Alpha University College

Department of Human Resource Management & Leadership

The Impact of Compensation on Employee Satisfaction: A Case of Saxansaxo

Group of Companies, Burao.
By

Yususf Hiis Mohamoud Student ID:1533

Abdisemed Ali Farah Student ID:1872

Sulaiman Ahmed Hussein Student ID:1658

Ahmed Osman Ibrahim Student ID:1871

Deeq Hussein Adan Student ID:1765

Advisor
Mukhtar Jama Muhumed

A Research Proposal/Thesis Submitted to the Department of Human Resource Management &

Leadership, Alpha University College, in Partial Fulfillment of the Requirements for the Award
of Bachelor Degree in Human Resource Management

March, 2021

Burao, Somaliland

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Declaration
I, Yusuf, Abdisamed, Suleiman, Ahmed and Deeq, hereby declare that this submission is my own
work and that, to the best of my knowledge and belief, it contains no material previously published
or written by another person nor material which has been accepted for the award of any
other degree or diploma of the university or other institute of higher learning, except
where due acknowledge has been made in the text and reference list.

Name of the student______________________ Signature:___________ Date:_______

Name of the student______________________ Signature:___________ Date:_______

Name of the student______________________ Signature:___________ Date:_______

Name of the student______________________ Signature:___________ Date:_______

This is to certify that this thesis proposal is the bonafide work of Yusuf, Abdisamed, Suleiman,
Ahmed and Deeq, carried out under my supervision.

Name of the Advisor______________________ Signature _____________Date:_____

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Approval
This is to certify that thesis entitled “The Impact of Compensation on Employee Satisfaction: A
Case of Saxansaxo Group of Companies, Burao.” Submitted by Mr/Ms Yusuf, Abdisamad,
Suleiman, Ahmed and Deeq.to Alpha University College, Burao towards partial fulfillment of the
requirements for the award of the bachelor degree of arts in Human Resource Management.

Name of the Advisor: ________________________ Signature_____________________

Name of the External Examiner: _______________ Signature_____________________

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 DEDICATION
We thankful to the supreme almighty god for graciously who made us easy to write on this research
proposal successfully. We dedicate this work to our families and lovely friends through their encouragements
and inspirations.

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ACKNOWLEDGEMENT
In first place, we give glory, praises, honor and adoration into Almighty Allah, the creator of heaven
and earth who allowed us to write this research proposal in this short time period. Our special thanks
goes to the amiable Supervisor Mr. Mukhtar Jama Muhumed for his unswerving support to us in
undertaking this study.
God richly bless our parents, we thank them for all their support and encouragement through our
education. We also like to thank especially to Mom for her undeniable supports, encouragements,
and contributions in undertaking this study. We wish to say a big thank to all lectures of Alpha
University_ Burao branch, for the knowledge they imparted to us during the bachelor of Human
Resource Management (HRM).
Furthermore, our appreciation goes to all our class mates and friends who supported us in diverse
ways in undertaking this study. God bless them. Finally, we are grateful to all respondents for their
cooperation.

