AN ASSESSMENT OF COMPENSATION PRACTICES AND EMPLOYEE’S

ATTITUDE TOWARDS ORGANIZATIONAL GOAL IN CBE JIMMA MAIN BRANCH

REASAERCH PROPOSAL SUBMITTED TO THE PARTIAL FULFILMENT OF THE

REQUIREMENT FOR BA DGREEE IN ECONOMICS.

JIMMA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

DECEMBER 2023

JIMMA, ETHIOPIA

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Table of Contents…………………………………………………page
Abstract …………………………………………………………..

CHAPTER ONE: .................................................................................

INTRODUCTION..........................................................................................

Background of the Study...................................................................

Statement of the Problem...................................................................................

Research Questions.............................................................................................

Objective of the Study......................................................................................

Significance of the Study ...............................................................................

Delimitation of the Study..........................................................................................

Organization of the Study

CHAPTER ONE

1. INTRODUCTION

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 1.1. Background of the Study
Organizations are established with the aim of effectively utilizing various available
human and non-human resources to achieve certain objective. Among these, human
resource, which is commonly seen as the most valuable asset an organization could use to
earn competitive advantage and achieve its objective. According to Armstrong (2006),
human resource management is defined as a strategic and coherent approach to the
management of an organization‟s most valued assets – the people working there who
individually and collectively contribute to the achievement of its objectives.

Compensation and benefits refer to the compensation and other monetary and non-
monetary benefits passed on by a firm to its employees. Compensation is an important
aspect of HRM as it helps to keep the workforce motivated. It helps give benefits to
employees based on their performance and actions so that it brings the best to employees
at workplace. Smart employers know that keeping quality employees requires providing
the right compensation and benefits package. People are always looking to put
themselves in the best possible position financially. Those who are worth a specific salary
amount often know their value and will seek a position that pays accordingly.
Compensation includes wages, salaries, bonuses and commission structures. Employers
should not ignore the benefits portion of employee compensation and benefits, because
the benefits sweeten employment contracts with the priorities that most employees need.
(Kimberlee Leonard , March 01, 2019) Benefit is the payment given to the employees for
the work they have done for the organization. That means an employee is entitled to both
financial and non-financial benefits in return for his contribution to the organization. An
inadequate benefit contributes to law satisfaction level and increase employee turnover.
Organizations compensate employees through wages and salaries, bonus and benefit such
as health insurance, vacation times and pension programs. These activities are important
to increase the performance of employees. (Dessler and Gray, 2005) In an organization,
employees are the key resources through which all the other objectives are achieved.
Employees will demonstrate pleasurable positive attitudes when they are satisfied with
their job. Thus, high job satisfaction will increase the productivity of an organization, in
turn increasing the overall organizational performance. Compensation plays an important

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role in determining an employee‟s level of job satisfaction, which results to an increase
in individual performance. (Calvin MzwenhlanhlaMabaso and Bongani Innocent
Dlamini, 2017) 2 In an organization, employees are the key resources through which all
the other objectives are achieved. Employees will demonstrate pleasurable positive
attitudes when they are satisfied with their job. Thus, high job satisfaction will increase
the productivity of an organization, in turn increasing the overall organizational
performance. Compensation plays an important role in determining an employee‟s level
of job satisfaction which results to an increase in individual performance. (Calvin
MzwenhlanhlaMabaso and Bongani Innocent Dlamini, 2017). This research study deals
with assessing the impact of compensation system on employee performance.
Organizational productivity depends on the employee‟s performance. If employee‟s
problem is addressed properly organizational productivity will surely increase. This study
depicts the relationship of variables as job performance of employees with performance
appraisal, job security, reward system, job satisfaction, organizational productivity,
employee turnover. Due to these variables, it is easy to identify the common problems of
employees in an organization. Proper management of employees by giving them
compensation, incentives, and reward system and showing concern with their work life
balance proves to be productive for an organization. Providing creative environment in
the organization can enhance their skills. In this regard, HR department plays a very vital
role in many organizations solving the issues of employees and organizational growth.
Organizational productivity mainly depends on the commitment of employees, this
commitment is made strong when their will be less turnover rate and soft approach is
applied with employee. When employee‟s carryout their activities, organizations evaluate
them for several different reason which include determining giving feedback, assessing
for training programs and making a good benefit or compensation packages. The main
aim of this paper is to assess the impacts of compensation packages on individual
performance so as to identify the company‟s current compensation policy that have an
impact on employee‟s performance to support the successes of an organization through
interview and gathering of facts and opinions from questioner distributed to employees
who are working in different division/grade level of city branches under commercial bank
of Ethiopia Jimma district.

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The overall purpose of human resource management is to ensure that the organization is able
to achieve success through people. As Ulrich and Lake (1990), Human Resources
Management systems can be the source of organizational capabilities that allow firms to
learn and capitalize on new opportunities. According to WorldatWork (2004), employee
compensation and rewards play a critical role in the ability for large and complex global
organizations to attract, motivate and retain the talent they need to be successful. When
planned strategically and done well, rewards can be used to differentiate a company from its
competitors, drive cultural and operational consistency or emphasize key cultural and
operational differences within a company and/or from country-to-country. Many
organizations found in different parts of the world use varied types of compensations to
enhance the motivation of the skilled employees they acquire. One of the means that
organizations can use to enhance employee motivation and performance is to provide
performance-related compensation. Under such type of compensation scheme there is a
strong relationship between employees‟ performance and the amount of remuneration they
receive. Profit-related payment, employee share- ownership plans, profit-sharing schemes,
and group performance-related schemes are compensation schemes categorized under
performance related pay. In addition to this promotion, recognition, and benefits are also part
of compensation scheme (Huselid, 1995). 13 The need for organizations to develop a
performance enhancing compensation system capable of facilitating the best management
and development of their employees, and increasing their competitiveness, has made the
links between HRM and organizational performance an important agenda item in the field of
HRM. Across the core areas of HR practices, the association between rewards and
performance is one of the most studied subjects in the management literature. It is commonly
believed that if rewards are used effectively, they can motivate individuals to perform and
thus can have a positive effect on organizational performance (Thorpe and Homan, 2000).
Organizations are supposed to develop and reinforce a compensation practice so as to attain
their organizational overall performance. At present, so many organizations in private and
public sector adopt varied types of compensation practices (Zakaria et al, 2011). In order to
enhance the overall organizational performance motivating the existing employees have a
great impact. In general, employees‟ performance can be uplifted by having a welldeveloped
performance appraisal, reward and bonus system. This will enable the employer to divert

