THE IMPACT OF COMPENSATION ON EMPLOYEE

PRODUCTIVITY IN CASE OF MARS FOOD

MANUFACTURING FACTORY, JIMMA TOWN

A RESEARCH PAPER SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENT OF
BACHELOR OF ART IN MANAGEMENT

BY
ADVISOR : ELIAS BEKELE

JIMMA UNIVERSITY
BUSINESS AND ECONOMICS COLLEGE
DEPARTMENT OF MANAGEMENT

June, 2013
Jimma, Ethiopia

I
 Acknowledgment
First of all, my deepest thanks goes to my God for giving me the health,
and time from the begginning up to the preparation of this paper. My
heartfelt thanks go to my Advisor Mr. ELIAS Bekele for his constructives
Advises, guidance’s and helpful evaluation to the completion of the
research proposal successfully

My hearty thank also to my family, found in Sululta for their continues

help in all aspect to be able to complete with out any disturbances.

My warm thanks also extends to all my friends and secretary w/ro

Hanna Ibrahim for her valuable cooperation in typing & printing this
paper with her effort to make it attractives.

I
 ABSTRACT
The study was focused on the impact of compensations on employees
productivity in mars food manufacturing which exist in Jimma town and
348 km from Addis Ababa. The research used 105 samples population of
200 and the researcher used simple random sampling techniques in
collecting data from sample size choosen. Because it provides equal
chances of being included in the samples. The methods that would be
used to collected the necessary data is questionnaires. Questionnaire was
distributed to sample population by using simple random sampling. The
collect data would be analyzed by using tabulation, percentages and pie
charts, or graphs. The major finding of research were issue related the
effect of compensation on employee productivity & attitudes of employees
toward compensation. The other major finding was kind of compensation
that were paid within organization and their consistency in their payment

II
 Table of Contents
Acknowledgment..................................................................................................................I
ABSTRACT........................................................................................................................II
Table of Contents...............................................................................................................III
CHAPTER ONE..................................................................................................................1
1. Introduction......................................................................................................................1
1.1 Background of the Organization................................................................................1
1.2 Background of the Study...........................................................................................2
1.3 Statement of the Problem...........................................................................................4
1.4 Objective of the Study..............................................................................................5
1.5 Significance of the Study will be...............................................................................6
1.6 Scope of the Study.....................................................................................................6
1.7 Limitation of the Study..............................................................................................7
CHAPTER TWO.................................................................................................................8
2. Literature Review............................................................................................................8
2.1. Compensations..........................................................................................................8
2.2 Incentive....................................................................................................................8
2.2.1 Financial Incentives and Non Financial Incentive..............................................8
2.3. Bonus System...........................................................................................................9
2.3.1 Collectives Bonus System..................................................................................9
2.3.2 Group Bonus System..........................................................................................9
2.4. Fringe Benefit...........................................................................................................9
2.5. Compensation Law.................................................................................................10
2.5.1 The fair labour standard Act of 1938 (FLSA)..................................................10
2.5.2 Comarable Worth..............................................................................................10
2.5.3 Prevaing Wages Laws.......................................................................................11
2.6. Objectives of Compensation System......................................................................11
2.7 Goal of compensation System.................................................................................12
2.8 Motivations..............................................................................................................13
2.8.2 Pay and Employees’ Motivations.....................................................................14
2.8.3 Does Pay Motivates Employees?......................................................................15

III
 2.8.4 Motivation of Employees.................................................................................15
2.9. Productivity.............................................................................................................16
CHAPTER THREE...........................................................................................................17
3. Research Design and Methodology..............................................................................17
3.1 Research Design......................................................................................................17
3.2 Study area, Period & Populations............................................................................17
3.3 Sample Size Determination.....................................................................................17
3.4 Sampling techniques................................................................................................18
3.5 Source of Data.........................................................................................................18
3.6 Method of Data Collection......................................................................................18
3.8 Methods of Data Analysis.......................................................................................18
3.9 Background of the Organization..............................................................................19
CHAPTER FOUR.............................................................................................................20
4. Data Analysis and Interpretation...................................................................................20
4.1.1 Background information of respondents..........................................................20
4.1.2 Distribution of Education of Respondents........................................................21
4.1.3 Distribution of year of service of respondent...................................................22
4.1.6. Attitudes of employees toward reward they receive........................................24
4.1.5 kinds of compensation and its impact on employees........................................25
CHAPTER FIVE...............................................................................................................27
Conclusion and Recommendation.....................................................................................27
5.1 Conclusion...............................................................................................................27
5.2 Recommendation.....................................................................................................28
Reference...........................................................................................................................30

List of Table

Table 1: Background information of respondent..............................................................20

