THE INFLUENCE OF COMPENSATION ON JOB PERFORMANCE AMONG EMPLOYEES IN MALAYSIA

Abstract

One of the issues in psychology of work and occupation is job performance. Employee's job performance has a great potential to help the organization achieve its goals. Among the factors that affect job performance is compensation provided by the employer. This study looks at the influence of types of compensation-financial and non-financial on job performance. The respondents of this study were the employees of Employees Provident Fund (EPF) in Terengganu, Malaysia. The results show that the employees were satisfied with the compensation provided by their employer and that there is a moderate relationship between the types of compensation with employees' job performance. It was also found that non-financial compensation has demonstrated a stronger relationship to the job performance compared to financial.

Full text

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THE INFLUENCE OF COMPENSATION ON JOB PERFORMANCE AMONG EMPLOYEES
IN MALAYSIA
MAS ANOM BT. ABDUL RASHID1, MOHD NOOR AZMAN BIN OTHMAN2, MOHD
ZAINUDIN BIN OTHMAN3, NURUL FATINI ABDULLAH4
1Faculty of Communication and Media Studies, KPTM, Malaysia
Email: masanom@gapps;kptm.edu.my
2Faculty of Computing and Technical Sciences, KPTM, Malaysia,
Email: n.azman@gapps.kptm.edu.my
3School of Technology Management and Logistic, UUM, Malaysia
Email: zainudin@uum.edu.my
4Faculty of Business Management. UiTM Jengka, Pahang.
Email: Nurulfatini91@gmail.com
ABSTRACT
One of the issues in psychology of work and occupation is job performance. Employee’s job
performance has a great potential to help the organization achieve its goals. Among the factors that affect
job performance is compensation provided by the employer. This study looks at the influence of types of
compensation - financial and non-financial on job performance. The respondents of this study were the
employees of Employees Provident Fund (EPF) in Terengganu, Malaysia. The results show that the
employees were satisfied with the compensation provided by their employer and that there is a moderate
relationship between the types of compensation with employees’ job performance. It was also found that
non-financial compensation has demonstrated a stronger relationship to the job performance compared to
financial.
Keywords: employees’ provident fund, non-financial compensation, financial compensation, job
performance, Malaysia
INTRODUCTION
One of the main issues in psychology of work and occupation is job performance as workers are required
to performance to the expected level for every task assigned. According to Dessler (2011) job
performance is considered very important as the workers who performed excellently has a great potential
to help the organization achieve its goals. Employees need to respond quickly and effectively in market
demands so their efforts to enhance the organization’s performance becomes greater (Cho et al.,2006).
According to Almutairi et al (2013) factors that affect job performance are job satisfaction and
compensation. As this paper centers toward the influence of the types of compensation on job
performance, the element of job satisfaction will not be further discussed.
THEORETICAL BACKGROUND
In the Exectancy Theory, it is mentioned that individuals may behave or act in a certain way when they
are being motivated in a certain expected way (Vroom, 1964). In this case, what type of compensations,
financial and non-financial as motivation to how individual behave; that is perform in their assigned jobs.

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Compensations
Compensation is a systematic approach to providing monetary value to employees in exchange for work
performed. It may achieve several purposes assisting in recruitment, job performance and job
satisfaction. There are many forms of compensations which include wage and salary, incentives and
fringe benefit (Mohanta, 2013). According to Bernadin (2007), compensation being one of the factors
that influences job performance is referred to as all forms of financial returns and tangible benefits
received by employee as a part of the employee employer relationship.
A research by Simamora (2004) stated that financial compensation is very important for the employees as
money can directly fulfill their needs especially physiological needs. According to Appelbaum et al.,
(2000) stated that financial compensation also drive worker’s morale and Balkin and Dolan (1997) stated
that financial rewards are often applied to demonstrate the firm’s seriousness in valuing employee’s
contributions to quality. According to Frey (1997) non-financial compensation may include higher status,
recognition, more responsibility, positive feedback and more assertiveness. The most significant non-
financial rewards that are specifically valued by some staff is recognition. A majestic motivator which
encourages workers to stay with manager is being noticed and valued.
Muneeb et al (2012) suggests that non-financial compensation consisted of four elements. The first
element is employment whereby the employees tend to prefer jobs that provide an opportunity to assess
and challenge their ability to work. The second element is work environment which is in the form of
social status, the pride of the employees and a pleasant working environment. The third element is
awards given to employee who is able to show high degree of creativity in his work and lastly, promotion
where employees see this as an opportunity to progress.
Therefore, from these empirical evidence it is suggested that both financial compensation and non-
financial compensation are important in determining job performance of an employee.
Job Performance
Job performance is an individual-level variable, or something a single person does. This differentiates it
from more encompassing constructs such as organizational performance or national performance, which
are higher-level variables (Campbell et al., 1993)
The job performance on the other hand is defined as the quality and quantity achieved by individuals or
group after fulfilling a task (Schemerhorn, 1989). Furthermore, Munchinsky (2003) has suggested job
performance is the set of employee’s behaviors that can be measured, monitored and evaluated at
individual level. According to Baron (1983) as cited by Serena Aktar et al. (2012), employee will give
their maximum when they have a feeling or trust that their efforts will be rewarded by the management.
Working conditions, worker and employer relationship, training and development opportunities, job
security, and company’s overall policies and procedures for rewarding employees was the factors that
affect the employees’ performance.
According to Sonnentag and Frese (2002) motivational constructs related to performance can be partly
subsumed under the individual differences perspectives (e.g., need for achievement), partly under the
situational perspectives (e.g., extrinsic rewards), and partly under the performance regulation perspective
(e.g., goal setting).
From the above literature, it can be concluded that job performance can be measured in various levels, it
can also be measured in quality or quantity achieved by individuals or group. It may also be measured
through working conditions, relationships, training and opportunities, job security and overall policies.
All the above can be factors which can affect job performance.