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employees‟ attitude and effort towards the desired direction. As one giant organization in the
country, Ethio Telecom, which formerly known to be Ethiopia Telecommunication
Corporation has made a restructuring program with a major objective of being a world class
telecom operator. Telecom sector plays a great or leading role in building countries national
economy since telecom serves as the major source of income in Ethiopia and is the strength
of Ethiopian economy. However, the success of the industry rests so much on its human
resources capability, which is the most valuable asset of any organization. The challenging
tasks of every manager at all level are how to build an appropriate compensation system to
incorporate both organizational goals and individual needs, thus, have a motivated workforce
and improve productivity.
1.1.2. Background of the Organization
Originally, the Commercial Bank of Ethiopia was known as the state bank of Ethiopia.
However, the Ethiopian government decided to split the bank into the central bank of
Ethiopia and the Commercial Bank of Ethiopia in 1863. Eventually, in 1980, the Ethiopian
government decided to merge the Addis Bank with the Commercial Bank of Ethiopia,
making Commercial Bank of Ethiopia the country’s sole commercial bank (Commercial
Bank of Ethiopia, 2019). Before it was merged with the Commercial Bank of Ethiopia, the
Addis Bank was created by the Ethiopian government from the merger of the Ethiopian
operations of Banco di Naplia and Banco di Roma with the newly nationalized Addis Ababa
Bank. The Commercial Bank of Ethiopia is noted as the pioneer of modern banking in the
country. It was the first bank to serve ATM services for its local and the first to serve
western union money transfer services in the country
The history of the Commercial Bank of Ethiopia (CBE) dates back to the establishment of
the State Bank of Ethiopia in 1942. CBE was legally established as a share company in
1963.In 1974, CBE merged with the privately owned Addis Ababa Bank. Since then, it has
been playing significant roles in the development of the country. It‟s Pioneer to introduce
modern banking to the country. It has more than 1456 branches stretched across the country.
The leading African bank with assets of 711.96 billion Birr as on June 30, 2019. It plays a
catalytic role in the economic progress & development of the country. It is also the first
bank in Ethiopia to introduce ATM service for local users. (CBE website
https://www.combanketh.et)

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 The Commercial Bank of Ethiopia Jimma District is found in southwest direction at 378-
kilometer distance far from the capital city of Ethiopia, Addis Ababa. The district
encompasses more than 80 branches and these branches perform its daily duties through
more than 1335 employees. The district comprises or sub sets various regions found in
Oromia, Southern Nations and Nationalities Peoples and Gambela some of the zones under
these regions are Jimma zone, Bench Maji, Kontaliyu wereda, Kefazone, BunoBedele zone,
Illubabor zone, Gambella and Mejengir zone. All this branches listed including human
capital and other resources of the organization in combinations strongly bond to form and
shape the organizational mission and vision. CBE has revising salary and other
compensation packages time to time.

1.3 Statement of the Problem

To survive in competitive business, an organization should come up with appropriate

compensation policies and motivate employees for the job they are doing. The reason is
employees are main asset of the organization. Compensation systems are very crucial for any
organization (Mondy, 2001). If employees were compensating appropriately, it would
increase their performance and motivate them to become more productive. Thus,
compensation has positive relationship with employee’s attitudes towards to the
organizational goal (Nawab and Batti, 2011). Scholars have argued that compensation
systems provide outsiders with information about less visible organizational characteristics 4
According to Maslow‟s hierarchy of needs (1943, 1954) people in achieving organizational
objectives are motivated to do so by trying to achieve certain individual needs. These needs
are what are spelt out in the five level hierarchy of need he postulated in the 5 staged models
which is well known in the field today. Needs lower dawn in the hierarchy must be satisfied
before individuals can attend to needs higher up. It therefore beholds on the management of
an organization to take into consideration the various needs or need levels of its employees in
designing compensation packages that will motivate them to influence performance
positively Therefore, the problem the researcher intends to investigate is to understand what
contribute to compensation and how it can be better managed and linked to employee
performance. The researcher is motivated to conduct this study on this topic to assess those

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impacts of compensation and the consequences of compensation policies on the performance
of employees. Therefore, this study will try to answer the following questions: -
1.3. Research Questions
1. What are the impacts of salary on employee attitudes towards organizations of
commercial bank of Ethiopia, Jimma district?
2. What are the impacts of overtime compensation system on employee‟s performance of
commercial bank of Ethiopia, Jimma district?
3. What are the impacts of bonus on employee‟s performance of commercial bank of
Ethiopia, Jimma district?
4. What are the impact of health care compensation and employee performance of
commercial bank of Ethiopia, Jimma district?

1.4 Objective of the study

1.4.1 General objective of the study
The general objective of the study was to assess the impacts of compensation packages
on employee‟s individual performance in case of commercial bank of Ethiopia Jimma
district city branches.
5 1.4.2 Specific objective of the study
In line with the above-mentioned general objectives, the specific objectives are-  To
assess the impacts of salary on employee performance of commercial bank of Ethiopia,
Jimma district.
 To assess the major impacts of overtime compensation system on employee‟s
performance of commercial bank of Ethiopia, Jimma district.
 To identify impacts of bonus compensation packages on employee‟s performance
of commercial bank of Ethiopia, Jimma district.
 To examine the impact of health care compensation and employee attitudes
toward the organization of commercial bank of Ethiopia, Jimma district.
1.5 Scope of the study
The study would have the conceptual, the geographical and methodological delimitation.
Conceptually, the topic of compensation packages and its impact on employee
performance is vast in the area of the study that requires intensive investigation.

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However, the researcher would assess the impact of benefit packages on employee
performance and their types that leads to increase employee performance.
Geographically, the study focuses on commercial bank of Ethiopia Jimma district, Jimma
town city branches. The research also sees the compensation and benefit practice with in
the company by analyzing the existing collective agreement of the company and working
policy and procedures in its human resource department.

1.6 Significance of the study

This research will be used for Banks (government and Private), Government and
individual Researchers to know and identify the impact of compensation package on
employees‟ performances. For Bank, it will help the managers and employees to identify
the effects of the impact of compensation package on employees‟ performances and
effectively implement the compensation system in order to increase the employees‟
performances, which will help to increase the banks‟ revenue and profitability. 6 The
study primarily has the responsibility to provide insight into the impact of compensation
on employees‟ performance and productivity at commercial bank of Ethiopia. The
outcome of the study will also serve as a knowledge base for a comprehensive look into
the lapses in the management of compensation. It also helps the managers to indicate
good methods of compensation packages in the organization and be an important input
when designing compensation policies for employees. For researchers who wants to
study his research on this title or related titles it will use as an input to support their study.
It will also serve as a reference source for further research into the field of compensation
by future researchers.