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Table of Contents
Declaration......................................................................................................................................................... I
Approval............................................................................................................................................................ II
DEDICATION ..................................................................................................................................................... III
ACKNOWLEDGEMENT...................................................................................................................................... IV
ABSTRACT ................................................................................................................................................... VII
CHAPTER ONE: INTRODUCTION ........................................................................................................................ 1
1.1 Background of the Study ........................................................................................................................ 1
1.2 Problem Statement .................................................................................................................................. 3
1.3 Research Objectives .................................................................................................................................... 4
1.3.1 General Objectives ............................................................................................................................... 4
Specific Objectives ....................................................................................................................................... 4
1.4 Significance of the Study ........................................................................................................................ 4
1.5 Scope of the study ...................................................................................................................................... 5
1.5.1 Content Scope ...................................................................................................................................... 5
1.5.2 Geographical Scope ............................................................................................................................. 5
1.5.3 Time Scope .......................................................................................................................................... 5
1.6 Description of the Study area.................................................................................................................. 5
1.7 Limitation of the Study ........................................................................................................................... 5
CHAPTER TWO: LITERATURE REVIEW ............................................................................................................... 6
2.1 Introduction ................................................................................................................................................ 6
2.2 Conceptual Literature ............................................................................................................................. 6
2.2.1 The Concept of Compensation......................................................................................................... 6
2.2.2 Components of Compensation ......................................................................................................... 8
2.2.3 Job Satisfaction .............................................................................................................................. 11
2.2.4 Outcomes of Job Satisfaction......................................................................................................... 12
2.2.5 The Relationship between Compensation and Job Satisfaction..................................................... 13
2.3 Theoretical Literature ........................................................................................................................... 15
2.4. Empirical Literature Review ..................................................................................................................... 16
CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY .......................................................................... 17
3.1 Introduction........................................................................................................................................... 17
3.2. Variable Definitions /Operational Variable ......................................................................................... 17
3.3. Research Types .................................................................................................................................... 17
3.4. Research Approach. ............................................................................................................................. 17
3.5 Sample Design. ..................................................................................................................................... 18
3.5.1. Population of the study ..................................................................................................................... 18
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 3.5.2 Sample Size ....................................................................................................................................... 18
3.5.3 Sampling Techniques......................................................................................................................... 18
3.6 Source of Data ...................................................................................................................................... 19
3.6.1 Primary Data .................................................................................................................................. 19
3.6.2 Secondary....................................................................................................................................... 19
3.7 Data Collection Instrument ................................................................................................................... 19
3.8 Data Presentation Tools ........................................................................................................................ 19
3.9. Data Analysis and Interpretations ........................................................................................................ 19
3.10 Ethical Consideration.......................................................................................................................... 19
REFERENCE...................................................................................................................................................... 20
APPENDICES A: QUESTIONNAIRE.................................................................................................................... 21

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 ABSTRACT
The purpose of the study is to assess the Impact of Compensation on Employee Job Satisfaction: the
Case of Saxansaxo Group Of Companies. It will be aimed to determine the Impact of Compensation
on employee job satisfaction in Saxansaxo Group of Company in Burao Togdheer Region. The
objectives of this study will be to determine the role of compensation on employee job satisfaction;
to identify the compensation packages available at Saxansaxo group of companies and to investigate
the problems and challenges associated with compensation management at Saxansaxo group of
companies The research will be employed descriptive research design
where both qualitative and quantitative research approaches were used. Alternatively,
probability and non-probability techniques will be used to draw a sample of 25 respondents from
a population of 84 from the study areas. Both primary and secondary data will be used. The
primary data will be collected using questionnaires and interviews.

Key words: Compensation, Job Satisfaction, Employees

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 CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
Employee attitudes are very important to monitor, understand, and manage. They develop as the
consequences of the feelings of quality or inequality in the reward system (Newman, Thanacoody
and Hui, 2011). Managers are particularly concerned about job satisfaction. Locke (1976) described
job satisfaction as "a pleasurable or positive emotional state resulting from the appraisa1 of one's job
or job experiences". When employees are satisfied they are motivated to work and are more
productive, so management need information on employee job satisfaction in order to make better
decisions, in both preventing and solving employee problems. Lack of Job satisfaction may lead to
increased absenteeism, turnover, and the undesirable behaviors, so employers should develop
satisfaction among their employees.
Shrivastava and Purang, (2009) stated that job satisfaction is an important aspect of great corporate
success and a satisfied employee is more committed to work and conversely dissatisfaction can lead
to a major drawback on a company’s production as workers are less committed to work (Whitehill
& Takezawa, 1968). Job dissatisfaction is the major contributor to low employee performance,
company productivity and brain drain as shown by various researches that preceded this study.
Empirical studies show the importance of job satisfaction and different consequences of this
important work attitude. Budhwar and Debrah, (2001) emphasize that job satisfaction is a major
indicator of employee feeling towards their job and can be used to predict employee behavior at work
for example absenteeism. Judge and Hulin (2003), point out that it is common that job satisfaction
can facilitate the association between personality variables and some non- standard work behaviors.
Although the association of job satisfaction with other vital factors such the workplace conditions,
employee welfare, workplace stress and social interference completely analyzed and searched, but
the antecedents which positively impact job satisfaction still lack research and need to work.
Especially despite a wide range of literature on the subject there is still a knowledge gap left by other
researchers principally in the hospitality as well as the Somaliland context in general.

