CHAPTER II

REVIEW OF RELATED LITERATURE

This section of the Review of Related Literature contains various news,

articles, research studies, journals, and theories, all local and foreign.

The Role of Attractive Salaries and Compensation

(Azar & Shafighi, 2013) emphasize that attractive salaries and

compensation packages are valuable tools for enhancing employee

performance and increasing organizational productivity. One of the most

significant motivating forces since we have been informed from the beginning of

time that we will eat from our sweat. The primary motivation for taking up a paid

position is the ability to support oneself through a paycheck or wage.

Reasonable Salaries must be paid promptly as well as on time, or as at the time

they are due. The instrument used for collecting data from the respondents is

the questionnaire, and the data gathered from the respondent was analyzed

using percentage analysis. They argue that salaries serve as a significant

motivating factor, driving employees to excel in their roles. The importance of

timely and reasonable salary payments is highlighted as a fundamental aspect

of employee motivation and performance improvement. The findings revealed

that salary increase has significant impact on employee effectiveness, employee

teamwork and employee creativity in Adamawa State University, Mubi. In

addition, this study also shows that employees are very capable of developing

new ideas if given high salary.

Compensation and Employee Performance in Different Settings

According to Kim and Jang (2019), compensation influences employee

behavior as well as organizational functioning, and has a substantial influence

on employee performance. However, to date, limited efforts have been made to

understand the effects of compensation on the restaurant industry. The

restaurant industry is heavily dependent on its employees to generate profit, and

the employees are a necessary resource for achieving inimitable

competitiveness. Exploring the nuances of compensation within this sector is

crucial for comprehending its impact on employee satisfaction, turnover rates,

and ultimately, the industry's overall success and sustainability. The study

emphasizes the need to understand the nuances of compensation's impact on

factors such as employee satisfaction and turnover rates within this industry

In accordance with Kadir (2019), taking care the welfare of the

employee is very important in order to ensure them to hard work in achieve the

organizational goal. The study's objective is to identify the impact of pay and

perks on employee performance. The first and foremost, this study's goal is to

gauge employee performance. The second goal of this study is to investigate

the connection between compensation and advantages for improving staff

performance and to determine the impact of the compensation. Lastly, to find

the key advantages for improving staff performance. This study was conducted

at Sunway Colleges. 100 questionnaires were distributed as part of the survey

research approach utilized in this study. Among the 100 lectures from Sunway

Colleges, Malaysia that make up the sample's population of lectures, 80 people

responded. The gathered information was examined and interpreted. It shows

that there is a positive correlation between compensation and employee

performance. Moreover, this concludes that provided the compensation and

benefits towards employee such as remuneration, allowance, promotion and

incentive can lead to high level of performance. The study reveals a positive

correlation between compensation and employee performance, underlining the

significance of factors like remuneration, allowances, promotions, and

incentives.

Meanwhile according to Sharma and Bajpai (2010), employees are

regarded as committed to an organization if they willingly continue their

association with the organization and devote considerable effort to achieving

organizational goals. This study highlights the connection between

compensation, commitment, and job satisfaction. This study was conducted

using 100 survey questionnaires. The high levels of effort exerted by employees

with high levels of organizational commitment would lead to higher levels of

performance and effectiveness of both the individual and the organizational

levels. Employee commitment is a feeling of dedication to one’s employing

organization, willingness to work hard for that employer, and the intent to remain
with that organizational attachment of the individual to the organization (Udu

&Ameh, 2016).

Compensation and Nonprofit Organizations

The study of Wenli Yan and Margaret F. Sloan (2016) delves on the

intricate interplay between employee compensation and organizational financial

performance. Specifically, it investigates the influence of employee

compensation exceeding the median level on nonprofit donations and whether

this influence is contingent upon the financial performance of the organization.

