IMPACT OF COMPENSATION ON EMPLOYEE PERFORMANCE: IN SHAUKAT

KHANAM MEMORIAL AND CANCER HOSPITAL, PAKISTAN

Introduction:
The impact of compensation on employees as well on an organization has become as
the leading research topic in the field of human resource management. The purpose of
this research study is to delineate the relationship of compensation system and
employees performance.
In exchange for job performance and commitment, an employer offers rewards to
employees. Satisfactory rewards and compensations potentially attract a quality work
force, maintain the satisfaction of existing employees, retain worthful human resources
and encourage them in the workplace. An appropriate proposition of reward and
compensation systems requires careful review of the labor market, careful analysis of
jobs, and a systematic study of pay structures.
Compensation can be of both intrinsic as well extrinsic compensation and extrinsic
reward further having monetary and non-monetary form. HR professionals may assess
their organization frequently to attract and retain talent, competent personnel and
remove poor talented. Performance responsibility becomes a firm capability when
employees realize that they must meet their performance expectations. When an HR
professional designs an employee’s performance appraisal form, it should reflect the
strategy the employee is attempting to accomplish and what specific actions the
employee should take to help accomplish the strategy. Rewards, both financial and
non-financial, then reinforce the strategy and enable the employee to receive clear and
definitive feedback on his performance.
The performance of employee’s possibly relying on their skills, knowledge and
competencies but most important their level of motivation toward jobs. Employees have
great skills and competencies and well motivated likely perform healthy (Carl F. Fey et
al. 1999). Compensation treat proficiency to successfully reward workers to jobs and
make an aggressive position via highly annoyed human. Compensation is fundamental
of effective management strategy which make enable uniform reward system
associated to organization and individual performance to enhance worker motivation,
retention, moral and to increase outcomes and productivity of their employees (Ahmad
Jamal Tahir et al., ). Ruth Wageman and George Baker (1997) argued that reward and
performance are interdependent and if compensation system not design well can affect
performance.

Literature Review :

According to ( Ermel & Bohl 1997; Guptill et al. 1999, Guy Pare et al. 2000) in last few
years recruitment, selection, attracting and retention of competent worker’s become a
big threat to enterprises. Most significant, slightly examined issue affecting
organizational is incentive structure which includes the supervision of peoples and
compensation policies. There are some features of an organizational incentive structure
that haven’t investigated by economists are pay structures like seniority-base pay
system, promotion-base system etc (George P. Baker 1998). There are different types
of HR practices could be investigated in relationship with performance of employee’s.
Khurram Shahzad et al. (2008) have studied three HR practices includes,
compensation, promotion and performance evaluation and perceived employee
performance.

Teseema & Soeters (2006) used eight HR in their research paper are recruitment and
selection practices, placement practices, training practices, compensation practices,
employee performance evaluation practices, promotion practices, grievance procedure
and pension or social security. While Huselid (1995) studied eleven HRM practices in
his study which are personnel selection, performance appraisal, incentive
compensation, job design, grievance procedures, information sharing, attitude
assessment, labormanagement participation, recruitment efforts, employee training and
promotion criteria. This study observes the relationship between compensation and
employee’s performance. The reason behind selecting compensation because
comparatively it have direct affect on economic earnings and social status of an
individual may be considered the major determinant of employee’s performance and at
the other hand Pakistan is a developing country with very low per capita income.

Michael C. Jensen and Kevin J. Murphy (1989) focus on pay for performance so they
argued that performance should be assess before as well after compensation expense.
Contract theory depict that worthful way of encouraging employees and retain
motivated & competent personnel is to pay them on their performances based pay and
employee invention is also base on pay-for-performance (Koichiro Onishi 2006). A
research conducted by Singh.K (2004) argued that employees could be aligning with
business strategy of an organization by compensation system.

If performance management system is put in such manner supported by firm

compensation system in result employees will exert extra effort to perform their duties
(Wright et al. 2003 & Zubair Aslam Marwat et al.). A research conducted by Simon
Burgess et al. (2001) argues that monetary rewards proposed pay for performance have
positive impact on employee’s performance and also have impact in recruitment and
retention of capable employee’s.