Table 2: Distribution of Education of respondent.............................................................21
Table 3: Income distribution of respondent......................................................................23
Table 4: Attitudes of employees toward reward they receives ....................................... 24

IV
 CHAPTER ONE

1. Introduction

1.1 Background of the Organization

The study was conducted in Muzein and his children private limited
company of MARS food factory Jimma branch. This study was
conducted in Mars Food Jimma branch business organization. It is
found in south western part of Ethiopia in the oromia region at Jimma
town. It is 347 km for from Addis Ababa. This business organizations
begins in 1998 E.C with the total capital of 1.2 million birr in area of
5717m2 after a few years the organization becomes better interims of
capacity now a days the organization have it’s distribution out let
(branch).
1) Alemgena
2) Addis Ababa No 1 Merkato sidamatera No 2 Gomatera and 3) Jimma
names Mars Food Jimma branch this company is not monopoly there
are competitors in the country the price setting is by means of competing
with other competitors. The company produces different variety of food
product and service from food items like flour and different types of
biscuits (morning, tedey, rental service, meeting hall and truer services
and different oil seeds.

This business organization has 170 numbers of employees currently.

Among 170 employees 59 are females and 41 numbers of employees are
males. Majority portion of the company’s production goes for domestic
market. Export performance on the other hand is steadly growing and is
going international recognition from the exported products are most of oil
seed portion and the food items. The MARS Food private limited

1
company’s also imported for the foreign market different types of
products among that Tembaho is one of them.

1.2 Background of the Study

The reason behind developing business organization in the world is
making profit. In order to achieves this objectives, organizations uses
material, machines, information employees etc. employees play the main
and great role in the activities of the organization. Because other
requirement can not perform the activities by themselves rather it is by
workers. When employee carry out their activities, organizations
evaluates them for several different reason that includes determining
giving feed back, assessing for training programs and making
compensation. Compensation is human resources management function
that deal with every types of rewards individual receives in exchange for
performing organizational tasks organization compensates employees
through wages and salaries, bonus and benefit such as health
insurances, vacation times, pension programs. These activities are
important to increases the productivity of workers. (Dessler and Gray,
1994).

As it is mentioned in the definition of compensation, it all about rewards

that individual receives for performing organizational task. In other
words, it said that compensation is not only money rather it is divided
into two as financial and non-financial compensations salaries, wages,
bonus or commission, insurances are included under financial
compensation. Non financial compensation, are rewards like praises, self
esteem and recognitions. (Dessler and Gray,1994).

Thomas L. Quick B & E set that sinces you are the key to motivation of
employees, you should have no troubles of productivity different studies
on compensation, states that if compensation is appropriately done;

2
employees are productive, creative have good attitudes towards both to
work and coworkers and can fulfill their responsibility appropriately.
Motivation: is an inner states that energizes human goal directed
behavior, which can divided into two component
1. direction of behavior (working to reach goal)
2. The strength of behavior (How hard or strongly the individual will
work (Ivancivich 1996).

Productivity: is attitudes of welcoming for better, exploring the scope for

improvement and making the optimum uses of available resources
towards the achievement of specified goal and productiveness with
minimum waste or effort (Ivancevinich 1996).

3
1.3 Statement of the Problem
Mars food factory is the most successful manufacturing firms inJimma
town. It provides supply of food to jimma hotel and Jimma university. In
order to attract employees to its organization, the firms is expected to
uses different employee handling tool in retaining and attracting new
employees towards the organization. One of the tool expected to be used
by this firms in retaining and attracting new employees near by
increasing their performances is compensation. But there are some
challenges which hinder compensation providing system such as the
exact measurement of the contributions and how to distributes
compensation in keeping employee productive. As the uses of
compensation in the organizations is not sufficiently investigated, the
researcher is motivated to analyzes the empirical finding the case
organizations concerning the impact of compensation on organizational
effectiveness and efficiency
The study will attempt address the following basic question.
1. To what extent productivity is affected by compensations?
2. What are the types compensations paid in organizations?
3. What attitudes and reaction does employees have toward
compensations?

4
1.4 Objective of the Study
The General objectives of the study is assessing the impact the
compensation have on employees productivity
Specific objectives of the study
1. To identify kinds of compensation paid in the organizations
2. To identify the relationship between compensation and employees
productivity with in factory
3. To identify weather well designed compensation is used to motivates
employees to perform better.
4. To identify the way the compensation is distributed among employees.

5
1.5 Significance of the Study will be
The responsibility of carrying out any activities has its own either long
term or short significances. This research has also many significances.
Among other , the following are some of them.
1. It will used as a reference to those who need to conduct research on
these topic and identifying what is not studies.
2. For mars food manufacturing firms
- The result of study will help the managers of this organization to assess
the compensation system and taking action accordingly.
- It will also help organization to know the relation between
compensation system and productivity employees.
3. For researcher
- It also help the student /researcher/ in the partial fulfillment of
getting bachelor art degree (BA degree).
- It also help the researcher to acquire the knowledge’s to research
work.

