Bahauddin Zakariya University, Multan

(BZU)

Institute of Management Sciences

(IMS)

Article Review
Course title: Human resource management
Topic: Effect of Compensation and Motivation to Employee Performance through
Commitment

Submitted To:
Sir Abdul shakoor

Submitted By:
Zara Shoukat
MB-19-01
Date of Submission: August 17, 2020
 Aryo Widagdo attempted to define the seemingly straightforward concept
of effect of compensation and motivation to employee performance through
commitment in his 2018 article.

Abstract:
This study results indicate that compensation has significant effect on
motivation and organizational commitment, but does not have significant effect on
employee performance. Organizational commitment and motivation have significant
effect on employee's performance, as well as a significant effect of organizational
commitment on employee performance. In addition, this study found that
compensation cannot directly improve employee performance, but able to increase
motivation and strengthen organizational commitment. Motivation gives a strong
effect on relationship between compensation and employee performance than
between motivation and organizational commitment or through organizational
commitment only.

LITERATURE REVIEW:

Compensation is the remuneration awarded to an employee in exchange for

their services or contribution to the business. The contributions can be their time,
knowledge, skills, abilities and commitment to your company or a project.
Dale Yoder: “Compensation is paying people for work.”
From the above definition we can say that compensation is a reward. It is given by
the employer and received by the employees. Compensation is such an activity
through which organization on the basis of its ability and within law reasonably
assesses the contribution of employees directly and indirectly for the distribution of
financial and non financial remuneration.
Compensation has the following Components:

 Direct Compensation: Paying money directly in the form of wages, salaries,

commission, bonuses and incentives.
 Indirect Compensation: Include protection programs like medical insurance,
life insurance, social security, pension and vacation facility.
 Non-financial compensation: Such as leaves, better working hours and
adequate office.
Conditions that must be met in determining the amount of compensation:

 Fair for employees and companies. This means that employees should not
blackmail employer to earn more profit.
 The wage should have the potential to encourage employee morale.
 It is necessary to provide incentive wage as an additional reward.
  If any of the above can be managed properly then the compensation can be
used by the company to improve employee productivity.
The Objective of effective compensation management includes:

 Ensure justice.
 Appreciation of desired behavior.
 Controlling cost.
 Retain existing employees.
 Increased administrative efficiency.

Motivation is the driving force which stimulates an individual to initiate and sustain
a behavior. Motivation is the biological, social, or psychological state that drives a
person towards a specific action. There are many theories of motivation.
Maslow argues in his theory that if the needs at the ground level have been
met, then there will be other higher needs that must be met. The five basic human
needs that shape the hierarchy of the needs are:

 Physiological needs, such as eating, housing, sleeping and so on.

 Security needs, such as needs for safety and protection from harm.
 Social needs, such as need for love, belongingness and friendship.
 Needs for appreciation, such as status and position, self-respect, reputation
and achievement.
 Needs self-actualization, such as self-fulfillment, self-potential, self-
development.
Herzberg conducted his research by asking a group of people about their good and
bad experiences at work. He was surprised that the group answered questions about
their good experiences very differently from the ones about their bad experiences.
Based on this, he developed the theory that people’s job satisfaction depends on two
kinds of factors. Factors for satisfaction (motivators / satisfiers) and factors
for dissatisfaction (hygiene factors / dissatisfies).
These factors are:
 Motivators: Which can encourage employees to work harder, such as
achievement, reward, responsibility, progress, recognition, advancement, personal
growth and improvement. Improving the motivator factors increases job satisfaction.
 Hygiene factors: These won’t encourage employees to work harder but they
will cause them to become unmotivated if they are not present. These factors include
salary, job security, working conditions, coworker relation, policies and rules,
supervisor quality and status. Improving the hygiene factor decreases job
dissatisfaction.

The main issue for a leader, in any organization the leader is, is the problem,
how to move subordinates to work, and more than that subordinates are expected to
be more productive. One way for subordinates to work is expected is to ‘Kick the butt’
or better known as ‘Kick Him in the Ass’ (KITA).model or theory WE use violent
means.

Various FORMS of KITA:-

Negative physical KITA:-Which encourages subordinates to work by using physical
violence.

Negative psychological KITA:- Which encourages subordinates to work by spying

or using physical violence
Positive KITA:- Which encourages the subordinates to work by making promises of
interest.
Negative we are motivated, because subordinates do not work voluntarily, but
simply move because of an external push. Many think that positive KITA is an
motivation but it is not because this positive KITA seems to be an encouragement
that arises from within the subordinate, whereas actually the subordinates move
because of persuasion or promises that the work morale is achieved become week
again.

