24
RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB PERFROMANCE AMONG EMPLOYEES HONG HUA TIMA This project is submitted in partial fulfilment ofthe requirements for a Bachelor of Science with Honours Human Resources Development Faculty of Cognitive Sciences and Human Development UNIVERSITI MALAYSIA SARA W AK 2011

RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

  • Upload
    others

  • View
    6

  • Download
    0

Embed Size (px)

Citation preview

Page 1: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB PERFROMANCE AMONG EMPLOYEES

HONG HUA TIMA

This project is submitted in partial fulfilment ofthe requirements for a Bachelor of Science with Honours Human Resources Development

Faculty of Cognitive Sciences and Human Development UNIVERSITI MALAYSIA SARA W AK

2011

Page 2: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

ACKNOWLEDGEMENT

First of all, I want to express my highest gratitude to my supervisor, Mr. Abang Ekhsan bin Abang Othman for his invaluable guidance and help throughout all the way of completion of this Final Year Project. Never forget to express my thankfulness to my supervisor that he was willing to spend his time in order to explain and discuss the problem which facing in my research. I appreciate his guidance and advice that facilitated me in completing this Final Year Project. Other than that, I would like to thank Ms. Agatha and Profesor Madya Dr. Rusli who are my evaluators in my FYP 1 and FYP 2. They have given me the constructive advice and valuable comment to my study which allows me to correct the problem of the study and also improve the quality of my study.

In addition, million thanks for two hotel industry in Kuching that allowed me to conduct the questionnaires survey for pilot test and actual test in the hotel. Thank specially for the staffs in both hotels for helping me to distribute the questionnaires in hotels and informed me to collect back the questionnaires. Apart from that, I would like to express my sincere thanks to all the respondents who were willing to participate in the survey questionnaires and also provided the truthful information for me.

For my beloved family, I would like to thank their spiritual, moral and financial support throughout this research. Last but not least, thank you to all my friends for their assistance, companionship, encouragement as well as sharing their knowledge and ideas with me regarding this project whenever I was faced the problem in doing this study.

Once again, I would like to convey my deepest thanks to all of you.

Page 3: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

ABSTRACT

RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB PERFORMANCE AMONG EMPLOYEES

Hong Hua Tima

The main purpose of this study is to detennine the relationship between compensation system and job perfonnance among employees in the hotel industry. The components of compensation that examined in this study included base salary, perfonnance-based pay, recognition, and working condition. A total number of 65 employees in the hotel were selected as the sample in this study. Questionnaires were used as an instrument in this study to collect the related data. Descriptive statistic was used to explain the demographic characteristics of respondents by measuring its frequency and percentages. Hypotheses were measured using statistical analysis which included Independent T -Test, Pearson Correlation, and Multiple Regression. The result has shown that there have significant relationships between four selected components of compensations and employees' job perfonnance. Apart from that, the discussion and past researchers regarding this study was also discussed. Lastly, the summary of all chapters, recommendation for organization, human resources practitioners, and future research, and limitations that encountered in this study will be discussed.

11

Page 4: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

..

ABSTRAK

HUBUNGAN ANTARA SISTEM PAMPASAN DAN PRESTASI KERJA PEKERJA

Hong Hua Tima

Kajtan ini bertujuan untuk mengenalpasti hubungan antara sistem pampasan dan prestasi kerja pekerja di industri hotel. Komponen pampasan yang dikajikan dalam kajian ini termasuk gajt pokok, gajl berasaskan prestasi, pengiktirafan, keadaan kerja. Sebanyak 65 pekelja di hotel lelah dipilih sebagai sampel dalam kajian into Soal selidik dtgunakan sebagai instrumen dalam kajtan tnt unluk mengllmplll data yang berkaitan. Statistik deskript~f lelah digllnakan untuk menjelaskan ciri-ciri demografi responden dengan mengukur frekuensi dan peratusan. Hipotesis diukur dengan menggunakan analisis statistik yang merangkumi Test-t Berdikari, Korelasi Pearson, dan Regresi Berganda. Keputusan telah menunjukkan bahawa empat komponen pampasan yang dipilih mempunyai hubungan yang signifikan dengan prestasi kerja pekerja. Selain itu, perbincangan dan penyelidikan yang lepas ten tang kajian ini juga dibincangkan. Akhirnya, ringkasan zmtuk semua bab, cadangan untuk organisasi, pengamal sumber manusia, dan bakal penyelidik, serla halangan yang dihadapi dalam kajian ini juga dibincangkan.