1.6 Scope of the Study

The scope of the study has been limited the compensations system of
mars food manufacturing firms in increasing employee productivity. Here
the study has been confined the impact of compensation on employees
productivity in mars food factory. This research would focus only on
mars, because of times and cost constraint, other branch would not
included if any.

6
1.7 Limitation of the Study
Even though the researcher used his maximum effort to make the study,
the face some limitation which are occurred during th estduy. These
limitation includes:-
- Time constraints for data collection and analysis
- Shortage of finances
- Lack of research experiences
- The attempted carelessness of some respondent
- Lack of full secondary
- Scarcity of references book

7
 CHAPTER TWO

2. Literature Review

2.1. Compensations
Compensation and pay are not synonymous terms. Compensation refers
to all the extrinsic rewards employees receives in exchanges for their
work pay refers to only the actual dollars employees receives in
exchanges for their. Work usually compensation composed of the bases
wagas or salary, any incentives or bonus, and any benefit the base wages
or salary is the hourey, weekly or monthly pay employees receives for
their work. (Byars Rue, 1997).

2.2 Incentive
Incentives is something that encourages a worker to put in more
productive effort voluntary. Workers are not exert willingly their effort to
produces and where near their capacities unless their interest in work
created by some kinds rewards. ( S.C. Sharma, 1999).

2.2.1 Financial Incentives and Non Financial Incentive

Financial compensation is direct or indirect direct financial
compensation consists of the pay an employees receives in the forms of
wages, salaries bonuses or commission. Indirect financial compensation,
or benefit, consisting of all financial rewards that are not included in
direct financial compensations. Typical benefit includes vacations
insurance, services like child care or elder etc. Non financial rewards like
praises, self esteem, and recognitions ; affect employees, motivation
productivity and satisfactions. From the emplyee’s point of view pay is
necessary of life. It is one of the chief reason people seek employment pay
is the means by which they provides for their own and their families
needs. Compensation does more than provides for the physiological

8
needs of employees, however, what a person is paid indicates his/her
worth to the organizations. For an employer, compensations is one the
most important Human Resource management function (Ivancevich;
1998).

2.3. Bonus System

This system is used in continuous process and assembly lines where
efforts of a number of workers are required to completes the job and
therefore, it is not practicable to assess the output of individual workers
where it is necessary to pay a collectives or group bonus to retain in the
incentives payment idea (Ricard, 1998).

2.3.1 Collectives Bonus System

Collectives bonus is a form of extra salary one or more month that is
given to it employees, if the profit during the business year is handsome.
If there are good profit, bonus will be declared at the ends of the year.
(Daft, 1996).

2.3.2 Group Bonus System

In this system each department or section is offered a separates fixed
bonus per unit of times or per units of job, if the standard times is saved
of the production reaches or exceeds a predetermined quantity. Such
bonus is divided between the foremen and work men of the department
or section in proportion agreed before hands. In this system, bonus is
given to foremen also as they are mainly responsible for increasing out
put and prevailing wastages of material.(Tyson and Alfred york, 1996).

2.4. Fringe Benefit

Benefit which are in addition to the normal wages paid to employees or
provided for the benefit of employees are known as “ fringe Benefit”.
These benefit are provided due to
- Management policy decision made voluntary

9
- May be those forced up on by government legislation or
- As a result of bargaining with trade union. Benefit like the provident
funds, gratuity, maternity benefit are made compulsory by government
legislation. Facilities likes, medical , recreations, housing etc. Generally
provided voluntarly by the Government, while benefit like pad holiday
satisfy, overtimes, group insurances etc are generally provided due to
pressure of trade union (S.C.Sharma,1999).

2.5. Compensation Law

There are about three laws pertain to compensations

2.5.1 The fair labour standard Act of 1938 (FLSA)

FLSA was congressional law passed with the intent of improving working
condition and living standards prior to this law, long work weeks, very
low pay and young children working in extremely hazardous condition
were common occurrences in united states. In addition to requiring
substantial records keeping and report to the government the fair
standards acts of 1938 require companies to do the following:-
1. provides overtime pay
2. pay a minimum ways
3. pay equal wayes to men and women doing the same job
(Ivancevich, 1999)

2.5.2 Comarable Worth

According to this principles, jobs of equal worth or values should be paid
the same even if the jobs are completely different. This concept is more
sweeping than the equal pay act, which requires that pay be the same
only if the jobs are the same. (ByarsRue, 1997).

