The Effect of Compensation on Employees’ Performance: Empirical evidence from Amhara Bank S.C.
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Date
2024-09
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Addis Ababa University
Abstract
This study investigated the effect of compensation on employee performance at the Amhara Bank S.C. Head Office. The research employed a quantitative approach, utilizing a design that
combined descriptive and explanatory components. The sample frame consisted of all employees at the bank's head office, with a sample of 210 participants selected through stratified random
sampling. The data was collected using a structured questionnaire with a 5-point Likert scale, covering various aspects of compensation, including direct financial, indirect financial,
extrinsic, and intrinsic rewards. Descriptive statistics were used to summarize the data, while inferential statistics, such as correlation and multiple linear regression analysis, were employed
to examine the relationships between the compensation factors and employee performance. The regression findings revealed that all predictor variables - direct financial, indirect financial,
extrinsic, and intrinsic rewards - had a statistically significant (p < 0.001) positive impact on employee performance. These predictors collectively explain 84.4% of the variance in the
dependent variable, employee performance. The regression analysis further revealed the relative importance of each factor, with extrinsic rewards (β = 0.276) having the strongest influence,
followed by direct financial compensation (β = 0.251), intrinsic rewards (β = 0.242), and indirect financial compensation (β = 0.233). These results emphasize the multifaceted nature of
effective compensation strategies and their profound influence on driving employee performance at the Amhara Bank S.C. Head Quarters. The bank should improve the compensation and
reward system to address the diverse needs and preferences of the bank's workforce, through leveraging these key drivers of employee performance to achieve sustained organizational
success.
Key words:Amhara Bank, direct financial compensation, indirect financial compensation,extrinsic reward, intrinsic reward and employee performance.