1.0.

Chapter one: Introduction

This chapter focuses on background of the study, statement of the problem,
purpose of the study, research objectives and questions, scope of the study,
significance of the study and limitation.
1.1. Background of the study
Compensation is an important issue that needs serious attention this is due to
fact that it directly or indirectly affects employees’ performance Armstrong
(2016). It has stronger impact on employees’ standards of living and
communicates to them the degree to which the employer values their
contribution Mayson (2016). The objective of compensation is to give proper
refund to the employees for their contributions to the organization, also it has a
positive control on the efficiency of employees and motivates them to perform
better and achieve the specific standards moreover it creates a base for
happiness and satisfaction of the work force that limits the labor turnover and
confers stable organization on top of that it excites an environment of morale
efficiency and cooperation among the workers and ensures satisfaction to the
workers.
Ivancevich (200 I) defines compensation as those tangible and intangible
rewards that a worker receives in exchange for services rendered to the
organization. He also defines rewards as the material and psychological payoffs
for performing tasks in the workplace.

Armstrong (2006) defines rewards as anything perceived valuable that is given to

an employee as a recognition for good contribution made and once well chosen
can be a good motivators.

Armstrong, (2006) defines employee's performance as both behaviors and

results of what employee achieve and how they achieved it.

Hornby (2000) defines rewards as anything that is given or received in return of

doing something good and working hard. The working definition of rewards for
this study is adapted from Woeffel (no date) and Kreitner (2004).

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Reward refers to material and psychological payoffs given to an employee as
recognition for good contribution and for performing tasks well in the workplace.
Reward will be characterized by intrinsic rewards, extrinsic rewards and financial
rewards.

For a working definition employee performance refers to an achievement of an

employee considered in relation to how successful it is and how they achieve it.
Employee performance will be characterized by productivity, task
accomplishment and labor turnover.

1.2. Statement of the Problem

In today’s work environment, there is more change and uncertainty, there is
increased need for empowered employees, there is decline in traditional
incentives, there is rise of nontraditional incentives and there is increased use of
variable compensation. Many studies carried such as Kipkorir, Basweti and
Nyaoga (2014) found out that there is a non-significant relationship between
executive compensation and performance. Ngui, Mukulu and Gachunga (2014)
study established that financial and non-financial rewards can combine to
enhance firm performance. Hence this research will investigate how
compensation effect the employee performance. An organization will not work
without the compensation of the employees as the employees could lead the
organization to a better position in the highly competitive market of the present
time.

1.3. Purpose of the study

The purpose of this study is to examine the effect of compensation on
Employee Performance: (A Case Study Of Darasalam Bank) in Hargeisa,
Somaliland.

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 1.4. Research Objectives
1.4.1. General Objective
To determine the effect of compensation on employees performance
1.4.2. Specific Objectives
i. To find out how extrinsic rewards have effects on employee performance.
ii. To determine how intrinsic rewards, have effects on employee
performance.
iii. To examine how feelings of equity have effects on employee performance.
1.5. Research Question and Hypothesis
i. How extrinsic rewards have effects on employee performance?
ii. How intrinsic rewards have effects on employee performance?
iii. How feelings of equity have effects on employee performance?
1.5.1. Research hypotheses
Iam believing there is direct relationship between compensation
and employee performance
1.6. Scope of the Study

1.6.1. Geographical scope

This study conducts in Darasalam Bank Hargeisa, Somaliland.
1.6.2. Content scope
This study examines the literature of the independent variable (Compensation)
and Dependent Variable (Employee Performance).

1.6.3. Time scope

This study will continue three months which beginning for March 15

1.7. Significance of the study

The most important goal of this study is to help organizations of the country
weather public or private parts, and also guide for enterprisers who will establish
small or large businesses ,another significant of this research is to aware
companies specially Darasalam bank how compensation effects on employee
performance.

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 1.8. Description of the study Area
Dara-Salaam Bank (DSB) is a fully-fledged Sharia-compliant bank established in
2010, licensed by the Central Bank of Somaliland.
DSB was established to bear the critical responsibility of leading the way forward
in establishing a stable and dynamic banking system complete with dynamic and
cutting-edge products and innovative services. We offer wide range of Sharia-
compliant products and services conforming to the highest standards of Islamic
finance. We are indeed the customer’s partner in success.
(Darasalambank.com).
A Muslim financial institution, the bank provides personal banking and corporate
banking. Its Islamic banking services and facilities include Mudarabah,
Murabaha, Musharakah and Istisna'a. Additionally, the bank offers electronic
banking, SMS banking, mobile banking and internet debit. In September 2010,
the bank also launched an independent (Kaafi) service, partnering with parent
company Telesom. Our case study will be focused on Dara salaam bank.

1.9. Limitations of the Study

The study encountered a number of challenges such as transportation, printing of

questionnaires, and other relevant documents proved financially burdensome. As
a student who is also a full time worker, the researcher was constrained with time
and this was quite challenging. Another challenge was the difficulty in getting
clients to respond to the questionnaires.