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Effect of compensation on employee’s performance in pakistan
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Effect of compensation on employee’s performance in pakistan

Effect of compensation on employee’s performance in pakistan

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Effect of compensation on employee’s performance in pakistan Document Transcript

  • 1. Assignment On “Business Research Management”“Effect of compensation on employee’s performance in Pakistan.” Presented To: Mr. Muhammad Illyas Presented By: Group “Supereye” Asfaq Salamat MCE 12155 Zohaib Ahmad MCE 12152 Memona Javed MCE 12104 Nadia Izhar MCE 12170 Class M.Com Semester 2nd Evening Superior University Lahore. 1
  • 2. Problem Area The impact of employee compensation in an organizationIntroductionHuman Resource Management (HRM, HR)is the management of an organizationsemployees providing and maintaining necessary stability of human resource forflat operations of organization is a main role of HRM. Now its scope has beenwidened to many new and famous areas. Organizations having capable and skilledemployees give aggressive boundary and it is said to be most sustainable sourceof competitive advantage.In Human Resource Management Rewards is direct and indirect providing goodreturn to persons working in organization have comforting result on bothemployee and organizational performance. People get remunerated but livingfrom hand to mouth. By identifying the impact of employee return in organizationwill help organizations to foster organizational commitment and enhance theirsatisfaction level among staff members.Literature review:This literature review is based on the effect of compensation on employee’sperformance in Pakistan. As Pakistan is a third world country so there is a need ofmore & more planning in compensation activities & management (strategic HRM). 2
  • 3. Compensation practices are positively related with retaining & enhancing theskilled employees that are considered assets of an organization.(Mondy andNoe, 1993) has divided compensation in two types’ financialcompensation & non-financial compensation. Financial compensation is furtherdivided into direct and indirect financial compensation. Direct compensationincludes bounce, good salary packages, profits & commission indirect financialcompensation are all those benefits that are not covered by direct financialcompensation. Non-financial compensation consists of responsibilities,opportunities, recognition promotion, vacations, work place environment, soundpolicies, insurance, medical, retirement etc. All these compensations effect theperformances of the employees in different manners.(Armstrong,1999) argued about the non-financial compensation which should beany reward that should focus on the needs of people which can be different suchas level of attainment, respect , task ,control and individual improvements.(Zinghein, 2000) talks in the favor of non-financial compensation such as people’sresponsibility for more than their return. (Bernadin et al; 1995) state thatcompensation performance is the result work of employee because it is thestrongest link for the planned goals and economic aid.According to (Sherman, 1996 cited in Prasetya& Kato) the general purposes of thecompensation policy covers respecting employees performance, maintaining acompetitive labor market conditions, maintain justice employee salaries,motivating employee performance& Reduce employee turnover. 3
  • 4. (Monday et al;) argued about the job improvement of employees. Employeesreceive good benefits for meaningful jobs. These are the true and natural returnsbut it must be a part of non-financial compensation such as jobs containsdifferent dimensions motivation, improvements in work, skills and good feedbackwhich results in the shape of rewards. All above the data gathered is by thedescriptive method. It includes qualitative information and quantitativeinformation as well.It is stated in research study (bashir&khattak, 2008) that if we review the relevantliterature we will find that no appropriate researches are there on Pakistan.Thisdeveloping country requires much more focus on different HR practices.Implementation of compensation activities requires a comprehensive review.Different studies are available that show positive relationship betweencompensation and employees performance (Gneezy&Rustichini 2000; Gardner etal 2004; teseema&soeters,2006).Providing respectful compensation to the employees of an organization hassoothing effect of both organization and employees performance (Jamil andSarfaraz ,2011).In their research it was significantly hypothesized thatcompensation practices are positively associated with performance of theemployees in public as well as private sector in Pakistan.(Opkara,2004) and (Samad,2007) conducted the studies in which they concludedthat if labor force is happy with their job as well as the organizational settingincluding its age group, compensation, and control they will be more loyal with 4