111

Page 5: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

TABLE OF CONTENTS

Acknowledgement Abstract Abstrak Table of Contents List of Tables List of Figures

CHAPTER 1 - INTRODUCTION

1.0 1.1 1.2 1.3

1.4 1.5 1.6 1.7

1.8

Introduction Background of the Study Problem Statement Research Objective 1.3.1 General Objective 1.3.2 Specific Objective Research Hypotheses Conceptual Framework Significance of Study Definisi of Terms 1. 7.1 Financial Compensation 1.7.2 Non-Financial Compensation 1.7.3 Base Salary 1.7.4 Performance-based Pay 1.7.5 Recognition 1.7.6 Working Conditions 1.7.7 Job Performance Summary

CHAPTER 2 LITERATURE REVIEW

2.0 2.1

2.2

Introduction Context for the topic 2.1.1 Job Performance 2.1.2 Base Salary 2.1.3 Performance-based Pay 2.1.4 Recognition 2.1.5 Working Conditions Basis for formulating conceptual! theoretical framework

IV

11

III

IV

Vll

IX

1 2 5 7 7 7 8 9 10 11 11 11 12 12 12 13 13 14

15 16 16 18 19 19 20 20

Page 6: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

2.2.1 Maslow Hierarchy of Needs Theory 20 2.2.2 Expectancy Theory 22 2.2.3 Equity Theory 24

2.3 Past Review 25 2.3.1 Gender 25 2.3.2 Base Salary 26 2.3.3 Performance-Based Pay 27 2.3.4 Recognition 29 2.3.5 Working Conditions 30

2.4 Summary 32

CHAPTER 3- RESEARCH METHODOLOGY

3.0 Introduction 33 3.1 Research Design 34 3.2 Population and Sample under Study 34 3.3 Data Collection Method and Procedures 35 3.4 Instrument of the Study 35 3.5 Pilot Test 37

3.5.1 Reliability and Validity of the Study 38 3.6 Data Analysis Procedures 39

3.6.1 Descriptive Statistics 39 I I I I3.6.2 Inferential Statistics 39

3.6.3 Independent T-Test 39 1 i

3.6.4 Pearson Correlation 40 3.6.5

3.7 SumMultiple Linear Regression

mary of Statistical Method used to test Hypotheses 41 I,41

f 3.8 Summary 42 i

CHAPTER 4- FINDINGS AND DISCUSSION ~ 4.0 Introduction 43 4.1 Descriptive Satatistic 44

4.1.1 Respondents' Demographic Factors 44 4.l.l(a) Gender 44 4.1.1 (b) Age 45 4.1.1 (c) Educational Level 47 4.1.1 (d) Length of Services 48

4.1.2 Employee Job Performance 49 4.1.3 Base Salary 51 4.1.4 Performance-based Pay 53 4.1.5 Recognition 55 4.1.6 Working Conditions 57

4.2 Validity Test for the Actual Test 59 i I !

I i

Iv i

, II i

Page 7: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

4.3 Reliability Test for the Actual Test

• 4.4 Findings and discussion based on Hypothesis Testing 4.4.1 Independent Sample T-test (HoI) 4.4.2 Pearson Correlation (Ho2)

Pearson Correlation (Ho3) Pearson Correlation (Ho4) Pearson Correlation (Ho5)

4.4.3 Multiple Regression (Ho6) 4.5 Summary of the fmding 4.6 Summary

CHAPTER 5-SUMMARY, RECOMMENDATION, AND CONCLUSION

5.0 Introduction 5.1 Summary of the study 5.2 Recommendation

5.2.1 Recommendation for Organization 5.2.2 Recommendation for Human Resources Practitioners 5.2.3 Recommendation for Future Researchers

