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Exploring the Nexus between Employee Engagement
and Job Performance: Unveiling the Moderating
Potential of Incentive Compensation
Hazrat Bilal1*, Dr. Bahadar Shah2
1 PhD Scholar, Department of Management Sciences, Hazara University,
Mansehra
2Professor, Department of Management Sciences, Hazara University,
Mansehra
Corresponding author: Hazrat Bilal
PhD Scholar, Department of Management Sciences, Hazara University,
Mansehra.
ONOMÁZEIN 32 (December 2015): 01-10
ISSN: 0718-5758
32
December
2015
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Hazrat Bilal
1
Abstract
For an organization to succeed, employee performance and engagement are essential. In this
research, the moderating impact of incentive compensation on the link between Employee
Engagement (EE) and Job Performance (JP) is examined. The study, which is based on the Social
Exchange Theory, looks at how fair compensation encourages engagement and affects job
performance. The study uses a quantitative methodology and cross-sectional survey data to examine
faculty members at private universities in Khyber Pakhtunkhwa. The findings reveal a positive and
statistically significant connection between EE, incentive compensation, and JP. Regression models
reveal a strong relationship between employee engagement and JP. Furthermore, moderation analysis
shows that incentive compensation affects the relationship between EE and JP. The study emphasizes
the significance of fair and purposeful compensation practices in increasing employee engagement
and improving work performance. While noting limitations such as its regional emphasis and cross-
sectional methodology, this study adds to our understanding of how remuneration affects the subtle
relationships between engagement and work performance and recommends additional areas for
study.
Keywords: Employee Engagement, Social Exchange Theory, Contextual Performance, Task
Performance, Job Performance.
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1. Introduction
Currently the practice of sport is assumed as a way to obtain qualitative changes, quantitative
possibilities should be considered, according to the results of athletes with disabilities to enhance
their more comprehensive and holistic personality of the athlete.
Employee engagement and JP are essential determinants in the success and sustainability of
organisations. EE is defined as employees' emotional commitment, motivation, and interest in their
work and organisation. JP, on the other hand, refers to how well people carry out their job tasks and
obligations. Organisations throughout the world are increasingly recognising the need of promoting
high levels of EE in order to improve JP.
Incentive compensation is one important factor that might influence the relationship between EE and
JP. Employee compensation includes salaries, bonuses, benefits, and other monetary and non-
monetary rewards for their efforts. The question is, how can compensation moderate the relationship
between EE and JP? To answer this question, this research article explores the moderating impact of
compensation in the relationship between EE and JP.
The Social Exchange Theory which forms the basis of this study, contends that people engage in
relationships and interactions based on the idea of reciprocity (Blau, 1968; Cook & Emerson, 1987).
When they believe their efforts are being fairly compensated in the context of the employee-employer
relationship, employees may be more motivated to put out effort and display superior JP. The
relationship between EE and JP may be strengthened if incentive compensation is seen as a type of
reciprocation.
2. Objectives and Scope
Examining the relationship between EE and JP is the primary purpose of this study. In the context of
the relationship between EE and JP, this study also aims to investigate the role of incentive
compensation as a moderator. The scope of the study is limited to an evaluation of the
compensation's moderating impact on the relationship between EE and JP, with a particular emphasis
on faculty members working in Khyber Pakhtunkhwa's private sector universities.
3. Literature Review
There is a substantial corpus of study on EE, JP, and incentive compensation in the literature. Previous
research has demonstrated a positive association between EE and JP, implying that engaged
employees are more likely to perform well (Harter, Schmidt, & Hayes, 2002; Kahn, 1990). Likewise,
compensation was consistently considere a significant factor affecting employee motivation and JP
(Milkovich, Newman, & Milkovich, 2014).
Employees are organizational envoys, continually influencing efficiency and business outcomes.
Employees that are engaged and adept at generating maximum energy while utilizing less resource
underpin increased organizational efficiency. Scholars and practitioners have used a variety of ways
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to describe engagement. It is define as employees' strong attachment to their jobs, with physical,
cognitive, and emotional characteristics (Kahn, 1990).
This captures the person's enthusiastic dedication and commitment to work (Harter et al., 2002),
highlighting engagement's facets as a committed employee (Fleming, Coffman, & Harter, 2005),
emotional and rational allegiance to the organization (Mani, 2011), and an enthusiastic passion for
work (Truss, 2014), an energizing force driving employees to higher performance (Wellins &
Concelman, 2004), and a sense of accountability and dedication driving excellent JP (Britt, Dickinson,
Greene-Shortridge, & McKibben, 2007). Subsequently engagement shows as a profound link
encouraging employees to transcend conventional expectations and fiercely support their
organization's success (Gebauer, Lowman, & Gordon, 2008), a connection characterized by
behavioral expression (Shuck & Wollard, 2010). These definitions all emphasize the importance of
engaged employees in increasing productivity, improving performance, reducing turnover, and
supporting long-term organizational growth.