Utilizing recent panel data encompassing 10,206 nonprofit organizations with

various tax designations, the research tests its hypotheses using Tobit

maximum likelihood estimation. This estimation incorporates variables such as

employee compensation, financial performance, financial capacity, and controls

for state-specific factors and nonprofit types. The findings of the study

demonstrate that when employee compensation exceeds the median level, it

tends to have an adverse impact on overall donations. However, this negative

effect is mitigated in organizations that exhibit strong financial performance. The

research underscores the interconnected relationship between an organization's

financial performance and its employee compensation in terms of the resources

obtained through donations. This study directly addresses the internal capacity

of organizations to generate private revenue and adds depth to the ongoing

discussions surrounding the appropriate level of compensation for effective

leadership within nonprofit organizations.

Motivation and Compensation

Human resources are the greatest asset any organization can have and

should be given the highest priority (Calvin 2017). Organizations must adapt to

the dynamic and competitive business environment in which they operate.

Currently, the most valuable asset of every firm is its people, and it is necessary

to motivate employees in order to achieve efficient and effective results from

their work. This study explores the impact of remuneration on employee's

performance. In order to get the results, the researcher conducted a study using

the Pearson Correlation and multiple regression model to analyze the data. As a

result, this study shows that renumeration serves as a motivation on employee's

performance. The result also revealed that there is a positive and significant

relationship between remuneration and employee’s performance which

reinforces the reinforcement and expectancy theory of remuneration especially

the concept of Thorndike's Law of Effect meaning a response followed by a

reward is more likely to recur in the future.

Compensation in Small and Medium Enterprises (SMEs)

The study by Pamela Resurreccion (2012), conducted in the Philippines,

examines the challenges confronting Filipino-owned small and medium

enterprises (SMEs) amid globalization and increased competition from foreign

multinational companies. It explores the implementation of performance

management and compensation practices in these SMEs and their impact on

organizational competitiveness. The research reveals that human resource

management practices, particularly those related to performance management

and compensation, including employee benefits, significantly predict

organizational competitiveness. This indicates a growing recognition among

Filipino-owned companies of the importance of flexible and motivating employee

benefit packages. The study surveyed 30 Filipino-owned SMEs across different

industries and regions, using a questionnaire based on the Hewitt Associates

Best Employer model. Reliability analysis confirmed the questionnaire's validity.

Likert scales measured performance management, compensation practices,

and organizational competitiveness. Key recommendations from the study

include focusing on flexible and attractive employee benefits, implementing 360-

degree feedback in performance evaluations, and exploring profit-sharing

schemes. The study also suggests further research on the impact of various

human resource practices and a comparison between highly competitive and

less competitive firms based on HR practices. In summary, this study sheds

light on the evolving landscape of Filipino-owned SMEs, emphasizing the

strategic role of human resource management in enhancing organizational

competitiveness. Its findings offer valuable guidance to businesses seeking

success in a competitive global environment.

The Multi-Factor Nature of Employee Performance

 Organizational performance contribution. The individual employee’s

performance can be caused by many factors, not a single factor. Often time the

top management makes a mistake to conclude that individual employee’s

performance is caused by salaries and benefits and therefore, it often focuses

on how to improve salaries and benefits (Abun, et.al. 2020). These findings may

somehow lead us to make a generalized and wrong conclusion that monetary

reward is all that matters in managing the performance of employees. Other

studies have proven otherwise that monetary reward is not the only factor that

influences individual employee’s performance. Premuzic (2013) made a review

of several pieces of research related to the effect of salaries and benefits to the

performance of employees. His review concluded that pay alone.is not sufficient

to improve the job performance of employees though many still believe that

monetary reward is the most important value in boosting employees’

performance. The study adopted the descriptive assessment and correlational

research design to assess the level of organizational climate and its effect on

the work engagement of employees. The data was gathered through validated

research questionnaires and in tabulating and interpreting the data, weighted

mean and Pearson were used. The study found that there is a correlation

between employee treatment and work engagement of employees and therefore

the hypothesis of the study was accepted.

synthesis
 The references provided offer a diverse range of perspectives and

findings on the relationship between employee compensation and organizational

performance. These studies collectively contribute to a comprehensive

understanding of the complex interplay between compensation practices,

employee motivation, and organizational success. This section presents a

synthesis of the literature related to employee compensation and its impact on

organizational performance. The literature encompasses various studies,

research papers, articles, and theories from both local and foreign sources. The

following synthesis summarizes the key findings and themes across these

diverse studies:

1. **The Role of Attractive Salaries and Compensation**:

- Azar & Shafighi (2013) emphasize that attractive salaries and

compensation packages serve as valuable tools for enhancing employee

performance and increasing organizational productivity. They suggest that

timely and reasonable salary payments are fundamental for motivating

employees.

