Amare Yalew

210 Pages·2016·3.72 MB·English

Addis Ababa University
School of Commerce

Department of Business Administration and Information System
The Role of Effective Compensation and Reward System on Employee
Performance in the Case of Commercial Bank of Ethiopia

A Thesis Submitted to Addis Ababa University, School of Commerce, for
Partial Fulfillment of the Requirements for Master of Arts Degree in
Human Resource Management

By: Begashaw Tsegaye

Advisor: Worku Mekonnen (PhD)

Addis Ababa, Ethiopia
June, 2017.
Addis Ababa University
School of Commerce
Department of Business Administration and Information System
The Role of Effective Compensation and Reward System on Employee
Performance in Commercial Bank of Ethiopia
Thesis Approval Sheet
Board of Examiners

Advisor Signature Date
___________________ ________________ ____________
External Examiner Signature Date
____________________ ________________ ____________
Internal Examiner Signature Date
___________________ ________________ ____________
Declaration

I, Begashaw Tsegaye, hereby declare that the thesis titled "The Role of Effective
Compensation and Reward System on Employee Performance in the case of Commercial
Bank of Ethiopia" is my original research work under the guidance of my advisor Dr. Worku
Mekonnen. This research has not been submitted for any degree in other universities. All
sources of materials used for this project have been duly cited and acknowledged.

Declared by, Signature Date
Begashaw Tsegaye ___________ ___________

Advisor Signature Date
___________________ _____________ ____________
ACKNOWLEDGEMENT
First and for most, I would like to thank God for the courage He gave me. Secondly, I would
like to thank my advisor, Dr. Worku Mekonnen (Addis Ababa University) for his guidance to
effectively work this research study. I offer sincere thanks to employees of Commercial Bank
of Ethiopia for their cooperation during the survey and Commercial Bank of Ethiopia’s office
of Human Resource Transaction for providing me the necessary materials on the subject
matter of this study. I’m grateful to Ato Yonas G/egziabher, Commercial Bank of Ethiopia,
South Addis District Director of Human Resource Department for providing me very
important books to this research. I am also very grateful to all my families who encouraged
and supported me to accomplish my career.
List of Acronyms

CBE- Commercial Bank of Ethiopia
H.O-Head Office
HR-Human Resource
HRM-Human Resource Management
SPSS- Statistical Package for Social Science
List of Tables
Table 1: Sample Population…………………………………………………….…………..24
Table 2: Reliability Statistics………………………………………………………….……26
Table 3: General Descriptive Statistics of Demographic information……………………..27
Table 4: Chi-Square Tests gender of the respondent vs employee performance…….....….29
Table 5: Chi-Square Tests age of the respondent vs employee performance………….…...30
Table 6: Chi-Square Tests education level vs employee performance……………….…….30
Table 7: Chi-Square Tests employment type vs employee performance………..……....….31
Table 8: Chi-Square Tests work experience * employee performance……………..…...…31
Table 9: Chi-Square Tests marital status * employee performance……………………...…32
Table 10: Chi-Square Tests monthly salary range * employee performance………………32
Table 11: Descriptive Statistics of Financial Reward………………………………….…..33
Table 12: Descriptive Statistics of Non-financial reward ……………….……………...…35
Table 13: Descriptive Statistics Analysis of Employee Performance…………………….36
Table 14: Employee Performance Statistics………………………………………………..37
Table 15: Analysis of coefficient correlation of Financial & Non-financial and Employee
Performance……………………………………………………..……………………………38
Table 16 Regression Model Summary of Financial Reward on Employee Performance........40
Table 17 ANOVA……………………………………………………………….………....41
Table 18 Coefficient………………………………………………………………………..41
Table 19 Model Summary Analysis of Non-financial on Employee Performance……….….42
Table 20 Model Summary Regression Analysis of Financial and Non-financial with
Employee Performance…………………………………………………………….......….….42
Table 21 Coefficients…………………………………………………………………….….42
Table 22 Summary of Hypothesis…………………………………………………………...44
List of Figures

Figure 1 Elements of Total Rewards…….…………………………………….…10
Figure 2 the link between total rewards and Maslow’s hierarchy of needs.............18
Figure 3 Conceptual Framework of the Research…………………...…………….22

IV
ABSTRACT
Compensation and reward management is one of the ways used by organizations for
attracting and retaining suitable employees to improve their performance. The main objective
of this study was to determine the role of effective compensation and reward system on
employee performance in Commercial bank of Ethiopia. The population of this study was
12,622 employees of the organization who works in Addis Ababa.. In this study, both primary
and secondary sources of data were used. The primary data were gathered through
questionnaires from 388 sample respondents from Commercial Bank of Ethiopia using simple
random sampling. A total of 388 sample sizes were selected from employees of the
commercial bank of Ethiopia and a total of 381 employees completed the questionnaire
properly. This study used journals, books, internet sources, and other references were used as
secondary sources of data. Data was analyzed using descriptive statistics such as frequency
tables and inferential statistics such as correlations and regression analysis using SPSS
version 20. The findings of this study indicated that there was a significant relationship
between compensation and reward system with employee performance. The study also
indicated both financial and non-financial compensation and rewards have a significant
relationship with employee performance. The non-financial compensation and rewards were
found to be a more motivational than the financial rewards in Commercial Bank of Ethiopia.
It was also found out that total rewards of CBE had an impact on employee performance.
Therefore, creating competitive and effective compensation and rewards should be developed
to motivate employees’ performance.

Keywords: Compensation, reward, employee performance, financial reward, nonfinancial
reward, total reward.
Table of Content
Chapter One: Introduction………………………………………….……………….1
1.1. Background of the Study……………………………………….……….……1
1.2. Statement of the Problem……………………………………..………………3
1.3. Research Questions……………………………………………..…………….4
1.4. Hypothesis……………………………………………………...……………..4
1.5. Objective of the Study…………………………………………..…………….5
1.5.1. General Objective…………………………………………………..……….…5
1.5.2. Specific Objectives……………………………………………….……………5
1.6. Significance of the study…………………………………………..…………..5
1.7. Scope of the Study………………………………………………..……………6
1.8. Limitations of the Study……………………………………………………….6
1.9. Organization of the Study…………………………………………..……….…7
1.10. Definitions of Terms…………………………………………………………...7
Chapter Two: Review of Related Literature………………….…………..……….……8
2.1. Theoretical Framework of Compensation, Reward and Performance …………….8
2.1.1. Types of Rewards…………………………………..……………………………8
2.1.2. Total Rewards……………………………………………………………………9
2.1.3. Performance…………………………………………………………………….11
2.1.4. Impact of Reward on Performance……………………………………….…....12
2.1.5. Motivation………………………………………………………………………13
2.1.5.1. Types of Motivation……………………………………………….………….13
2.1.6. Reward Management……………………………………..…………………….14
2.1.7. Reward Philosophy……………………………………………………………..15
2.1.8. Fundamental Views of Reward Management…………………………………..17
2.2. Empirical Review…………………………………………………………….……20