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Multilevel Structural Equation Modeling For Evaluating


The Effectiveness Of Remuneration In ITS Surabaya
Farisca Susiani1, Bambang W. Otok2, Vita Ratnasari3
1
Magister Student at Department of Statistics, Institut Teknologi Sepuluh Nopember, Surabaya, Indonesia
2,3
Lecture at Department of Statistics, Institut Teknologi Sepuluh Nopember, Surabaya, Indonesia
fariscasu@gmail.com

AbstractIn recent years, remuneration had a warm conversation among researchers.


Remuneration has a goal to improve the performance of the state apparatus to become
more efficient, effective, and more prosperous. The aim of this paper is to estimate
multilevel structural equation modeling with latent variables to evaluating the
effectiveness of present remuneration for administrative staff in ITS Surabaya.
Multilevel Structural Equation Modeling is a method that combines Structural
Equation Modeling and multilevel analysis simultaneously. The analysis is performed
using secondary data from the research Development and Indicator Specification of
Present Remuneration For Administrative staff in ITS Surabaya. The hypothesis
measure of the effectiveness of remuneration is a latent variable obtained by
performance with the demographic factor like gender and latest education
background. The opinion was expressed on a five ordered likert scale. The
effectiveness of remuneration used three indicators. The results based on 100
administrative staff from 10 subject area indicate that performance is causally
influence to the effectiveness of remuneration in individual level. While in activity
level latest education background and gender are casually influence.

Keywords: multilevel analysis, structural equation modeling, remuneration

I. INTRODUCTION
In recent years, remuneration had a warm conversation among researchers. Remuneration is an
attempt to change the payroll system and a calculation based on the difficult of responsibility, risk, scope
of work and others, its can say the remuneration received some sort of reward for performance of a state
apparatus in accordance with the positions and functions held. Remuneration has a goal to improve the
performance of the state apparatus to become more efficient, effective, and more prosperous. The new
remuneration started in 2013 under PP No. 88. While ITS will be start the implementation of
remuneration in 2014. To explain the perception of the remuneration policy that has been applied in an
organization requires research involving variable role in the level of group or activity unit other than the
individual level.
The next problem is remuneration cannot be measured directly, so we need a capable method of
solving these problems. Multilevel Structural Equation Modeling (MSEM) is a method that combines
Structural Equation Modeling (SEM) and multilevel analysis simultaneously [1]. MSEM allows
researchers to simultaneously test and estimate the relationship between exogenous and endogenous with
many indicators in the clustered data where the lower levels will nest in the unit with the higher levels.
The analysis is performed using a two-level structural equation model with latent variables, where the
effectiveness of remuneration in individual are considered as first level units and effectiveness of
remuneration in subject area as second level units. The choice of a two-level analysis is justified to
explain the nested data structure and to analyze in a single statistical model variables measured at
different levels. In this case, individual levels are clustered in subject area and if they share unobserved
factors it may expect related values of the response variables. As a result, observations may not be
independent and identically distributed. In this case, a two level analysis allows to get accurate parameters
and standard errors estimates and to explain the variability associated with each level. The analysis is
limited to only two levels because we consider that the main effects on effectiveness of remuneration in
individual level are exercised by the units to the next higher level.

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II. MULTILEVEL STRUCTURAL EQUATION MODELING


Multilevel Structural Equation Modeling (MSEM) is an advanced SEM technique developed for
multilevel research. MSEM can be applied to a wide range of applications that involve multilevel
multivariate data, including multilevel factor analysis and multilevel path analysis models [1]. Multilevel
data also called hierarchical data is the data which consist of the unit s observed nested or grouped on the
higher level unit [2]. This approach formulates decomposition models for the individual (within) level and
cluster (between) level. When the dependent variable are not normally distributed, for example ordered
polytomous, ordinal categorical, binary or censored variables, multilevel model can be estimated with
limited-information weighted least square [3].

