MEKANE YESUS MANAGEMENT AND

LEADERSHIP COLLEGE (MY-MLC)

ASSESSMENT OF COMPENSATION PRACTICE AND

CHALLENGES: THE CASE OF ELECTRONICS EQUIPMENT
MANFACTURING INDUSTRY

A Thesis Submitted to Mekane Yesuse Management and Leadership

College in Partial Fulfillment of the Requirements for the Award of a
Master’s Degree in Business Administration.

By
Name:- Bezunesh Edao Id No: 31/14
Advisor
Major Advisor: Asfew Bekele (Ph.D.)

June, 2023
Addis Ababa, Ethiopia
 DECLARATION

I declare that the research entitled “assessment of compensation practice and challenges the case of
electronics equipment manufacturing industry” is my original work, prepared and all sources of
material used for the research have been duly acknowledged. This study has not been submitted for
any degree in any other university.

_________________________________ ___________ __________________

Name Sign Date

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 ENDORSEMENT

This is to certify that the thesis entitled “assessment of compensation practice and challenges the
case of electronics equipment manufacturing industry” undertaken by Bezunesh Edao Partial
fulfillment of the requirements for the degree of Master’s has been submitted to school of
postgraduate studies, department of business administration, mekane yesus semonary college for
examination with my approval as collage adviser.

___________________________ __________________ __________________

Advisor Sign Date

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 APPROVAL OF BOARD OF EXAMINERS
As member of the Board of examiner for open Defense examination, we certify that we have read
and evaluated the thesis prepared by Bezunesh Edeo and examined the candidate. We
recommended that the thesis can be accepted as fulfilling the thesis requirement for the degree of
Business Administration.

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Major advisor Signature Date

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Co-advisor Signature Date

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Internal examiner Signature Date

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External Examiner Signature Date

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Chairperson Signature Date

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 DEDICATION
This thesis is dedicated to my parents.
For their endless love, support and encouragement

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 ACKNOWLEDGMENTS

First and foremost I would like to thank God for lighting my way, granting me the strength,
courage, patience and inspirations in completing this study.

Second, I would like to express my warm gratitude to my advisor Asfew Bekele (Ph.D.) for his
guidance, consistent supports, valuable advice, personal encouragement, creative suggestions and
critical, unreserved constructive comments and for his being everlasting enthusiastic from the of
the study to produce my own original work.

Lastly, with no regard to the order, I would like to thank my Family, my close friends, and also my
classmates who took part in this research proposal one way or another.

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 TABLE CO CONTENTS
DECLARATION ................................................................................................................................ I
ENDORSEMENT .............................................................................................................................. II
APPROVAL OF BOARD OF EXAMINERS ................................................................................. III
DEDICATION ................................................................................................................................. IV
ACKNOWLEDGMENTS ................................................................................................................ V
TABLE CO CONTENTS ................................................................................................................ VI
LIST OF TABLE ............................................................................................................................. IX
LIST OF FIGURE............................................................................................................................. X
ACRONYMS & ABBREVIATION ................................................................................................ XI
ABSTRACT...................................................................................................................................... XII
CHAPTER ONE ................................................................................................................................ 1
INTRODUCTION ............................................................................................................................. 1
1.1 Back ground of the study .................................................................................................... 1
1.2 Background of the Organization ......................................................................................... 2
1.3 Statement of the Problem .................................................................................................... 4
1.4 Research Questions ............................................................................................................. 6
1.5 Objectives of the study ........................................................................................................ 6
1.5.1 General Objectives ....................................................................................................... 6
1.4.2 Specific Objectives ...................................................................................................... 6
1.6 Significance of the study ..................................................................................................... 6
1.7 Scope of the Study............................................................................................................... 7
1.8 Limitation of the Study ....................................................................................................... 7
1.9 Organization of the paper .................................................................................................... 7
1.10 Definition of Key Terms ..................................................................................................... 8
CHAPTER TWO ............................................................................................................................... 9
LITERATURE REVIEW .................................................................................................................. 9
2.1 Theoretical Literature .......................................................................................................... 9
2.1.1 Concept of Compensation ............................................................................................ 9
2.1.2 Types of Compensation ............................................................................................. 10
2.1.3 Compensation Management....................................................................................... 10

VI
 2.1.4 Implementation of compensation ............................................................................... 11
2.1.5 Components of a compensation system ..................................................................... 13
2.1.6 Compensation practice and performance ................................................................... 13
2.1.7 Challenges of implementing compensation ............................................................... 14
2.1.7.1 External Factors ......................................................................................................... 16
2.1.7.2 Internal Factors .......................................................................................................... 17
2.1.8 Objectives of Compensation ...................................................................................... 17
2.1.9 Compensation and employees’ satisfaction ............................................................... 18
2.2 Empirical Review ............................................................................................................ 19
2.3 Research Gap ................................................................................................................... 21
2.4 Conceptual Framework .................................................................................................. 21
CHAPTER THREE ......................................................................................................................... 22
RESEARCH DESIGN AND METHODOLOGY ........................................................................... 22
3.1 Research Design............................................................................................................... 22
3.2 Research Approach ......................................................................................................... 22
3.3 Research Techniques....................................................................................................... 23
3.4 Sample Design .................................................................................................................. 23
3.4.1 Population ........................................................................................................................ 23
3.4.2 Method of Sampling ........................................................................................................ 23
3.4.3 Sampling Size ................................................................................................................... 24
3.5 Type and Source of Data ................................................................................................ 25
3.5.1 Primary Data .............................................................................................................. 25
3.2.2. Secondary Data .......................................................................................................... 25
3.6 Data Gathering Tools ...................................................................................................... 25
3.7 Procedures of Data Collection ........................................................................................ 26
3.8 Methods of Data Analysis and Interpretation .............................................................. 26
3.9 Validity and Reliability ................................................................................................... 26
3.9.1 Validity ...................................................................................................................... 26
3.9.2 Reliability................................................................................................................... 27
3.10 Ethical consideration....................................................................................................... 27
CHAPTER FOUR ............................................................................................................................ 28

VII
DATA PRESENTATION, ANALYSIS AND DISCUSSIONS ..................................................... 28
4.1. Introduction ........................................................................................................................... 28
4.2 Back ground of the respondents ............................................................................................. 28
4.2.1. Demographic Characteristics of respondents ..................................................................... 28
4.3. Practice of Compensation...................................................................................................... 31
4.4. Kinds of compensations ........................................................................................................ 37
4.5. Challenges of Compensations Practice ................................................................................. 40
4.6. Respondents’ perception towards compensation .................................................................. 42
4.7 Multiple Regression Analysis ................................................................................................ 44
CHAPTER-FIVE ............................................................................................................................. 47
SUMMARY, CONCLUSIONS AND RECOMMENDATION ...................................................... 47
5.1 Summary ................................................................................................................................ 47
5.2. Conclusions ........................................................................................................................... 47
5.3. Recommendations ................................................................................................................. 49
Reference ......................................................................................................................................... 50
Appendix-1 ...................................................................................................................................... 53

VIII
 LIST OF TABLE

Table 3.1: Sample distribution ………………………………………………………………….…24

Table 4.1: Descriptive analysis of practice of compensation variables.....................................…...31

Table 4.2: Descriptive analysis of finance compensations………………………………………...37

Table 1.3: Descriptive analysis of non-finance compensation…………………………….………39

Table 4.4: Descriptive analysis of Challenges in Implementing Compensations……...…………40

Table 4.5: Descriptive analysis of respondents’ perception……………………………………….42

Table: 4.6 the multiple regression analysis………………………………………………….……..44

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 LIST OF FIGURE
Figure 2.1: Conceptual frame work……………………………………………………….……….21

Figure 4.1: Gender of Respondents………………………………………………………………..29

Figure 4.2: Age Bracket of Respondents…………………………………………………………..29

Figure 4.3: Education Level of Respondents…………………………………….…………….…..30

Figure 4.4: Work Experience of Respondents………………………………………..……………31

X
 ACRONYMS & ABBREVIATION

EEMI Electronics Equipment Manufacturing Industry.

SPSS Statistical package for the social science.

HRM Human resource management

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 ABSTRACT
The main objective of the study was to assess the practices and challenges of compensation in
electronics equipment manufacturing industry. The actual implementation of compensation, types
of compensation, challenges in implementing compensation and perception of employees towards
compensation practice were focused through the study. Finally, the relationship between
compensation practice and employees’ job performance was analyzed in the study. Mixed
research approach which was a combination of quantitative and qualitative research types was
used. Descriptive survey and explanatory design was utilized. 122 participants who have been
working electronics equipment manufacturing industry involved in the study. Stratified sampling
technique, random sampling techniques and purposive sampling techniques were utilized to select
the target participants. Semi- structured questionnaire and in-depth interview were employed for
gathering the research data. Descriptive statistics such as frequency, percentage, mean and
standard deviation analysis method was applied to the questionnaire data while the interview data
was presented via description and explanation with words. The findings of the study revealed that
compensation was poorly implemented in the study area although compensation was being tried to
offer employees. According to the study findings, finance compensation type was more used than
non-finance compensation by the target organization. Besides, limitation of finance resources in
the study area was found as a great problem for practicing compensation in the intended manner.
The study findings also indicate the employees didn’t feel good about the implementation of
compensation at their organization. Finally, it could be said that there was strong relationship
between compensation practice and employees’ performance. Consequently, it can be concluded
that firm is expected to apply compensation in order to attract and retain its employees in the
organization.

Key works: - practice, challenges, compensation,

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 CHAPTER ONE
INTRODUCTION

1.1 Back ground of the study

Both private and government organizations in the world are expected to have motivated and
alerted employees in order to enhance their production and profit. Here to have such kinds of
employees, owner of these organizations should apply compensation such as pay good salaries,
wages and other types of compensation With regard to companies, due to strong competition in the
industry and highly skilled man power they try to attract and retain employees by providing a
competent salary/wage structure and periodic salary increment (Armstrong, 2005).
Compensation is the process of providing adequate, equitable and fair remuneration to attract,
motivate and retain the employees; it includes job evaluation, wage and salary, incentives, social
security me bonus and fringe benefits, etc. The term compensation administration denotes the
process of managing a company’s compensation program. The goals of the compensation
administration are to design a cost effective pay structure that will attract, motivate and retain
competent employees. Thus, compensation administration aims to establish and maintain an
equitable labor cost structure. Compensation administration includes two terms, namely wages and
salaries. Wages and salaries are often used interchangeably (Brattin & Gold, 2007).

Pasimeni, (2018) conforms introducing a flexible compensation alternative that will be

communicated and renegotiated with employees will help a company to retain and attract
employees. As indicated above peoples choose companies that pay and provide an attractive salary
because the basic human necessity, the need for personal growth, better life and opportunity comes
from directly or indirectly compensation also companies’ stability, current and future operation are
affected by the salary/wage methods and systems they follow. A company who fails to provide a
fair and attractive compensation system is supposed to high employee turnover, employees’
demonization and low employees performance which finally lead to companies decline. The study
will have an a positive impact on the development of a competent pay structure, through an
assessment of employees current compensation satisfaction, labor market assessment, cost of

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living, the job and employees performance by analyzing methods of the company compensation
system.

There are different form of compensation that employees receive in return for their performance
and contribution towards the achievement of the goals and objective of the company.
Compensation has three components: the first is base compensation, it is a fixed pay an employee
receives on a regular base either in a form of salary or hourly wage. The second is pay incentive
which is a program designed to reward employees for their food performance. And the third is
indirect compensation, comprises a wide variety of program for example unemployment
compensation and health insurance (Welch, 2000).