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Since Spector (1997) claims that there is concrete evidence found in modern firms that suggests
people work, not only for money but other reasons. This assertion motivated the researcher’s
investigation into components of job satisfaction related to financial and non-financial
rewards(Compensation). Compensation is meant to reward employees for services they provide to a
company and also plays a significant role in the satisfaction of workers; hence it is an important
human resource management function (Torres and Kline, 2006). Proper compensation schemes to
employees reduces or solve problems on high labour turnover, absenteeism, and low morale which
disrupt the productivity of a company (Gall and Gall 1996). Amiri, Khosravi, and Mokhtari (2010)
hypothesize that it is important to examine compensation as it is alleged to have an effect on job
satisfaction of employees. Stakeholders have difficulties in attempting to create a clear and appealing
strategy that can be used for the implementation of a sound compensation plan for ensuring the
preservation of job satisfaction (Petrescu and Simmons 2008), so this study critically investigates the
relationship between compensation and its three components (direct financial, indirect financial, and
non- financial) and job satisfaction.
Most modern Somaliland organizations embrace the concept of the ‘economic man’ as they have the
earliest belief on job satisfaction and motivation. This concept suggests that money exacts action in
people; resultantly it has led companies to formulate pay. SAXANSAXO is the largest and one of
the most popular Water industry in Burao Togdheer Somaliland. From 2010 up to date the Company
like most other companies in the country experienced a severe drop in and instability. The Industry’s
annual report reveals that the major cause to these sharp drops in was lack of customer care while
industry is mainly associated to reward management systems. This could be as a result of the use of
stronger American dollar into the economy which might have caused Somaliland Companies’
products to be an expensive destination for customers from levels of business in the town. It became
more challenging for companies/industries to attract a highly skilled workforce and also to pay
employees hence leading to dissatisfaction of workers in the industry. In an attempt to stay in the
market and survive, Saxansaxo Group tried to use different strategies to cope with the different
obstacles from last few years. One of these strategies is reward management systems. In this study
the researchers aim to investigate how much this strategy was effective for Saxansaxo Water
Industry.

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1.2 Problem Statement
The concept that most organizations trivialize the importance of compensation aggravates the birth
of this research studying the Impact of compensation on Employee job satisfaction. The impact of
rewards on worker job satisfaction should be considered by management as it is an influential aspect
in the compensation equation.
The job and its environment job are critical elements of a total compensation scheme. Compensation
is an effective tool of employee satisfaction and if handled well can be the reason for a workforce
that is proud and motivated. Compensation increases the level of communication, commitment and
transparency and most importantly contribution of workers when there is balancing of the
contribution-benefit equation. Most Somaliland Companies ignore the concept of equity on
compensation hence resulting in job dissatisfaction. The study was also motivated by how
organizations in the country give limited attention to social, economic and political environments
that their employees are subjected to when compensating. The strict economic conditions that were
experienced in Somaliland in 2019 Corona Virus Lockdown” led to employers not rewarding their
employees and this led to dissatisfaction of workers.
Hence job satisfaction is also affected by social, environmental, economic, and educational as well
as gender dimensions. The fragmented compensating approach at Saxansaxo Group Of Companies
saw the failure of an otherwise reasonable compensation policy in Somaliland’s Private
Organizations hence discontentment among employees. At Saxansaxo, apparent job dissatisfaction
was proven by collective company’ actions, high staff turnover, low morale and worsened product
delivery. These are all characteristics of dissatisfied employees. This has resulted in the company
becoming less competitive and having a negative brand image. After that the Saxansaxo Group Of
Companies started to implement reward system to improve situation at workplace. The Industry puts
more focus on financial rewards and under estimates non-financial compensation.