10
Maintaing a Sense of Equity Among Employees Internal and
External Considerations

Organization faces a dilemma in determing bases pay. Organization must

determine what jobs are appropriates to compare to each other and what
aspects of the jobs should be analyzed. By comparing jobs to one another
within the organization pay can be made internally. Fair organization
must also decides whom the relevant companies are paying for the same
jobs, an organization can make its wages and salaries externally fair
(Michael Harris, 1997).

2.5.3 Prevaing Wages Laws

It requires companies with the government contract to pay workers the
standards wages for the area. The original purposes was to prevent
companies with government contracts from unfairly depressing worker’s
wages.(Michael Harris, 1997).

2.6. Objectives of Compensation System

The objectives of the compensations function is to create a system of
rewards that is equitable to the employer and employee a like. The
desired outcomes is an employee who is attracted to the work and
motivated to do a good job for the employee. Patton suggest that in
compensation policy there are seven criteria for effectiveness
compensation should be
1. Adequate -minimal governmental union and managerial level should
be met
2. Equitable- each person should be paid fairly, in line with his/her
efforts, ability and contribution.
3. Balanced -pay , benefit and other rewards should provides a
reasonable total rewards packages
4. Cost effectives- pay should not be excessive, considering what the
organization can affords to pay.

11
5. Secure – pay should be enough to help an employee ful secure and did
him or her in satisfying basic needs
6. Ineentives providing – Incentives payment should motivates effectives
and productive work
7. Acceptable to the employee- the employee should understand the pay
system and fell it is a reasonable system for the enterprise and
himself or herself (Ivancevich, 1998).

2.7 Goal of compensation System

What does an organization try to achieves in its compensations system?
understanding the answer to that question may help both employee and
the organization to operates more effectively. As an examples if you may
be able to concentrates your efforts better and therefore receive higher
compensations from an organization perspectives the better the match
between what is desired and what is actually rewarded the more likely
the business objectives will be met. Organizations attempt to achieves six
goals will thought compensation attempt programs.
1. Complying with legal argument
2. Maintaining absences of growth and fairness among employees
3. Attracting new highly current employees
4. Retaining current employees
5. Motivating employees
6. Controlling costs
of course most originations will uses other means besides these
compensation system to achieves these goal for examples non-monetary
rewards such as the natures of the work, interesting assignment and
flexible hours are likely to be used as well for most organization, though
the compensations system is an important in recruiting and motivating
employees. But the compensation system also a large parts of most
organizations system operating expenses.(S.C Sharma, 1999).

12
2.8 Motivations
Motivation can be defined as an inner forces that impulses human being
to behave in a variety of ways and is , therefore, a very important parts of
the study of human individuality.
Because of central importance to the study of people at work, motivation
has been a subject for continued research for the greater parts of this
century. Many theories have already been proposed and continued to
appear these theories are two kinds. They may be bases on assumptions
by practicing managers, resulting from experience and direct observation
or they may be the result of methodical research usually by industrial
psychologist and similar specialists (Ivancevich, 1998).
Traditionally, assumption made by managers about motivation have
largely reflected a “carrot and stick” approach. Ample evidences of the
prevalence of this approach my be seen in the system of rewards and
punishment applied in both direct and subtle ways that are
characteristics of very many works of organization sometimes describes
as a rational economic theory it is exemplified in the ideas of Frederick
Taylor and his followers in the so called “Scientific management school”
which introduced method of time and motion study in to work
organization at the beginning of this century. This theory is based on
assumptions that workers are motivated mainly by material incentives
such assumptions inevitability has a fundamental effect up on the
organizational environment, managerial style, working arrangement and
methods. In Taylor’s system, for examples time & motion studies were
used to maximize efficiency and productivity little heed was paid to the
potential influences or importance of human factors up on work
performance (Shaun Tyson and Alfred York, 1996).

13
2.8.2 Pay and Employees’ Motivations
Increasing payroll costs and competitions in the global market places
have caused managers throughout the united states to search for ways
to increase productivity by linking compensations to employees’
performances. High performances requires much more motivations,
Ability, adequate equipment, health, safety and other conditions all help
raises performances level. But employees’ motivations to works harder
and better is obviously an important factor. A number of studies
indicates that if pay is tied to performances, the employee produces a
higher quality and quantity of work. (Dessler, 1994).

Early evidences linking pay and performances is found in the codes of

hammurabi, written in the 18 th century B.C., which documents the uses
of a minimum wages, a fixed wages ad incentives rewards. Traveling
merchant were paid on the basis of a strong performances incentives
unless investor’s received double profit, these merchant were not paid.
However, during the middle ages it was “common knowledge’s” that
workers would be productive only as long as they needed to be perhaps
working three ways a week and spending other four celebration.