5.3 Limitations of Study 5.4 Conclusion 5.5 Summary

REFERENCES

APPENDIX

111\ ,

61 62 62 64 67 69 71 74 77 77

78 79 81 81 82 83 84 84 85

86

92

VI

Page 8: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

LIST OF TABLES

Table 3.1 Total of Questionnaires distribution and collected 35

Table 3.2 Four-point Likert Scale 36

Table 3.3 Alpha coefficient of Pilot Test basedon 20 respondents 37

Table 3.4 Strength of Relationship between Independent and Dependent Variables 40

Table 3.5 Hypotheses Testing Method for Each Variable 41

Table 4.1.1 (a) Distribution of respondents based on gender 44

Table 4.1.1 (b) Distribution of respondents based on age 46

Table 4.1.1. (c) Distribution of respondents based on educational level 47 i

~ '~

Table 4.1.1 (d) Distribution of respondents based on length of services 48

Table 4.2 Employees' Job Performance based on influences of compensations 49

Table 4.3 Influences of base salary towards employees' job performance 51

Table 4.4 Influences of performance-based pay towards employees'job performance 53

~ Table 4.5 Influences ofrecognition towards employees' job performance 55

VB

Page 9: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

Table 4.6 Influences of working conditions towards employees' job performance 57

Table 4.7 Goodness ofdata 59

Table 4.8 Alpha coefficient of Actual Test based on 65 respondents 61

Table 4.9 Independent Sample T -test 62

Table 4.10 Coefficient of Base Salary and employees' job performance 64

Table 4.11 Coefficient ofPerformanc-based pay and employees' job performance 67

Table 4.12 Coefficient of Recognition and employees' job performance 69

Table 4.13 Coefficient of Working Conditions and employees' job performance 71

Table 4.14 Stepwise Multiple Regression Analysis: Result of ANOV A 74

Table 4.15 Stepwise Multiple Regression Analysis: Result of Model Summary 74

Table 4.16 Stepwise Multiple Regression Analysis: Result of Coefficient 75

Vlll I t

1

Page 10: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

.. LIST OF FIGURES

Figure 1.1 The relationship between demographic factor and compensation systems with employees' performance 9

Figure 2.1 What is Performance? 16

Figure 2.2 Maslow Hierarchy of Needs Theory 21

Figure 2.3 Expectancy Theory 23

Figure 2.4 Equity Theory 24

Figure 4.1.1 (a) Distribution of respondents based on gender 45

Figure 4.1.1 (b) Distribution of respondents based on age 46

Figure 4.1.1 (c) Distribution of respondents based on educational level 47

Figure 4.1.1 (d) Distribution of respondents based on length of services 48

ix

Page 11: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

F ,...

CHAPTER 1

INTRODUCTION

1.0 Introduction

This research is to study the relationship between compensation systems and .employees' job performance. This chapter also includes the background of the t, r:

".~study regarding how the compensation system will affect employees'

performance, statement of the problem, the objectives of the study, research

hypothesis, conceptual framework, significance of the study, and definition of

terms that used in this study .

.. !

1

Page 12: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

1.1 Background of the Study

Employees is an important asset in an organization because whatever decision

or behavior of the employees will affect the successful or failure of the

organization. To ensure the best performance of the employees, organizational

leaders should motivate the employees by giving the rewards to them. Bergmann

and Scarpello (2001) said that compensation systems are conducted to motivate

and encourage the worker to work harder in order to attain the organizational

expectations (cited in Philips & Fox, 2003). According to Mondy (2008), "pay

and performance are directly related to achieving organizational goals. Workers

who best achieve their parts oforganization goals are rewarded." (pg.21 0). This

shows that compensation as a motivator or reinforcement to encourage the

employees improves their performance and increases their commitment towards

the organizational goals (Nalini Govindarajulu & Daily, 2004).

Libby and Lipe (1992) also stated that performance incentives are able to

motivate the worker to perform well and they are more willing to contribute extra

efforts and times towards their job (cited in Zuraidah Mohd-Sanusi & Takiah

Mohd- Iskandar, 2007). Compensation systems can view as an important element

in retaining and improving the level ofworkers' performance in the organizations.

It is due to most worker views that compensations is their income, they need it to

survival and also to implement their responsibility towards family's expenses.

Therefore, they are willing to perform well in order to get the desired rewards.

Besides, compensation will also motivate some of the workers to improve their

performance in order to fulfill their self-actualization such as get the promotion

in an organization.