Companies that pay attractive salaries have a positive influence on employees to deliver a quality
product or give an acceptable service because a well paid employees strives more to satisfy their
customers need. If an organization wants to encourage good customer service then it would make
sense to reward those who give good customer service .Compensation has a great impact at
enhancing individual mental satisfaction, security, confidence and creates a good mode. A person
that getting a good pay can fulfill his/her needs with the purchasing power from his payment which
results achieving responsibilities at personal and family level and going far to contribute beyond
personal expenses like helping others at social level. A person earning serve as an indicator of
power and prestige and are try to feeling of self-worth (Igemohia,Morka& Aliku,2020).

Many studies are conducted on employees compensation practice by looking on employees pay
satisfaction, future compensation increment, general economic condition, competitive industry
environment also incorporating job analysis and job evaluation through different methods.
Employees are highly satisfied and motivated by a good pay (Mwangi, 2014). As well, different
literatures confirm that compensation should be applied appropriately relying on certain frame
works which helps to practice the compensations.

1.2 Background of the Organization

The purposes, for which Ethioengineering Group is established, as per the Council of Ministers
Regulation No. 475/2020, are as follows:

By researching and analyzing the current and future demands ,manufacture high-tech products
,which facilitate production and service delivery ;accelerate technology transfer and thus help the
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rapid development of manufacturing industries ; create links with educational institutions and
work in partnership with local and international institutions in a manner that expand and enhance
technological capacity ; In view of contributing a positive impact on the Ethiopian socio-
economic development and potency in filling the market gap, produce, repair , renew and renovate
various capital and consumer goods and spare parts ; Design , build , trail production and testing
(commissioning) ,repair, overhaul and upgrade manufacturing or service delivery plants Sell
products and render services to local and international markets in conjunction with the provision of
post-sale services ; Contribute to the development of human resource in its sector by conducting
customized training and providing consultancy services , In line with policy guidelines and
directives issued by the Ministry of Finance, to sell and pledge bonds to negotiate and sign loan
agreements from local and international financial sources ; and Engage in other related activities
as are necessary for the attainment of its purposes.

Hi-Tech Industry (HTEI) was established as one of the companies under the Metals and
Engineering Corporation (METEC) in 2011. The company manufactures electronic,
electromechanical and Opto-electronic technology such as: the production and assembly of
communication radios (both for military and commercial purposes), radar systems, cell phones,
TVs, electromechanical devices such as energy meters, harmonic analyzers, optical devices such as
night vision devices, thermal imagers, and security cameras. HTEI currently focuses on
constructing opto-electronics and electro mechanical device manufacturing plants for different
scale enterprises and associations in favor of young manufacturers all over the country. It is
Located 40 km outside of Addis Ababa in the Legedadi area. Since 2020 Hi-Tech Engineering
Industry changes its name In to Electronics Equipment Manufacturing Industry when Ethio
Engineering established but the objective of the industry is almost similar to the previous except
military product is out of scope.

Vision of the company

 See the industry as a leading model in the field of HI- Tech Military and Commercial products
by designing, developing, assembling, customizing, manufacturing and integrating of high
precision electronics, optoelectronics electro mechanical products.

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Mission of the company
 Conducting design and development
 Creating national and industrial technology to be competent in the field electronics,
optoelectronics and electro mechanical.
 Make available products in a reasonable price and quality to domestic and international
market
 Bring in new technological achievements to the country
 Create Collaboration with different organizations and industry

1.3 Statement of the Problem

Many scholars confess that compensation has deep potential to motivate and to satisfy employees
who work in both government and private organizations. When these employees are more
motivated and more satisfied, they are able to indicate good performance (Mwangi, 2014). As a
result, the present researcher intends to assess the practice and challenges of compensation in Afar
water work construction enterprise.

Welch,(2000) claims that compensation could be applied based on employees’ education status,
job position, work experience and performance, tasks/jobs/ behavior, geographical area and
weather condition of working settings and etc. Considering these dimensions, different
compensations types can be employed for employees. Due to this, the current researcher is highly
interested to examine types of compensation which are being applied in the target study area.

Agyei,NtimAdjei and Mensah,(2017) conducted to find out the effect of compensation on basic
school teachers’ job satisfaction in Ghana. The findings of the study indicated that teachers had
negative perception about compensation practices of the services. It could also be concluded in the
study as compensation has highly correlated with teachers’ job satisfaction. However, these
researchers were not able to explore the challenges of practicing compensation for employees.
Here the present study will have identified the types of challenges for applying compensation.

Attiogbe and Quartey (2013) investigated the link between compensation packages and job
performance in the Ghana police service. The study findings revealed that personnel were
somehow satisfied with some of their compensation packages. Equitable and holistic compensation

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packages are more likely to attract, develop, motivate and retain qualified and competent
personnel.

Yamoah(2013) Sought to examine the relationship between compensation and productivity in

banking industry in Ghana. The findings of the study pointed out that there was a significant
relationship between compensation and productivity. In contrast to this study, the present study is
going to investigate the practice and challenges of compensation in afar water work construction
sectors in the head office which is found in Samara.

Dawianto,(2019) conducted to determine the effect of compensation on employees’ performance.

The result revealed that compensation has a contribution of influence of 50.83 % on employees’
performance while the remaining 49.17% is influenced by the other factors. The study also
approved that compensation is needed to help strengthen the organization’s key values and
facilitate the achievement of organizational goals.

Atakilt Haliform,(2020) studied in order to assess the impact of reward and compensation on
employees performance in private and public hospitals in Tigray. The result indicates that reward
and compensation would impact on employees’ performance in both private and public hospitals in
the study.

IGemohia, Morka and Aliku, (2020) conducted a study to examine the effect of compensation
management on employees performance in the manufacturing industry. The findings of the study
showed that salary and benefits programs have a significant relationship with employees’
performance in manufacturing industry.

The researcher has been working in the industry for a long time. She has observed that many
workers are complaining about their payments with comparing the working area. Another,
experience of the researcher was informing us compensation has still been offered in order to
attract certain employees to work in the organization.

As far as the researcher was concerned, there was no a study conducted to investigate the
relationship between compensation practice and employees performance. Therefore, the actual
implementation of compensation, types of compensation which was currently implemented,

5
challenges in implementing compensation and perception of employees to compensation were
investigated in the study partly in electronics equipment manufacturing industry

1.4 Research Questions

The Study focused to answer the following basic research questions:

1. To what extent, the compensation policies are implemented in Electronics Equipment

Manufacturing Industry?
2. What are the key component packages provided by Electronics Equipment Manufacturing
Industry?
3. What are the challenges of implementing compensation in the Electronics Equipment
Manufacturing Industry?
4. How do employees perceive compensation system in their organization?

1.5 Objectives of the study

1.5.1 General Objectives

The general objective of the study is to assessment of composition practice and challenges of
Electronics Equipment Manufacturing Industry.

1.4.2 Specific Objectives

1. To evaluate the implementation of compensation in the Electronics Equipment
Manufacturing Industry.
2. To sort out types of implemented compensation in Electronics Equipment Manufacturing
Industry.
3. To identify the challenges of implementing compensation in the Electronics Equipment
Manufacturing Industry.
4. To examine the perception of employees towards compensation system in the Electronics
Equipment Manufacturing Industry.

1.6 Significance of the study

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The study has a great importance for the Electronics Equipment Manufacturing Industry by finding
out employee’s basic need for compensation based on the current skill, experience and labor
market. The research will enhance the Electronics Equipment Manufacturing Industry awareness
about the methods used to determine and prepare salary structure and factors used to consider in
preparing compensation system.

1.7 Scope of the Study

The study focused on to assess the practice and challenges of compensation partly Electronics
Equipment Manufacturing Industry. In this study, the actual implementation of compensation,
types of compensation, challenges of compensation, employees’ perception and the most types of
compensation to influence on employees’ job satisfaction was intended to explore via the study.
All staff members in Electronics Equipment Manufacturing Industry were invited to be the main
participants of the study. Mixed research types of the study which was the combination of
qualitative and quantitative researches are planned to use. Both questionnaire and in-depth
interview were utilized to collect the research data.

1.8 Limitation of the Study

Although the researcher tried to design the research properly and manage the challenges in the
process of the study, however, there were some external variables that affect the study. Some of
those challenges the researcher were majority of the employees are busy b/c of the industry in the
manufacturing and difficult to accesses them and also lack of willingness from some respondents
to fill the questionnaire return it timely. The major difficulty was getting of top management,
because of tight schedule of meeting and field work. In addition lack of well-organized document
in the industry.

1.9 Organization of the paper

This study was organized with five chapters. The first chapter includes background of the study,
statement of the problem, research questions, objectives of the study, significance of the study;
scope the study and organization of the study. Related literature review is presented in chapter two.
Research methodology is included under chapter three. Data presentation and analysis have been
presented in chapter four. The last chapter five contains summary, conclusion and
recommendations briefly.
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 1.10 Definition of Key Terms

Qualification requirement: is knowledge, skill, or some other characteristic that gives a person
the ability or the right to do or have something:
Labour market: is the place where workers and employees interact with each other.
Salary: is a fixed amount of money paid to someone for the work the person is employed to do,
esp. the amount paid every month or year.

Internal equity: is a situation in which employees who do similar jobs within a company receive
similar salaries and the amount they are paid is related in a fair way to the type of job that they do:

Fairness: it is one of the fundamental objectives of pay system. Some scholars define it as
ensuring fair treatment and recognize personal and family well-being.
Equity: is achieved when people are rewarded appropriately in relation to others within the
organization.
Compliance of pay objective: refers the conformity of federal and state compensation laws and
regulations.
Descriptive Survey – It is a research method used to describe data and characteristics used to
describe the population. The information is collected without changing the environment
Job evaluation: is the process of comparing a job with other jobs in an organization and deciding
how much the person who is doing the job should be paid.
Job analysis: is a detailed examination of the tasks involved in a particular job and the skills,
knowledge, and experience needed to do it:
Profit margin: is the amount that is made in a business after the costs have been subtracted:

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 CHAPTER TWO
LITERATURE REVIEW
2.1 Theoretical Literature
2.1.1 Concept of Compensation

Compensation is a systematic approach to providing monetary value to employees in exchange for

work performed. Employee compensation may achieve several purposes in recruitment, job
performance and job satisfaction .It is the human resource management function that deals with
every type of reward individuals receive in exchange for performing organizational tasks .It is
considered the major cost incurred by a business organization (Ivancevich, 2006).

However, today the human resource is considered as human capital and compensation hence is not
cost but rather investment (Armstrong, 2010). Heathfield, (2012) defines compensation as a fixed
amount of money paid to an employee by an employer in exchange for a productive work
performed. Thus, if individuals believe they are not compensated well, a state of emotional
dissatisfaction develops. This is because people trade labor and loyalty for financial and non-
financial compensation with business organization. Thus, poor compensation management may
lead to absenteeism, turnover, job dissatisfaction, psychological withdrawal, poor mental health
and so on. An ideal compensation strategy, therefore, should encourage employees to work harder
with more determination and dedication to their duties. It is a systematic approach to providing
monetary value to employees in exchange for work performed.

Compensation may achieve several purposes; assisting in recruitment, job performance, and job
satisfaction. Compensation is a broad term that defines payments and rewards given to workers in
order to persuade them to keep working for a company. Compensation is not just about regular
rewards for work done but also attempts made by employers to retain employees. It goes beyond
salary and transcends this boundary to include benefits and other incentives. Examples of such are
salaries, wages and bonus payments (Scott, et al, 2007). Simply put, compensation management is
a general policy, designed to help an organization maximize the returns on available talent. Thus,
the ultimate goal is to reward the right people to the greatest extent for the most relevant reasons
(Yamoah, 2013).