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Statement of the Problem
The Expectancy Theory (Vroom, 1964) proposes an individual will behave or act in a certain way
because they are motivated to select a specific behavior over other behaviors due to what they expect the
result of that selected behavior will be (Oliver, 1974). Forbes Entrepreneur (2013) posit that money
and perks matters to make employees happy and work hard but not as much as we may think.
Therefore, based on the statements above, this study proposed to investigate the situation in one
of Malaysia’s organization and aimed to fill in the gaps in the literature on how Malaysian
employees’ job performance are influenced by the type of compensation, i.e. financial and non-
financial.
Research Objectives
The objectives of the study was first, to identify the effect of the type of compensation towards
employees’ job performance at Employees Provident Fund (EPF), Kuala Terengganu. Secondly, to
determine which type of compensation influences job performance the most.
RESEARCH QUESTIONS
The fundamental research problems that the study is seeking to investigate are:
1. Is there any significant correlation between financial and non-financial compensation on job
performance?
2. Which type of compensation is most influential to job performance?
PROPOSED RESEARCH FRAMEWORK
METHOD
This research is a correlational a case study conducted at the Employee’s Provident Fund (EPF) of Kuala
Terengganu. The research design is quantitative research using a set of questionnaires distributed to 50
respondents coming from various age-group and positions ranging from clerical staff, management and
executives.
The questionnaire consisted of 29 items divided into four (4) sections, namely; Section A covering the
demographic section with six (6) items Section B consisted of eight (8) items measuring the effect of
financial compensation (items 7 – 14) while section C measured the employees’ non-financial
compensation. Section C had 10 items (items 15 – 24) and lastly, section D consisted of five (5) items
(items 25-29) which measured the job performance.
Data collection was done by distributing a set of questionnaires to all 50 of the employees at all of the
Compensation
Financial
Job Performance
Non-Financial

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department at the organization. However, only 40 questionnaires were then collected, thus, the return rate
is at 80%.
Data analyses were conducted on the data collected. Since the number of respondents were less than 100,
therefore, only SPSS was used, namely the descriptive, reliability and regression were used to analyze the
data.
RESULTS
Demographic Profile of Respondents
The demographic profile of the respondents includes gender, age, marital status, education level, length of
service and monthly gross income.
Table 1: Demographic Profile of Respondents
Items
Frequency
Percentages
Gender
Male
19
47.5
Female
21
52.5
Age Group
30-39 years old
9
22.5
40-49 years old
21
52.5
50 years old and above
10
25.0
Marital Status
Married
39
97.5
Widow
1
2.5
Educational Level
SPM
26
65.0
Diploma
8
20.0
Bachelor Degree
4
10.0
Master
2
5.0
No. of Year Service
Less than 5 years
More than 5 years
0
40
0.0
100.0
Gross Monthly Income
RM 2001-RM 3000
2
5.0
RM3001-RM 4000
6
15.0
RM 4001-RM 5000
5
12.5
RM 5001 and above
27
67.5
Total
40
100.0