Commitment
Organizational commitment is defined as “a psychological state that (a)
characterizes the employee’s relationship with the organization, and (b) has
implications for the decision to continue or discontinue membership in the
organization” (Meyer & Allen, 1991,)
While Robbins argued that the commitment of employees to the organization
is one attitude that reflects the feelings of likes or dislikes an employee to the
organization where he works. Commitment is the bond employees experience with
their organization. Broadly speaking, employees who are committed to their
organization generally feel a connection with their organization, feel that they fit in
and, feel they understand the goals of the organization.
According to Meyer, Allen and Smith Components of organizational
commitment:-
 Affective Commitment: when employees want to be part of an organization
because of emotional ties or feel have the same value with the organization.
 Continuance Commitment: The willingness of individual to remain in the
organization because they do not find other jobs or due to certain economic
reward.
 Normative Commitment: Arise from employees. Employees survive as
members of the organization because there is an awareness that is
committed to the organization is the right thing to do.

Employee Performance:-
As stated by Mangkunegara the term performance comes from the word job
performance or actual performance is the work in quality and quantity achieved by
an employee in performing their duties appropriate responsibility given to her.
According to Gibson employee performance is a measure that can be used
to determine the comparison of the result of executive of tasks, responsibilities
given by the organization in the certain period and can be used relative to measure
work performance or organizational performance.
Criteria for assessing employee performance:-
 Quality
 Quantity
 Timeliness
 Cost effectiveness

Analysis:-
Effect of compensation on motivation:-
Analysis results the direct effect of compensation on Motivation show positive
and significant path coefficient. This suggests that compensation affect on motivation.
Positive path coefficient means that there is unidirectional relationship between
compensation and motivation. Compensation with indicators of salary, incentives and
benefits will increase motivation.
Effect of Organizational Commitment against Compensation:-
Analysis results the direct effect of Compensation on Organizational
Commitment show significant and positive path coefficient. This suggests
compensation affect on Organizational Commitment. Positive path coefficient means
that there is a relationship between the directions of Compensation with
Organizational Commitment. Compensation with indicator of salaries, incentives, and
benefits will have strong effect on Organizational Commitment.
Employee Compensation Effect on Performance:-
Analysis results the direct effect of compensation on employee performance
show positive but insignificant path coefficient. This suggests that relationship
between compensation and employees performance in same direction but
insignificant. Higher compensation makes employee’s performance increase but the
increase is not real.
Effect of Organizational Commitment on Employee Performance:-
Analysis results the direct effect of Organizational Commitment on employee
performance show significant and positive path coefficient. This suggests that
Organizational Commitment affect on employee performance. Positive path
coefficient means that there is unidirectional relationship between organizational
commitment and employee performance. Stronger organizational Commitment will
improve employee’s performance.
Effect of Compensation on Organizational Commitment through Motivation:-
Analysis results the indirect effect of compensation on organizational
commitment through motivation show significant and positive path coefficient. This
means compensation increase can significantly strengthen organizational
commitment that triggered by motivation. Employees perceive that they should
confidence to organization's goals, belief to organization value, loyal to organization,
obey the work rules to prioritize work, prioritize superior and compete to reach that.
Employees perceive themselves already work hard through accomplishments in
achieving organizational goals.
Effect of Compensation on Employee Performance through Motivation and
organizational commitment:-
Analysis results the indirect effect of compensation on employee performance
through motivation and organizational commitment show significant and positive path
coefficient. This means that compensation increase can significantly improve
employees performance that jointly triggered by increasing motivation and strong
organizational commitment. It means that employees perceive their work to be in
presence of confidence in organization's goals, the belief in value of organization,
loyalty to organization, obey the rules work ability to prioritize work, prioritize
achieving results stand out and compete in achieving results.

Conclusion:-
Based on research results and discussion that have been described above, it can be
concluded as follows:
1. Compensation with indicators of salaries, incentives and benefits will play an
important role to increase employee motivation. It reflected by achievement
and affiliation need.
2. Compensation capable to strengthen organizational commitment of
employees that realized by affective, normative and continuation commitment.
3. Compensation less contribute to improve employee performance that realized
by quantity, quality, and time. It means that high compensation that
inconsistent with conditions employee salaries, incentives and benefits are not
always able to boost employee performance.
4. Motivation with indicators of achievement need, affiliation need and power
need were able to strengthen organizational commitment.
5. Motivation play important role to improve employee performance. This means
that high motivation will provide a very significant meaning to improve
employee performance.
6. Direct effect relationship between compensation and employee performance
is positive but not significant. This contrasts with effect of indirect relationships
that mediated by motivation and organizational commitment. Employee
performance will increase when mediated by motivation and organizational
commitment, either partially or jointly.