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 2.1.2 Types of Compensation

In general, there are two types of compensation: These are

2.1.2.1 Financial compensation

Ahmed Kelil,(2010) explained financial compensation includes direct compensations, which is

paid to employees in the form of wages, salaries, bonuses, and commission in exchange for their
performance and indirect compensation in the form of insurance plans( life, health, social
assistance), Retirement benefits, educational assistance, employee services, and paid absence for
vacation, holydays, sick leave.

2.1.2.2 Non- Financial compensation

Non- Financial compensation includes any satisfaction which employees receive from the job,
such as the need for recognition, responsibility, personal growth and the like or from environment
in which they work including comfortable working condition, competent supervision, pleasant
work companion and other related physical and social needs of Employees (Ahmed Kelil,2010).

2.1.3 Compensation Management

Armstrong (2020) stated that compensation deals with the design, implementation and
maintenance of compensation system that are geared to the improvement of organizational, team
and individual performance. Compensation Management is concerned with the formulation and
implementation of strategies and Policies that aim to compensate people fairly, equitably and
consistently in accordance with their value to the organization. Compensation management is all
about developing a positive employment relationship and psychological contract that adopts a total
compensation approach which recognizes that there are a number of ways in which people can be
compensated.

In his own analysis Anyebe (2020) states compensation management as being based on a well-
articulated philosophy- a set of beliefs and guiding principles that are consistent with the values of
the organization which recognizes the fact that if HRM is about investing in human capital from
which a reasonable return is required, then it is proper to the skills and competencies of employees
in order to increase the resource-based capability of the organization.

10
Compensation Management as the name suggests, implies having a compensation structure in
which the employees who perform better are paid more than the average performing employees.
This encourages top-performers to work harder and helps to build a competitive atmosphere in the
organization Hewitt (2021).

Armstrong (2020) enlightened compensation management is an integral part of human resources

management approach to productivity improvement in the organization. It deals with the design,
implementation and maintenance of compensation system that are geared to the improvement of
organizational, team and individual performance reward.

2.1.4 Implementation of compensation

Compensation is the form of pay or incentive given to an employee for performing services for an
employer. It is often based on wages, salaries, incentives, or bonuses. View compensation as an
outcome in the exchange among employees and themselves as an entitlement for being an
employee of the organization or as a reward for a job well done. It does not necessarily mean that
anyone who gets paid has done the job well. Employees may not live up to expectation but can still
get paid because of the Trade Union Congress laws and regulations (Armstrong,2006).

Singh,(2007) an employee is compensated based on his/her skills, knowledge, experience, and

education stress that compensation is particularly an important topic because often compensation
significantly affects recruiting and retention efforts of a firm if organizations cannot pay
applicants enough, then they cannot recruit or retain critical skills or knowledge needed to operate
efficiently and more.

Compensation is also the second most investigated topic in human resource management.
Compensation is viewed from total rewards perspective as it encompasses psychological rewards,
learning opportunities, and recognition in addition to monetary rewards in the forms of base pay
and incentives. In compensation practices, firms with a more entrepreneurial orientation tend to
base pay rates on market comparisons more so than on internal equity concerns [30]. The strong
financial package must be enough to provide incentives for employees and encourage them to stay
with the firm. They further asserted that the feelings of the employees also influence the
performance of the company; the employees’ morale will determine the success or failures
(Darko,2020).

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Compensation is one of many Human Resource (HR) tools that organizations use to manage their
employees and for an organization to receive its money’s worth and motivate and retain skilled
employees, it needs to ensure that its compensation system is not an island by itself; it is also
important for an organization to link compensation to its overall goals and strategies; it is
significant that its compensation system aligns with its HR strategy. It thus means that the
compensation scheme in an organization is an HR strategy that is meant to motivate workers to
deliver (Snell & Bohlander, 2007).

Compensation policy should be developed by taking into consideration of the views of employers,
the employees, the consumers and the community. The compensation policy or wage policy
should be clearly defined to ensure uniform and consistent application as well as compensation
plan should be matching with overall plans of the company. Compensation planning should be part
and parcel of financial planning. The compensation policy and program should be reviewed and
revised periodically in conformity with changing needs (Mohr & Fourie, 2013).

Welch, (2000) & Choudhary, (2016) state the following points as implementation of
compensation:

 Differences in pay should be based on differences in job requirements.

 Wage & salary level should be in line with those prevailing in the job market.
 Follow the principle of equal pay for equal work.
 Recognize individual differences in ability & contributions
 The employees & trade unions should be involved in while establishing wage rates.
 The wages should be sufficient to ensure for the worker & his family reasonable standard
of living.
 There should be a clearly established procedure for readdressed of grievances concerning
wages
 The wage & salary structure should be flexible.
 Wages due to employees should be paid correctly &promptly.
 A wage committee should review & revise wages from time to time

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 2.1.5 Components of a compensation system

Joseph J. Martocchio (2020) clearly defines compensation system as the relative value of each job
among all jobs within a company. This ordered set of jobs represents the job structure or hierarchy.
Companies rely on a simple yet fundamental principle for building internally consistent
compensation systems: Jobs that require higher qualifications, more responsibilities, and more
complex job duties should be paid more than jobs that require lower qualifications, fewer
responsibilities, and less-complex job duties.

Compensation system should be so designed that it is able to attract, retain and motivate people.
S.Hariharaputhrian (2019).Total payable compensation can be paid in different forms. Besides
classifying components of compensation in many other ways, one method of classification that has
been discussed is „financial compensation.

2.1.6 Compensation practice and performance

Employee performance is defined as whether a person executes his job duties and responsibilities
as well. Many companies evaluate their employee’s performance on quarterly or annual basis in
order to define certain areas that need improvement. Performance is a critical factor in
organizational success. In today’s competitive and global workplace, one of the strategies that
successful companies use is to develop and establish an internally equitable and externally
competitive compensation mechanism, that can work as a basis for employee motivation i.e.,
attract, retain and maintain talent pool of employees. Effective, appropriate and timely recognition
of employees’ performance and market driven rewards to reinforce the desirable performance can
substantially motivate the managers and employees alike(Bowen,2000;Finkelstein &
Mulligan,2007).

Performance is viewed differently in different cultures; mechanism to evaluate and manage

performance must be designed to address the local context. For example, seeking feedback on
ones’ performance may be viewed as appropriate and desirable in individualistic cultures like, but
such behavior would be deemed out of place and highly inappropriate in a collectivist culture such
as china. Effective compensation and reward process enhances productivity, employee retention,
and overall organizational performance. Jyothi and Venkatesh (2006) established that competency
based rewards and pay enhance the quality of goods/services, improves subordinate behavior

13
thereby improving organizational performance. Compensation encompasses all forms of monetary,
non-monetary returns.

Conceptually, several models have been developed to explain the relationship between
compensation management and employee performance. According to Kgoedi & Pillay(2018)
management practices concerning reward systems relate to both the kind of rewards offered to
employees for their services and the manner in which such rewards are administered in
performance contingent manner. Management practices related to reward critical in determining
the level of employees’ performance. Because organization structures indirectly affect the
commitment and morale of employees through authority patterns and leadership styles, they have
implications for employee performance in an organization. Performance management practice
analysis suggests that multi- nationals have a well- developed and formalized performance
management system. Some of them have adopted management by objectives approach to
performance management. These organizations have the practice of preparing detailed job
descriptions because they assume that without properly defining the jobs, setting performance goal
would be difficult.

2.1.7 Challenges of implementing compensation

Finkelstein,& Mulligan,(2007) state that when businesses continue to expand , all aspects of
enterprise have become increasingly complex and challenging in order for organizations to
compete in a worldwide market. Human resources and compensation practices, too, are scrambling
to keep up with a world in which the use of both expatriate and local-national employees becomes
critical for global success. Faced with multiple home and host locations, complex equity situations,
and talent management and deployment logistics, Human resource also has to balance the needs of
the global organization for consistency with its local operations’ need for autonomy. To provide a
better understanding of these issues, a look at the types of projects with which clients are currently
approaching for assistance is useful.

At the most basic level, targeting appropriate compensation levels for local talent across multiple
locations is becoming an increasing concern for employers. Pay levels vary across national borders
as a result not only of market and industry factors, but also due to traditional practices and values
inherent in the concept of salary. Requests for obtaining an appropriate salary level generally arise
out of the following common business situations:
14
  An employee asks for a salary increase.
 The company is struggling to attract and retain talent.
 The company wants to attract a “star performer.”
 The position is new, and the organization is unfamiliar with its market value.
 The company is establishing a new office and is unfamiliar with the local market.
As the compensation and administration landscape continues to become more complex,
organizations are anticipated more and more often find themselves in need of answers that are
increasingly difficult to find. Frequently, locating the necessary data is result in opening an entirely
new set of questions and issues to be addressed. What begins as a simple local-national salary
benchmarking request can rapidly evolve into more significant structural, policy, or practice
concerns. To keep up with the rapid movement of our clients as they expand to locations around
the globe and meet the needs of our clients and their unique circumstances continues to evolve our
data and consulting abilities to provide the answers to all of those questions.

According to Kgoedi & Pillay,(2018),Compensation such as wages is an incentive that employees

receive, which constitutes a form of payment from their employers There are factors that are
prevalent in the working environment and the market that can be used as determinants to calibrate
and determine compensation for the employees. Employees’ attitudes, level of commitment as well
as behavior, are impacted by compensation received from the organization. Compensation,
therefore, is a critical tool in assisting the organization to reach its strategic objectives. Attitudes of
employees are affected by the compensation received from the employer and this can motivate or
demotivate them.

Kgoedi & Pillay,(2018) explain that motivation involves aligning employee goals and values with
the organization’s mission and vision in order to create and maintain high levels of performance.
Motivation can either be intrinsic or extrinsic but both are goal oriented. Compensation can be
regarded as extrinsic because organizations use external reward to reinforce and motivate the
employees to perform better in their work”. The use of strategy in an organization is important but
it must be integrated with compensation to achieve its objectives. Many organizations may
underperform because they rely only on strategy to achieve their goals. It is important, therefore, to
offer better compensation scales that will encourage employees to be more productive.

15
Generally, it is said that employees depend on compensation in exchange for their services. These
factors can be used to determine the scale and the amount that will be fair in compensating
employees for services rendered. Such factors also form part of Equity Theory that explains that
the attitude of employees can be affected if there is inequity in the manner of implementation of
the compensation policy (Finkelstein & Mulligan, 2007).

Finkelstein & Mulligan, (2007) assert employees compare details of their incentives or salaries
with their coworkers at the same level but will never compare their skills, qualifications and
experience. If employees perceive a discrepancy in terms of rates of compensations, discord and
negativity amongst members of staff will be inevitable. Subsequently resistance to new initiatives
or developments will impact negatively on the performance of the organization.

An organization compensation system can be challenged with two factors. These are internal and
external factors. To illustrate this point, the organization might find it difficult to compete its
competitors on account of high labor costs. This leads to the organization face difficult to retention
of experienced and qualified employees, and attracting suitable candidates when the firm is paying
below its competitors’ compensation structure (Singh, 2007; Snell & Bohlander, 2007).

2.1.7.1 External Factors

Labor market: The level of payment and salary depends on the economy and the financial position
of an organization. An organization that has many employees and low demand for its performance,
offer its employees lower wages and salaries. The labor market is viewed an external market since
organizations select new candidates to join the organization from the outside.