  • 5. the devoted with their organization as compared to when they are not happy. Theimportance of these two areas cannot be ignored because they are the keyfactors that power employee’s return, employee’s performance, and theirproductivity. Satisfied and committed workforce is regularly are supplier andplayer towards attractive organizational productivity. On the basis of above givenliterature it is evident that employee compensation has some positive impact onthe employee’s employment pleasure and organizational loyalty. Organizationsthat have better compensation management system put a very positive impact ontheir employees.some of the researches has taken into account the performance of teachers andits influencing activities and concluded that there is a positive relationshipbetween equity based compensation and the firms performance (Frye 2004, citedin Shahzad et al).he argued that compensation play a crucial role in attracting andkeeping hold on highly skilled and competitive employees in human intensivecapital firms like universities.Incentive pay plans positively and extensively affect performance of workers ifcombined with innovative work practices like ‘flexible job design, employeeparticipation in problem-solving teams, training to provide workers with multipleskills, extensive screening and communication and employment security(Ichniowski et al., 1997, cited in Shahzad et al).(Shahzad, Bashir &Ramay,2008)had concluded in their research using methodologies of questionnaire,participants , procedure and statistical methods that compensation activities havepositive and direct impact on employees performance of the educational 5
  • 6. institutes and because of this higher education commission have announced anattractive salary packages for the teachers in universities of Pakistan.(singh,2004) after his wide observation in cultural environment argued thatcompensation is a behavior aligning mechanism of employees with the businessstrategy of a firm. Organizations which are interested in their growth throughemployee’s participation must pay attention on compensation practices (marwatet al). (wright et al,2003 cited in Ramay&bilal) argued that if proper performancemanagement is in place and is supported by compensation system thenemployees will exert discretionary efforts.(Ramay& Bilal ) although compensationcontribution in effecting employees performances is low in banking sector ofPakistan but suggested in their studies after research that the factor ofcompensation should be taken into account in order to increase the employeesworking efficiency.Individual incentive plan pay off for individual performances. These plans havebeen the biggest trend in compensation administration in the United States.Popular approaches included merit pay, piecework plans, time-saving bonuses,and commissions (Performance management key strategies and practicalguidelines 3rd edition).(Tahir and Kaleem) concluded after their research studywhich was based on survey through questionnairesand statistical method onwater & power development authority employees that they have exploredincentive plans are a good way of bringing efficiency and better work outcome.itwas suggested to in their research that additional incentive plans should be 6
  • 7. introduce in order to reduce the dissatisfaction of the employees of wapda due tooverburden of work and to pay off for individual performance.In order to stay competitive and ensure that the company has a long-termfuture, it is important to improve the performances on an ongoing basis.The performances will only improve with the buy-in of the employees intohigher levels of performance motivated by related rewards (Taljaard,2003).(Robbins, 2001) stated that when employees feel that their effortsare appreciatedand the company introduced a system of fair compensation and satisfaction, thecompany has optimized the motivation. By encouraging employee’s motivationto work there will be increased employee performance.Compensation benefits the employees in such way that they become satisfiedfrom their job, get motivated, it result in low absenteeism & low turnover (hubpage).compensation system increase the loyalty of employees, they feel piece ofmind and their self-confidence increasesIn an organization there should be more than financial reward given to employeesin order to motivate them. Financial rewards most times is said to favor in shortterm while non-financial reward favor long term goals.Non- financial rewardsprovide significant levels of employee satisfaction at little or no cost and the leastcostly non-financial reward is “Thank You”. It has been noticed that mostemployees do not thank their employees enough for their efforts. Such non- 7