Early, economist like (J.Smith) on the basis of the “hungry man” theory
suported incentives wages. Sinces a hungry worker would want to earn
money to buy food, wags should be kept at the subsistence’s level so that
workers would be motivated to be higher productive. Adam smith (1776)
modified this is developed “Economic man” theory instead of
physiological needs money be comes the motivator for work the more
money each individual made, the harder he/she would work; out put
would increases as wages roses thus the bases of the modern wages
incentives plan was set.

14
2.8.3 Does Pay Motivates Employees?
Over the year a great many organizations have tried to determines
weather pay can be used to motivates high performances. Although by
no means universally successful, such investigations have frequently
found that pay can be administered in ways that yield higher employees
productivity. moreover in which pay appears to operates is generally
consistent with the predictions made by expectancy model. Results
generally shows that employees paid on individual incentives system
produces at higher level than employees on job based system (Schward &
Gossum & Dyer, 1998).

2.8.4 Motivation of Employees

Motivation is a set of attitudes that predisposes a person to act specific
goal directed. Motivations is thus as inner states that energizes, channel
and sustain human behaviour to achieves goal. Work motivations is
concerned with these attitudes that channel a person’s behavior toward
work and away from recreations or other areas of life motivation to work
is likely to changes.

A number theories have attempted to explain work motivations. The

theories differ in their assumptions about how rational people are and
about the degree to which the conscious and the unconscious mind
direct behavior. All of these theories have received some research
support, but non has been over whelmingly sustained. At the moment,
attentions is fused on the importance of individual motivations in
achieving organizational and individual.

How will knowledge of employees’ motivations help a person be a more

effectives manager of people? As with work attitudes a manager that can
determine what the work motivations of the employees are will make
more effectives Human recourses management decisions.

15
The determinations of a person’s states of motivations is undoubtedly
very difficult. Motivations is within a person, and a manger most infer
the individual motivations or level motivations form his or her behavior.
The manager uses his or her understanding of individual motivations to
select the best possible HRM program (Ivancivich 1998(62-63).

2.9. Productivity
According to U.K.R melon, productivity implies development of an
attitudes of mind constant urges to finds better, cheaper, easier, quicker
and safer means of doing a job, manufacturing a product & providing a
services. Productivity of a certain company increases productions and
hences higher profit can be earned. It raises living standard of workers
and create better employee opportunities, it allows better working
conditions. Productivity is primary attitudes of mind, welcoming a
changes for better, making optimum available resourses towards
achievement of a specified aim and increases production capacity of the
company. (Sharma; 1999).

16
 CHAPTER THREE

3. Research Design and Methodology

3.1 Research Design

The research were undertaken on the “impact of compensation on
employees productivity in mars food manufacturing factory, Jimma
town”. The research will be undertaken by using descriptive method

3.2 Study area, Period & Populations

The study would be conducted in Jimma town, which is 352km far from
Addis Ababa on mars food manufacturing factory. This study was
conducted from months of November to Junes, in 2005E.C. The target
population of the study would be employees and management of mars
food manufacturing factory.

3.3 Sample Size Determination

Where n- Sample size
z = conridences level (95%)
n =
p = probability of success
q -= probability of failure
n =
N= population
e= error terms

The research have identified 116 samples among employees of mars food
manufacturing factory.

17
3.4 Sampling techniques
The researcher used simple random sampling techniques while gathering
information from the selected samples. The reason for using simple
random sampling techniques is that it allows each possible sample have
an equal chances of being included in the samples.

3.5 Source of Data

To make the data more reliable both primary and secondary source data
would be used. Primary data would be collected from interviews with
management and from questioners. Secondary data would be collected
from book and records of the organizations.

3.6 Method of Data Collection

The means through which researcher would collect the necessary data
was questionnaires and structural interviews with management of
organizations. The questionnaires would contain both open ended &
close ended question. This questionnaires was distributed to sample
employees and management of mars food factory. The reason behind
choosing questionnaires method was to collect real, factual, opinion and
attitudes from those concerned respondent. This method gives freedom
to employees to write and fill what ever they feel . It also saves times.

3.8 Methods of Data Analysis

The gathered data would be complied, classified, processed, organized
and interpreted carefully to understand their complete meaning and
implications. The information obtained would be analyzed in simplest
and meaningful manner through tabulations, percentage and graphs to
understand their complete meaning and implications near by to arriving
at effective conclusion and possible recommendation.