CHAPTER TWO

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 REVIEW OF RELATED LITERATURE

2.1 Conceptual Definition

Compensation is the area of human resource management which involves making decision about
pay that are fair, equitable and competitive with current market rates; providing employees with
incentives to improve performance; ensuring that benefits packages are cost effective and serve
11 to motivate employees, and making certain that all compensation- related polices and program
by comply with government requirements (Hamel, 2008). 2.2 The Concept and Definition of
Compensation (Osibanjo & Anthonia, 2014) Compensation is the monetary payment such as
wages, salaries, emoluments and bonuses (current and deferred) used to reward.” This definition
attaches only importance to monetary aspect of compensation. It does not take in to
consideration the intrinsic reward system, which is a long-term measure of rewarding and
compensating good employees. Compensation management is a crucial component of the overall
management of an organization. It refers to the process by which employees are remunerated for
their input at the workplace (Khan et al.2011). 2.3 Component of compensation Table 1:
Component of compensation – Financial and Non-Financial Reward Compensation Financial
Non -Financial 12 Source: Aswathappa, 2005, cited by Mary M., Andrew T. and Dennis K.
(2015). Below, further discussion is made from literatures point of view, the specific financial
and nonfinancial components that the study focused at. Pay (salary and benefit) from financial
components of compensation and recognition, growth prospects and supervision from
nonfinancial component of compensation and their relation with employees‟ turnover intention.
2.1. Operational Definition of Terms Compensation:

The term compensation is used to indicate the employee‟s gross earnings in the form of financial
and non-financial rewards. Compensation means the reward that is received by an employee for
the work performed in an organization. The term „compensation‟ is often used as an alternative
to „reward‟ or „remuneration‟, especially in the USA, although it is becoming more common in
the UK (Armstrong, 2002).

2.3. Financial compensation

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Financial compensation includes salary, bonus, and all the benefits and incentives (Mathis and
Jackson, 2010). Non-financial compensation: Non-financial compensation includes awards,
praise, recognition and appreciation, which can motivate the employees towards highest
productivity (Mathis and Jackson, 2010). Benefit: A Program an employer uses to supplement
the cash compensation employees receive. These health, savings and retirement programs
provide security for employees and their families (Armstrong, 2002). Motivation: A force or
influence that causes someone to do something or accomplish his/her duty (Kressler, 2003).

. Key terms: promotion, benefits, recognition, salary and working condition 1

2.4. Types of Compensation Packages

According to Dessler (2011), compensation can be divided into 2 forms- Direct and
indirect compensations.
2.4.1 Direct Compensation
He explained that direct compensation is usually limited to the direct cash benefits that
the employees receive on monthly, bi-monthly or weekly basis for the services they
render as employees of a particular organization. It could also be in the form of stock
bonus compensation, where employees of the organization are given the opportunity to
own shares in the organization they work for and at the end of every year they have the
opportunity again to gain, some divided in the form of equity on their shares. This is also
referred to as Executive stock options (ESO).
2.4.2 Indirect compensation
Dessler (2011) refers to Indirect Compensation as the indirect financial and nonfinancial
payments employees receive for continuing their employment with the company which
are an important part of every employee‟s compensation. Other terminology such as
fringe benefits, employee services, supplementary compensation and supplementary pay
are used. According to Armstrong (2009) Indirect Compensation or Employee benefits
are elements of remuneration given in addition to the various forms of cash pay. They
also include items that are not strictly remuneration such as annual holidays.
Management uses it ostensibly to facilitate its recruitment effort or influence the potential
of employees coming to work for a company, influence their stay or create greater

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commitment, raise morale, reduce absenteeism in general and improve the strength of the
organization by instituting a comprehensive program in this area (Noe et al. 1996).
2.5 Performance
In 1988, Baker, Jensen, & Murphy provided an explanation on performance-based
compensation plans, indicates that explicit financial rewards are an important part of a
worker's 10 compensation. Delery and Doty 1996 in Akter and Moazzam (2016)
demonstrated performance-based compensation as the single strongest predictor for job
performance. 2.5 The Impact of Compensation on Employee Performance Bajor and
Baltes (2003) measured though selection- optimization-compensation and investigated
that there is an effective and strategic relationship between compensation and job
performance. Moreover, many firms link with compensation to job performance by
implementing performance – based incentive programs at every level of the organization
(Schlesinger and Heskett, 1991; Coopers and Lybrand, 1992; Buchholz, 1996; McClaim,
1998; Pfeffer, 1998; Karr, 1999; Hamilton, 1999). While several research studies again
showed a relationship between compensation and job performance and documented that
performance - based incentive plans result in performance improvements (Wagner et. al.,
1998; Banker et al., 1996; Lazear, 1999), in the organizations. A compensation package
does not necessarily mean rewarding in the monetary form. It also includes flexible
benefits, medical care, work-life balance, as well as employee perks. Today‟s employees
not only work for the money, but also place equal emphasis on other aspects of
compensation. A good compensation package ensures:  Retention – A compelling
compensation plan helps to reduce the turnover rate of the company. Employees will be
more incentivized to stay in their role and this saves potential expenses related to
turnover.  Motivation – Compensation is the primary motivating factor for employees to
continuously push themselves to strive for greater heights. It offers them a reason to work
hard and keep driving towards achieving the next milestone. On the other hand, employee
performance and efficiency can be drastically affected if a good compensation package is
absent. Here are a few reasons why:  Low job satisfaction – Employees will feel
underappreciated and derive low satisfaction from their job. This may lead to discontent
amongst coworkers and put a dent in workplace morale.  Low productivity – Poor
compensation induces low productivity. There is less motivation for employees to strive

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for excellence 11  High turnover – If the reward versus effort ratio is low, employees are
incentivized to cast their sights away from their current job. Employee churn incurs a
hefty cost to the company (retraining, relocating and time wasted).
2.6 Theoretical Literature Review
The study is anchored on Human Capital Theory and Expectancy Theory
2.6.1 Human Capital Theory: Human capital signifies the combined the brainpower and
experience of staff as a source of competitive improvement that cannot be imitated by
rivals (Resick, 2007). This theory advocates for attracting, engaging, repayment and
developing people in organizations. Some of the employee compensation practices in this
research are meant to ensure that the performance of employees is improved this theory is
relevant. However, this theory has been criticized for not addressing other underlying
components of employee performance. Scholars have argued that ultimately, it is only the
characteristics that improve employee performance. This is because it considers reward,
which is also a factor of compensation. This means that employees can be rewarded for
their efforts despite the fact that the theory does not examine the effect of the rewards.
2.6.2 Expectancy Theory: According to Armstrong, (2010), in the expectancy theory,
motivation is likely to be when there is a perceived and usable relationship between and
outcome, with the outcome being seen as a means of rewarding needs. In other words,
there must be a relationship between a certain reward and what has to be done to achieve
it. This theory is very important in the context of this research. It is instrumental
especially when designing performance-based employee wellbeing programs. This theory
helps explain why an organization‟s staff would feel confident that they could grow in
the same organization, hence remain there, or seek development elsewhere by exiting the
organization.