A. Model Specification
Let y pij be the pth observed dependent variable, p 1,2,..., P , for individual i , i 1,2,..., N j , in cluster
j 1,2,..., C , where N j is the number of individuals in cluster j . Let xwqij be the qth observed individual

predictor variable, q 1,2,..., Q1 , for individual i in cluster j and xbqj be the qth observed cluster level
predictor variable, q 1,2,..., Q2 , observed for cluster j . To construct the latent variable model by defining
y*pij
an underlying normally distributed latent variable . If the pth variable is normally distributed then
y*pij y pij
. If the pth variable is categorical, for a set of parameters pk [3].
y pij k pk y*pij pk 1
(1)
The two-level model is constructed as [4].
y *pij y wpij ybpj
(2)

where ywpij and ybpj are normally distributed independent latent variables. Two separate latent variable
models are defined for ywpij and ybpj . Suppose that wmij are normally distributed latent variables defined
on the individual level, m 1,2,..., M1 and are normally distributed latent variables defined on the cluster
level, m 1,2,..., M 2 . The vector variables defined as ywij yw1ij , yw2ij ,..., ywPij and similarly ybj , wij ,
bj xwij
, , and xbj . The structural model on the within level is given by (3-4) and on the between level is
given by (5-6).
y wij w wij wij
(3)
wij Bw wij w xwij wij
(4)
ybj b bbj bj
(5)
bj b Bbbj b xbj bj
(6)
where the vector and matrix parameters w , w , Bw , b , b , Bb , b , b as well as the thresholds

parameters are to be estimated. The residual matrices wij , wij , bj and bj are independent and normally
distributed with zero mean. Their respective covariances are denoted by w , w , b and b . In order to
obtain identification, the variance of is fixed at 1 if the pth variable is categorical [4].

B. Sample Estimates
The data is expressed as saturated model. It contains no latent constructs wij or bj , and full
covariance matrices are fitted for the within and the between level variables. The thresholds of categorical
variables have the same construction as in (1) and the underlying latent is defined as in the structural model
specified in (2).
y pij k t pk y*pij t pk 1
(7)
The structural part of the model is defined by
ywij w xwij wij
(8)

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ybj b b xbj bj
(9)

The residual vectors wij and bj are assumed normally distributed with 0 means and covariance matrices
w and b , respectively. For identification purposes, if the pth variable is categorical, the variance of
wpij
is fixed at 1 and the mean parameter pb is fixed at 0.
The parameters in (8) and (9) are estimated in two stages. The first stage is for the estimation of
t
univariate parameters: the between means bp , the thresholds pk , the coefficients wpq and bpq , and

the diagonal elements of the residual covariance matrix, wpp and bpp . At the second stage, the
covariances of residuals, that is, the off-diagonal elements of w and b are estimated with bivariate

likelihood methods, given the univariate estimates [4].

C. Structural Model Estimation


In the third stage of the two-level weighted least square estimation, the structural or restricted model
parameters are estimated. Notice that the structural model (1-6) can be viewed as a restricted model nested
within the unrestricted (7-9). The threshold estimation and multilevel structure define by [3].
y pij k t *pk y*pij t *pk 1
(10)
ywij w* xwij wij
(11)
ybj b* b* xbj bj
(12)
*
where the covariance matrix wij and bj are w* and b respectively. The index * refers to a further
decomposition which includes the parameters to be estimated. The merged form of the structural model (4)
and (6) are.
ywij w w 1 w xwij wij wij
(13)
ybj b b b 1
b b xbj bj bj (14)
First, the equations are solved in terms of the unstandardized (denoted by **) estimates, The
unstandardized estimates implied by (1-6) are.
w** Covw w w 1 w w 1T Tw w (15)
b** Covb b b 1 b b 1T Tb b
(16)
w** w w 1 w (17)
b** b b 1 b
(18)
b** b b b b 1
(19)
Let w be a p-dimensional diagonal matrix with 1 on diagonal if the p-entry is not categorical and
1 / wpp
**
if the variable is categorical. Similarly, let b be a p-dimensional vector with as the p-th entry 0
**
if p-th variable is not categorical and bp if the p-th variable is categorical. To obtain the standardized
estimates of the thresholds as well as the parameters in (15-19) the following definitions apply.
w* w w**w (20)
b* w b**w
(21)
w* w w** (22)
b* w b**
(23)
w* w b** b
(24)

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t *pk w pk b
(25)
Finally the standardized estimates are united as * in the same order as the unrestricted estimates in s .
The weighted fit function is the following
F s * W 1 s * T (26)
Minimizing the fit function with respect to the parameters of model (1-6) is the last stage of the estimation
process. The weighted least square estimates are the parameter estimates that minimize F [3].

