Compensation Impact On Employees Motivation Commerce Essay


This study focuses the currest issue of every organization & inviduals; "Compensation impacts on employees Motivation". The word motivation is a very powerful term and it has great importance not only for organizations but also for individuals. It boosts the energy in performing work or activity in an effective and positive manner. Here the main focus of my research is depending upon the motivation of employees because if employees are not motivated then it results in performance of organization. There are various factors or methods to motivate the employees but the most important that I believe in the current trend is compensation. It may be monetary or non-monetary. Hypothesis has made in order to find out whether compensation brings impact on employees motivation or not. The Pearson's correlation coefficient and regression equation also have performed to analyze covariance's and relationship among the variables.


Organizations want that their employees to work well according to rules and regulations that fits to their organization. But this can be possible when employees are satisfy, motivate and loyal to their job. Motivation is such a factor that covers all other factors, if employees are motivates then they will be loyal and satisfy. Sometimes organizations do not focus on the importance of motivation which creates disloyalty, and high turnover of employees. Motivation is one of the major challenges faced by many organizations. In previous era no such importance were given to the motivation but now the organizations are aware of the importance of motivation. Understanding that what factors motivate the employees is not an easy until & unless you don't identify the factors that influence employee to be motivated. Motivation is the energizer and mother of all actions. If the approach of motivation applies continuously, then it will be sure that every employee reaches to the goals. Motivation can be define as: "An umbrella concept encapsulating the psychological processes that direct, energize, and sustain human behavior". In current era the organizations focus on HR practice in order to increase their performance. Motivation helps the organization to boost their employee's morale, satisfaction and attitude toward the achievement of their organizational goals. There are several methods for the motivation of employees. Organizations believe that employees can be better motivated through compensation packages. Many firms hire experts to develop motivation programs and compensation packages for their employees.

2. Literature Review

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An organization builds and holds brilliant employees to utilize as a competitive weapon, and the employee's polish their own competitive frame. Task achievement rewards, Special achievement incentive rewards, at the spot bonuses and cash rewards play a dynamic role. In most of the organizations, stock-based incentive plans, are limited to only top executives. Today innovative ideas and plans should be designed in terms of monetary compensation remember that not all the plans motivate people. Reward is considered as base of any compensation program. A reward system could be of such a nature that hold and maintain organizations business goals and objectives. Rewards are considered the source of motivation. Achievement of employees, office and personal life balance and fun at workplace are also a source of motivation.Reward is also an important factor for the motivation of employees and the achievement of goals. It should be given on better performance which is meaningful and beneficial for the organization. It also increases employee morale and loyality towards the organization. These rewards have symbolic significance (John Tippet, 2009). They focus team or personnel accomplishment and marvelous role, giving employee respect creates memorable event. Appreciation to employees from management or administration could effect on motivation. Casual intuitive rewards are more than strengthening; which is incentive that every employee seeks to be motivate. The possibility to develop one's self is an extremely main foundation of motivation.

The compensation packages have a positive relationship with motivation. The features influence motivation and satisfactions that are effect by compensation and promotion (Reena & Shakil, 2009). Many people work in certain organization only because of salary or wages and they remain to work there because of compensation facilities. Hence they will be motivated to work over there (James H., 2007). There is a positive relation between compensation and motivation. It tells that compensation (pay) influence motivation of employees. One of the study proposed that the organization which provide admiring opportunities to become more attractive for the people and the employees of such organization are likely to continue work in such motivated environment organization. Impact and the art of motivation maintenance: The effects of contact with beneficiaries on persistence behavior (Marco Van Herpen, 2005). The interaction among Motivation, Job Satisfaction & Compensation is an imaginary framework in order to determine the impact of compensation on work motivation. Different behaviors of employees have discovered on variables of compensation (Jacques Igalens, 1999). From World War II till 1990s compensation research have a main concentration on pay.

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Organizations have different features they use different methods of motivation for each individual. Today organizations hired qualified managers who examine and evaluate motivation programs with great efficiency (Paul M. Biner, 1994). Motivation is such an activity that never be considered in isolation hence it is an activity that can be considered with in an organization and it is the only factor that keep an employee to remain in organization.

3. Research methodology

It is the basic structure of the study. This study has done in year 2011. The primary data has collected through participative survey. This research is qualitative and causal research for which a questionnaire has designed and the propose sample was 130 but 30 of them have dropped out due to the fake or incomplete information, the data have collected from 100 employees according to need of research objectives. The sample technique that i have used for research is Non Probability sampling. In non probability sampling method i have chosen Convenience sampling in which i have collected data through convenient places.

4. Hypothesis Testing

It is the most valuable part of the research in which I have to prove my research, which can be done on the basis of hypothesis testing. The primary data which I have collected has Cronbach's Alpha (α) = 0.756 which means data is 76% reliable. In the analysis of t-test and f-test the p must be less than 0.05 (i.e. P<0.05) which represents significance level. Two hypotheses have made H 1= Compensation impact on employees motivation and the second one null hypotheses H0 = Compensation does not impact on employees motivation.