According to Kahn (1990), engagement is a psychological stimulant that promotes active
involvement of employees in both personal and organizational goals. Schaufeli, Salanova, González-
Romá, and Bakker (2002) elaborates on this by describing engagement as an affirmative,
accomplishment-oriented state characterized by vigor, dedication, and absorption.
Engagement crystallizes into three crucial dimensions from this vantage point. First, vigor embodies
increased vitality, emotional agility, and energy investment, as demonstrated by dedication and
tenacity in the face of adversity. Second, dedication entails a strong sense of belonging, passion,
eagerness, and motivation that drives steadfast commitment to job completion. Finally, absorption
manifests as unshakable focus, concentration, and a profound sense of immersion in one's job, in
which time passes quickly and people become absorbed in their tasks.
Job Performance
Although there are many facets to the concept of JP as it relates to organizational psychology and
organizational behavior (Chaudhry & Usman, 2011), a single, widely-accepted definition is still
difficult to come by. According to (Sonnentag & Frese, 2002) JP is a multifaceted phenomenon that
includes elements like abilities, drive, declarative knowledge, and procedural knowledge (Waldman &
Spangler, 1989). Notably, research emphasizes JP as a function of employee work behaviors, which
play a critical role in defining the organizational, social, and psychological milieu that functions as a
catalyst for task-related activities and processes (Borman & Motowidlo, 1997). This notion
distinguishes two primary domains: task performance and contextual performance (Borman &
Motowidlo, 1997; Conway, 1999) . Task performance denotes employees' competency levels,
comprising the execution of given tasks and obligations inherent in their employment (Arvey &
Murphy, 1998). Contextual performance, on the other hand, is an additional dimension of
competence that contributes to the organizational, social, and psychological environment, thereby
helping the attainment of organizational objectives (Borman & Motowidlo, 1997; Motowidlo & Van
Scotter, 1994)
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Incentives Compensation
Because employees are now seen as an organization's primary resourceit is imperative to increase
EE and performance (Drucker, 2002). In order to encourage and reward its employees, organisations
have turned to incentives compensation as a solution to this problem. The two most typical types of
incentives are monetary awards and incentive-based compensation programmes, which include stock
options, ownership stakes, bonuses, and prizes. These are intended to honour and promote
performance that goes above and beyond expected levels.
Financial incentives, like as pay raises and stock options, are particularly effective at showing
employees how much you value their work (Zaidi & Abbas, 2011). According to Kyani, Akhtar, and
Haroon (2011) financial incentives are ways of providing money in exchange for the services that
employees provide. This idea encompasses a wide range of benefits, including stock options in
addition to pay raises and bonuses.
Financial incentives are defined as monetary compensation provided to employees, whether in the
form of a one-time payment or a consistent monthly disbursement, which individuals interpret as an
instantaneous acknowledgment of their dedicated efforts (Al-Nsour, 2012), which further describes
this viewpoint. Ichniowski, Shaw, and Prennushi (1997) found that incentive plans, when combined
with innovative work practises, positively influence employee performance.
Employees' optimism is frequently boosted by the prospect of financial rewards commensurate with
their efficacy and effectiveness. This optimism extends to the academic world, where universities
compete for high-quality teaching faculty by offering competitive compensation packages. Additionally,
human capital-intensive institutions such as universities can benefit from well-designed incentives and
innovative work practices, both of which contribute to improved employee performance (Figlio &
Kenny, 2007). For example, private sector universities in Pakistan have used lucrative compensation
and financial incentives to attract teaching faculty with strong academic and research backgrounds,
outpacing their public sector counterparts' relatively modest compensation offers.
To address this disparity, the Higher Education Commission (HEC) implemented the Tenure Track
System in 2006, which provided improved compensation incentives and superior financial packages
to university faculty in the public sector. This initiative has not only reduced faculty shortages, but it
has also enticed teaching faculty from private universities, who were previously paid on a fixed salary,
to join the tenure track system. Such actions highlight the critical role of compensation incentives in
shaping engagement and performance, a point reinforced by Podgursky and Springer (2007) who
reveal a positive relationship between compensation practises and academic professor performance.
Furthermore, compensation practises have been shown to be statistically significant contributors to
employee JP, organisational productivity, and perceived employee performance enhancement
(Glewwe, Ilias, & Kremer, 2010).
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Relationship among Employee Engagement, Incentive Compensation and Job Performance
The complex relationship between EE, compensation, and JP is a critical topic
in organizational research. Numerous studies was conducted to investigate the connection between
EE and JP, highlighting their interdependence. Employees who are emotionally engaged to and
enthusiastic about their work are more likely to exhibit greater levels of JP, thereby
improving organizational outcomes (Saks, 2006). Harter et al. (2002), who emphasize the role of
EE in improving not only individual task performance but also organizational collective effectiveness,
echo this synergistic relationship.