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Table 1 above indicated the gender distribution of the respondents from the Employees Provident Fund
Kuala Terengganu. The number of respondents was 40 (100.0%) and there were more female (52.5%)
respondents than males (47.5%). The researcher categorized the age of the respondents into five groups.
Nevertheless, the analyzed data showed that the range of age of all respondents involved were only three
groups. As shown in the table above, the age group varied from 30 to 50 and above. Of the 40
respondents, 52.5% were between the ages of 40 and 49, 25.0% were between the ages of 50 years old
and above and 22.5% were between the ages of 30-39. The majority of respondents were married with
97.5% and the rest were widows with 2.5%.
Table 1 also showed that educational level ranged from secondary or less to master degree. The majority
of the respondents had secondary certificate or less with 65.0% followed by those with diploma 20.0%.
10.0% or 4 of the respondents hold a bachelor’s degree and 5.0% or 2 with a master’s degree.
Table 1 illustrated that the majority of the period of services of all of the respondents was more than five
years with 40 respondents or 100.0%.
According to Table 1, most of the respondents had gross monthly income of RM 5001 and above with
67.5% or 27 persons. This was followed by RM 3001-RM 4000 with 15.0% or 6 persons. About 12.5%
or 5 persons took home the gross monthly income of RM 4001- RM5000. Lastly, 5.0% or 2 persons with
gross monthly income of RM 2001-RM 3000.
From 50 questionnaires distributed to the staff at EPF Kuala Terengganu, only 40 questionnaires were
analysed (80% return rate). The researcher waited for the respondents to complete the survey but they
failed to complete the survey because they were very busy.
Reliability Test
Reliability tests were conducted on all three variables, one independent variable and one dependent
variable. Table 2 below shows the result of the reliability tests.
Table 2 - Reliability Statistic Result
Variable
Cronbach’s Alpha
N of Items
Financial Compensation
.650
8
Non-Financial Compensation
Job Performance
.804
.854
10
5
Financial compensation has a moderate reliability coefficient of .524. Additional testing for internal
reliability indicated that one item was not a good fit with the others. One item is removed to produce a
reliability coefficient of .650 (item 5). Non-financial compensation value is .804 while job performance
value is .854. According to Saiful (2012), the items are considered to represent an acceptable level of
internal consistency if the Cronbach’s alpha value within 0.5 to 0.7 and good level if the Cronbach’s
alpha value more than 0.7.

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Table 3 Model summary shows the result to answer RQ2.
Table 3: Model Summary
Model Summary
Model
R
R Square
Adjusted R
Square
Std. Error of
the Estimate
1
.727a
.529
.489
.32198
a. Predictors: (Constant), Mean_NonFinancial and
Mean_Financial
Based on Table 3, it is found that the value of R is 72.7% and R square is 52.9% which indicate that the
relationship between financial and non-financial compensation to job performance is moderate.
Table 4 Regression analysis
Coefficientsa
Model
Unstandardized Coefficients
Standardized
Coefficients
t
Sig.
B
Std. Error
Beta
1
(Constant)
.529
.616
.859
.396
Mean_Financial
.028
.066
.049
.425
.673
Mean_NonFinancial
.204
.111
.238
1.831
.075
a. Dependent Variable: Mean_Job Performance
Table 4 indicated that there were a significant relationship between job satisfaction (.000) and non-
financial compensation (.075) to job performance. However, there is no significant relationship between
financial compensation (.673) to job performance.
DISCUSSION AND CONCLUSION
Based on the study conducted it was found that the employees at the Employees Provident Fund (EPF),
Kuala Terengganu were satisfied with their job performance as well as the non-financial compensation
received from their employer. However, the result showed that there is no significant relationship
between financial compensation to job performance. This finding does not support Simanora (2004)’
Bernadin (2007) and Sopiah (2013). One possible explanation to this could be due to the demographics of
the respondents as close to 70% of them are paid at RM5000 or more.
The result indicates that employees of EPF were more incline towards the non-financial compensation
offered by the employer to motivate them to perform better. The non-financial compensation satisfaction
which influences their job performance namely the medical benefits, communication style, recognition
and work environment. This evident suggests that employers have to focus not only on the financial
compensation, but they must also focus on the non-financial aspect of the employees’ compensation
(Frey, 1997).
This study has given an insight to the employers in offering better and more condusive work environment
apart from the salary or wages to be offered to the potential staff. Employees tend to prefer company
perks and other benefits, i.e. medical, vacation and employers’ recognition more than higher salary or

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wages to motivate them to perform at their workplace.
Based on the Expectancy Theory or Expectancy Theory of Motivation which proposes that an individual
will behave or act in a certain way because they are motivated to select a specific behavior over other
behaviors due to what they expect the result of the selected behavior will be. In this case, if employees
are being given due recognition by the employer, given promotion when they deserve and chances in
training to develop their career ladder, they will gladly behave accordingly.
As a conclusion, employees when being appreciated by employers will behave accordingly, and in this
case, they showed it in their job performance. By doing so, they can expect to be rewarded at the end of
the year in terms of bonus as indicated in the Expectancy Theory. However, bottom line is employees
must be given the expected recognition and opportunities in their daily routine by employers simply
because they are human beings. And all employers should be aware of this as suggested in Forbes (2013).
This study also suggest that future researcher should venture into the employer’s awareness on the
psychological needs of their employees and its effect on their job performance.
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