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1.3 Research Objectives
1.3.1 General Objectives
The major objective of this study is to examine the impact of compensation on employee satisfaction,
the case of Saxansaxo group of companies, Burao.
Specific Objectives
1. To determine the role of compensation on employee job satisfaction at Saxansaxo group
of companies.
2. To identify the compensation packages available at Saxansaxo group of companies.
3. To investigate the problems and challenges associated with compensation management at
Saxansaxo group of companies

1.4 Significance of the Study

The significance of this research is hinged on showing to Saxansaxo Group how much this new
system is effective, and also how much can be done to increase job satisfaction at the workplace. So
the current research’s major goal is to critically analyze the underlying compensation variables
that have contributed to the job satisfaction levels at the Industry. Having the information will gather
from this schoolwork, the study will be helpful in numerous stakeholders include: Results of the
research can be used by other organizations to establish if compensation strategies and systems
motivate workers at Saxansaxo Group of Companies could also motivate their employees.
The shortfalls of Saxansaxo can be a basis for other companies in the production industry to revise
their pay structures and compensation systems with the aim of motivating employees and also on
achieving job satisfaction. The findings of the research will also enable the government to check and
refine existing labor laws and policies on compensation so as to ensure equity and increased job
satisfaction. The findings of this research can be useful to employer organizations and trade unions.
Furthermore, the study will give out as an additional source of references for other
students/researchers who will propose to conduct additional studies in this area.

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1.5 Scope of the study
1.5.1 Content Scope
The study will focus on the role and impact of compensation on employee job satisfaction, existed
compensation packages and associated challenges with compensation.
1.5.2 Geographical Scope
The scope of the study will be limited to Saxansaxo Group of Companies, Burao.
1.5.3 Time Scope
The proposal researchers conduct within period between 1th February, 2021 and June 2021 as per
scheduled
1.6 Description of the Study area
This study will reveal the impact of compensation on employee satisfaction according to Saxansaxo
Group of Companies’ employees which then will be used as a key of information by other
organizations. The study will focus to generate tangible results and information about if
compensation has impact on employee job satisfaction and the area of the study is Saxansaxo Group
of companies which is a large organization that supplies Bottled water and Soda Drinks throughout
the country. This company has been established in 2008. The organization hosts more than 200
hundred employees with different levels of responsibilities while the study will examine a right
sample of all these employees.
1.7 Limitation of the Study
During the period of the collection of the data for this research, several major & minor limitations &
restriction may come across as researches conduct and guided the research study: Translation
difficulties: as the questionnaire will be written as English, it is hard to the respondent to understand
and requires to translate by Somali language . Researches may also face financial challenges since
Saxansaxo is far from the town and needs transportation cost and also time limitations may arise.

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 CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction
This chapter will present an analysis of literature related to this topic under study. It will focus on
the variables discussed in the earlier chapter. The chapter therefore aims to provide the reader with
a clearer perspective of the study area, from the point of view of other researchers as well as scholars.
The researcher aims to develop an understanding of the gaps that exist in the study area with the
main aim of trying to cover those that fall within the scope of this study. To achieve all these, the
chapter covers the following: theoretical review, critical review, conceptual frame work and
summary.
2.2 Conceptual Literature
2.2.1 The Concept of Compensation
Compensation refers to all the provided tangible and intangible rewards an employee receives from
the employer as part of the employment relationship. The Society for Human Resource Management
(SHRM, 2012) has defined compensation as systematic approach to providing monetary value to
employees in exchange for work performed. Compensation may achieve several purposes like
assisting in recruitment, job performance, and job satisfaction. It can be said that compensation is
the “glue” that binds the employee and the employer together in the organized sector, which is further
codified in the form of a contract or a mutually binding legal document that spells out exactly how
much should be paid to the employee and the components of the compensation package. Rewards
and benefits are also type of compensation program that are important for employees (Cascio, 2003).
Financially, the salaries must be fair according to employee’s contribution. This gives a great sense
of ownership and an interesting financial advantage for the employees. Non-financial reward should
also be provided to employees for their contributions towards any organizations success (SHRM,
2012).
According to a research report by the Society of Human Resource Management (2012), 6 out of 10
employees indicated that compensation was very important to their overall job satisfaction, putting
it only three percentage points below opportunities that use skills and abilities and only one
percentage point below job security in 2012. It is further stated compensation, along with job
security, has consistently remained on the list of the top five job satisfaction factors most important
to employees. As the economic climate continues to warm up and hiring rates increase, attractive
compensation packages will be one of the strategies organizations competing for talent will use to