III. RESEARCH METHODHOLOGY


The analysis is performed using secondary data from the research Development and Indicator
Specification of Present Remuneration For Administrative Staff in ITS Surabaya. The effectiveness of
remuneration is influenced by a number of variables, some of which are directly measurable usually call
manifest variables, others are not directly measurable or latent variables. Some of researcher have had
research about the relationship between the effectiveness of remuneration with performance. We used
variables based on previous research [5]. We only used 3 manifest variables with a highest loading factor
value for each latent variable. A total of 4 latent variables, 15 observed response variables and 2 observed
explanatory variables are used. The latent variables are.

TABEL 1. THE OBSERVED RESPONSE VARIABLES


Remuneration
y1 Remuneration based on workload ( grade / rank) carried
y2 For jobs that require knowledge, skills and responsibilities are higher than other, have a higher remuneration
y3 Income which is equivalent with private business making me feel stand working as a administrative staff in ITS
Performance
y4 I'm trying to be conscientious in completing tasks
y5 I complete the work in accordance with the specified SOP
y6 I tried to finish the work on time
Motivation
y7 I make every effort to overcome every obstacle I faced
y8 I do not postpone a work given to me
y9 I'm always trying to improve performance over time
Characteristic of Subject Area
y10 I felt that I could have a good career at where I work now
y11 I love my job in a field that I do now
y12 I feel comfortable working in ITS Surabaya
Training Transfer
y13 My logical reasoning power has increased after training
y14 By training, I more easily understand the new tasks given to me
y15 After training , I always do a job with full consideration

Meanwhile the observed explanatory variables are % of respondent who have latest educational
background under diploma as x1 and % of respondent who a man as x2. The variables from y1 to y15 are
evaluated on a 5 ordered points scale ranging from 1 = "strongly disagree" to 5 = "strongly agree".
Moreover note that the latent variable "Effectiveness of remuneration" is the only variable measured for the
first level units and for the second level units (subject area). The hypothesized relationship between the
latent variable effectiveness of remuneration, the observed indicators (measurement model), and other
latent variables is defined by Figure 1.

IV. RESULT ANALYSIS


In this paper we used data from the result of the policy research survey conducted at ITS regarding the
instruments of administrative staff performance which is titled Development and Indicator Specification
of Present Remuneration For Administrative Staff in ITS Surabaya. The survey population consisted of
698 administrative staff who get a remuneration while the respondents were 100 (14,33%) from 10 subject
area using simple random sampling and proportional sample allocation. The data have a multilevel
structure, with administrative staff nested within subject area. Of that 64% of the respondents who
participated in the survey were man, 36% were woman. According to their latest background, 38% of the
participant were have latest educational background as senior high school degree; 13% at diploma degree;
46% at bachelor degree; and 3% at magister degree.
Multilevel structural equation modeling is comprised of both measurement model and structural model.
The multilevel measurement model, which is a multilevel confirmatory factor model, specifies how the

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latent factors are measured by the observed variables. The multilevel structural model contains the
relationships between the latent factors [6]. The analysis is performed using a two-level structural equation
model with latent variables, where the effectiveness of remuneration in individual are considered as first
level units and effectiveness of remuneration in subject area as second level units.
The analysis is estimated using software Mplus 7.11 developed by Muthen, using the limited-
information weighted least squares estimator indicated with "WLSMV". The analysis of the two-level data
structure is firstly performed computing the intraclass correlation coefficient (ICC) for each indicator of the
endogenous latent variable the effectiveness of remuneration. The ICC values for these 3 indicators ranged
from 0.000 to 0.107. The results show a small level of association of the observed responses within each
subject area. As a consequence, the proportion of variability due to the cluster level is very low.
The next step is analysis of the measurement model to specifies how the latent factor are measured by
the observed variables. The measurement models show that the endogenous latent variable effectiveness of
remuneration well measured by their respective indicators, for individual level. But in the higher level it
seem that effectiveness of remuneration have a weak measured by their respective indicators. The
measurement models seem significant also for the other latent variables, performance, motivation,
characteristic of subject area and training transfer.

