwana Subair is a researcher at Universitas Halu Oleo and the corresponding author of the study, with expertise in human resource management, organizational development, and employee performance.
Ayu Naningsi, Mika Sugarni, and Dewi Kurniati Aifu are researchers from Universitas Karya Persada Muna, whose work focuses on management, organizational behavior, and workforce development.
Sutriasi Umar is a researcher from Universitas Halu Oleo, contributing to studies in management and organizational performance.
Source
Journal Article Title: Compensation, Employee Engagement, and Employee Retention: Empirical Evidence from the Indonesian Service Sector
Journal: International Journal of Global Sustainable Research (IJGSR), Vol. 4, No. 6 (2026)
DOI: https://doi.org/10.59890/ijgsr.v4i6.274
Official Journal: https://slamultitechpublisher.my.id/index.php/ijgsr/index
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