18
3.9 Background of the Organization
The organization in which the study was conducted is mars food factory.
This business organization begins in 1998E.C with total capital of 1.2
million birr in the area of 5717m 2. After a few years the organization
becomes better in term of capacity.
Now a day, the organization has its distribution which includes
1. Alem Gena
2. Addis Ababa Number 1 Merkato Sidamo Tera, Number 2 Goma
Tera

This factory is not monopoly; there are competitor in the country. Due to
this, it is price taker i.e price is set by competing with his competitors.
The company accommodates totally 450 employees in its production.
The company produces different variety of good product & service. The
majority (almost all) of the factory’s production goes to domestic market.

19
 CHAPTER FOUR

4. Data Analysis and Interpretation

All the 105 prepared questionnaire were distributed to employee of mars
food factory in two department that is Enjera production department &
bread production department.
In general, two type of questionnaire were prepared & distributed to
those 2 top mangers & the second is prepared to those employees. From
the total of mars food factory employees, questionnaire were distributed
for 105 employees as sample & out of this 100 was returned. This
reduced return is because of carelessness of the respondent but really
the researcher attempted to collect them and an interview was also
under taken with managers of the factory for some general question.

The composite result regarding respondents background & personal

information & other close ended question are calculated, tabulated &
graphed below.

4.1.1 Background information of respondents

Table 1:
No Item Age interval No of response %
1 Age 20- 30 54 54%
31-40 23 23%
41-50 18 18%
Above 50 5 5%
Total 100 100%
2 Sex Male 41 41%
Female 59 59%
Total 100 100%

20
Table 1 holds two items concerning employee’s background information
i.e age and sex of the respondent. About 54% of the respondents exist in
the age between 20 – 30. It is the largest percentages from the total age
intervals. Respondents which exist between age 31 – 40 are secondly
ranked which is 23% of the total respondents and those who exist in the
age between 41 – 50 i.e 18% and above 50 i.e% are ranked third and
fourth respectively. This implies that most the organization’s employees
exist in productive age.

Table 1. Item shows the sex distribution of respondents out of the total
100 respondent, 59% are females, and the rest of 41% are males. This
indicates that the number of females in the organization are too many.
The reason behind this is that the factory give more attention to females
participation so that they will improves their life.

4.1.2 Distribution of Education of Respondents

Educational level No of response Percentage
%
Certificates 20%
12 completes 50 50%
Diploma 5 5%
Degree 2 2%
Master - -
10 completes 23 23%
Total 100 100%
Table 2
As it is seen from table 2, among the total 100 respondents 12 complete
ranked first with 50% followed by respondents who compete 10 grade
and certificates with 23% & 20% respectively. Degree graduates are

21
ranked last with 2%, Diploma are rank fourth with5% & there is no
master holder at all. This implies that there is shortage of qualified
manpower in the factory. This is because the failure of the factory in
retaining some qualified & experienced manpower by providing
satisfactory salary and other compensation constantly and consistency.

4.1.3 Distribution of year of service of respondent

As one can see from the above graphs, respondent which serve the
organization between 1-3 year of services are ranked first with 48% and
less than 1 year of services are ranked 2nd followed by 3-5 year of services
as third with 25% of 27 percents respectively. From this the researcher
concludes that most of the employee have short term experiences in the
organization. This make the organization cost when new employees are
hired & this lead to decreases in productivity as there is frequent
changes of employee through times.

22
 4.1.4. Income distribution of respondent
Income No of
No Item interval receiver %
Below 600 5 5%
601 – 800 20 30%
1 Salary range 801 -1000 34 34%
1001 -1200 30 20%
Above 1200 11 11%
Total 100 100%

Table 3.
The income level of respondents that is indicated in table 3 shows that
most of the respondents in the organization gets a salary level of br 801-
1000, which is 34%, this is greater than mentioned salary ranges.
Employees who get a salary between 601-800 are ranked second with
30% followed by respondents who get salary 1001-1200, that is 20% of
total respondents, employees who get salary above 1200 and below 600,
that is 11% & 5% of the total respondents. From this only 11% of the
respondents are in good position or get good salary as it is compared to
other workers and our country economy. This totally indicates that
enough amount of salary is not paid in the organization. So employees
can not even food themselves and their parents. Because now days the
price of commodities is increasing.