Table 4.1: Results of Testing Hypothesis

Compensation Impacts on Motivation

Model 1

Constant α0

Coefficient β1



Adj. R2

F (P-Value)

Coefficient's P-value

H1 Results







57.384 (0.000)



5. Data analysis

The data that I have collected in terms of demographic variable are age and gender that have analyzed. According to analysis the employees having age 20-25 is 1%, 26-30 are 45%, 31-35 are 38%, 36-40 are 12% and above 40 are 4%. Age group has mode= 2 which means employees between the age of 26-30 are highly respondents and the mean is 2.73, the mean is the average of the data which describes the central location of the data, standard deviation is σ= 0.839, standard deviation indicates that the data points tend to be very close to the mean and the variance is σ2 = 0.704. It describes how far values lie from the mean. According to gender 50% are male respondents and 50% are female. In it mode is 1a which means that both the number of male and female are same. The employees having salary range 10000-15000 are highly respondents i.e. 38%, 15000-20000 are 12%, 20000-25000 are 17%, 25000-30000 are 10%, and above 30000 are 23%. The mean is 2.68, standard deviation σ= 1.607 and the variance σ2= 2.583. In every organization compensation is given to employees to motivate them. It may be monetary or non-monetary. 60% of respondents says that their organizations given them monetary compensation. On the other hand remaining 40% says that they get non-monetary compensation from their organization. Its calculated mode = 1. Hence the above analysis shows the higher rate of monetary compensation instead of non-monetary compensation.

Every organization has different types of monetary compensation that are given to employees in order to increase their motivation level. Different employees prefer different monetary compensation methods for their own motivation from which 44% suggest that they are motivated if high salary is given to them, 16% says that they prefer bonus system; 22 % prefers various benefits/allowances to be motivated while 18% prefer existence of pension system for their motivation. Hence its mode is 1 which indicates that employees having high salary are highly respondent among all. Compensation methods whether it is monetary or non-monetary, majority employees suggest that except attractive salary and reward; promotion is the best motivator. Its mode is 4 and 18% employees think that bonus is the best motivator, while incentives is 11%, benefits/allowance is 20% and promotion is 51%. Different allowances offered to employees in organization are highly respondent and they suggest that residence allowance is the most attractive allowance among all other allowances hence its mode is 4. Moreover, 19% respondent are attracted by education allowance, 27% by medical allowance, 12% by travel allowance, 28% by residence allowance and 14% by yearly holiday allowance. Similarly some organizations are likely to give only non-monetary compensation to their employees. Majority of the respondent prefer promotion as the best motivator among all methods. Their mode is 2 and the preference to rewards is 17% of non-monetary compensation, to promotion 50%, to festival presents 19% and availability to enjoy different entertainment events is 14%. The median of motivation is 4 and range= 4, it means that maximum employee are seems to be self motivated in the organization. First I have designed a model in which I have taken Motivation as a dependent variable and compensation have taken as an independent variable. As well as the Pearson's correlation coefficient and regression equation also has analyzed to covariances and relationship among the variables.

MTit = α0 + β1* COMit + εit ----- eq. (1) (Model 1)

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MT is Motivation and COM is Compensation. I have designed this model to know the compensation impact on employee's motivation.


This proposed research describes the compensation impact on Employees motivation. After analysis the conclusion is. (1) There is a positive relationship between Compensation and Motivation (2) the coefficient of motivation is high which shows that it has a strong positive relationship with compensation. (3) The independent variables can significantly explained variation. Where as R= 0.608 which is extremely correlated which predicts motivation extremely best, where R denotes multiple correlation coefficient and R square = 0.369 means 36.9% of the variation in compensation can be predicted by motivation and the adjusted R Square = 0.363, F1,98 = 57.384 and p = 0.000 represents the significance level which is less than 0.05 (p<0.05).

Motivation = 2.102 + 0.552Compensation ----- eq. (1)

However, the employees prefer monetary compensation (Pay) to be motivated on the other hand; employees suggest that in case of non-monetary compensation, promotion is the best motivator. Different allowances given to employees by organization, residence allowance are the most attractive allowance. Hence it can surely be says that employees are motivated through different ways of compensation because each individual possesses different needs, wants and values for their personal and social growth and development in the society.

The comments that I will like to present in order to motivate the employees through compensation. The motivation of employees must be deeply observe what actually they need and want from organization. For this purpose make discussions, conduct meetings and observe the attitude of employees. In order to have better results, ask employees that which compensation method they want for themselves. Organizations should give different compensation packages to a single employee at one time because in today's environment single compensation method do not motivate and benefit the employee's life. Performance based pay should be offered to employee's because its increase their morale towards the progress of organization. Involve employees in the decisions of organizations so that they will take more interest in their work.