According to Legge (1995, cited in Baptiste, 2008), rewards will increase

employees' commitment towards organizational goals and they are more willing

to put more effort in their jobs and always develop themselves in order to provide

the desired performance. Besides, satisfaction of the employees towards their

rewards will also influence their performance (Fisher et aL, 2004, cited in

Baptiste, 2008). The consequences of increasing employees' satisfaction is

similar with increasing employees' commitment which is the higher

2

r !. i 1

Page 13: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

compensation that employees get, the more willing employees to exert their

effort and improve their performance.

According to Smith and Rupp (2004), high compensation is one of the central

points to attract and retain the knowledge workers who able to produce

outstanding performance which is required by many organization. Within this,

knowledge workers seem as an vital resources for the organizations, if they are

satisfied with their compensations, they will be more willing to exert their total

knowledge towards the job performance and also work more diligently by

producing excellent performance.

According to Chiu et al. (2002, cited in Ghebregiorgis & Karsten, 2007), "pay

have a sign~ficant impact on employees behavior, performance, and effectiveness

in an organizations", thus top management should provide the desired

compensation to the employees in order to maintain or improve their

performance. However, different employees have different needs and desires.

Some of the employees are more attractive and motivated by acquiring the i !

financial compensations (salary, performance based pay and allowance) whereas i some are more attractive by the non-financial compensations (recognition, i

~working conditions, and opportunity development) (Lawler,1973; Miller,1991; . 1

Kohn,1993, cited in Nalini Govindarajulu & Daily, 2004). As a result, top i management should clearly identify the needs of employees.

Furthermore, employees' wellbeing and workplace health and wellness

policies as the nonfinancial rewards for the employees and bring significant

effects to their performance and also organizational effective and profitable.

(Department for Work and Pensions, 2006; Tehrani et al., 2007 cited in Baptiste,

2008) For example, the employees who are working at the place where there are

stress-free and physically safe environment will be more capable to produce good

performance rather than those who working at the poor working condition.

Convenient workplace environment also helps to decrease the rate of ,

absenteeism and turnover.

In addition, Jong and Hartog (2007) research demonstrate that some of the

respondents suggested that financial rewards are helpful to motivate employees

3

Page 14: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

provide extra efforts when implementing new servIces or introduce new

technology within an organization. However, Amabile (1988) research suggest

different ideas which intrinsic motivation is important than extrinsic rewards

(cited in Jong & Hartog). Based on two statement in above, no matter the

rewards system is in form of financial or non-financial is essential to motivate

and encourage the employee to contribute their effort or improving their

performance.

Nevertheless, the compensation system which is fairness and equity are more

required and attractive by employees. Goncharuk and Monat (2009) mentioned

that reward is one of the factors to improve employees' performance but the

rewards must be equity and provided immediately after the desired behaviors.

This is because the employees who received the equity compensation will be more

willing to exert the inputs and more likely to perform well due to their

contribution is appreciated and rewarded by the employers. Besides, the

employees are able to make improvement or change by notice the desired

behavior which is rewarded by the employers. This can also helps to improve the

productivity and reputation of the organization.

In addition, Morris et al. (2004) also stated that organization must provide

equality pay for the employees to encourage them to make the improvement (cited

in Ghebregiorgis & karsten, 2007). Equality pay is important issues in an

organization because most of the employees will compare their inputs with

outcomes (Morris et aI., 2004, cited in Ghebregiorgis & karsten, 2007). If they are

satisfied with the rewards system, they will be more motivated to work harder and

willing to create excellent performance. In conversely, they will leave the

company or produce poor performance intentionally if they are dissatisfied with

the rewards system.

4 I ,

I

Page 15: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

1.2 Problem Statement

Employees' perfonnance is an important element to build the good reputation

for the outsider towards the image of the organization and also can prove the

prominent capabilities of the employees within an organization. This good

perfonnance can be maintained by rewarding the employees because "the

behaviors you reward are the behaviors you get" (Mondy, 2008). However, some

of the organization emphasizes more in the profit until they ignore the rewards of

the employees. If the employees are not satisfied with the compensation systems

provided by the organization, they will reduce their effort in perfonning their jobs

or less committed to the organizational goals. (Morris,Yaacob & Wood, 2004).