.Looking on to the association between compensation and JP it is clear that the allure of fair and
competitive incentives compensation acts as a strong motivator, affecting EE and, as a consequence,
performance (Eisenberger, Rhoades, & Cameron, 1999). According to (Glewwe et al., 2010)
Incentives compensation practices, which include financial incentives and rewards, have a significant
relationship with improved organizational productivity and JP. This relationship is complex, despite the
fact that it is acknowledged that compensation must be perceived as equitable in order to be truly
motivating (Adams, 1965). Employee performance closely related to how highly they believe their
contributions are valued, which can be reinforce by using the right compensation frameworks (Ryan
& Brown, 2003).
A holistic perspective emerges from delving into the intersection of EE, compensation, and JP. Gerhart
and Fang (2014) research emphasizes the interdependence of these factors, demonstrating that fair
compensation systems can increase EE, resulting in improved JP. The Job Demands-Resources model,
on the other hand, proposes that compensation, as an extrinsic resource, can moderate the
relationship between job demands, EE, and performance ((Bakker & Demerouti, 2007)In this
context, the intricate interconnections between EE, compensation strategies, and JP highlight the
importance of a comprehensive strategy for maximizing organizational success. Recognizing and
nurturing these, dynamics has the potential to foster a motivated and high-achieving workforce. The
synergy between incentives compensation and increased engagement reverberates across industries,
shaping the trajectory of employee performance and overall organizational outcomes. Nonetheless,
there is a research gap in understanding how compensation may potentially moderate the link
between EE and JP enhancement. Scattered research has delved into the specific ways in which
compensation may influence the strength of this relationship, indicating an area ripe for exploration.
4. Methodology and Analysis
This study uses a quantitative approach to investigate the relationships between EE, compensation,
and JP in private sector universities in Khyber Pakhtunkhwa. The research design includes a cross-
sectional survey that uses a random sampling technique to select 205 teaching faculty members from
various private sector universities in the region. As the primary tool for gathering data, a structured
questionnaire is used. The questionnaire was divided into several sections to collect data on EE,
perceptions of compensation, JP, and demographic characteristics.
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EE was measured using a 17-item scale adapted from Schaufeli et al. (2002), which was designed
to measure the level of EE. while JP was measured using a 16-item scale developed by Viswesvaran
and Ones (2000) to quantify individuals' levels of JP. Incentive compensation was evaluated using a
6-item scale adapted from Demo, Neiva, Nunes, and Rozzett (2012). The purpose of this scale was
to capture participants' perceptions of compensation aspects. A 5-point Likert scale ranging from 1
to 5, with 1 denoting "strongly disagree" and 5 denoting "strongly agree” was used for measuring all
the variable.
Reliability Analysis
Table 1 exhibit the Cronbach's alpha values for the measurements, which all exceed 0.70. As a
result, all scales' reliability is established, confirming their suitability for subsequent analyses
(Nunnally, 1978).
Table 1: Cronbach’s Alpha Reliability
Variable
Alpha Reliability
EE*
0.862
JP**
0.853
IC***
0.839
*Employee Engagement, ** Job Performance, ***Incentive Compensation
Correlation Analysis
The correlation outcome has been shown in Table 2 demonstrate a positive and significant
correlation between EE and JP is r = 0.631, p ˂ 0.001, EE and IC is . r = 0.491, p ˂ 0.001 and
JP and IC is r = 0.386, p ˂ 0.001.
Table 2 Correlation
EE
JP
IC
EE*
1
JP**
.631 **
1
IC
.491**
.386**
1
**. Correlation is significant at the 0.01 level (2-tailed).
Regression Analysis
A regression analysis was used to investigate the robustness of the affirmative connection between
EE and JP. Table 3 displays the model's results, including R values, ANOVA, and coefficients. The
regression analysis results show that EE has a significant and positive impact on the JP. The results
show a significant variation of 39.8% in JP, with a corresponding coefficient (β) of 0.685.
Furthermore, the F-statistic is 134.845, the t-statistic is 11.612, and the p-value is 0.001, indicating
that the results are significant. The findings show that a unit increase in EE corresponds to a 0.398
unit rise in JP, with an R-squared (R2) value of 39.8%.
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Table 3: Regression Results of EE and JP relationship
Value
R
0.631
R Square
0.398
Beta
0.685
T
11.612
F
134.845
Sig.
.000
Dependent variable: JP and Independent variable: EE
Regression Analysis for Moderation
Regression results show the R Square value in the Model Summary table 3. The independent
variable, in this case, accounts for 40.8 percent of the variance seen in the dependent variable, as
shown by the observed R Square value of 0.408 in this situation.