2. **Compensation and Employee Performance in Different Settings**:

- Kadir (2019) explores the importance of employee welfare and

compensation's impact on performance, highlighting the positive correlation

between compensation and employee performance.

- Kim and Jang (2019) underline the influence of compensation on

employee behavior and organizational functioning, emphasizing the need to

understand compensation's effects on employee satisfaction and turnover rates.

 - Sharma and Bajpai (2010) focus on the connection between

compensation and employee commitment, suggesting that committed

employees are more likely to exert higher effort, leading to improved

performance.

3. **Compensation in Nonprofit Organizations**:

- Yan and Sloan (2016) investigate the complex relationship between

employee compensation and nonprofit organizations' financial performance.

They find that excessive compensation can negatively impact donations but

may be mitigated by strong financial performance.

4. **Motivation and Compensation**:

- Calvin (2017) explores the motivational aspect of compensation,

indicating that remuneration can serve as a motivation for employees. The study

also reveals a positive and significant relationship between remuneration and

employee performance.

5. **Compensation in Small and Medium Enterprises (SMEs)**:

- Resurreccion's (2012) study focuses on Filipino-owned SMEs,

highlighting the role of performance management and compensation practices

in enhancing organizational competitiveness. The findings emphasize the

importance of flexible and motivating employee benefit packages.

6. **Multi-Factor Nature of Employee Performance**:

 - Abun et al. (2020) challenge the idea that monetary rewards are the

sole factors influencing employee performance. Their research indicates that

employee performance is influenced by multiple factors, not just salaries and

benefits.

7. **Theoretical Frameworks**:

- Several studies draw upon psychological theories such as

reinforcement theory and expectancy theory to explain the motivational aspects

of compensation.

In summary, the reviewed literature collectively underscores the

significance of compensation practices in motivating employees, enhancing

commitment, and ultimately influencing organizational performance. It highlights

the need for organizations to consider various compensation elements, beyond

just salaries, to maximize employee performance. These findings contribute to a

comprehensive understanding of how compensation impacts organizational

success.
 REFERENCES

Abun (2020), Employee Treatment and Work Engagement: The Philippines

Context. Doi: ff10.37896/PJ11.10/017ff.

Adibah Abdul Kadir et al. (2019). The Effect of Compensation and Benefits
Towards Employee Performance. DOI: 10.4108/eai.30-7-2019.2287551

Calvin (2017). The Impact of Remuneration on Employees' Performance (A

Study of Abdul Gusau Polytechnic, Talata-Mafara and State College of
Education Maru, Zamfara State).

Kim, H. S., & Jang, S. S. (2019). Minimum wage increase and firm productivity:
Evidence from the restaurant industry. Tourism Management, 71, 378–
388.

John Ldama (2012). Salary Increase and its impacts on Employee Performance
in Adamawa State University Mubi.

Resurreccion, P. F. (2012). Performance management and compensation as

drivers of organization competitiveness: The Philippine perspective.
International Journal of Business and Social Science, 3(21).
Sharma, J.P. & Bajpai, N. (2010). Organizational Commitment and its Impact on
Job Satisfaction of Employees. A Comparative Study in public and
private sector in India; Int. Bulletin of Bus. Admin.

Yan, W., & Sloan, M. F. (2016). The Impact of Employee Compensation and
Financial Performance on Nonprofit Organization Donations. The
American Review of Public Administration, 46(2), 243-258. DOI:
10.1177/0275074014554000.