23
4.1.6. Attitudes of employees toward reward they receive
No Question Responses No %
1 Does the reward you receives are Yes 40 40%
satisfactory for the amount of effort you No 60 60%
put in to the job
Total 100 100%
2 Does the amount you receives is fair Yes 38 38%
when compared to other organization for No 62 62%
the same types or work?
Total 100 100%
3 In your organization is there consistent Yes 38 38%
payment for equal work? No 62 62
Total 100 100%
Table 4
It can be seen from table 4 of item, 40% of respondent does receives a
reward that are satisfactory for the amount of effort they put in to the job
or duty they performed. Other hand, 60% of the employees responded
that the rewards they receives are unsatisfactory when they compare it
with the amount of effort they put in to job. This implies that the
employers does not consider employees effort when they give salary or
any income. This because of the fact that the factory have low financial
position so that they fail to give more attention to what is required by
employees.
In the same table of item2, 62% of employees also respond that the
amount of income they receives is not fair when it is compared to other
organization pay for the same type of work, and 38% of respondents
believes that the amount they receives is fair when it is compared to
other organizations pay for the types of work. This indicates that the
employees does not consider what other organization pay to their

24
employees and does not take in to account about retaining employees
within organization.
Finally, in item 3 of table 3, 38% of respondent says that in the
organization, there is a consistent payment for equal work and 62% of
employees responded that consistent payment is not paid for the same
types of work and there is not constant payment from period to period.
From this the researcher concludes that there is not equal payment, no
consistent payment of compensation & fair payment in the organization.
This because of the failure of organization in considering well fare of
employees.

In general, the responses given shows that, even if employees get both
salary and compensation it does not satisfied them. In addition to this
employees in the organization are not rewarded equally for the same
types of work and also in the organization employer does not consider
what other organization pay/compensates their employees. Those
mentioned factors have an impact or effect on employees productivity by
demoralizing and making the employees to have low motivation for their
job they perform.

4.1.5 kinds of compensation and its impact on employees

In organization there are 4 kinds of compensation system such as bones,
commission, medical expense coverage and transportation allowance.
From the total respondents 70% of employees get compensation and the
rest 30% does not get compensation. Among those respondents who get
compensation, employee who get bonus ranked first, commission receive
are ranked second, transportation allowances and medical expenses are
ranked 3rd and 4th respectively. Transportation allowances are paid when
employee seek required to do a higher hospital and when their relatives
died in other area.

25
Some employees get compensation besides their salary responded that
having compensation has it own impact. From those mentioned impact
<<a felling of happiness and satisfaction>> and felling motivated are
ranked first. In equal amount and employees who have felling of
“beloginess” are ranked next to above mentioned impact. There are also
employees who say that having compensation create good interpersonal
relation ship and improve the living standard. So , the theory of L. quick
states that “since you employer” are the key to the motivator of
employees, you have to trouble of productivity. So compensation has an
impact on employee’s productivity.

26
 CHAPTER FIVE

Conclusion and Recommendation

5.1 Conclusion
The purpose of this section is to deal with the finding briefly according to
the analysis being finished in the previous section. Based on the
analysis in the previous chapter the researcher is in a position to
conclude the following. The conclusion are based the respondents view of
the research question.

As it was tried to explained so far, both tow top management and other
employees were chosen as a sample respondents and distributed
separately the developed questionnaires. Even though, there were two
separates developed questionnaires, some questionnaires have direct
r/ship or similarities. This is because of the comparison purpose of the
view from these two different bodies
The researcher identified the existing compensation system and result on
performance of employees in Mars Food Factory of JImma town this is to
arrive at conclusion due to similarities of employee’s responses with the
majority of employee’s responses over similar question. So the responses
obtained from the two parts has no such much difference, except
differences in number of respondent. As many of them said there is
problem of compensation system in the factory. Some of this problem
includes
 Lack of consistency in compositing employees in bonus,
commission and transportation allowances ,
 Reward they receives are not satisfactory for the amount effort they
put into the job
 Some worker (employees) of the organization are not compensated

27
  There is no equal payment between males & females working some
job
 Lack of fair payment when compared to other organization
There is four types of compensation in mars food factory.
Even though there is such number of compensation kind,
compensation kind (system) did not indentified designed and planed well
in increasing employees motivation and minimizing grievance. This and
the above mention problem of compensation makes employees having
bad attitudes toward compensation system of the organization. This
affect the performance of employees in their respective job. As responded
by majority of employees, enough consistent compensation is not paid
within organization. This decreases their motivation towards job and
feeling of belongness to organization. In addition, this affect year of
services of employees in which qualified employees would leave the
organization through times causing performance decreases as
experienced leave the organization. This also adds additional cost of
recruiting, selecting, training near by affecting productivity of
organization. Generally, the level & the attractiveness of compensation is
highly affecting the productivity of employees within the organization.