Between (subject area)

Within (Individual)

FIGURE 1. MULTILEVEL MODEL FOR EVALUATING THE EFFECTIVENESS OF REMUNERATION

In the third step, multilevel structural model was estimated both within (first) and between (second)
level. The relationship between the latent variable at first level unit show that performance have a
significant and positive direct effect on the endogenous latent variable, the effectiveness of remuneration.
The direct effect of motivation and characteristic of subject area on effectiveness of remuneration is
significant and positive. While the direct effect of training transfer on effectiveness of remuneration have a
weak relationship and negative direct effect. As a result motivation and characteristics of subject area exert
an indirect effect on the external effectiveness trough the performance. The indirect effect of the motivation
on the effectiveness of remuneration is given by the product of the direct effects of the motivation on the
performance and of the performance on the effectiveness of remuneration. Similarly, the indirect effect of
the characteristic of subject area and training transfer on the effectiveness of remuneration. The analysis of
the effects of the explanatory variables on the latent variable the effectiveness of remuneration in second
level unit (subject area unit) have a weak influence and positive direct effect.

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The last step, multilevel structural equation modeling must be evaluating with goodness of fit (fit
indices). The model fit indices are acceptable. The MSEM fitted the data reasonably well with, CFI=
1,000, TLI= 1,009, and especially RMSEA= 0,000. The fit indices at this step show that hypothesis model
has substantially stronger fit. The result of relationships is depicted graphically which distinguishes the
within groups model (level 1), represented in the lower area of the diagram, from the between groups
model (level 2), represented in the upper area of the diagram (Figure 1). The significant or strong
relationships are represented with bold arrows (p<0.10). Weak relationships are represented with gray
arrows.

V. CONCLUSION AND DISCUSSION


Institut Teknologi Sepuluh Nopember (ITS) Surabaya which was originally the Public Service
Organization now is the State University of Law Firm which organizes state-owned
and responsible for higher education in various disciplines around technology. ITS
will start the implementation of the remuneration in the year 2014. If the
remuneration program is perceived as fair and appropriate by the administrative
staff , then the institution will be easier knowing potential administrative staff,
maintain and motivate administrative staff to improve its performance so that
institutions are able to produce a quality product on ultimately lead to the
achievement of the vision ITS . So its necessary to evaluate the effectiveness of the
remuneration for administrative staff.
The hypothesis measure of the effectiveness of remuneration is a latent variable
obtained by evaluating performance with demographic factor like gender and latest
education background. This model explains the effectiveness of remuneration
taking into account the complex data structure where the individual are the first
level units and the subject area the second level units. Cause organizations are
naturally multilevel system. Individuals are nested within subject area, and they are
respectively at different hierarchical levels.
The first level relationship highlights the crucial role played by the performance
on the effectiveness of remuneration. Administrative staff strongly agree if higher
performance have a higher remuneration too. On the performance have a direct
effect with the motivation, the characteristic of subject area and training transfer.
The motivation, the characteristic of subject area and training transfer have also an
indirect effect on the effectiveness of remuneration through the performance.
The second level relationships show that % administrative staff who have a man
gender and % administrative staff who have latest educational background under
diploma have an influence on opinion respondent to the effectiveness of
remuneration. The hypothesis model has a few limitation, some of these are
attributable to the analysis method, the others to the available data. For the next
step researcher can use much more data and variable. Cause in second level
relationship between the effectiveness of remuneration and explanatory variables
are weak. Even with this lack research, there is a belief that these results can be of
some use in the policy determined and management of the stack holder in ITS
Surabaya.

ACKNOWLEDGMENT
This research paper is made possible through the help and support from everyone. Specially thanks to
all the employment in ITS Surabaya for the cooperation regarding research data.

REFERENCES

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February 2014.
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Square, Post Graduate-Thesis, Institut Teknologi Sepuluh Nopember, unpublished.

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[3] T. Asparouhov and B. Muthen, Computationally Efficient Estimation of Multilevel High-Dimensional Latent Variable
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[4] T. Pasanen, Two-Level Structural Equation Modeling with Non-normal Observed Variables for Assesing Poverty in Laos,
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