2.7 Challenges associated with compensation management

The main problem with indirect compensation is the lack of employee participation
according to Aswathappa (2007). He mentions that once an employee benefit program is
designed by the organization, employees have little discretion. For instance, the same
pension usually is granted to all workers. Younger employees see pension as distant and
largely irrelevant. Older female workers feel that maternity benefits are not needed. The

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uniformity of benefits fails to recognize workforce diversity. Admitted, uniformity leads
to administrative economies, but when employees receive benefits they neither want nor
need, these economies are questionable. Since employees have little choice in these
benefit packages, most workers are unaware of all the benefits to which they are entitled.
This lack of knowledge often causes employees to request more benefits to meet their
needs. In addition, perhaps even worse, employee confusion can lead to complaints and
dissatisfaction that could adversely affect their performance hence productivity.
2.8 Empirical review
Compensation defined by Caruth and Handlogten (2001), as the bucket of financial
rewardssalaries, commission, wages, bonuses, insurance and other sorts of indirect
monetary benefitsprovided to employees. In addition, Dessler (2007) said that.
“Compensation refers to all types of pay or rewards going to employees and arising from
their employment”. Salisu, et al. (2015) in their study of impact of compensation on job
satisfaction of public sector construction workers in Nigeria using sample of 265
respondents selected by stratified randomly sampling techniques. Data were analyzed by
using confirmatory factor analysis tool. The study revealed that compensations have
positive impact on employees‟ job satisfaction. Yaseen (2013) studied the effect of
compensation factors on employee‟s satisfaction. Simple random sampling technique
was used in this research and correlation, ANOVA and regression analysis tools were
applied. Results showed that pay, recognition, promotion and meaningful work had effect
on job satisfaction. Teseema et al. (2013) studied effects of compensation package on job
satisfaction in USA, Vietnam and Malaysia. It was a cross sectional study and used a
self-reported questionnaire survey on a sample of 457 respondents from USA, 391
respondents from Vietnam, and 347 13 from Malaysia. Data were analyzed with
ANOVA, descriptive statistics and regression analysis. Findings revealed that
compensation packages, namely; pay, recognition and benefits have positive effect on job
satisfaction. Nawab and Bhati (2010) studied the influence of employees‟ compensation
on job satisfaction in educational sector using 270 questionnaires and correlation and
regression analysis techniques. The results indicated that there was positive significant
relationship between compensation and job satisfaction. 2.9 Conceptual frame work The
study was conducted to check the impact and relationship of the factors like salary,

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Rewards and indirect compensation on employee performance This study‟s independent
variables are training and development, performance appraisal, promotion practice,
compensation and working environment are expected to affect the dependent variable i.e.
performance. The above relationship is diagrammatically presented in figure below
which displays how the independent and dependent variables relate as conceptualized by
the researcher. The directions of the arrows show the interrelationships between the
variables of the study. Independent variables Dependent variable Salary Over time
Individual Performance Bonus Health insurance
14 Figure1. Conceptual framework Source: Researcher, (2019)

2.9.1 Base-Salary Base- salary is the annual and monthly salary rates of an employee
that are established under current personnel policy for each position. Besides, base- salary
is to represent the employee‟s straight-time pay for a standard 40- hour workweek
(Anonymous, 2007). According to wikipedia.com (2009), base- salary is a form of
periodic payment from an employer to an employee, which may be specified in an
employment contract. It is contrasted with piece wages, where each job, hour or other
unit is paid separately, rather than on a periodic basis. In other view of running a
business, base- salary can also be viewed as the cost of acquiring human resources for
running operations, and is then termed personnel expense or salary expense. Besides,
Henderson (2006) and Young (1999) are stated that base-salary is a base pay that is given
to employees on a weekly, monthly or yearly basis based on job structure.
2.9.2 Overtime Pay (OT) Overtime pay (OT) is always included in cash compensation.
It is the pay to time worked in excess of an agreed upon time for normal working hours
by an individual employee (Answers.com, 2008). In addition, Overtime Pay (OT) is
defines as the payment of premium time and one-half rates in form of monetary
compensation or time off is required for hours worked in excess of 40 in one a week, with
exception of those considered exempt. The overtime pay rate usually is 1.5 times of base
wage per hour (Anonymous, 2007).
2.9.3 Bonus
Bonus is referring as a cash payment provided to employees based on their performance.
For example, monetary incentives for achieving job targets (Bloom &Milkovich, 1998;

15
 Gupta & Shaw, 1998; Lowery, Beadles, Petty, Amsler& Thompson, 2002). Steven and
Loring (1996) stated that bonus is a single, one-off, lump-sum payment that can be in the
form of cash or other creative monetary scheme, such as stock options. Bonus is defined
as all payments to employees, which is not paid regularly at each pay period, for example
bonuses paid at fixed periods. Besides, bonus payments are generally linked to individual
or collective performance. 15 Bonus can be distributed randomly as the company can
afford to pay a bonus, or the amount of the bonus pay can be specified by contract
(Anonymous, no date)

2.9.4 Health insurance (care) benefit Health insurance is the foundation of a

comprehensive benefits package for employees. It is the preferred benefit of the majority of
people who work. Health insurance marks an employer as an employer of choice when desirable
candidates select job opportunities. (BY susan m. heath field) Health insurance is an insurance
policy that will pay specified amounts of money to cover medical expenses or treatments. (BY
susan m. heath field) Medical insurance is likely a no-brainer most employers offer. It covers
things including

2.3.1 Financial Reward

Armstrong (2003:687) accepted that financial rewards provide financial recognition to people
for their achievement in the shape of attaining or exceeding their performance targets or reaching
certain levels of competence or skill while financial incentives aim at motivating people in
achieving their objectives, improve their performance or enhance their competence or skills by
focusing on specific targets and priorities”.

2.3.2 Non-Financial Rewards

These are reward that do not involve any direct payments and often arise from the work itself,
for example, achievement, autonomy, recognition, scope to use and develop skills, training,
career development opportunities, high quality leadership, workplace learning and development,
performance management, work environment, job design and development, quality of working
life, work/life balance and talent management (Armstrong, 2006.) Aside the pay given to the
employees, employers should also concentrate on the non-monetary aspect. Employees should be
given the room to express their views. Employers should also involve employees in decision

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making. The organization should ensure that employees can Hourly and monthly rate wage and
salaries Incentives  Individual  Groups plan Fringes benefits  Gratuity  Medical care 
Health  Insurance  Accident relief Job control  Challenging  Recognition  Growth 
Supervision  Working condition  Job sharing---etc Perquisite  Company car  Over time 
Paid holiday 13 develop their careers by taking them through training and development. The
working environment should be conducive for employees where they will feel a sense of
belongingness (yamoah, 2013). Work-life balance refers to effectively managing the juggling act
between paid work and the other activities that are important to people. Beside, work-life balance
can be define as having enough time for work and enough time to have a life thus the life
balance. According Newman (2008), work-life balance is a programs that help employees better
integrate their work and life responsibilities include time away from work (vacation, jury duty),
access to services to meet specific needs (drug counseling, financial planning referrals for child
and elder care), and flexible work arrangement (telecommuting, non-paid time off). Besides,
Melissa (2007) also stated that work-life balance is about creating and maintaining supportive
and healthy work environments, which will enable employees to have balance between work and
personal responsibilities and thus strengthen employee loyalty and productivity.