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recruit and retain the best employees (SHRM, 2012). According to Cascio (2003), the objective of
the design of compensation program is divided into two; direct and indirect forms of compensation.
Direct compensation has to do with wage or salary aspect while indirect compensation is the fringe
benefits a worker enjoys as a result of working in an organization. Integrating the two into a package
that will encourage the achievement of an organizations goal is what compensation is all about
(Odunlade, 2012). According to McNamara (2006), compensation includes issues regarding wage
and salary programs, structures accruing from job descriptions, merit-based programs, bonus-based
programs, commission based programs among others while benefits typically refers to retirement
plans, health life insurance, disability insurance, vacation, employee stock ownership among others
(Odunlade, 2012).
In the field of management, the key to understanding the process of having a satisfied work force
lies in the meaning of the relationship among, needs, drives, and incentives. For as long as
organizations have existed, compensation has been recognized as a major motivator of employees as
well as an important tool and an expense for organizations. To use compensation as a motivator
effectively, human resource managers must consider four major components of a pay structure in an
organization (Popoola & Ayeni, 2007). The components include: job rate, fringed benefits, payment
and personal or special allowances. As far back as 1911, Frederick Taylor and scientific management
associate described money as the most important factor in motivating the industrial workers to
achieve greater productivity (Waren, 1994). Taylor viewed compensation and performance based
pay as one of the major tools management had at its disposal to motivate employees and increase
their productivity and reduce turn over. In his work, Akitonye (2000) also emphasized that money
remains the most important motivational strategy. However, even if people were principally
concerned with their salaries, this does not prove that money is motivating. There is no firm basis for
the assumption that paying people more will encourage them to do better work. This gives a drive to
the current study.
According to Sinclair (2002), money possesses significant motivating power in as much as it
symbolizes intangible goals like security, power, prestige, and a feeling of accomplishment and
success. He also exhibits the motivational power of money with the process of job choice and
expounds that money has the power to attract, retain, and motivate employees towards higher
performance. For instance, if an employee has another job offer, which offers greater financial
rewards and has identical job characteristics with his current job, that worker would most probably
be motivated to accept the new job offer (Sinclair 2002).
Aswathappa (2005), states that an average employee in the organized sector is entitled to several
benefits–financial and non- financial. The financial benefits include wages, salaries, incentives,
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fringe benefits and perquisites. The non–financial benefits comprise of challenging job
responsibility, recognition of merit, growth prospects, competent supervision, comfortable working
conditions, job-sharing among others.

2.2.2 Components of Compensation

The following are some components of compensation that have been perceived either to contribute
to job satisfaction or dissatisfaction. They include basic pay, allowances, and work environment.

2.2.2.1 Basic Pay

According to Armstrong (2006) the basic pay is the amount of pay that constitutes the rate for the
job. The base pay also serves as the benchmarks against which bonuses and benefits are calculated.
It may vary according to the grade of the job or the level of skill required and is influenced by internal
and external relativities. The internal relativities may be measured by some form of job evaluation
while external relativities are assessed by tracking market rates. Other times, levels of pay may be
agreed upon through collective bargaining with trade unions or by reaching individual agreements.
The base rate may be adjusted to reflect increases in the cost of living or market rates by the
organization, unilaterally or by agreement with a trade union. The basic pay is typically used by
employees for ongoing consumption. Many countries dictate the minimum base salary defining a
minimum wage, individual skills and the level of experience of employees.
De Vaney and Chen (2003) identified basic pay as a "hygiene factor" that could cause employee job
dissatisfaction if its expectation are not realized. They further found out that basic pay was one of
the key elements that significantly influence employees’ job satisfaction. Mulvey et al. (2002) further
8
found out that poor pay translated to low job satisfaction, which was in turn related to low degrees
of work engagement. In a similar fashion, research on performance appraisal has revealed that
sufficient information, in this case on performance-appraisal criteria, increases satisfaction with the
performance appraisal system. The model suggests that pay satisfaction depends on the degree of
discrepancy between individual's perception of the amounts of pay, that they should receive, and
what they actually do receive. Therefore this study seeks to find out some of the pay discrepancies
among the teachers, which bring about job dissatisfaction.