Economic conditions: According to Singh, (2007), organizations are unable to pay high salaries
because of high degrees of competitiveness within industries. If the demand for goods produced is
high, employees will receive higher wages. All economic systems are a mixture of traditional
behavior, central control and market determination. The market determinants are based on the rate
of demand and supply that can influence the performance of an economy. Dominant and critical
factors that influence the economy are a combination of the private sector, a mixture of the market
mechanism, as well as government intervention.

16
Government influences: The Basic Condition of the Employment provides a guideline on the
minimum wages of employees. Compensating employees for the service provided is a means of
acknowledging their efforts for the work done and ensuring that they improve their lives and those
of their families (Finkelstein & Mulligan, 2007).

Union influences: Trade Unions usually engage in negotiations that can be used to agree on the
payment rates that should be received. The employer and the unions enter into an agreement on
how they can adjust the payments of employees. If the agreement is not reached, the two parties
must find common ground to settle the differences. It is often evident that employees in the
organization join together in the work place to form trade unions to pursue certain common aims
and to serve as a countervailing force to the bargaining power of employers (Mohr & Fourie,
2013).

2.1.7.2 Internal Factors

Organizational strategy and goals: The organizational strategy must be aligned with the
objectives of the company until there is maximum growth and the employees are paid higher
wages. The compensation must be supported by the organizational strategy and the goals to gain
market share (Snell & Bohlander, 2007).

Labor budget: The budget must specify and create awareness about the amount of money
available to compensate employees (Snell & Bohlander, 2007).

Compensation decision-makers: According to Singh,(2007) & Snell & Bohlander,(2007),the top

management are relevant people who must decide on the amount necessary to pay the employees.
This might also depend on the type of expertise and skills they possess to do the work.

2.1.8 Objectives of Compensation

Armstrong (2021) in his own analysis says compensation management is all about developing a
positive employment relationship and psychological contract that adopts a total compensation
approach which recognizes that there are a number of ways in which people can be compensated.

Remuneration does not simply compensate employees for their efforts- it also has an impact on the
recruitment and retention of talented people according to Milkovich and Newman (2022).

17
According to P.feffer (2020) argued that, a total rewards approach is all about creating a fun,
challenging, and empowered work environment in which individuals are able to use their abilities,
to do meaningful jobs for which they are shown appreciation, is likely to be a more certain way to
enhance motivation and performance - even though creating such an environment may be more
difficult and take more time than simply turning the reward letter.

Mehmood, Ramzan, & Akbar, (2018) also suggested that, compensation in any organization has
three different objectives that are: motivating employee, retaining employee and attracting
employee, thus making reward management an important thing for the overall employer branding.

2.1.9 Compensation and employees’ satisfaction

The concept of employee compensation cannot be discussed in a vacuum. Several researchers,

(Adeoye& Fields, 2014; Greene, 2014; Gupta & Shaw, 2014) have established that compensation
and job satisfaction are positively associated with each other. And job satisfaction can bring about
motivation which in turn affects employee job performance and organizational commitment.
Kuria, (2011) contended that employees are the most satisfied and highly productive when their
job gives them security from economic strain, recognition of their effort, clean policy of
grievances, opportunity to contribute ideas and suggestions, participation in decision making and
managing the affairs, clean definitions of duties and responsibilities and opportunities for
promotion, fringe benefits, sound payment structure, incentive plans and profit sharing activities,
health and safety measures, social security, compensation, communication, communication system
and finally, atmosphere of mutual trust respect. This calls for strategic moves and actions by
organizations and their management to ensure that such factors as spelt out by Kuria and others are
present. Bozeman & Gaughan ,(2011) indicated that the perception of being paid what one is worth
predicts job satisfaction. They further state that there is a positive significant relationship between
compensation and job satisfaction.

In another study conducted by the Society for Human Resource Management, (2012) it was
indicated that compensation and benefits would affect employees' job satisfaction. Based on the
survey report, compensation has remained one of the top three job satisfaction aspects most
important to employees. Therefore, it could be concluded that the influence of compensation on
employees’ job satisfaction is significant and obvious. This phenomenon is perhaps explained by

18
the fact that money is very instrumental in fulfilling several important needs of the individual and
therefore serves as an enticing element for anybody seeking for a job.

According to Hashim & Mahmood, (2011), psychologists divide human beings’ basic needs into
five levels that match Maslow’s hierarchy of needs. From that perspective and that of personnel
psychology, compensation can satisfy physiological, safety and security needs, which comprise the
first two levels, and also an employee’s needs for social interaction, self-esteem and self-
actualization. Tsai, (2004) suggested that if these needs can all be satisfied; employees will work at
ease. Therefore, in order to enhance employees’ job satisfaction, effective rewards (e.g., a full
attendance reward and bonus) can be adopted to reduce employee absence and increase job
performance.

According to Chang, (1996) the significant and positive correlation between compensation design
and employee satisfaction indicate that compensation is an important function in human resource
management. It suggests, therefore, that if the design and management of a compensation system
are appropriate, employees are likely to be motivated to give off their best. Also, in a study
conducted on Secondary school teachers in Kenya, it was concluded that teachers were highly
dissatisfied with all aspects of compensation they received and established that basic pay,
allowances and work environment affects teachers’ job satisfaction to a great extent (Muguongo,
Muguna &Muriithi, 2015). The discussions above thus provide a strong evidence to prove the
relationship between compensation and employee job satisfaction.

2.2 Empirical Review

Agyei,NtimAdjei & Mensah ,(2017) conducted to find out the effect of compensation on basic
school teachers’ job satisfaction in Ghana. A convenience sampling method was used to choose
100 basic school teachers for the study. Questionnaire was employed to gather the data. The
findings of the study indicated that teachers had negative perception about compensation practices
of the services. It could also be concluded in the study as compensation has highly correlated with
teachers’ job satisfaction.

Attiogbe & Quartey, (2013) investigated the link between compensation packages and job
performance in the Ghana police service. Qualitative research approach was used. The research
design was exploratory. Multi-stage sampling procedures were applied in order to select 200 police
19
personnel from Ghana police service. Questionnaire was used so as to fetch the data. Descriptive
and inferential statistics data analysis method was carried out. The study findings revealed that
personnel were somehow satisfied with some of their compensation packages. Equitable and
holistic compensation packages are more likely to attract, develop, motivate and retain qualified
and competent personnel.

Yamoah,(2013) Sought to examine the relationship between compensation and productivity in

banking industry in Ghana. Case study research approach was utilized. Descriptive survey was
used. The findings of the study pointed out that there was a significant relationship between
compensation and productivity. In contrast to this study, the present study is going to investigate
the practice and challenges of compensation in electronics equipment manufacturing industry.

Dawianto,(2019) conducted to determine the effect of compensation on employees’ performance.

The result revealed that compensation has a contribution of influence of 50.83 % on employees’
performance while the remaining 49.17% is influenced by the other factors. The study also
approved that compensation is needed to help strengthen the organization’s key values and
facilitate the achievement of organizational goals.

AtakiltHaliform ,(2020) studied in order to assess the impact of reward and compensation on
employees performance in private and public hospitals in Tigray. A cross sectional simple survey
was used. Random sampling technique was employed to select the participants. Questionnaire was
utilized to gather the data. The result indicates that reward and compensation would impact on
employees’ performance in both private and public hospitals in the study.

IGemohia, Morka & Aliku ,(2020) conducted a study to examine the effect of compensation
management on employees performance in the manufacturing industry. Descriptive survey
research design was used. The data of the study was collected through questionnaire. The findings
of the study showed that salary and benefits have a significant relationship with employees’
performance in manufacturing industry.

In his findings and conclusion, the ground work for the compensation will be developed when the
organization has a systematically developed compensation system and considers it to be a steering
instrument in order to efficiency, effectiveness and to reach company goals. In an organization

20
environment where there is no carefully developed compensation system, it may be difficult to
establish the ground work of compensation system.

2.3 Research Gap

In general, most of the previous literatures on the compensation practices and challenge were
done on selected more than one organization from private or public if not from both sectors. This
in turn gave the general understanding on the relationship between compensation practices and
challenges and organizational. However, as organizations implement compensation practices
individually based on their internal context, thus in order to know whether compensation
implemented by a particular organization is successful it will be important to investigating the
effect of compensation practices and challenge on organizational in the case of a single
organization. Furthermore, the literatures also are with limitation in terms incorporating variable
from all phase. Therefore, this study intends to fill this gap by assessing the compensation
practices and challenge by taking the electronics equipment manufacturing industry as a case and
by incorporating variables in a manner represent all phases.

2.4 Conceptual Framework

The conceptual framework for compensation management practices and challenges based on the
theoretical perspective and empirical results, every compensation practice will be faced a problem
due to external and internal factors of the organization.

Figure 2.1: Conceptual frame work

21
 CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY

3.1 Research Design

This research design is classified as descriptive research attempts to describe systematically a

situation, problems, phenomenon, service or program, or provides information about, say, the
living condition of a community, or describes attitudes towards an issue Ranjit Kumar (2005).

Accordingly, the research employed mixed research method. The reason why the researcher
employed a mixed research method is to generate comprehensive information. For instance, the
qualitative data related to employees satisfaction with the current compensation, the perception of
employees with the internal and external competitiveness, to assess the effect of demand and
supply on compensation. Besides, the qualitative part is used to generate data how compensation
affects a person economically, socially, and psychologically, because a person's earnings serve as
an indicator of power and prestige. As it is stated by Burns and Grove (2003), qualitative approach
as “a systematic subjective approach used to describe life experiences, uniqueness of individual
and situations to give them meaning”.

On the other hand quantitative approach is used to generate data on the idea of the majority which
might be difficult to generate using qualitative approach. Then, this might help to generalize the
findings

3.2 Research Approach

The study used a mixed research approach by combining qualitative technique to narrate and
analyze qualitatively. Quantitative technique is to convert data in to numerical codes in order to
analyze statistically. Mixed approach research combines quantitative and qualitative data
collection techniques and analysis procedures as well as combining quantitative and qualitative
approaches at other phases of the Research such as research question generation
(Sauners2009).Survey instrument will be designed to undertake the quantitative method. Also
there will be document review to undertake qualitative technique.

22
 3.3 Research Techniques

The researcher prepared both questionnaires and interview. The questionnaires were distributed to
selected respondents directly by the researcher. Respondents oriented they have to feel each
questions and their response is confidential and free to ask any additional information regarding
the issues raised on the questionnaires. After collecting the distributed questionnaires, an interview
would have been conducted with managers found at the human resource and finance department.
Also a secondary data were collect from different departments of the enterprise with the approval
of concerning body.

3.4 Sample Design

3.4.1 Population
According to Frankel and Wallen (2000) a population refers to the group to which the results of the
research are intended to apply. They stated that a population is usually the individuals who possess
certain characteristics or a set of features a study seeks to examine and analyze. Kumekpor (2002)
emphasized this by defining a population as the total number of all units of the issue or
phenomenon to be investigated into which is “all possible observations of the same kind”.
Population can be defined as the total group of people or entities from which research information
was intended to be obtained. Target population for this study was 246 permanent employees of the
industry. This population of interest had the potential of providing the relevant information
regarding the assessment of compensation practice and challenges the case of electronics
equipment manufacturing industry

3.4.2 Method of Sampling

The researcher has been selecting the representative respondents based on appropriate sampling
technique. This would have done to enable the researcher to draw inferences about both sub
groups. This method also leads to more efficient statistical estimates. Both management and non-
management staff, the respondents were randomly chosen from different sections. The researcher
ensured that all the cadres of employees were represented. This is the process of selecting the
number of individuals from the population so that the population contains elements representative
of the characteristics found in the entire group (Orodho & Kombo, 2002).

23
 3.4.3 Sampling Size
The sample size is a smaller set of the larger population (Cooper and Schindler, 2003).