2.4 Theories behind Compensation and Related Studies

2.4.1 Equity Theory Pay system are designed to attract, retain and motivate employees. The
most important objectives of any pay system are fairness or equity. Equity can be assessed on at
least three dimensions; internal equity, external equity and individual equity (cascio, 2006).
Early studies indicate that inequitable treatment directly affect and influences employee behavior
and performance. In Equity Theory toward a General Theory of Social Interaction (The
Academic press, 1976), J. Stacy Adams proposed that an employee continuously monitors his or
her inputs and output on the job, and perceives an equitable situation when the ratio of his/her
inputs and outputs are equal, to those of other employees. If this ratio is not equal, the employee
may feel angry as result of not being paid enough or guilty as a result of being paid too much.
Perception of inequity is expected to cause employee to take actions to restore equity. According
to Cardy, Miller, and Ellis (2007), in an organization, employees will have a level of
“perceived,” which is how the employee perceives what they get from the organization in
comparison to what they could get at other organizations. Perceived equity is divided into three

17
groups: value equity, brand equity and retention equity. Perceived equity can be linked to the
idea of opportunity cost, this case it is the opportunity cost of working at one place over another.
14 Employees weigh that decision throughout their time at a given organization, and once the
opportunity cost is no longer in their favor, they are at a high risk of leaving. Therefore,
organizations will benefits from a closer analysis of perceived equity to create higher retention
rates. Lon-term employees that have maintained high job performance and increased productivity
for the organization should be valued and treated preferentially, so that they will continue to
maintain their strong commitment to the organization. Internally, equity can be expressed in in
terms of employees who perform similar jobs or those who perform dissimilar jobs, those who
work within the same department or those who work in different departments, similarly
externally, equity can be expressed in terms of employees who work in the same industry or in
different industries, those in the same union or in the same profession, In the same geographic
location, or in different geographic locations, in organizations of similar size or in organization
of differing sizes. On the other hand, individual equity exists when an employer compensates
individuals who are in similar jobs on variations in individuals the basis performance –so -called
pay for performance. Excellent performers, for example, would receive more compensation than
average performers (Henderson, 2003).

2.4.2 Agency Theory

Until recently best known in the economics, finance, and law literatures, focuses on the
divergent interests and goals of the organizations stakeholder, and the ways that employee
compensation can be used to align these interests and goals Ownership and management are
typically separate in the modern corporation. With most stockholders far removed from day-to-
day operations, socalled agency cost i.e., cost that arise from the interest of the principles/owners
and their agents/managers not converging are created. What is best for the agent/manager may
not be best for the owner (Lambert & Larcker, 1989). According to Mahaney and Ledere,
(2003), agency theory is also of value in the analysis and design of non-managers compensation.
In this case, the divergence of interests may exist between managers now in the role of principles
and their employees who take on the role of agents. In designing managerial an non managerial
compensation. Agency theory says that the principal must choose a contacting scheme that helps
align the interest of the agent with the principles own interest i.e. reduces agency cost. This

18
contract can be classified as either behavior oriented e.g. merit pay or outcome oriented e.g.
stock options, profit sharing, commissions. At 15 First blush, outcome-oriented contracts seem to
be the obvious solution. If profit is high, compensation goes up. If profits go down,
compensation goes down. The interest of “the firm” and employees are aligned.an important
drawback, however, is that such contract increase the amount of risk borne by the agent.
Furthermore, because agents are averse to risk, they may require higher pay (a compensating
wage differential) to make up for it (Fisk, 2001).

2.4.3 Reinforcement Theory Reinforcement

Theory, which is propounded by Skinner (1938), holds that their work environment can actually
motivate individuals when it is properly developed. Hence, rather than considering internal
factors such as attitudes, feeling, impressions and other cognitive behavior, employer should
keep on making positive changes in the external environment of the organization. It emphasizes
the importance of a person’s actual experience of a reward, and the implication of this for
compensation management is that high employee performance followed by a monetary reward
will make future high performance more likely.

2.4.4 Expectancy Theories

According to (Armstrong, 2010), in the expectancy theory, motivation is to be when there is a

perceived and usable relationship between and outcome, with the outcome being seen as a means
of rewarding needs. In other words, there must be a relationship between a certain rewards and
what has to be done to achieve it. This theory is very important in the context of this research. It
is instrumental especially when designing performance-based employee wellbeing programs.
This theory helps explain why an organization staff would feel confident that they can grow in
the same organization, hence remain there, or seek development by exist the organization. Hale
and Goodale (1986) opined that compensation is more explicitly defined as any form of payment
or reward in exchange for work provided for their employers. In this research compensation is all
tangible and intangible rewards an employee receives from his/her employer as part of the
employment relationship. There for, “compensation is reward employees receive in exchange for
their performance.”(Holt,1993).Well-designed compensation system enables organization to
attract qualified employees required and retain and motivate the existing work force towards goal
achievement. 16 Bob (2011) compensation processes are based on compensation philosophies

19
and strategies and contain arrangement in the shape of policies and strategies, guiding principles,
structures and procedures which are devised and managed to provide maintain appropriate types
and levels of pay, benefits and other forms of compensation. This constitutes measuring jobs
values, designing and maintaining pay structures, paying for performance, competence and skill,
and providing employee benefits. However, compensation management is not just about money.
It is also concerned with that non- financial compensation which provides intrinsic or extrinsic
motivation. Robert and Angelo (2001) opined that the success or failure of organization hinges
on the ability to attract, develop, retain, empower and reward a diverse array of appropriately
skilled people and is the key to improved performance hence the enthronement of democratic
governance in 1999 brought some civil service reforms and Anambra State Civil service
Commission got vested with horizontal powers by law to manage the workforce of the civil
service for greater efficiency. Armstrong (2005), in his own analysis says compensation
management is all about developing a positive employment relationship and psychological
contract that adopts a total compensation approach which recognizes that there are a number of
ways in which people can be compensated. Bob (2001); Brown 2003; Anyebe; 2003 states
compensation management as being based on a well-articulated philosophy a set of beliefs and
guiding principles that are consistent with the values of the organization which recognizes the
fact that if HRM is about investing in human capital from which a reasonable return is required,
then it is proper to the skills and competencies of employees in order to increase the resource-
based capability of the organization. Brown (2003) sees compensation as a return in exchange
between their employees and themselves as an entitlement for being an employee of the
organization, or as a reward for a job well done. Employees pay does not depend solely on the
jobs they hld. 17 Gehart and Milkovich (1992), Instead organization vary the amount paid
according to differences in performance of the individual, group, or whole organization as well
as differences in employee qualities such as seniority, educational level and skills. The
conference Board (1984) American productivity center (1987) the importance of a perspective on
compensation resets on three fundamental tenets. The first is that compensation policies’ and
practices differ widely across organization and across employee groups within organizations. To
some students of organization this may be self-evident. But to others, such as Economics using
human capital models to examine compensation differentials, differences in organizations
compensation policies and practices are treated as random noise with little relevance. Anecdotal