5.2 Recommendation
The researcher identified the existing compensation kind and get result
in the previous chapter. In this particular study area it was also tried to
answer specific research question. Thus the researcher being on the
verges of winding up this task wanted to recommend the following point
to different parties deemed relevant.
As the organization success target becoming depend on the
attractiveness the compensation and get thing done through his workers,
the organization should pay a great attention to compensation system.
As a result, to improve their compensation system and the employees

28
performance of the organization, both manager & organization as a whole
should use the following recommendation & strategies
 The organization should have an understanding human behavior
that is he should know their need, emotion & see their action and
reaction to compensation.
 If the managers act as the glue and ensure coordinated sense of
existing purpose, the workers will able to share and understand
the ideas & vision
 The organization must develop compensation program that must
support the strategic plan & action of the organization
 When compensation related cost escalated, the organization must
find away to offset them
 Since the amount of pay is less important than its perceived
fairness or equity individual responsible for development a firm’s
compensation system need to understand how perception equality
are formed.
 The organization must develop compensation system that is
consistent through out the & must be first developed by
considering internal capability of the organization
 The organization and manager must consider what is paid in other
organization of the same types w/c help in retaining employees.
 The should develop human resource department to help
management to know who is responsible for pay administration &
get the answer
 The organization should compensate all employee or relatively to
their job. So as increases the sense of fairness.

29
 Reference

1. (Byars Rue, 1997) Human Resource Management 5th edition.

Zob Zwettler Pub.
2. (Daft, 1998), why study organization behaviour 7th edition.

South Western College Pub.

3. (Desster. G. 1994), Human Resources management 6th edition.

Prentice Hall. Publisher.

4. (Ivancevich 1998); Human Resources management 8th edition.

Mc Graaw-Hill Companies, inc.

5. (Robert D. Mason and Douglas A., 1999). Statistical Techniques

for Business and Economics 10th edition Mc Graw Hill.

6. (S.C Sharma 1998) Hospital administration and Human

Resources management 8th edition., IAM- Indian Academy of

management.

7. (Shaun Tyson 1994) Essential of Human resources

management 4th edition, Martin Ltd, Berwick Tweed.

30
 JIMMA UNIVERSITY
FACULTY OF BUSINESS AND ECONOMICS
DEPARTMENT OF MANAGEMENT
INSTRUCTION
This questioners is filled only for educational purposes. It has no any
connection with any other government agencies also it is not filled by or
seen by others outsides your organizations . so be free when you fill it.
When you fill the questioners put think mark () in the given box for yes
and not types of question and write your answers for question, which
need explanation in the spaces provided.

1. Age:
2. Sex: Male  Female 
3. level of educate 
10 compete 
12 complete 
Under 10 
Diploma 
Degree 
4. what is your major job responsibility in the
organizations=__________________________
5. How many years do you senses the firms?
6. How much is your basic salary?
7. Does your salary satisfy you? Yes  No 
8. Do you get any kind how much is your basic salary?
Yes  No 
9. If “yes” to question number 7, what kind of compensation you get
from the firm?
(A) bonus 

31
 (B) commission 
(C) medical expenses coverage 
(D) insurances 
(E) other (if any) specify _________________________
10. If “ No” to question number 7, what? Specify?

11. What is the impact of having compensations on your work?

A. ecologies felling 
B, felling of being motivated to work hard 
C, felling happiness and satisfactions 
D, other,
specify:__________________________________________________________
__________________________________________________________________

12. Does the reward you receives are satisfactory for the amount of
effort you put into the job? Yes  No 
13. What kind of compensation system is paid?
Secret system  open system 
14. Does the amount you receives is fair when compared to other
organization for the same of work?
Yes  No 
15. In your organization is there consistent payment fore equal work?
Yes  No 
16. Do you satisfy by your job? Yes  No 
17. Does supervision your receives satisfactory?
Yes  No 

32
 ONLY FOR TOP MANAGEMENT
Instruction
This questionnaire is filled only for educational purposes. It has not
any connection with other government agency and it is also not seen
by others auto sides you organizations. I would like to fell free when
filling the questionnaires

1. Age:
2. Sex: Male  Female 
3. Level of education.
12 completes 
Certificates 
Diploma 
Degree 
4. Is there any kind of salary increment on employee of your
organization? Yes  No 
5. If “yes” to question number 4 what are the impact of salary
increment on your employees?
A. slow turn over rates 
B. slow rates of absenteeism 
C. experienced and trained individual can be attracted 
D. being attracted and feel motivated to work hard 
6. If “yes” to question number 4, do you check the changes in
production amount and profit after the salary increments?
Yes  No 
7. If “yes” to question number 6, what kind of changes you found?
A. increases in the amount of production and profit 
B. decreases in the amount of production and profit? 

33
 C. it remain the same? 

8. Do you think of other thing that have positives impact an employees

productive besides compensation?
Yes  No 

9. If “yes” to question number 8, pleases specify

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

34
 Declaration

I undersigned declare that this student research proposal is my original

work and has not been presented for a degree in any other university,
and all the materials used for this study have been duly acknowledged.

Name of Student Signature

This student research project (paper) has been submitted for

examination with my approval as university advisor

Name of Advisor Signature

Date _____________________________

35