The researcher would have taken sample size of 152 populations.

n = N/(1+ (N×e2) ) where n = Sample size Thus, N = 246 and e = 5
N = Total population n = 246/1+ (246 × (5%) 2)
e = Standard error (5%) n = 246/1+ (246×0.0025)
1 = Constant n = 246/1+0.615 = 246/1.615 = 152

Table 3.1: Sample distribution

Population(N) Sample
Employees size(n)

General manager 06 04
Planning 02 01
Training 01 01
Quality control 04 02
Marketing 05 03
Finance 13 08
Resource and deputy general manager 02 01
Operation and deputy general manager 03 02
Technical Maintenance 10 06
Production planning and control 03 02
Information communication Technology 04 02
General service 38 23
Design and Development 05 03
Human resource 08 05
Supply chain management 08 05
Electronics work shop 135 84
Total 246 152
Source: Author (2023)
As shown in the table above, the participants were taken General manager, Planning, Training,
quality control, Marketing, Finance, Resource v. general manager, Operation v. general manager,
24
Technical Maintenance, Production planning and control, Information communication
Technology, General service, Design and Development and Human resource. The study area
consisted of 152 respondents’ addresses. Using mathematical proportion, the sample sizes of this
study was fairly represented the target population.

3.5 Type and Source of Data

After getting an official permission from the concerned authority of the Electronics Equipment
Manufacturing Industry, the selected employees of the organization were requested and showed
their willingness to fill in the questionnaire. Based on this, the data gathering process will be
undertaken by using a combination of both primary and secondary sources.

3.5.1 Primary Data

Close-ended questionnaire: This part of the questionnaire contains 28 items to be filled in the form
of Likert‟s 5 rating scale and a choice that is marked at the box in order to gather quantitative
information. At the last part the questionnaire, there is an open-ended question in which the
respondents were given a chance to express their opinion and feelings openly in a written form
with the intention of collecting a qualitative data.

3.2.2. Secondary Data

In addition to the primary data, secondary data will be used to analyze supportive evidences
putting the situation in the context of the Electronics Equipment Manufacturing Industry. We will
be try to use different types of books, journals, articles, annual reports, authorized and related
publications available in the documentation centers and libraries.

3.6 Data Gathering Tools

Closed-ended questionnaires and semi-structured interview data gathering methods were applied
for this research. Closed ended questions are being rated with Likert Scale method. Likert Scale is
“a psychometric response scale primarily used in questionnaires to obtain participant’s preferences
or degree of agreements with a statement or set of statements.

Respondents are asked to indicate their level of agreement with a given statement by way of an
ordinal scale, “ A-5 point scale ranging from “strongly disagree” on one end to “strongly agree”
the other end is used for this research.

25
Closed ended structured questionnaire papers were distributed to the selected employees and in-
depth interviews were conducted with the selected three top managements. In addition, the
employees‟ personnel files were observed and cross-checked against the numbers of
questionnaires filled by the respondents.

3.7 Procedures of Data Collection

The researcher will be prepared both questionnaires and interview. The questionnaires were
distributed to selected respondents directly by the researcher. Respondents oriented they have to
feel each questions and their response is confidential and free to ask any additional information
regarding the issues raised on the questionnaires. After collecting the distributed questionnaires, an
interview we will be conducted with managers found at the human resource and finance
department. Also a secondary data were collect from different departments of the Industry with the
approval of concerning body.

3.8 Methods of Data Analysis and Interpretation

In this study, the researcher intends to use descriptive statistics for analyzing the questionnaire
data. To illustrate this point, frequency, percentage, mean, and standard deviation will be used. To
do this, SPSS version 26 software was applied. Subsequently, the researcher employed inferential
statistics to see only the relationship between compensation practice and employees performance.
With regard to interview data analysis, conducting the interview, each respondent response was
listened to, transcribed, and translated into English language version without missing and adding
on respondents’ information.

Generally, the analysis was made sub-section based on the research objectives. Having the
sections of implementation of compensation, types of implemented compensation, challenges of
implementing compensation, perception of employees towards compensation system and
relationship between compensation practice and employees’ performance, explanation and
discussion were carried out accordingly.

3.9 Validity and Reliability

3.9.1 Validity
To make sure the research’s validity, the research will use reliable sources such as published books
and recent articles written by highly praised authors in the performance management system field.

26
The industry will assess based on questionnaire which is adopted from a toolkit develop by
Armstrong (2009a, p. 331), Hume (2000, p. 6) and Armstrong (2009b, p, 1021). Then, the
questionnaire will present in a suitable manner by making minor modification to be applicable on
the current scenario.
To further refine the accuracy of the instrument, questionnaire will administer to select employee
and the industry management members and they reviewed it and provide their opinion on the
questionnaire. In addition, the research advisors also provide valuable comments on the
questionnaire.

3.9.2 Reliability
Reliability is assessment of the extent to which a question, instrument or measure gives safe
results. Cronbach's alpha is a measure of reliability which assesses the extent to which a group of
questions are asking for the same basic underlying information (Gorard, 2004). The aim when
discussing reliability is to lessen the errors and biases in the study. Therefore, the research will
conduct the Cronbach’s alpha reliability test.

3.10 Ethical consideration

In relation to ethical consideration, Kothari (2005) explain ethical considerations and ethical
behavior are important in research as they are in any other field of human activity. Any research
which involves other people in some way has ethical implications. Because education is a social
action, data gathering and analysis within this study inevitably affects the lives of other people
involved in the study. Hence, researchers must deal with ethical issues when their intended
research involves human beings. To conduct this research, supportive letters which was written
from the researcher’s University, and then permission from concerned bodies. After receiving
supportive letters from the department, the researcher, move to the study area and contact with
employees in electronics equipment manufacturing industry. Finally, the respondents were
informed of the purpose of the research. Written and verbal consents will obtained from the study
participants. Then data collection will be undertaken on the basis of their voluntarily participation.
Each respondent’s responses were ensured to make them strictly confidential in as well

27
 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND DISCUSSIONS

4.1. Introduction

This chapter presents the data analysis and discussion of the research Findings. Descriptive,
focusing on the description of the sample population as well as inferential statistics, which makes
inferences about the population based on the data from the sample population, are presented in this
chapter. The data analysis was undertaken with the help of computer statistics package (IBM SPSS
software). The data presented was statistically treated in order to discover the relationship of the
variables involved in the study.

4.2 Back ground of the respondents

The total population in the study area was 246. However, 152 employees who have been working
in Electronics Equipment Manufacturing Industry were made participate in the study. As a result,
152 questionnaires were administered to 152 respondents. Among these respondents, 30
questionnaires were not returned and completed appropriately. Due to this, only 122 questionnaires
were organized and analyzed well. The other 30 questionnaires were discarded.

4.2.1. Demographic Characteristics of respondents

Before starting the analysis of the main research data, some background information partly
demographic data of the respondents was analyzed through using descriptive statistics, i.e.,
frequency and present in order to make the analysis more meaningful for the readers. This part
tried to elaborate the characteristics of the respondents in terms of gender, age, educational status,
working experience. All are summarized and displayed; analyzed and interpreted. Each frequency
description of demographic variables has been presented in Figures respectively.

4.2.1.1 Gender of Respondents

The researcher intended to identify the gender of the study respondents. The findings presented in
Figure 4.1 showed that 87(55%) of the respondents were males as compared to 71.3(45%) females.
The result implied that both sexes were represented in the study. This implied that data was
collected from both male and female perspectives
28
 71.3, 45% Male

87, 55% Female

Figure 4.1: Gender of Respondents

4.2.1.2 Age Bracket of Respondents

By the time the target respondents were asked about their age, 24(19.7%) of the respondents’ age
found between 21-30 years old. 48(39.3%) of the respondents age was 31-40 years while
37(30.3%) of their age found between 41-50 years old. The remains 13(10.7%) of the respondents’
age was found between 51-60 years old. Based on the data in the figure above, the highest number
of the participants’ age was found between 31-40 years old followed by 41-50 years old.

Freuency
Percent
60

50 48

39.3
40 37
30.3
30
24
19.7
20
13
10.7
10

0
21-30 years 31-40 years 41-50 years 51-60 years

Figure 4.2: Age Bracket of Respondents

29
4.2.1.3 Education Level of Respondents

By the time the target respondents were asked about their age, 24(19.7%) of the respondents’ age
found between 21-30 years old. 48(39.3%) of the respondents age was 31-40 years while
37(30.3%) of their age found between 41-50 years old. The remains 13(10.7%) of the respondents’
age was found between 51-60 years old. Based on the data in the figure above, the highest number
of the participants’ age was found between 31-40 years old followed by 41-50 years old.

Frequency
Percent

70 65

60 53.3

50

40
29
30 23.8 23
18.9
20

10 5 4.1

0
Diploma Degree Master PhD degree

Figure 4.3: Education Level of Respondents

4.2.1.4 Work Experience of Respondents

The Figure4 above indicates that 11(9%) of the respondents have developed for one and two years’
work experience. The other 40(33%) of the respondents have been working 3 and 4 years, but
71(58%) of the participants have got about four years working experience. According to the data
above, the majority respondents have been experienced above four years.

30
 11, 9%

40, 33% 1-2 years

71, 58%
3-4 years
above 4 years

Figure 4.4: Work Experience of Respondents

4.3. Practice of Compensation

Table 4.1: Descriptive analysis of practice of compensation variables

Consideration of cost living on payment SA A Und. DA SD M Std.

i
1 My organization pays me considering rising F 2 10 6 82 22 3.92 .839
economic conditions % 1.6 8.2 4.9 67.2 18.0
My organization covers my basic needs F 2 11 7 88 14 3.83 .810
2 requirements such as housing, food & % 1.6 9.0 5.7 72.1 11.5
clothing
3 My salary allows me other than to cover F 3 14 6 77 22 3.83 .942
basic needs to save money for emergency % 2.5 11.5 4.9 63.1 18.0
purposes
ii Based on labor market
4 My organization pays me better than other F 3 14 13 78 14 3.70 .906
similar organizations % 2.5 11.5 10.7 63.9 11.5
5 My organization pays according to the F 10 32 12 60 8 3.20 1.147
current labor market at the industry % 8.2 26.2 9.8 49.2 6.6
6 My organization pays below current labor F 3 14 20 68 17 3.67 .940
market at the industry % 2.5 11.5 16.4 55.7 13.9

31
iii Based on job standard & financial stability
7 My organization compensate employees on F - 18 10 94 - 3.62 .731
the ground of clear job qualification such as % - 14.8 8.2 77.0 -
education, skills & experience
8 My organization pays me based on its profit F 30 38 13 30 11 3.03 1.164
margin % 24.6 31.1 10.7 24.6 9.0
9 My organization is in a good financial F - 93 10 18 1 2.43 .741
condition % - 76.2 8.2 14.8 .8
10 My organization involves employees or F 18 50 4 39 11 2.80 1.285
labor union in determining pay scale % 14.8 41.0 3.3 32.0 9.0
iv Based on employees’ job
11 I am paid for the job that has clear F 29 74 7 8 4 2.05 .926
responsibility, function & duties % 23.8 60.7 5.7 6.6 3.3
12 My payment considers the relative worth & F 26 90 1 5 - 1.88 .611
importance of my job position % 21.3 73.8 .8 4.1 -
13 My organization compensation policy F 32 84 1 - - 1.70 .476
considers some aspect of the job such as job % 30.3 68.9 .8 - -
location & environmental hardship
14 My organization applies government’s law F 14 82 6 20 - 2.26 .870
regarding compensation % 11.5 67.2 4.9 16.4 -
15 I am paid for the time I spent on work set by F 25 63 19 15 - 2.20 .906
the government working hour standard % 20.5 51.6 15.6 12.3 -
which is 8 hours
Average descriptive analysis of practice of compensation 2.94 0.886

Source: Author (2023)

Regarding to the practice of compensation, the respondents were required whether compensation
practice was consider the cost of living. Among the respondents, 2(1.6%) and 10(8.2%) of the
respondents reported strongly agree and agree sequentially while 6(4.9%) of them were not able to
decided their answer to item 1 in Table 4.1. However, the other 82 (67.2%) and 22(18.0%) of the
respondents replied disagree and strongly disagree respectively. The total mean score (3.92) with
32
its standard deviation (.839) approved the needs of the respondents were not fulfilled with their
organization. The largest number of the respondents’ responses show that the given compensation
in the study area couldn’t cover their needs as they expected.