  • 8. financial rewards or compensation motivate employees and increase theirperformance (essay).Compensation practices effect the faculty’s job satisfaction and thus influence theintentions to leave or retain. Higher compensation leads to higher job satisfactionand retention rate. Enhanced reward system in organizations also enhances thesatisfaction level (Boyt et al,2000 cited in Nawab& Bhatti,2011).It was suggested to management of the universities in Pakistan after conductingresearch through mixed techniques (hypothesis, observations) Employees jobsatisfaction and their organizational commitment can be effected bycompensation management. (Nawab and Bhatti ,2011).In their research attentionwas also drawn on the role of each component of financial & non-financialreward toward organizational commitment, which they can implement andincrease their practices to maximize the employees contribution and production.They also revealed in their research study that educational setups in Pakistannormally focus on increasing the productivity without paying attention towardcompensation and its significance. After highlighting the drawback they suggestedto concentrate over different compensation plans to increase or decrease the sizeof both financial and non-financial rewards to achieve the desired result fromworkforce.Strong evidences in literature are available about the positive and significantrelationship of compensation & reward with the employee behavior &organization performance (Chiu et al.,2002 cited in khan,2010). In research on oil 8
  • 9. & gas industry of Pakistan (khan 2010) in empirical studies concluded that in fiveHRM practices compensation is also one that has visible impact on employeeperformances.A research on the effect of extrinsic&intrinsic compensation of employeesperformance was conducted in national bank of Pakistan taking as a special case.Initial data was collected by surveys &near 50 bank employees were interviewed.After finding results from regression it was concluded from the research that all ofthe extrinsic &intrinsic compensations used in NBP had positive relationship withemployees’ motivation & performance (Tahir et al;2011).(Caruth and Handlogten,2001) explained: “Employees are encouraged when theyare financially rewarded directly fasten to their performance”. From famous studyof HR practices, it was proved that compensation practices can affect directly orindirectly on the performance of employees and also affect the motivation levelof the employees (Huselid, 1995).It was concluded in research paper of ( Bowraetal; 2012) by (Teseema&Soeters ,2006) that positive correlation exist betweenemployees performance and compensation practices.A research was conducted about the impact of HR practices on employeeperceived performance, by (Bowra et al;2012) in Pakistan on banking sector. Forthe collection of data random sampling technique was used and 3 public & 19private banks were selected.The collection of data from the sample banks weredone in a research survey through a personally administered questionnaire Aftertesting different hypothesis, all the hypothesis were accepted. All the HR practices 9
  • 10. (compensation, promotion & performance evaluation) and employee perceivedperformance has positive and significant relationship in this study. The researchregression results showed that other two HR practices are significant butcompensation practice is not significant& contradicted with the previous studiesdone by (Baloch et al; 2010).it was suggested after research that compensationpractices should be redefined quickly in order to boost up employeesperformance.(Ahmad and Shezad, 2011) did a study on the impact of compensation, promotionand performance practices on the Azad Jammu and Kashmir. Authors concludedthat compensation has strong, helpful and encouraging impact on performance ofuniversity teachers of AJK. Compensation is the major part to control teachers.The more teachers are compensated reasonably the additional they will dobetter. On the other hand the performance and support practices wereunimportant with the performance of university teachers of AJK. The reason forthis is most promotion and act procedures are unclear and not properlyexperienced.In developed countries much attention is given on compensation practices inorganizations. A research was conducted at PT. Telkom Malang Regional OfficeIndonesia to investigate the financial & non- financial compensation effect usingdescriptive & inferential statistics method. It was found from the research the fiveindependent variables salaries, benefits, work environment, incentives, self-development have significant influence on employees’ performance (Prasetya&Kato, 2011) 10
