1.

INTRODUCTION

1.1. Background of study

In today’s competitive global environment, it is detrimental to acquire and retain a high
performing workforce to win the battle of competition. To do that, many successful companies
everywhere investing on employee compensation factor in order to attract new, motivate and
retain more productive employees by adopting strategies and policies that improve compensation
structure in which the employees who perform better are rewarded much more than the average
performing employees (Pearce, 2010).

Many academic researches and other empirical studies undertaken, suggesting to practitioners
companies that compensating employees, directly or indirectly, either it be financial or non
financial can affect significantly the motivational aspect of employees, which in turn foster them
to improve job performance. According to……………there are strong relationship between
direct compensation factors, such as salary& wages, bonus, incentives, rewards and commission
payment,) and performance of employees. On the other hand, non financial compensation such
as fringe benefits, recognition, and participation in decision making can also help keeping
maintain equity balance among employees which avoid unwanted dissatisfaction. Accordingly,
managing compensation packages fairly and equitably can lead workforce toward productivity,
because humans are naturally inclined to perform better when they perceive that they will get
sufficient payment or returns from their efforts. While people exert effort for different reasons,
today’s competitive economic environment coupled with the consumer society has made
compensation arguably the most important motivation factor. Most people are motivated by
money at least for their basic needs and wants. Compensation in any form is the most obvious
extrinsic reward; it provides the carrot that most people want (Armstrong, 2008).

Although ample empirical evidences justify that those companies that adopted compensation
policy and strategy which aligned with their business plan can acquire and motivate productive
employees than those that did not implement such compensation scheme yet, there are still some
doubtful gap or limitation on such researches result, whether it works everywhere or not? And if
so, to what extent compensation package and its effective management affect employee’s
performance? As a result, the purpose of this research study will be investigating the relationship
between compensation factor attributes and performance indicators using both statistical and
inferential testing tools & mechanism. To that end, this research project will study the impact of
compensation management on employee performance taking the case of Hiddasie Telecom Share
Company at South East District employees.

1.2. Statement of the problem

1.3. Research objectives

The major objective of the present study is to investigate the effect of compensation on job
performance at HTSC - SED.

To attain the main objective, this study sets the following specific objectives;

3.1. To investigate the relationship between compensation and job performance measured by the
employees‟ perceptions who are working at district and areas.

3.2. To address some implications and recommendations for management to maintain proper
strategy of compensation for improving job performance and getting maximum output from
the employees at all districts.