Furthennore, some of the top management utilizes "one program fits all"

approach to implement the compensation system in an organization (Nalini

Govindarajulu & Daily, 2004). This will reduce employees' satisfaction and also

produce poor perfonnance due to every individual employees have different needs

with others and they also pursue different compensations return by their efforts

and contributions. As a result, top management has to tailor the compensation

systems that are more suitable to the employees' needs in order to motivate them

and improve their perfonnance.

Although compensation systems seem to be crucial role in improving the

employees' perfonnance but it is difficult to implement effectively in an

organization (Bunning, 2004). Sometimes, unfair and inappropriate compensation

system will occurs due to different perception of employees towards the

compensation system and the managers may be bias in gender and race. The

manager might gives the higher compensation to the employees who are same

race or gender with them but give lower compensation to the employees who are

difference race and gender with them. Unfair compensation system can frustrated

the employees and some of them might leave the company if seriously. Therefore,

organizational must give equality rewards for their employees in order to maintain

their perfonnances and remunerate employees' contributions.

5

Page 16: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

Non-financial compensation is also important to increase or maintain the

employees' performance such as recognition, opportunity development, working

condition, and so on (Pfeffer et aI., 1995 cited in Smith & Rupp, 2004). Some of

the employees who work with the organization is because want to gain the

experiences and new knowledge rather than earn the money. Nevertheless, many

organizations are unrealized about it and only emphasizes in the financial rewards

(base pay and salary). Most of the manager are prefer to order their employees

rather than give them recognition and support. This will frustrate the employees

and reduce their motivation to improve their performance because they will think

that their performances are not appreciated by their employers. Besides, worse

working condition will also influence the cognition and emotion of the employees

and produce the low quality of performance.

In addition, sufficient funding is important for organization to provide the

attractive and expected compensation for the employees in order to motivate them

to perform well. Some of the companies are less ability to provide highest or

comparable compensation system will reduce the motivation of the employees and

reduce their efforts towards their performance indirectly. Besides, lack of

sufficient fund in providing the rewards for the employees will increase the rate of

turnover in an organization due to employees look for another company which is

more capable to pay highest and desirable rewards to them.

6

Page 17: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

I

1.3 Research Objectives

,. 1.3.1 General Objectives

The general objective of this study is to investigate the relationship between

compensation systems (financial and non-financial) and job performance among

the employees.

1.3.2 Specific Objectives

• To determine the difference between gender III employees' job

performance

• To determine the relationships between base salary with employees' job

performance.

• To determine the relationships between performance-based pay with

employees' job performance.

• To determine the relationships between recognition with employees' job

performance.

• To determine the relationships between working conditions with

employees' job performance.

• To determine the dominant component of compensations that affects

employees' job performance.

7

Page 18: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

1.4 Research Hypotheses

HoI: There is no significant difference between gender in employees' job

Performance

Ho2: There is no significant relationship between base salary and employees' job

performance.

Ho3: There is no significant relationship between performance-based pay and

employees' job performance.

Ho4: There is no significant relationship between recognition and employees' job

performance.

Ho5: There is no significant relationship between working conditions and

employees' job performance.

Ho6: There is no dominant component of compensations that affects employees'

job performance.

8

Page 19: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

1.5 Conceptual Framework

Demographic Characteristic

• Gender (Yahaya, n.d.) Dependent Variables

~ Independent Variables

Financial Compensation

• Base Salary (Torrington, Hall &Taylor, 2008)

• Perfonnance-Based Pay (Gerhart, 2000, cited in Shields,

2007) Non Financial Compensation

• Recognition (Jeffries, 1997, cited in Nalini Govindarajulu & Daily, 2004)

• Working conditions (Baptiste, 2008)

Employees' Job

Performance

Figure 1.1: The relationship between demographic factor and compensation Systems with employees' performance

The conceptual framework in above show that the dependent variable and

independent variables of this study. The dependent variable which known as

outcome variable is the employees' job perfonnance. In other hands, independent

variables in this study which assume can bring effect on the dependent variable

are financial compensations (base salary, perfonnance-based pay) and non­

financial compensations (recognition and working conditions).

Besides, the employee's demographic characteristic which is gender also

be examined in this study to identify the difference between male and female in

employees' job perfonnance.

9

Page 20: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

,.. .,..