Table 4: Model Summary
Model
R
R Square
Adjusted R Square
Std. Error of the
Estimate
1
.639a
.408
.402
.45742
a. Predictors: (Constant), INT, EE
By analysing the means of each group, the one-way analysis of variance (ANOVA) assesses
whether there are statistically significant differences between them. The one-way ANOVA in this
case exhibits statistical significance (Sig. = 0.000), indicating significant differences between the
groups under comparison.
Table 5: ANOVAa
Model
Sum of Squares
df
Mean Square
F
Sig.
1
Regression
29.236
2
14.618
69.865
.000b
Residual
42.474
203
.209
Total
71.711
205
a. Dependent Variable: JP
b. Predictors: (Constant), INT, EE
As a result, it is evident that there is a strong causal association between the independent variable
"EE" and the dependent variable "JP" (P-value = 0.000). The significance of the link between the "EE"
and "JP" variables is validated with a P-value of 0.05. Finally, the findings of the moderating effect are
investigated. The P-value for the interaction term (INT) is 0.039. Given that this P-value is less than
0.05, it is inferred that the moderator variable "Incentive Compensation" has a moderating influence
on the link between the EE and JP.
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Table 6: Coefficientsa
Model
Unstandardized Coefficients
Standardized
Coefficients
t
Sig.
B
Std. Error
Beta
1
(Constant)
1.259
.261
4.827
.000
EE
.576
.084
.530
6.870
.000
INT
.018
.010
.141
1.827
.039
a. Dependent Variable: JP
5. Discussion
Prior research has consistently confirmed the predictive impact of EE in JP. This link was corroborated
by Macey and Schneider (2008), Dalal et al. (2008, 2012), and Babcock-Roberson and Strickland
(2010). Babcock-Roberson discovered a 16% variance in JP, but our investigation discovered a
49.1% variance. This variation could be due to cultural context and assessment tools. Babcock-
Roberson measured work performance using a 24-item Likert Scale developed by Organ and Near
(1983), whereas this study employed a 16-item scale developed by Viswesvaran and Ones (2000).
Within the framework of the developed model, the role of incentive compensation as a moderating
factor was investigated in this study. The study sought to determine how incentive compensation
interacts with two essential variables, EE and JP. The study investigated how incentive compensation
effects the nature and strength of the association between EE and JP using a detailed analysis. The
study attempted to provide insights into how the interaction of incentive compensation can improve
or change the impacts of EE on desirable workplace behaviours such as JP by looking into this
moderating role.
Future Research Recommendation
Future study can build on these findings in a variety of ways. Longitudinal studies can be carried out
to track the long-term influence of incentive compensation on the relationship between EE and JP,
providing insights into how the dynamics change over time. A comparison analysis could also broaden
the investigation to include various organizations, sectors, or cultural contexts, allowing for a
more generalized knowledge of how incentive compensation modifies this relationship while
discovering potential unique components at work. Examining mediating factors such as job happiness,
organisational commitment, or work-life balance could help to clarify the mechanisms behind the
association between incentive compensation and engagement-performance. A mixed-methods
approach combining qualitative and quantitative research methodologies can be used to provide a
richer perspective, providing a holistic view of the complex interactions between EE, incentive
compensation, and JP, thereby enriching our understanding of this multifaceted relationship.
Limitations
Considering its positive aspects, the study has certain limitations. For first of all, its contextual
distinctiveness, focusing primarily on faculty members in private sector universities within a single
location, may limit the findings' broader relevance to other situations and organizations. Second, the
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cross-sectional design makes it difficult to establish causal relationships and track changes over
time, emphasizing the potential benefits of using a longitudinal approach for a more comprehensive
understanding of the intricate dynamics between EE, incentive compensation, and JP. Third, relying
on participants' self-reported data raises the possibility of self-report bias, which can be influenced by
social desirability or perceptual inaccuracies, potentially impacting the accuracy of reported
engagement levels, compensation perceptions, and JP. Fourth, despite the use of established
measurement scales, changes in measurement methods among research may have an impact on the
consistency and comparability of findings. Finally, the study's investigation of the moderating function
of incentive compensation represents only a subset of potential moderators, ignoring other potential
influencing factors such as leadership style or organizational culture, which may also contribute to the
complex correlations identified.
6. Conclusion
In conclusion, the study emphasises the importance of EE and its impact on JP, which is consistent
with previous studies. It also looks into the fascinating role of incentive compensation as a moderator
in this relationship. The findings highlight how incentive compensation practices strengthen the link
between engagement and JP, adding a degree of complexity to the existing understanding. While
contextual considerations and measuring methodologies should be taken into account, this study
adds to the body of knowledge by throwing light on the potential of incentive compensation to
enhance the beneficial results of engaged employees. Recognizing and effectively using the
relationship between engagement, compensation, and performance is critical as organizations aim for
long-term success.
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