2.2.2.2 Allowances
According to Armstrong (2006), employee allowances include pensions, sick pay, insurance cover,
company cars and a number of other ‘perks’. Perks are used to recognize exceptional contribution,
performance, commitment to culture and values. Perks include additional time off, tickets to events,
trips, dinners and public recognition. They comprise elements of remuneration additional to the
various forms of cash pay and also include provisions for employees that are not strictly remunerated,
such as annual holidays. Some benefits are mandated by law, for example social security,
unemployment compensation and worker compensation. Besides, benefits can be treated as the
payment or entitlement, such as insurance policy employment agreement, or public assistance
program.
Benefits may also be seen as a reflection of justice in society. Once injustice is perceived then
dissatisfaction sets in (Herman, 2005). According to Chiu et al., (2002) rewards/allowances tend to
retain people because high reward levels lead to high job satisfaction, commitment, and loyalty.
Therefore, when employees feel they are not being rewarded as they expected, it will decrease their
job satisfaction leading to low performance. For example, if one perceived fairness about the benefits
received from one's employer, this may lead to higher job satisfaction. The use of allowances and
rewards varies greatly between countries and professions. Some countries/professions have
allowances for certain job types, projects, working hours or regime and location. Other countries,
however, have either a holiday allowance or an end-of-year allowance and some have both (Adams,
2005). Allowances are primarily tied to organizational financial performance according to the 2006
HR Practices in Executive-Level Compensation Survey Report by the Society for Human Resource
Management (SHRM). Most organizations reward top executives for delivering profit growth and
increasing revenue. This study focuses on some specific allowances that teachers enjoy which affect
their job satisfaction.

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2.2.2.3 Working Conditions
The conditions under which employees work has a tremendous effect on their job satisfaction.
According to Desslar (2003) working conditions include aspects like employee voice, employee
recognition, quality of the working life, work/life balance, and talent management. The provision of
modern equipment and facilities, quality furniture, well ventilated offices, well-spaced offices,
secured, well-spaced staff quarters, among others are the conditions that are required to prevent job
dissatisfaction in the organization. Therefore, organizations should allow employees to have some
input in decision –making that will affect them; establish goals and objectives but let the employees
determine how they will achieve those goals and objectives. This study sought to establish the
conditions under which the teachers work. Thompson (2002) argues that work environment and
personal motivation is the principle of management that dictates how to maximize employee
productivity and enhance job satisfaction.
A key motivation for employees in a work environment is that each employee is treated fairly no
matter what level of input a particular worker has in relation to the institution. Working environment
that is comfortable and low of psychological stress facilitates attainment of work goals and tends to
produce high levels of satisfaction among the employees. On the other, stressful working
environment results to low level job satisfaction. (George and Jones 1999) According to Heartfield,
2012, most often ignored or forgotten by managers in the workplace is giving an individual employee
a sense of worth in relation to the actual work that they have done for the organization. Praise and
recognition have been shown to dramatically increase productivity. He further states that maintaining
a motivated staff is not always the easiest of tasks, but it does pay off for the organization, customers
and the employee. By bringing all employees together for a meeting a team work environment is
created (Heartfield, 2012). Working conditions factors have been given considerable attention by
researchers because of their impact on job satisfaction. For instance, according to Padilla (1993)
unfavourable working conditions in an organization are associated with high rates of employee
turnover, which is an indication of job dissatisfaction. On a similar fashion, Ondara (2004) found out
that most Kenyan teachers work in deplorable working conditions, a situation that causes a lot
dissatisfaction among the teachers.
A study done by Mokaya, Wageki and Karanja (2013) on effects of working conditions on employee
satisfaction in hotel industry revealed that employee satisfaction is enhanced when an organization
provides an employee with training and development opportunities, improvement of working
conditions and terms of service. In fact when this is provided employees in these organizations tend
to stay longer in service than in cases where employees only look at the fulfillment of organizations