1.6 Significance of The Study

This study helps top management to understand the relationships between

compensation system and employees' performance within an organization.

Besides, top management can be realized that which types of compensation bring

more attraction for employees and motivate them to improve their performance.

Through this, top management is able to tailor the most suitable compensation

systems of the organization in order to satisfy employees' needs. This is essential

due to employees are the main resources for the organization, their behavior and

contribution will affect the performance and reputation of the organizations.

Therefore, if they are satisfied with their rewards, they will be more willing to

exert their effort and contributions towards their job performance.

On the other hand, the employees will notices that their contributions and

performances are actually appreciated by the employers but it might compensate

in different ways. Some of them may get the financial rewards whereas some of

them may compensate in non-financial rewards. Apart from that, the employees

are able to distinguish the fairness or bias of the compensation system which

implement in the organization.

Lastly, the researcher can gains more knowledge about the components of

compensation system within an organization and its implications towards

employees' performance.

10

r

Page 21: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

1.7 Deimition of Terms

1.7.1 Financial Compensation

Conceptual Definition

Financial compensation includes direct financial compensation and

indirect financial compensation (Henderson, 1995 & Mondy, 2008). Direct

financial compensation refers to "the pay that a person receives in the

form ofwages, salaries, commissions, and bonuses" (Mondy, 2008, p.242).

Indirect financial compensation also called benefits and it "consists ofall

financial rewards that are not included in direct financial compensation"

(Mondy, 2008, p.242).

Operational Definition

In this research study, financial compensation refers to the reward which

perceives by employees in form of money in the specific time and the

amount of money which is provided depends on performance of

employees.

1.7.2 Non-financial Compensation

Conceptual Definition

Non-financial compensation is defined as "the satisfaction that a person

receives from the job User! or from the psychological and physical

environment in which the person works" (Mondy, 2008, p.242).

Operational Definition

Non-financial compensation III this study is the kind of compensation

which can satisfy the psychological and physical needs of employees in

the workplace.

11

Page 22: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

,..

1.7.3 Base Salary

Conceptual Definition

According to Heathfield (2010), "base salary is a fixed amount ofmoney

which excludes benefits, bonuses, or any other potential compensation

paid to an employee."

Operational Definition

Base salary in this study refers to initial monetary rewards which obtain by

employees at the end of every month and it does not include other

compensations.

1.7.4 Performance-Based Pay

Conceptual Definition

According to Shields (2007), performance-based pay is "any remuneration

practice in which part or all ofremuneration is based directly and

explicitly on employees' assessed work behavior and/ or measured results"

(p.348).

Operational Definition

In this research study, performance based pay is defined as certain amount

of money received by employees based on their level of performance or

their productivity.

1.7.5 Recognition

Conceptual Definition

"Recognition includes giving praise (compliments), awards (certificates of

t achievement, private budgets, increased autonomy), and ceremonies

(public speeches and celebration) (YukI, 2002, cited in Jong & Hartog,

2007)."I

I ! 12

Page 23: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

Operational Definition

Recognition in this study refers to awards or praIse given by top

management to employees. This compensation shows that employers are

appreciated employees' contributions and performances.

1.7.6 Working Conditions

Conceptual Definition

According to Mondy (2008), working condition can defined as the

workplace environment which is comfortable, safe and healthy.

Operational Definition

In this study, working conditions refers to the workplace environment

which is convenient, harmony, and safety provided to employees in order

to improve their performances.

1.7.7 Job Performance

Conceptual Definition

Job performance can be referring as output measures such as productivity,

product and service quality, and employee turnover. (Dyer & Reeves, 1995;

Boselie & Dietz, 2003, cited in Baptiste, 2008)

Operational Definition

In this study, job performance is defined as the output and the productivity

which produce by employees in the specific times, quantity, quality and

areas.

13

Page 24: RELATIONSHIP BETWEEN COMPENSATION SYSTEMS AND JOB … between compensation systems... · This research is to study the relationship between compensation systems and . employees' job

1.8 Summary

The overall of this chapter discuss about the main aspects of research

which includes background of the study, statement of the problem, research

objective, research hypotheses, conceptual framework, significance of the

study, and definitions of tenns for this study. This will be continued by more

comprehensive literature review for this study in the next chapter.

14