20
evident and Sporadic surveys of specific policies or practices that differences do exit. One
company goal to give employees welfare is by providing compensation to retain employees to
work (Gibson, 1996). Employee’s compensation affects their productivity and their tendency to
seek employment to other organization. If employees see that hard work and superior
performance is recognized and rewarded by organization, they will increase higher performance
with a hope to obtain a higher compensation level (Simamora, 1997). Dissatisfaction to
compensation may lead to performance degradation, increasing degree of absenteeism and
employee turnover (Mangkuprawira, 2003). Furthermore, Weather and Davis (1996) in Wibowo
(2010) sates that there is compensation in incentive system that links compensation to
performance. Compensation is granted to employees based performance and not on seniority or
number of work hours. Research result of Ghazanfar et al. (2011) showed that satisfaction with
compensation has strong and significant effect on work motivation. Flexible pay (incentives,
overtime, bonuses) and benefits has positive effect but insignificant effect on motivation.
Research by Vecchio et al. (2010) found that pay variables significantly effect on motivation
intrinsic OD salesperson in California. Khan and Mufti (2012) show relationship between effort,
performance and motivation is very weak, negative and insignificant. Relationship between
performance outcome and motivation is in significant. Relationship between outcome valence
9fixed pay, flexible pay, 18 benefit) and motivation is a powerful, positive and significant.
Igalens and Rousell (1999) examine relationship between work motivation and compensation for
working comfort. Results show: 1) under uncertainty conditions, individual compensation can
become a factor to increases work motivation. 2) Flexible pay of specific workers cannot
motivate and increase job satisfaction. 3) Benefits from specific workers cannot motivate and
increase job satisfaction. Motivation basically is a process to try to affect someone to do what we
want to do (Martoyo.2000) Vroom’s (1964) Valence Instrumentality-Expectancy (VIE) Model
has served as a rich source of theoretical innovation in domains such as organizational behavior
and compensation. The theory stated with reference to compensation, it can be read to mean that
a worker with subjective Probability (expectancy) that a particular course of action will bring
about reward (pay) will act to acquire pay for as long as the valence (value) of pay is strong for
him. Pay, this serves as instrument for bringing about action (effort) tendencies aimed at targeted
reward. To act is to reason that the action will bring desired outcome and the outcome must have
a strong value (valence) for him. Thus pay assumes the use of valence because it has

21
instrumental power for gaining other desired outcome in life e.g. meeting of physiological, (food,
shelter, clothing) social esteem and other needs. Compensation is thus a useful tool in bringing
about desired behavior (performance, punctuality, commitment at work). Essentially, for workers
to exert alert;  The outcome must be attractive i.e. have valence (value) for him and  He must
be sure that his effort will lead to desired outcome. In the studies conducted by Kim (2006) as
well as Sloof and Praag (2007) they identified three different factors that play an important and
interactive role in compensation scheme and motivation. The first factor is effort-performance
(E-P) expectancy, this is about the perception of individual’s that effort is correlated with
performance positively; the individual will be motivated to exert effort when the E-P expectancy
is high. The second factor is referred to as performance-outcome (P-O) expectancy, this is also
known as instrumentality. It also deals with a person’s expectation that his remuneration is
closely associated to his performance level. This 19 also depicts a positive effect on the
individual’s motivation to exert effort. The third factor is known as valence which is the degree
to which individual values a particular reward. This also shows that the higher this factor is, the
tendency is that individual will be more motivated. Sloof and Praag (2007) argue that expectancy
theory brings out three crucial instruments that employers should engaged to boost employee’s
motivation: (i) increasing the subjective expectations that greater effort will enhance greater
levels of performance (E), (ii) broadening and enhancing the perceived link between
performance and reward (I), and (iii) ascertaining that employees value the rewards given for
high performance (V). These three factors are referred to as the VIE- factors. Similarly, Şafakli
and Ertanin (2012) opined that expectancy theory is one of the important ways that a manager
can use to motivate employees and the emphasis is on equitable wage being giving to them in
correlation to their performance that will cause greater organizational efficiency and
performance. They aligned their submission with Vroom’s awarding expectation and fair
awarding systems theory which states that if the individual expectations are positively related
with the performance growth, the individual employees will manifest great interest, be
committed, diligent and work more tenaciously with elevated motivation

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2.5 Compensation Practice and Employee performance

2.5.1 Promotion and employee performance

Various studies have suggested that job satisfaction has a strong link with promotion
opportunities in organization (Pergamit and Veum, 1999,) which is supported by Ellickson
(2002) in his study of a public employee found that there is a strong relationship between
promotion opportunity and job satisfaction. Bowen et al. (2008) supported this assertion. Keiner
and Kinicki (2001) lamented that a significant relationship exists between job satisfaction and
promotion, and they viewed that job satisfaction is contingent upon what employee perceives as
equity in his employment relation like reward. Some employees like equality at work, some like
benefits provided by their job, or others satisfied with the degree to which they have power to
take initiatives at their workplace during the job. the effect or influence of promotion upon
employee‘s job Performance. Promotion is the recognition of employee efforts and his 20
commitment to work. Getting higher and higher promotion is the ultimate desire of each person
working in any sort of organization. Promotion is a Shifting of employee for a job of higher
significance and higher compensation Lazear, Edward (2000). ―The movement of an employee
upward in the hierarchy of the organization, typically that leads to enhancement of responsibility
and rank and an improved compensation package is a promotion Lazear, Edward (1986). Lazear
(2000) defines promotion as the movement of an employee upward in the hierarchy within the
organization, which leads to increase in responsibility and rank ( lazar and Rosen, 1981).
Grobler, Warnich, Carrel Elbert and Hatfield (2002) refer to promotion as a change in
assignment from a job at lower level to a higher level with in the organization. It is shifting from
lower designation to higher designation within an organization and usually increase pay package
(Jamil and Raja, 2011) recent studies have considered promotion as one of the most important
factor for increasing employee satisfaction ( Parvin and Kabir ,2011; Muhammad, Rizwan and
Yasin, 2012). Thus Muhammad and Akhoter, (2014) postulated that organization which have
sufficient opportunity for promotion do faster job satisfaction among employee especially when
it is based on seniority, stipulated period , and performance as specified in the employment
contract.(Wan sulaiman and Omar,201) Murphy (1985); Naveed et al (2011) gives employees
the opportunity for advancement and growth in their current work place which consequently
increase employees job satisfaction (Baker, Georage , Michael and Bengt, 1994; Jamil and