10
objectives without looking at the progress and welfare of the employees (Mokaya, Wageki and
Karanja, 2013).This study sought to establish the relationship between the work environment for
teachers and job satisfaction. According to Armstrong (2006), working conditions that are
compatible with an employee physical comfort, facilitate doing a good job contributing to job-
satisfaction. He further expounds that temperature, humidity, ventilation, lighting, hours of work,
cleanliness of the work place, and adequate tools and equipments are the features which affect
jobsatisfaction. Hedges (2002), states that most teachers from Sub-Saharan Africa working
conditions are poor. He seems to associate these poor working conditions with the notion that
teachers are poorly compensated and enjoy limited incentives. However, this study partly negates
these findings on the basis that teachers in Maara Sub-County are not the key players in determining
the work environment.

2.2.3 Job Satisfaction

According to Hashim, & Mahmood, (2011) Job satisfaction is an affective reaction to an individual’s
work situation. It can be defined as an overall feeling about one’s job or career and can be related to
specific outcomes, such as pay, work environment, job security promotion opportunities among
others.. Job satisfaction can be an important indicator of how employees feel about their jobs and a
predictor of work behaviors such as organizational citizenship, absenteeism, turnover and overall job
performance. Armstrong (2006) defined job satisfaction as the attitudes and feelings people have
about their work. Positive and favourable attitudes towards the job indicate job satisfaction. Negative
and unfavourable attitudes towards the job indicate job dissatisfaction. Morale is often defined as
being equivalent to job satisfaction.
Thus Guion (1958) defined morale as the extent to which an individual’s needs are satisfied and the
extent to which the individual perceives that satisfaction as stemming from his total work situation.
Morale and job satisfaction are affected by compensation. Often there is a balance (equity) that must
be reached between the monetary values, the employer is willing to pay and the sentiments of worth
felt be the employee. In an attempt to save money, employers may opt to freeze salaries or salary
levels at the expense of satisfaction and morale. Conversely, an employer wishing to reduce
employee turnover may seek to increase salaries and salary levels. Though Maslow’s Need Hierarchy
Theory talks about compensation being at the middle to lower rank of the pyramid and the other
factors like job satisfaction and fulfillment being at the top, for a majority of employees, getting the
right compensation is by itself a motivating factor. Hence, employers need to quantify the employee’s
contribution in a proper manner if they are to get the best out of them.

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Job satisfaction is important because people who are satisfied have positive feelings about their tasks.
It is affected mainly by the challenges and opportunities presented by the work. However, since
groups tend to modify the assigned tasks to fit the group structure, job satisfaction is also affected by
group factors. According to Middlemist and Hitt (1998) people who are highly satisfied with their
job tend to be better workers. Consequently, they are more dependable, comply with the rules, have
fewer complains, are more cooperative and efficient. People join and stay in organizations because
of rewards from the job. The rewards are either intrinsic or extrinsic. Extrinsic rewards include
recognition, enabling work environment among others while intrinsic rewards entail supervision,
relationship with co-workers and challenging work opportunities. Borg and Gall (1985), states that
job satisfaction is influenced by gender, age, security, experience and recognition. They further state
that employees who have more work experience tend to be more satisfied with their jobs than those
without experience. Therefore job satisfaction increased with experience. Age and experience in the
job usually bring greater competence, self-confidence, responsibility and a sense of accomplishment.
According to Schultz (1986) inexperienced workers portray the lowest job satisfaction. This could
be attributed to the fact that young workers who are newly employed have un met expectations in
terms of compensation and work environment. However, has age catches up on them, and the job
opportunities become less, they begin to settle down and derive satisfaction from the only job that is
at their disposal. From the teachers point of view this job satisfaction that is achieved as the teacher
ages can also be attributed to the fact that the longer the tenure that one serves the higher the basic
pay and other benefits.