Seeking HR crisis in health sector in Africa and less motivated, shortage of health
worker’s and great absenteeism rate Friederike Paul (August,2009) conduct research
and he found that the reason for low performance is high workload, insufficient
institutional environment with the lack of monetary rewards and low salary. The way is
to motivate health worker and retain them to perform well and enhance quality health
care to pay them on performance based. The research conducted by (Khurram
Shahzad et al. 2008 & Zubair Aslam Marwat et al. 2006 ) regarding impact of HR
practices on employee’s performance in context of Pakistan. Their results were helpful
of our hypothesis that HR practice system effect employee outcomes.
H: Compensation has positive impact of employee’s performance

Theoretical Model:

INDEPENDE
NT DEPENDENT
VARIABLES VARIABLE

Compensation Employee’s
(Extrinsic) Performance

Research Methodology:

We have used the data from different sources i.e. Literature, survey using
questionnaire. The literature based on compensation, which include previous research
on compensation. While questionnaire based on questionnaire used by Shahzad,
Bashir & Ramay (2008) to some extent for measuring Impact of HR Practices on
Perceived Performance of University Teachers in Pakistan. The questionnaire contains
close ended questions. For empirical study we have selected Shaukat Khanam hospital
Lahore, Pakistan. A total of 50 questionnaires were distributed in which 35 received
back for analysis. The response was required on five point Tustan scales (0 = strongly
disagree, 4 = strongly agree).
 perfor
Comsat manc perform cost of perso
alary decisi ion My satisfie e_qu ance of informa living pay incent n pay
perf ons_p -perfor Rewa perform d_perfo alifica organiz tion increas pay struct ive focus perfor
COLA erf m rds ance rmance tions ation system e range ures plan pay ing

27 -.080 .038 .096 -.098 .068 .140 .043 -.172 .096 .058 .017 -.088 -.053 .238 -.127

71 .635 .819 .565 .558 .683 .402 .796 .302 .568 .728 .918 .600 .752 .150 .448

8 38 38 38 38 38 38 38 38 38 38 38 38 38 38 38

00 -.117 .152 .013 .063 .195 .191 -.281 .047 .075 -.013 -.076 -.163 .288 .003 -.151

000 .484 .363 .939 .706 .242 .252 .087 .781 .654 .939 .651 .327 .080 .986 .366

8 38 38 38 38 38 38 38 38 38 38 38 38 38 38 38

35 .061 -.353* .327* -.104 -.212 .083 -.241 -.437** .240 .206 .281 .248 .157 .218 .209
 perfor
Comsat manc perform cost of perso
alary decisi ion My satisfie e_qu ance of informa living pay incent n pay
perf ons_p -perfor Rewa perform d_perfo alifica organiz tion increas pay struct ive focus perfor
COLA erf m rds ance rmance tions ation system e range ures plan pay ing

27 -.080 .038 .096 -.098 .068 .140 .043 -.172 .096 .058 .017 -.088 -.053 .238 -.127

71 .635 .819 .565 .558 .683 .402 .796 .302 .568 .728 .918 .600 .752 .150 .448

8 38 38 38 38 38 38 38 38 38 38 38 38 38 38 38

00 -.117 .152 .013 .063 .195 .191 -.281 .047 .075 -.013 -.076 -.163 .288 .003 -.151

000 .484 .363 .939 .706 .242 .252 .087 .781 .654 .939 .651 .327 .080 .986 .366

8 38 38 38 38 38 38 38 38 38 38 38 38 38 38 38

35 .061 -.353* .327* -.104 -.212 .083 -.241 -.437** .240 .206 .281 .248 .157 .218 .209
Discussion
The correlation matrix indicates that Compensation Practices are strongly correlated
with employee’s performance in SHUAKAT KHANUM HOSPITAL Lahore. Pakistan is a
developing country with very low per capita income and compensation is a motivating
factor for employees and their performance also related to compensation and rewards.
These results all those organizations who are interested for High growth through
increasing employee participation must pay attention on Compensation not only on
extrinsic also on fringe compensation.

Limitations and suggestions for further research

Our study has three main limitations. The first one is the difficulty to investigate the
causality of the relationships. Consistent with the expectancy theory, motivation is
based on the expected value of the rewards (monetary compensation and promotions).
Motivation in turn is linked to performance. Performance in turn is an input parameter
into the performance measurement and evaluation system. The perception of the
compensation system will therefore consist of updated believes of how motivation
results in rewards.
The research site causes the second limitation. The research site was a single
organization. This leads to the limitation that we are unable to identify the practical
boundaries of this study and the possibility of generalizing the results.
The third limitation is related to the cost and time constraint, especially limitation of time
and data gathering. The impact of a compensation system on the performance of
employees depends for a large part on the importance of extrinsic motivation for total
motivation. Further research might also lead to an improved understanding of the
optimal balance between improving the monetary and nonmonetary compensation
system and also discretionary compensation.