Similarly, the interview data also supported the findings. The key informants admitted receiving
desert bonus, but they explained as they were not satisfied with it. To consolidate the finding, a
key informant response has been quoted below.

“Yes, of course. My organization has been offering compensation for desert allowance.
To your surprise, I am still complaining about the amount of compensation because I am
not satisfied with it. This problem is not only for me but also is very common to my
colleagues. As it is known, the living condition cost gets increasing daily. I can’t cover
each my house hold expense. For this reason, I would like to ask my organization to make
some amendment on the implementation of compensation for employees. Otherwise, life
will be difficult to me including other employees in the organization (Int07).”

In contrast, Gerhart and Milkovich(1991) said that compensation is fundamental in order to

enhance employees motivation by offering adequate financial compensation.

Table 4.1 above portrays 2(1.6%) and 11(9%) of the respondents answered strongly agree and
agree respectively, whereas only 7(5.7%) of them said undecided. The rest 88(72.1%) and
14(11.5%) of the respondents choose disagree and strongly disagree. Here the majority
respondents 88 (72.1%) responses informed us that the given compensation didn’t cover their basic
needs. Correspondingly, the total mean score (3.83) with its standard deviation (.810) confirmed
the needs of the respondents were not fulfilled with the organization.

For item 3 in Table 4.1 above, 3(2.5%) and 14(11.5%) of the respondents expressed their
agreement sequentially while 6(4.9%) of them unable to decided. Nonetheless, 77(63.1%) and
22(18%) of the respondents responded disagree and strongly disagree. The mean score (3.83) with
its standard deviation (.942) is above 3 which means it is close to 4. Thus, the respondents’ salary
didn’t allow them save money rather than covering their daily household expenses.

Similarly, the key informants demonstrated during interview discussion that they were not satisfied
with their salary. For this, a key informant idea has been directly take as below.

33
 “The salary I have received since I employed doesn’t satisfy my needs. As you know, the
cost of everything is getting lavish and lavish. Even, I can’t fulfill my family needs. Frankly
speaking, a lot of employees in the organization suffer with the problem. We already
reported our problems to the organization so as to have some changes of our salary career.
Hopefully, each employee including me is looking forward to hear good news from our
boss (Int02).”

From this, one can conclude that the actual practice of compensation in the study area was not
implemented with holding the cost of the current living condition. In the opposite, Ling(2010)
explained that to keep, retain and attract employees in an organization, finance compensation like
salary, wages, bonuses ,allowance and commissions should be offered to employees adequately.
This person added that if each employee’s needs are addressed well, they can carry out tasks
effectively and efficiently in their work place.

Talking about compensation practice based on labor market, 3(2.5%) and 14(11.5%) of the
respondents reported strongly agree and agree while 13(4.9%) of them reserved to decide the right
answer. The other 78(63.9%) and 14(11.5%) of the respondents expressed their disagreement
respectively. The total means score (3.70) with its standard deviation (.906) of item 4 in Table4 .1
confirmed that the respondents’ payments were not similar to other employees’ salary in another
organization.

For item 6 in Table 4.1, 10(8.2%) and 32(26.2%) of the respondents replied strongly agree and
agree sequentially, but 12(9.8%) of them said undecided. While 60(49.2%) and 8(6.6%) of the
respondents answered disagree and strongly disagree. As it can be seen the highest respondents
indicates as the target organization didn’t perform payments according to the current labor market
industry. Even though the total mean score (3.20) with its standard deviation (1.147) indicates that
the respondents unable to provide either agreement or disagreement.

By the time the respondents were asked whether their organization paid them below, the current
labor market at industry or not, 3(2.5%) and 14(11.5%) of them replied strongly agree and agree
while 20(16.4%) of them said undecided. However, 68(55.7%) and 17(13.9%) of the respondents
reported disagree and strongly disagree respectively. The total mean score (3.67) with its standard
deviation (.940) is above 3; it closes to 4 in order to display disagreement.

34
Talking about compensation implementation based on job standard and financial stability,
18(14.8%) of the respondents reported agree while 10(8.2%) of them chose undecided for item 7.
The other 94(77%) of them disagreed that the organization didn’t apply compensation depending
on employees’ job qualification like education, skills and experience. Again, the total mean
score(3.62) with its standard deviation(.731) which closes to 4 and above 3 confirms as
compensation was not implemented to employees’ in the study area according to each employee’s
education status, skills and experience.

For item 8 in Table 4.1, 30(24.6%) and 38(31.1%) of the respondents expressed their agreement as
the organization paid them relying on its profit margin. When 13(10.7%) of the participants said
undecided, 30(24.6%) of them responded disagree, but only 11(9.0%) of the respondents disagreed
strongly for the statement.

Table 4.1 above indicates 93(76.2%) of the respondents agreed to item 9; 10(8.2%) of them were
unable to decided their answer. The other 18(14.8%) and 1(.8%) of the respondents replied
disagreed and strongly disagree in the order given. The total mean score (3.63) with its standard
deviation (.741) shows the majority respondents agreed with stated statement. The data from an
interview discussion informed that the organization is found in good financial condition.
Nevertheless, there was not adequate compensation practice in the study area. To demonstrate the
data in details, an informant response could be straightly presented below:

“I have been working in this organization for six years. Personally, I know that the
organization earns good income; whereas it has limitation to offer compensation to its
employees. For this reason, I always listen to my colleagues including me we are
complaining for having the necessary compensation (Int011).”

In contrast, Yamoah (2013) advised that an organization can be effective with its production and
qualitative when its employees get the appropriate either finance or non-finance compensation.
This researcher also added that compensation is a crucial tool so as to motivate employees in any
organization. It makes employees enhance their performance daily.

From this, one can easily realize that the practice of compensation in the study was poor. To
illustrate more the point, employees were not motivated with providing them certain motivators, so
this might results in letting them carry out tasks poorly.
35
By the time employees or labor union involvement for determining employees’ payment scale,
18(14.8%) and 50(41.0%) of the respondents said strongly agree and agree separately while
4(3.5%) answered undecided for item 10 in Table 2. However, 39(32.0%) and 11(9.0%) of the
respondents showed their disagreement. Shortly expression, the highest respondents 50(41%)
clearly reveals that the target organization invited employees or labor union to decide the payment
scale.

With regard to the practice of compensation based on employees’ job, 29(23.8%) and 74(60.7%)
of the respondents demonstrated their agreement, but only 7(5.7%) of them said undecided while
8(6.6%) and 4 (3.3%) of them responded disagree and strongly disagree. Besides, the total mean
score (2.05) with its standard deviation (.926) indicates the largest number of the respondents
agreed with statement. To express this data shortly, the target respondents were paid according to
their clearly job responsibility and duties in the study area.

For item 12 Table 4.1, 26(21.3%) and 90(73.8%) of the respondents reported strongly agree and
agree respectively while 1(.8%) and 5(4.1%) of them answered undecided and disagree separately.
The total mean score (1.88) with its standard deviation (.611) reveals that payment was made
based on their job position.

Likewise, during an interview it was able to confirm that a little finance compensation was
provided to employees in the target study area. To consolidate the result, among the key
informants, an informant answer has straightly been quoted as follows:

“There are a lot of employees who have different respondents in the organization payments
are done based on employees’ responsibility and duties. As well, it is obvious the
organization is found in the hottest area. It is very hard to employees to carryout tasks
comfortably. Owing to this, the organization has still provided us compensation although it
is not good enough because the cost of each goods /expenses/ increases and gets lavish.
For this reason, the paid compensation can’t satisfy employees’ demands (Int011).”

14 (11.5%) and 82(67.2%) of the respondents agreed for item 14 in Table2 as their organization
applied government’s law of compensation. Whereas, 6(4.9%) and 20(16.4%) of the respondents
responded undecided and disagree. The total mean score (2.26) with its standard deviation (.870)
also ensured as the majority respondents agreed with the statement. In line with this, the interview
36
data approved that the organization has still been applying compensation for its employees relying
on the country’s government desert allowance law. To elaborate this finding in detail, among key
informants from each department, an informant idea was straightly presented below:

“Yes, our organization pays desert allowance based on the country’s civil services rules
and regulation. However, the employees are heard by the time they complain about its
amount even if they are paid the desert allowance. The reason why the allowance
percentage doesn’t afford their demands since the current marketing price is getting higher
and higher daily (Int09).”

To item 15, 25(20.5%) and 63(51.6%) of the respondents answered strongly agree and agree
sequentially, while 19(15.6%) and 15(12.3%) of the respondents have chosen undecided and
disagree respectively. The total mean score (2.20) with its standard deviation (.906) precisely
reported that the target respondents were paid if they worked 8 hours. During the interview
discussion, key informants demonstrated as payments were made for employees according to their
working hours. For this, an informant response has been stated directly as follows:
“The length of working hours in our organization is 8 hours. Each employee is anticipated
to work eight hours in a day unless they encounter serious personal problems.
Nevertheless, if an employee doesn’t stay working tasks for eight hours, he/she is paid by
calculating their real working hours (Int010).”
Generally, the findings shortly indicates that implementation of compensation in the study area
were carried out based on employees actual engagement on different activities. Correspondingly,
Sutoro (2019) discussed on the study findings that compensation can be made by relying on
employees’ tasks engagement level.

4.4. Kinds of compensations

Table 4.2: Descriptive analysis of finance compensations

Items SA A Und. DA SD M Std.

Rno
1 My basic pay is reviewed periodically F - 18 16 66 22 3.89 .889
% - 14.8 13.1 54.1 18.0
2 My basic pay varies from others; from F 16 56 27 23 - 2.47 .946
the same level of employment % 13.1 45.9 22.1 18.9 -

37
3 My basic pay motivates me to do my F 16 60 16 29 1 2.50 1.022
work well % 13.1 49.2 13.1 23.8 .8
4 My basic pay is well balanced F 21 49 16 27 9 2.62 1.215
compared to other employees in the % 17.2 40.2 13.1 22.1 7.4
organization
5 An increment in y basic pay can F 19 64 16 16 7 2.41 1.081
motivate me to improve my % 15.6 52.5 13.1 13.1 5.7
performance
6 There is exited system in the F 10 65 17 24 6 2.60 1.050
organization for compensating % 8.2 53.3 13.9 19.7 4.9
employees if they achieve their targets
7 In my work, the team reward F 14 78 16 13 1 2.25 .829
motivates me to perform well % 11.5 63.9 13.1 10.7 .8
8 I was entitled for a reward if the F 10 67 13 30 2 2.57 1.004
whole organization achieves its set % 8.2 54.9 10.7 24.6 1.6
goals
Average of descriptive analysis of finance compensations 2.66 1.005

Source: Author (2023)

Compensations types are categorized into two such as finance and non-finance (Gerhart &
Milkovich, 1991). Consequently, the respondents were invited to show which compensation types
were utilized with the target organization. To make easy the reader, the findings have been
presented separately in Table 4.2 and 4.3.