23
Roaja, 2011. Literature's revealed that promotion system practiced in business tend to increase
the satisfaction of employee and performance (Malik, etal, 2012; Naveed and Bushra, 2011;
clark, 2001). Thus, it is obvious that non- financial rewards such as promotion have used by
organization as useful instruments to enhance the satisfaction and retention of employee 2.5.2
Salary and Employees’ Performance Basic salary is a fixed periodical payment for non-manual
employees usually expressed in annual terms, paid per month with generally no additions for
productivity (Braton and Gold, 2013). It is important to note that compensation is not all about
money. It is a symbol of what an 21 organization believes is valuable that can boost the
performance of employees. It specifically communicates the extent to which an organization
values its employees. Bohan (2014) explains that traditional pay systems were based on the three
factors: the job, maintaining the level of equality in standard pay among employees in the
organization, and paying competitive salaries. Swanepoel (2013) describes that employees were
rewarded according to the position held without considering their performance. The increments
in basic pay depended on internal and external assessment of jobs. Drafke (2012) emphasis this
point by pointing out that money can increase employee performance but this is often limited to
short term increase. On the other hand, DeNisi and Griffin (2014) argues that in general higher
levels of pay and more attractive benefits tend to result in greater satisfaction thus promotes
employee performance, a point that is affirmed by Bretz and Thomas (2012) who stated that pay
dissatisfaction reduce employee performance and morale. In support, Clegg and Birch (2012)
argues that “pay peanuts and you will get monkeys”, and in addition to that they said that if you
show that you value people by paying a reasonable wage then they appreciate it. According to
Armstrong (2016), good practice requires employers to keep pace with inflation by rewarding
employees with salaries that are market related to avoid strikes and poor performance by
workers. Nowadays, organizations are under financial strain with salaries continually rising and
becoming a major fixed expense. According to Livingstone (2015), regardless of basic pay
inefficiencies, it remains a rule that employees should be paid at, or above market rates as
negotiated by labor unions who are concerned with the welfare of employees. In a competitive
market, higher basic pay is used for attracting and retaining employees who already have
experience to improve their performance. Otherwise contradicting this rule has negative
consequences on the part of the organization. It is thus factual that pay communicates

24
commitment to employees, and is used as the baseline for assessing other pay systems such as
skill and competency pay.

2.5.3 Benefits and Employees’ Performance

Dessler (2016) defines benefits as indirect financial and non-financial payments employees
receive for continuing their employment with the company. Bernardin (2013) defines benefits as
22 indirect forms of compensation that are intended to maintain or improve the quality of life for
employees. Indirect financial rewards come in form of subsidized benefits such as retirement
plans, paid sick leaves and purchase discounts. Gomez et al. (2012) also says that benefits are
sometimes called indirect compensation as they are given to employees in form of plan rather
than cash to improve their performance; they provide security for employees and their family
members. As indicated by Dessler (2016), indirect financial rewards that could enhance
employee performance come in form of subsidized benefits such as retirement plans, paid sick
leaves, bonuses, incentives, allowances and purchase discounts. Employee benefits have equally
been classified widely according to different authors and the context of circumstance. Cascio
(2015) for example classifies benefits into four basic types, namely; supplemental pay benefits,
insurance benefits, retirement benefits and personal service and family-friendly benefits.
Supplemental pay benefits provide for time not worked, they include: unemployment, insurance,
vacation and holiday pay, severance pay and supplemental unemployment benefits. Insurance
benefits include, worker’s compensation, group hospitalization, accident and disability
insurance; and group life insurance. Retirement benefits include social security and pension
plans. Personal service and family-friendly benefits include food services, recreational and child
and child-care opportunities, legal advice, credit unions, educational subsidies and counseling.
All these benefits put together enhances employee performance in an organization. Cole (2012)
classifies employee benefits into three key categories, security benefits like pension and life
insurance, work related benefits like subsidized meals and special training opportunities and
finally status-related benefits like prestige car and entertainment allowance. DeNisi and Griffin
(2014) argues that although most of the above named benefits are designed for all the employees
in an organization with varying levels, some organizations have developed a cafeteria style
benefit plan which allows the employees to choose the benefits that fits them. Such organizations
believe that offering employees‟ freedom to choose benefits that befits them is tantamount to

25
their satisfaction and a high probability of reciprocating the overall company loyalty to them by
demonstrating exemplary performance. 23

2.5.4 Recognition and Employee performance

According to Naveed, (2012), recognition and rewards have a direct impact on motivation of the
employees and increase their efficiency. Recognition refers to the general acknowledgement or
confirmation of a given occurrence or performance (Petresca and Simon, 2008). According to
Harrison (2005), employee recognition is seen as a timely, informed or formal acknowledgement
of an individual’s behavior and effort that directly supports the achievement and organizational
goals and values and usually has been beyond normal expectation levels. Recognition and
Employees’ Performance Recognition as an intrinsic reward is defined as ratification,
confirmation or an acknowledgment that something done by another person in one's name and
one's authority (Danish et al., 2016). According to Nel et al. (2011), intrinsic rewards like
recognition, growth, feedback, opportunities lead employees more towards high job performance
and motivation than extrinsic rewards like salary. Robbins (2014) described that through the
recognition employees get appreciation of status which make them feel part of an organization.
Barton and Gold (2013) described that recognition is considered the most important factor
among non-financial rewards in order to increase job satisfaction level of employees and thus
their performance. Romano (2013) pointed out that recognition is the component that is used to
strengthen the relationship between organization and people. Through the recognition employee
feel rewarded and motivated. He states that giving recognition to the employees, competitive
advantage can be achieved and consequently improved performance. Lawler (2013) suggested
that the well-being of any organization depends on how its human resource is treated.
Organizations achieve its well-being through giving rewards and recognition to its employees to
enhance their performance. Andrew (2016) described that employees become more loyal to their
organization and perform much better if the organization recognizes and appreciates their work
in terms of certification, verbal appreciation among other components. Organizations are missing
the very valuable component in the organization that is recognition. Sarvadi (2015) however says
that the cost of practical implementation of this component is very low in many organizations.
Through recognition, employees are being realized that they are valuable for organization and
employees feel appreciated through recognition. 24 Nelson and Spitzer (2013) posit that people

26
of fresh blood are more energetic and dynamic so they want recognition regarding their work
than others and this could improve their performance. Recognition can be provided through
involving employees in decision making, by increasing their responsibility, by showing empathy
towards them and provide them with succession planning and different opportunities to get high
designation. Robbins (2013) described that Maslow‟s theory tells about the self- esteem need of
employee. This theory shows that recognition, status, development and growth are the factors
which leads to motivation and ultimately leads toward job satisfaction and finally employee
performance. Herzberg theory indicated that recognition is one of those motivating factors which
lead employees from dissatisfaction to satisfaction on the task assigned and thus enhancing their
performance.