Conclusion
The paper had concluded that Compensation management has a direct
relationship with employee motivation and performance. Extrinsic benefit plans plays a
delight role in perception of an employee towards its organization and its work. And
these factors play the role of satisfiers. Extrinsic compensation has a profound impact
upon an employee’s loyalty and an organization’s turn over. Extrinsic compensation
plays the role of motivators for the employees and associates them with their job and
organization. They feel important and consider their performance as organization
performance and image of organization as their own image.

Recommendations
From our conclusion it can be wisely recommended that hospital sector must
focus a lot upon the well being of its Human Resources. So that they can achieve a
competitive advantage through them and stand apart as well stand strong in such
hard times as in current global financial crisis. The paper recommends extrinsic
factors as the basis but intrinsic as the beauty as only the inner satisfaction can produce
optimum quality. This is an introductory and basic type of work on the
topic therefore it recommends more research on the topic including exploration of
different aspects of motivation and job satisfaction and the factors that are necessary to
determine there levels.
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support@davidmaister.com
A SURVEY ON IMPACT OF COMPENSATION ON EMPLOYEE’S PERFORMANCE

Dear Respondent!
We are the students of BBA (HRM) at COMSATS Institute of Information
Technology, Lahore Campus, and areconducting a research on ‘Impact of
Compensation on Employee’s Performance in Shaukat Khanam Hospital,
Lahore”. The questionnaire will be used for research which is a part of our
research work. The objective of this questionnaire is to find out relationship
between Compensation and employee performance in Shaukat Khanam Hospital,
Lahore. It should not take more than 15 minutes to fill the questionnaire as all of
questions just require you to tick appropriate answer. These questions pertain to
your experiences in your current job and organization. Your answer will be kept
 strictly confidential and will only be used for research purposes. Your name will
not be mentioned any where on the document so kindly give an impartial opinion
to make research successful. Your cooperation is highly appreciated. If you need
findings of this research please send a request to gul_engr@yahoo.com&
azee_006@hotmail.com
Thanks once again for your time and cooperation.

GUL RAHIM & ALAMZEB.

COMSATS

Please tick the appropriate answer.

1. Employee compensation is at the heart of the employment relationship.

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

2. Compensation decisions influence your ability to compete (attract and retain) for
Employees in the labor market.

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

3. Presence of attractive compensation system?

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4
 4. Presence of salary that reflects performance?

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

5. Presence of salary that encourages better performance?

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

6. Presence of salary that reflects standard of living?

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

7. These decisions affect employee attitudes and behaviors while working for your
Organization.

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

8. Compensation is closely tied to performance?

Strongly Disagree Neutral Agree Strongly
Disagree Agree
0 1 2 3 4

9. Rewards & compensation are related to the level of knowledge acquired by

employees?

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

10. My performance is better than that of my colleagues with similar qualifications.

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

11. I am satisfied with my performance because it is mostly good.

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

12. My performance is better than that of employees with similar qualifications in other
organization.

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

13. . The performance of my organization is better than that of other.

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

14. Having information system for reward and compensation?

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

15. Does your company give a cost of living increase?

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

16. The pay ranges in your current pay structure progress from one pay grade to the
next by a percentage difference.
Strongly Disagree Neutral Agree Strongly
Disagree Agree
0 1 2 3 4

17. Do you have separate pay structures in your organization, e.g., one for clerical,
one for technical etc.?
Strongly Disagree Neutral Agree Strongly
Disagree Agree
0 1 2 3 4

18. Does your company have a bonus or incentive plan?

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

19. Does your organization use market data for establishing the pay ranges for your
pay structure?

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

20. Is there an incentive in place for performing well?

Strongly Disagree Neutral Agree Strongly
Disagree Agree
0 1 2 3 4

21. Is there a guard against punishing good performance?(punishment for good

performance)

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

22. Is the employee’s performance measured?

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4

23. Is the measurement based on task performance?

Strongly Disagree Neutral Agree Strongly

Disagree Agree
0 1 2 3 4
Demographic Information

Age (Please Tick your age Group)

20-25 26-30 31-35 36-40 41-45 46-50 51-55 Above 56

Please Tick applicable gender

Male Female

Education (Please Tick your Education Group)

Matriculation Intermediate G graduation

Masters Diploma with Matric /Inter Other

Total years of Experience (Please Tick your Experience Group)

1-3 4-6 7-9 10-12 13-15 16-19 20 or above

Total years of Experience with this Organization (Please Tick your Experience
Group)
1-3 4-6 7-9 10-12 13-15 16-19 20 or above

Date____________ Designation_____________________
Department_____________________________________