For item 1 in Table 4.2, 18(14.8%) of the respondents answered agree while 16(13.1%) of them
said undecided. The other 66(54.1%) and 22(18.0%) of the respondents explained their agreement.
In addition, the total mean score (3.89) with its standard deviation (.889) portrays as employees’
basic payment was not periodically made amendment.

To item2 Table 4.2, 16(13.1%) and 56(45.9%) of the respondents have showed their agreement
severally. The other 27(22.1%) and 23(18.9%) of the respondents replied undecided and disagree.

38
Generally, the highest percentage of itme3, 4,5,6,7 and 8 respectively indicate as the target
respondents disagree to each statement in Table 4.2. The total mean score item 5 and 7 approves as
the respondents agree with the statement although the means score of item 3,4,6 and 8 are above 2
and close to 3 in order to express the target respondents unable to decided their answer. However,
the total mean score (2.47) clearly reveals the respondents agreed to each statement.

From this, one can understand that among types of compensations, finance compensation was
implemented by the target organization in the study area. The data from the interview discussion
supported these findings. To illustrate the study findings in detail, a key informant response could
be stated as below:
“You know! At first my salary was 3000 birr, but it gets increasing. It closes around 7500
birr. Even the organization rarely gives me including other employees bonus for
celebrating my different holidays so that I am very pleased (Int013).”
Similarly, Smith (2001) stated that finance compensation has a potential to motivate employees to
have a good performance in their organizations. It even makes employees have attraction and
retention attitude towards their organization.
Table 4.3: Descriptive analysis of non-finance compensation

Items SA A Und. DA SD M Std.

Rno
1 I am aware of what condition of service F 2 6 11 97 6 3.81 .672
manual contain % 1.6 4.9 9.0 79.5 4.9
2 I am satisfied with the non-financial F 2 13 13 86 8 3.70 .812
compensation I receive % 1.6 10.7 10.7 70.5 6.6
3 The non-financial compensation we receive F 1 9 12 89 11 3.82 .727
are as good as most other % .8 7.4 9.8 73.0 9.0
4 The non-financial compensation package I F 4 9 14 86 9 3.71 .838
have is equitable & well satisfying % 3.3 7.4 11.5 - 7.4
5 The non-financial compensation package as F 3 8 11 86 14 3.82 .813
a whole is adequate % 2.5 6.6 9 70.5 11.5
6 The non-financial compensation package is F 6 5 13 84 14 3.78 .886
attractive & boosts my performance % 4.9 4.1 10.7 68.9 11.5

39
7 The available non-financial compensations F 3 17 16 73 13 3.62 .939
are well communicated to employees % 2.5 13.9 13.1 59.8 10.7
Average of descriptive analysis of non-finance compensation 3.75 0.812

Source: Author (2023)

Table 4.3 points out 2(1.6%) and 6(4.9%) of the respondents expressed their agreement, but
11(9.0%) of them said undecided. The rest 97(79.5%) and 6(4.9%) of the respondents choose
disagree and strongly disagree respectively for item 1. Furthermore, the total mean score (3.81)
with standard deviation (.672) showed that the largest number of the respondents disagreed with
given item aforementioned.

When the respondents were required to share their feelings whether they were satisfied with non-
financial compensation in their organization or not, merely 2(1.6%) and 13(10.7%) of them
responded strongly agree and agree respectively. The other 13(10.7%) of them were unable to
decide to offer their answer for the item. On other hand, 86(70.5%) and 8(6.6%) of the respondents
reported their disagreement. Besides, the total mean score (3.70) with its standard deviation (.812)
indicates the respondents disagreed with stated item in the table above.

All in all, as one can see in Table 4.3 above, the highest percentage of each item reveals that target
respondents disagreed with each statement. The total mean scores of each item are also above 3;
they close to 4. Thus, it can be said that the respondents didn’t agree the non-financial
compensation types was not practiced in the study area.

4.5. Challenges of Compensations Practice

Table 4.4: Descriptive analysis of Challenges in Implementing Compensations

Items SA A Und. DA SD M Std.

Rno
1 My organization doesn't have adequate F 17 84 15 6 - 2.08 .675
budget for compensation % 13.9 68.9 12.3 4.9 -
2 The given allowance can't fulfill my basic F 17 94 5 6 - 2.00 .617
needs % 13.9 77.0 4.1 4.9 -
3 I am not satisfied with the given F 28 74 14 6 - 1.98 .738

40
 compensation % 23.0 60.7 11.5 4.9 -
4 I usually seek to receive only finance F 23 88 5 6 - 1.95 .654
compensation % 18.9 72.1 4.1 4.9 -
5 My colleagues including I continuously F 20 91 5 6 - 1.98 .636
ask our organization to increase our salary % 16.4 74.6 4.1 4.9 -
Average of descriptive analysis of Challenges in Implementing Compensations 1.99 0.664
Source: Author (2023)

The target respondents were required to share their experience about the challenges of
implementing compensation in their organization. Thus, 17(13.9%) and 84(68.9%) of the
respondents replied strongly agree and agree respectively while solely 15(12.3%) of them said
undecided. The remaining 6(4.9%) of the respondents agreed with the item. Moreover, the total
mean score (2.08) and with its standard deviation (.675) conveyed as a number of respondents
reflected their agreement to the stated statement.

For item 2, 17(13.9%) and 94 (77.0%) of the respondents answered strongly agree and agree
sequentially. The other 5(4.1%) and 6(4.9%) of the respondents reported undecided and disagree.
The total mean score (2.00) with its standard deviation (.617) supported that the higher number of
respondents expressed their agreement. To illustrate the point, the given allowance couldn’t full
fill the respondents’ basic needs because of this they were dissatisfied with it.

Table 4.4 above points 28(23.0%) and 74(60.7%) of the respondents reflected strongly agree and
agree in their answer, but 14(11.5%) of them were unable to provide the right answer. The other
6(4.9%) of the respondents said disagree. Besides, the total mean score (1.98) and with its standard
deviation (.738) conveyed the majority participants showed their agreement tendency. In a short
expression, employees in the study area were not satisfied with the manner of practicing
compensation.

For item in Table 4.4 above, 23(18.9%) and 88(72.1%) of the respondents stated their agreement.
5(4.1%) of the respondents answered undecided while 6(4.9%) of them reported disagree. In
addition, the total mean score (1.95) with its standard deviation (.654) approved the highest
respondents showed their agreement to the statement.

41
From this, one can say that the participants of the study didn’t have tendency to receive non-
finance compensation types. Surprisingly, the key informants indicated high tendency to obtain
finance compensation. On the other hand, they said that they were not happier to take non-finance
compensation. To elaborate this, an informant response during the interview discussion has been
quoted below:

“To answer your request, I prefer to get finance compensation types. It is understood the
reason why only finance compensation I would like to be given since it can help me to
cover my household expenses. You know! I am sometimes invited to involve in different
training programs. Yes, I know it is very important to me for improving my working
experience, skills and knowledge; whereas engaging in such training events can’t make me
lives in a good life unless I generate enough income for my family expenses (Int08).”

In contrast, Dessler (2013) explained that both finance and non-finance compensation types are
fundamental to implement it because these play significant roles to enhance employees working
motivation. As well, they foster each employee in his/her work place. Similarly, many study
findings demonstrated that both finance and non-finance compensation types do have potential to
attract and retain employees in their organization,

4.6. Respondents’ perception towards compensation

Table 4.5: Descriptive analysis of respondents’ perception

A Und. DA SD M Std.
Items SA
i
1 My salary satisfies my basic needs F - 2 8 105 7 3.96 .434
% - 1.6 6.6 86.1 5.7
2 I am satisfied with flexible benefits F - 7 11 94 10 3.88 .624
provided by my organization % - 5.7 9 77 8.2
3 My salary is fair compared to my F - 8 10 94 10 3.87 .642
counterparts in similar jobs in other % - 6.6 8.2 77 8.2
organizations
4 My salary is fair compared to my peers' F 4 6 11 91 10 3.80 .792
within my organization % 3.3 4.9 9 74.6 8.2
5 I will change my job in favor of a F 14 49 19 38 2 2.71 1.079

42
 higher pa % 11.5 40.2 15.6 31.1 1.6
6 I prefer fixed payment over variable F 22 72 19 5 4 2.16 .882
pay % 18 59 15.6 4.1 3.3
7 I am interested in my job because there F - 1 7 107 7 3.98 .385
are strong promotion opportunities % - .8 5.7 87.7 5.7
8 I am satisfied with the working F - 5 10 97 10 3.92 .569
conditions at my work place % - 4.1 8.2 79.5 8.2
9 I am provided with career development F - 8 10 94 10 3.87 .642
opportunities % - 6.6 8.2 77 8.2
10 There is job security in my organization F 22 72 19 5 4 2.16 .882
% 18 59 15.6 4.1 3.3
11 I am recognized for the work I do for F 14 49 19 38 2 2.71 1.079
the organization % 11.5 40.2 15.6 31.1 1.6
12 My organization provides me non- F 5 8 8 82 13 3.79 .874
financial rewards % 4.1 6.6 6.6 72.1 10.7
Average of descriptive analysis of respondents’ perception 3.40 0.740

Source: Author (2023)

Table 4.5 above reveals that 2(1.6%) of the respondents chose agree while 8(6.6%) of them said
undecided. The rest 105(86.1%) and 7(5.7%) of the respondents expressed their disagreement as
they were not satisfied with their salaries. The total mean score (3.96) with its standard deviation
(.434) confirmed that employees’ salary couldn’t create satisfaction for them.

For item 2 in Table 4.5, 7(5.7%) and 11(9%) of the respondents answered agree and undecided in
the given order. Nonetheless, 94(77%) and 10 (8.2%) of the respondents disagreed with stated
statement. Likewise, the total mean score (3.88) and the standard deviation (.624) ensured as the
target respondents were not satisfied with benefits they received.

To item 3, 8(6.6%) of the respondents reported agree while 10(8.2%) of them choose undecided.
The rest 94(77%) and 10(8.2%) of them answered disagree and strongly disagree sequentially.
Similarly, the total mean score (3.87) and the standard deviation (.642) assured that the highest
number of the respondents disagreed the stated item.

43
In Table 4.5 above, 4(3.3%) and 91(74.6%) of the respondents expressed their agreement for the
statement in item 4, but 11(9%) of them responded undecided while 10(8.2%) and 6(4.9%) of the
respondents explained their disagreement. The total mean score (2.46) with its standard deviation
(.642) approved as each employees is paid based on their education qualification and job position.

14(11.5%) and 49(40.2%) of the respondents reported strongly agree and agree respectively.
Merely 19(15.6%) of them replied undecided. The other 38(31.1%) and 2(1.6%) of the respondents
demonstrated their disagreement. The total mean score (2.71) with its standard deviation (1.079)
informs us the majority respondents wish to leave their job from the study area.

Generally, the findings of the study clearly show that the target respondents didn’t have positive
perception towards the practice of compensation in their organization. They admitted they received
certain payments from their company, but these payments were not able to create satisfaction
among employees.

4.7 Multiple Regression Analysis

In order to understand the degree and significance of the effect of each independent variable on the
dependent variable multiple regression analysis with ordinary least square (OLS) technique was
conducted. The value of the elasticity coefficient or Beta coefficient indicates the magnitude of the
effect of each independent variable on the dependent variable while the sign of the beta coefficient
indicates the direction of the effect. The P- value indicates the level of significance of the effect of
each independent variable on the dependent variable. Accordingly, the estimated result revealed
that all of the explanatory variables except performance reward have statistically significant
positive effect on the dependent variable. The result of the regression analysis was presented
below.