  • 11. References 1) Armstrong M. (1999) Handbook of human resource management practice,7th edition ,430-5pp :Kogan page limited, London. 2) Bernadin .H.K.Kane,J.S.Ross S.,Spina, J.D.,andJonhson D.D. (1995). Performance appraisal design, Development and implementations’ in Handbook of Human. 3) Bowra Ahmed .Z, Sharif . B, Saeed . A &Niazi. K. M. 11 January, 2012.Impact of human resource practices on employee perceived performance, African Journal of Business Management, Vol. 6(1), pp. 323-332. 4) Bashir S.& K hattak H.R.(2008) Impact of Selected HR Practices on Perceived Employee Performance, a Study of Public Sector Employees in Pakistan. European Journal of Social Sciences – Volume 5, Number 4. 5) Chiu, R.K., Luk, V.W.M. and Tang, T.L. 2002. Retaining and Motivating Employees Compensation Preferences , Personnel Review, 31, pp. 402– 31.Hong Kong and China. 6) Frye M. B. (2004). Equity-based compensation for employees: firm performance and determinants. The Journal of Financial Research, 27(1), 31-54. 11
  • 12. 7) Gneezy, U. &Rustichini.A. (2000). Pay enough or don’t pay at all. Quarterly Journal of Economics, 115, 791–810.8) Ichniowski, C., Shaw, K. and Prennushi, G. (1997). The effects of human resource management practices on productivity: a study of steel finishing lines. The American Economic Review, 87(3), 291-313.7(1), 86–105.9) Khan M.A.2010. Effects of Human Resource Management Practices on Organizational Performance – An Empirical Study of Oil and Gas Industry in Pakistan. European Journal of Economics, Finance and Administrative Sciences, Issue 24.10) Monday R.E; Noe, 111 RM, Mills H.N. Sr.(1981) personnel: eso The Management of Human Resoure. Boston, Allyn and Bacon, Inc, O’ Halloran D.11) Khan Mohammad.A. (2010). European Journal of Economics, Finance and Administrative sciences. ISSN 1450-2275 issue 24© in Dhaka Export Processing Zone, Research.12) Marwat .Z.A, Qureshi.T.M &Ramay.M.I. Impact of human resource management (HRM) practices on employees performance.13) Nawab DR.S &Bhatti K.K. May 2011. Influence of Employee Compensation on Organizational Commitment and Job. International Journal of Business and Social Science, Vol. 2 ,No. 8. 12
  • 13. 14) Prof.RamayMuhammad I., Bilal .M. Employees’ performance and human resource management practices: A study of banking sector in Pakistan.15) PrasetyaArik& Kato .M. (July 2011). The Effect of Financial and Non- Financial Compensation to the Employee Performance. The 2Nd International Research Symposium in Service Management. Yogyakarta, INDONESIA.16) SS differences between American and Nigerian Managers Employed in the US MNCs in Nigeria?”, Academy of Business & Administrative Sciences, Briarcliffe College, Switzerland17) shahzad K. Bashir S. &Ramay M.I. (March 2008). Impact of HR Practices on Perceived Performance ofUniversity Teachers in Pakistan. International Review of Business ResearchPapers ,Vol. 4, No.2 , Pp.302-315.18) Samad, (2007), Assessing the Effects of Job Satisfaction and Psychological Contract on Organizational Commitment among Employees in Malaysian SMEs, The 4thSMES In A Global Economy Conference.19) Ahmad .S &Shehzad.K.(4th july 2011). African Journal of Business Management Vol 5(13).20) Singh K (2004). Impact of HR practices on perceived firm performance in India. Asia pacific Journal of Human Resources 42:3 301- 317.21) QuershiTahir .M, Akbar .A, Khan .M.A, Sheikh .A .R &Hijazi.T.(2010). African Journal of Business Management Vol. 4(7), pp. 1281-128. 13
  • 14. 22) Tessema, M.T., &Soeters, J.L.(2006). Challenges and prospects of HRM in developing countries.testing the HRM–performance link in the Eritrean civil service. International Journal of Human Resource Management.23) Tahir S. &kaleem.S. The Effects of Work Overload on the Employees’ Performance in relation to the Customer Satisfaction. A Case of Water & Power Development Authority. WAPDA, Attock, Pakistan24) Taljaard J.J. (2003).Improving job performance by using non- monetary reward systems to motivate low-skilled workers in the automotive component industry .submitted for the fulfillment of dgree.25) Tahir.J.A, Yousif bin Rosman, khan .A, Azam .K , AhmendSohaib .M, Sahoo .Z.M. September (2011).A Comparison of Intrinsic and Extrinsic Compensation. World Journal of Social Sciences, vol .1, no.4.Attock Pakistan.26) Wright .P .M., Gardner .T.M & Moynihan .L.M. (2003). The impact of HR practices on the performance of business units. Human Resource Management Journal, 13(3), 21-36.27) Zinghein.P.K. (2000). Rewarding scarce talent. In Burger L.A. and Berger D.R. 2000.The compensation handbook. A State of the art guide to compensation strategy and design, 4th editio , McGraw Hill, New York. 14