2.5.5 Working Environment and employee performance

Work environment plays a big role in performance issues because it influences how engaged
employees are with their jobs, Norton (2012). A better workplace environment leads to increased
employee commitment and performance. It boosts the employee motivation and improves the
productivity. Work environment where employees feel that they have reasons for doing work and
get pleasure from doing their job motivates the employee. According to Wikipedia the free
encyclopedia, an “engaged” employee is the one who is fully involved in and enthusiastic about
their work. Hynes (2008) developed dimensions of working environment in terms of physical as
well as behavioral components. The physical components of the environment were classified as:
(1) Comfort level- This includes ventilation, heating, natural lighting, artificial lighting, décor,
cleanliness, overall comfort, physical security. (2) Office layout- This includes informal meeting
areas, formal meeting areas, quite areas, privacy, personal storage, general storage, work area-
circulation place. The next set of components is Behavioral in nature. Includes (1) Level of
interaction. This component is more interested in social interaction, work interaction, creative
physical environment, overall atmosphere, and position relative to colleagues, position relative to
equipment, overall office layout and refreshments. (2) Level of distraction- includes
interruptions, crowding and noise. Recent scientific research undertaken by Roelofsen (2000)
came to the conclusion that improving the working environment results in decreased number of
absenteeism, complaints and boosted employee productivity through improving the performance
level of employees. Management should improve working conditions in order to improve

27
productivity and motivate the 25 employees. Since employees are not robots so the workplace
should have a gym and lounge for the wellbeing of employees.

increasing the turnover, Absents am and poor metal health(Welthel and Davis,1996).The main
objective of compensation is that employee attracted to work and motivated good job for
employee Davis(1996).

26 Approval and disapproval of a particular attitude. Group influence, and Inducing engagement
in discrepant behavior In some or the other, all these methods involve introducing discrepancies
among the elements making up the individual’s attitudes in the hope that the elements will be
rebalanced through the effective component of the attitudes. From the organization point of
view, a Manager can take following actions in brining change in attitudes of its organizational
members. Group action Persuasion through leadership Persuasion through communication and
Influence of total situation. These actions involve the analysis of different variables affecting a
particular action. 1.3 Values and Attitudes  Some researchers see values as consisting of large
sets of related attitudes. For example, “Fishbein” and “Ajzen” have included two components in
attitudes-informational, emotional. Thus, they have taken values as a part of attitudes. However,
some differences exist between values and attitudes

1.4 Values and Behavior

Behavior of people is influenced by the values which they hold, particularly in terms of those
stimuli which have some value orientation in the organizational context, understanding the
influence of individual value system on the behaviour of individuals in the following manner: 
Values influence an individual perception about the problems he faces and consequently the
decision he makes to overcome those problems.

Values influences the way in which an individual looks at the other individual and groups of
individuals, that is, interpersonal relationship

Values determine the extent to which individuals accept organizational pressures and goals II.

28
Employee’s Attitudes Towards the Organization

Attitudes are not the same as values, but the two are interrelated. You can see this by looking at
the three components of an attitude: cognition, affect and behavior. The belief that
“discrimination is wrong” is a value statement.

2.1 Types of Attitudes

A person can have thousands of attitudes, but Organizational Behavior focuses our attention on
a very limited number of work-related attitudes. These work-related attitudes tap positive or
negative evaluations that employees hold about aspects of their work environment.

2.2 Job Satisfaction The term job satisfaction to an individual’s general attitude towards his or
her job. A person with a high level of job satisfaction holds positive attitudes about their job,
while a person who is dissatisfied with his or her job holds negative attitudes about the job
Organizational Commitment The third job attitude is organizational commitment, which is
defined as a state in which an employee identifies with a particular organization and its goals,
and wishes to maintain membership in the organization Attitudes and Consistency Research has
generally concluded that people seek consistency among their attitudes and between their
attitudes and their behavior.

2.3 Moderating Variables The most powerful moderates have been found to be the importance
of the attitude; specially, its accessibility, whether there exist social pressures, and whether a
person has direct experience with the attitude.

2.4 Cognitive Dissonance Theory

This theory sought to explain the linkage between attitudes and behavior. Dissonance means an
inconsistency

2.5 Attitude Survey

The preceding review indicates that knowledge of employee attitudes can be helpful to managers
in attempting to predict employee behavior. But, how does management get information about
employee attitudes

29
2.6 Individual Factors

Individuals have certain expectation from their jobs. If there expectations are met from the jobs,
they feel satisfied. These expectations are based on an individual’s level of education, age, and
other factors. 1. Level of Education: Level of education of an individual is a factor which
determines the degree of job satisfaction. For example, several studies have found the negative
correlation between the level of education, particularly higher level of education and job
satisfaction.

2. Age: Individuals experience different degrees of job satisfaction at different stages of their
life. Job satisfaction is high at the initial stage, get gradually reduced, starts rising up to certain
stage and finally dips to a low degree.

3. Other factors: Besides the above two factors, there are other individual factors affect job
satisfaction. If an individual does not have favorable social and family life, he may not feel
happy at the work place. Similarly, other personal problems associated with him may affect his
level of job satisfaction Effect of his Job Satisfaction Job satisfaction has a variety of effects. The
effects may be seen in the context of an individual’s physical and mental health, productivity,
absenteeism, and turnover.

2.7 Physical and Mental Health

The degree of job satisfaction affects an individual’s physical and mental health. Since, job
satisfaction is a typed of mental feeling, its favorableness or un favorableness affects the
individual psychologically which for 60 | P a g e example, “Lawler” has pointed out that drug
abuse, alcoholism, and mental and physical health results from psychologically harmful jobs.

2.8 Improving Job Satisfaction

Job satisfaction plays a significant role in the organization. Therefore, Managers should take
concrete steps to improve the level of job satisfaction. These steps may be in the form of job re-
designing to make the job more interesting and challenging, improving quality of work life,
linking rewards with performance, and improving overall organizational climate.

2.9 Attitude Measurement

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 Attitudes are subjective attributes of people. They can be regarded as construct in the
sense that they are conceptualizations of human statistical evidence. The scale is then
presented to the respondents. Each respondent checks the statement in pulling together
numerous methods dealings with attitude measurement. They are:
 Self Report
 Indirect Tests
 Direct Observation Techniques
 Psychology Reaction Techniques

31