Table: 4.6 the multiple regression analysis

Unstandardized Standardized t Sig.

Model Coefficients Coefficients
B Std. Error Beta
1 (Constant) 0.415 0.229 - 2.059 0.082
Average descriptive 0.168 0.065 0.174 2.357 0.066
analysis of practice of
44
 compensation
Average of descriptive 0.123 0.066 0.139 1.734 0.054
analysis of finance
compensations
Average of descriptive 0.111 0.055 0.140 1.853 0.040
analysis of non-finance
compensation
Average of descriptive 0.154 0.082 0.174 2.161 0.067
analysis of Challenges in
Implementing
Compensations
Average of descriptive 0.139 0.069 0.175 2.309 0.050
analysis of respondents’
perception
a. Dependent Variable: average compensation practice and challenge

In this regards as depicted in the table 4.6 above among the explanatory variables included in the
regression model practice of compensation has positive and statistically significant effect at 5
percent significant level on compensation practice and challenge with elasticity coefficient
(β=0.168) and P-Value of .012. This result is in line with the result of Panda (2016) which found
that performance appraisal has positive and significant effect on compensation practice and
challenges with beta value of (β=.209) and P-Value= .000, but against with the finding of Sefani
(2017) which found that compensation practice has negative and significant effect on
organizational. Finance compensation with β value of 0.123 and P-Value of .001 revealed to has
positive and statistically significant effect on organization at 1 percent significant level. This
finding is in agreement with the result of (Panda, 2016) that Finance compensation has positive
and significant effect on organization with beta value of (β=.389) and P-Value= .000. . Non-
Finance compensation with β value of 0.111and P-Value of .002 revealed to has positive and
statistically significant effect on organization at 1 percent significant level. This finding is in
agreement with the result of (Panda, 2016) that non-finance compensation has positive and
significant effect on organization with beta value of (β=.312) and P-Value= .000.

45
Finally Challenges in Implementing Compensations has found to have positive and statistically
significant effect with beta value at 5 percent significant level (β=0.154) and P-Value= 0.040. This
result is consistent with the finding of Panda (2016) and Sefani (2017) which found challenge of
compensation.

46
 CHAPTER-FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATION

5.1 Summary

The major objective of the study was to assess the practice and challenges of compensation in
electronics equipment manufacturing industry. Research questions were formulated for the study.

Mixed research approach which is a combination of qualitative and quantitative research types was
used for the study. Descriptive survey research design was employed. Employees who have been
working in electronics equipment manufacturing industry participated in the study.

To determine the sample size of the participants, Yemane (1967) formula was used utilized. A
stratified sampling technique was used for fifteen departments. Random sampling technique was
employed in order to choose the target participants from the populations.

Semi-structured questionnaire and in-depth interview was used so as to collecting the study data.
Descriptive statistics such as frequency, percentage, mean, and standard deviation was utilized for
analyzing the questionnaire data. Even though 152 questionnaires were distributed to 152
respondents, 30 questionnaires were not completed well, and some of them were not returned.
Therefore, only 122 respondents’ data were analyzed.

The extent of the actual practice of compensation, the kinds of the applied compensation,
challenges in implementing compensation, perception of employees about the manner of practicing
compensation were the main focus area of the study.

5.2. Conclusions

The conclusion was made based on the research objectives sequentially.

Research question1: 1.To what extent, the compensation policies are implemented in in the study
area?

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The study findings confirmed that compensations have been provided to employees even though
actual practice in the target organization was not carried out in proper manner. This simply shows
that the target respondents were not satisfied with the compensation. In contrast, many other
research findings claimed that compensation drives employees’ motivation in order to work well.
From this, it can be concluded that the respondents in the study area didn’t have work motivation
because of the improper implementation of compensation.

Research question 2: What kinds of compensation are provided to employees in the study area?

Different scholars mention compensation types which are called finance compensation and non-
compensation. These scholars still suggest that these two types of compensations should be
implemented in an organization because both of them are powerful in order to enhance employee’s
job motivation. Even, they make employees retain in their work place. Conversely, the current
study findings approved that mainly financial compensation types were applied in the study area.
From this, one can conclude that there is some limitation of implementing both finance and non-
finance compensation. To illustrate this point, non-finance compensations types were not carried
out in the study area.

Research question 3: What are the challenges of implementing compensation in the study area?

There are certain factors that challenge the practice of compensations in an organization. In the
study area, there was lack of budget for implementing compensation according to each employee
demands. Even, the given allowance couldn’t make employees glad which meant they were not
satisfied with it because it was impossible to cover their daily expense. Furthermore, one change
was employees always focused on finance compensation rather than non –finance compensation.
The other problem was the practice of compensation has still depended on the civil services rules
and regulations which previously formulated.

Research question 4: How do employees’ perceive compensation system in their organization?

According to the study findings, the majority respondents didn’t have positive perception towards
the implemented compensation in the study area.

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5.3. Recommendations

The results of this study have identified various issues about compensations that need immediate
attention by the stakeholders in organization.

 Most employees at electronics equipment manufacturing industry are unable to fulfill their
basic needs and support their families with the payment they receive from the enterprise.
Thus, the organization is expected to revise its compensation practice and consider cost of
living and current economic hardship to determine compensation policy and raise
employee’s salary.
 The practice of compensation in electronics equipment manufacturing industry didn’t
satisfy employees’ demands. Therefore, it is necessary to make need assessment about
employees’ problems since this can help providing other compensation types aside from
monthly salary variety of compensation packages motivates employees and enables them to
have a good on the industry compensation practice.
 As the study identifies employees feel they are not paid for the status and job position they
have. To tackle this, Job evaluation must be clearly conducted to set a pay scale for a
specific job by deeply looking the relative worth of jobs. Also the corporation must prepare
a clear qualification requirement which must balance the qualification and the salary level
of job positions.
 According to the findings of the study the industry pays below the current labor market, the
researcher suggest that the organization should conduct a labor market survey to compare
its compensation with similar organization and standardize its compensation practice and
system up to labor market.
 To enhance and consolidate on the gains of increased employee performance, the
organization employees should be compensated.
 The salaries of employees need to be adjusted on timely basis, which will not only retain
the present employees but will also attract competent and talented employees from other
organizations. Moreover, there is a need for organizations to revise their benefits package
by identifying those which have more influence on employee retention and replace them
with those that are no longer relevant.

49
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 Appendix-1

MEKANE YESUS SEMONARY COLLEGE

SCHOOL OF POSTGRADUATE STUDIES
DEPARTMENT OF BUSINESS ADMINSTRATION

Dear respondent,
The purpose of this research is to explore “Assessment of Compensation Practices and Challenges:
The Case of Electronics Equipment Manufacturing Industry (EEMI). It is obvious that this
research becomes effective and meaningful if you show your industry to answer all the questions
carefully based on your understanding and experience. Thus, your interest and devotion of time is
vital for the study. Moreover, I would like to inform you that the information you give will be used
only for research purpose and kept confidential. For any clarification needed please contact me on:
+251912158611.

Thank you in advance!

General instruction:
Please, don’t write your name on the questionnaire.
Please, follow the directions given in each part.

53
Part-one: Back Ground Information
Please, mark your responses with a tick (X) in the box provided except for items those
require written responses.
1. Gender: 1.Male 2.Female
2. Age: 1.21-30 years 2.31-40 years 3. 41-50 years 4. 51-60 years
3. Education status: 1.Diploma 2. Degree 3. Master 4. PhD degree
4. Working experience:
1) 1-2years 2)3-4 years 3) above 4 year

Part-Two. Items related to practice and challenges of compensations are listed below in part
(a,b,c & d). Please, indicate your response according to the stated requests by putting a tick (X)
mark in the box that you choose

a) With regard to the implementation of compensation, kindly rate the extent to which you
agree with the following statements
i. Consideration of cost of living on payment 5 4 3 2 1
My organization pays me considering rising economic conditions
My organization covers my basic needs requirements such as housing, food
and clothing
My salary allows me other than to cover basic needs to save money for
emergency purposes
ii. Based on Labour Market
My organization pays better than other similar organizations
My organization pays according to the current labour market at the industry
My organization pays below current labour market at the industry
iii. Based on Job Standard and Financial Stability
My organization compensate employees on the ground of clear job
qualification such as Education, skill and experience
My organization pays me based on its profit margin
My organization is in a good financial condition
My organization involves employees or labour union in determining pay scale

54
iv. Based on employees’ Job
I am paid for the job that has clear responsibility, function and duties
My payment considers the relative worth & importance of my job position
My organization compensation policy considers some aspect of the job such as
job location and environmental hardship
Based on Government Regulation
My organization applies government’s law regarding compensation
I am paid for the time I spent on work set by the government working hour
standard which is 8 hours
Key: 5= strongly disagree (SD 4=disagree (DA) 3= undecided (Ud) 2= agree (A)
1=strongly agree (SA)
(a) Employee Compensation Related Questions
Rank the actual practice of compensation in
your organization relying on:
1 Job or position of employees
2 Performance of employees
3 Skills/knowledge
4 Educational qualification of employees
5 Collective agreement unions
6 Working environment hardship
7 Please, specify other:-----------------------

(b)With regard to kinds of the implemented compensation in your organization, kindly rate the
extent to which you agree with the following statements.
Financial compensations 5 4 3 2 1
My Basic pay is reviewed periodically
My Basic pay varies from others; from the same level of employment
My basic pay motivates me to do my work well
My basic pay is well balanced compared to other employees in the
organization

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An increase in my basic pay will motivate me to improve my productivity
There exist a system in the organization for compensating employees if they
achieve their targets
In my work, the team reward motivates me well
I am entitled for a reward if the whole organization achieves its set target
Non-Financial compensation
I am aware of what the Conditions of Service Manual contains
I am satisfied with the non-financial compensation I receive
The non-financial compensation we receive are as good as most other
organizations
The non-financial compensation package we have is equitable and well
satisfying
There are non-financial compensations we do not have which I should have
The non-financial compensation package as a whole is adequate
The non-financial compensation package is attractive and boosts my
performance
The non-financial compensations available are well communicated to
employees
There is a link between a well implemented non-financial compensation and
high performance
Key: 5= strongly disagree (SD 4=disagree (DA) 3= undecided (Ud) 2= agree (A)
1=strongly agree (SA)

(c)With regard to challenges in implementing compensation, kindly rate the extent to which
you agree with the following statements.
Items 5 4 3 2 1
My organization doesn’t have adequate budget for compensation
The given allowance can’t fulfill employees’ needs.
Employees are dissatisfied with the provided compensation
Employees seeks to receive only finance compensation

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Employees continuously organization to increase their salary
Key: 5= strongly disagree (SD 4=disagree (DA) 3= undecided (Ud) 2= agree (A)
1=strongly agree (SA)

(d)With regard perception of employees towards compensation in their organization, kindly rate
the extent to which you agree with the following statements.
Items 5 4 3 2 1
I am satisfied with my salary
I am paid based on my actual performance
My yearly salary increment is attractive
I received payments other than base pay
I received my payment on time
Key5= strongly disagree (SD 4=disagree (DA) 3= undecided (Ud) 2= agree (A)
1=strongly agree (SA)

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Date:-----------------------------
Interviewee code: --------------- Responsibility: -------------------------------

Interview Questions
1. How do you see the implementation of compensation at your organization?
2. What kind of compensation dose your organizations apply?
3. What challenges does the corporation faces in regard compensation how it tries to solve
them?
4. What is your perception towards compensation?
5. Do you think that the practice of compensation has relationship with your performance?
Explain your reasons.

58