2.2.4 Outcomes of Job Satisfaction

According Luthans (1989), productivity, absence and turn over are some of the key outcomes of job
satisfaction. He states that those employees who are satisfied with their jobs are likely to register
high productivity/performance, less absenteeism and very unlikely turn over. On the contrary, Luthan
(2002) indicates that there is no strong linkage between satisfaction and productivity/performance
and that satisfaction does not lead to performance. For example a comprehensive Meta analysis of
the research literature found only a 0.17 average correlation between job satisfaction and
productivity. Hence, satisfied workers will not necessarily be the highest performers. This is because
there are other possible-mediating factors like rewards altitude, fear of dismissal or an employee may
simply work hard to make time go quickly. This relationship between satisfaction and performance
gave impetus to this study. Luthans (1989), states that those employees who are dissatisfied are more
likely to be absent from work as they take “health” days, off. Employees who choose to be away

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from work without a good reason are less satisfied than those who register good attendance.
Absenteeism is subject to modification by certain factors.
The degree to which people feel that their jobs are important has a moderating influence on their
absence. Those who feel that their work is important tend to clock in regular attendance. To
organizations absenteeism is expensive. Reports of work burn outs, poor health are few among
satisfied employees and numerous among the dissatisfied workers. The accumulation of these work
burn outs culminates to employee (s) life threatening conditions and sickness which have got cost
implications to the organization inform of man hours lost, medical cover usage and other cost
associated with employee absenteeism. On the other hand an employee can be partly absent doing
other jobs to supplement what he/she earns. Daun (1997) indicates that when teachers’ compensation
is so low that their basic needs are not met, they do not give priority to their teaching responsibilities.
Consequently, they are pushed to taking second jobs to supplement their income. This study sought
to find out whether this applies to teachers in Maara Sub-County. According to Mitchell and Larson
(1984) when the satisfaction is high, turnover is low. Turnover is process in which employee leave
the organization and have to be replaced. Like absenteeism, turnover is related to job dissatisfaction.
Excessive turnover can be a very costly problem with major impact on productivity. For example, in
the United State, the national turnover rate for hospital nurses was 12% in 1996, 15% in 1999, and
26.2% in 2000.
Turnover is a serious problem in part because of its relationship to decreased quality of care and
creates extra expense for employers (Bozeman & Gaughan 2011). High employee turnover is of
considerable concern for employers because it disrupts normal operations, causes morale problems
for those that stick on, and increases the cost involved in selecting and training replacements. The
withdrawal behavior of employees is modified by certain factors like loyalty to a particular
organization. Some employees cannot imagine themselves working elsewhere, however dissatisfied
they are in their present job. Availability of other places of employment also influences turnover.
Bozeman & Gaughan (2011) states that the employer should enhance employee satisfaction to
minimize turnover.

2.2.5 The Relationship between Compensation and Job Satisfaction

Compensation plays a significant role in influencing jobsatisfaction. This is because of two reasons.
First, money is an important instrument in fulfilling ones needs; and two; employees often see pay

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as a reflection of managements’ concern for them. Consequently, employees want a pay system,
which is simple, fair and in line with their expectations. When pay is seen as fair, based on job
demands, individual skill level, and community pay standards, satisfaction is likely to result.
According to Bozeman & Gaughan (2011), the perception of being paid what one is worth predicts
job satisfaction.
In today's globalized world, organizations are facing changes generated by increased competition,
mergers and acquisitions, shifting markets and changing employee demographics. Therefore, it is
crucial for organization to strategize their competitive and benefits plans in order to attract and retain
appropriate talent, maximize return on human capital and increase employees’ job satisfaction. A
key component for a successful organizational intervention is the meaningfulness of the intervention
to the employee. One intervention that may be meaningful to many employees is the amount of their
compensation and benefits increase (Mayuri & Mark, 2005).
Compensation is a powerful communicator of organizational goals and priorities and institutions that
expect to be successful must make employees become partners in their success (Pam, 2007). She
further observes that employee compensation can be a sensitive subject, and people get very
passionate compensation issues in an organization. According to the survey report conducted by the
Society for Human Resource Management (2012), it was found that compensation and benefits are
regularly among the top three factors affecting employee job satisfaction. Although money is not a
motivator, employees crave for it because financial independence equates with personal freedom.
Hence it is what one does with the money that motivates one to work better. From here, it would
seem that compensation and job satisfaction have a positive relationship.
According to March & Simon (1958), compensation can determine what types of workers are
attracted to the organization by signaling job seekers to less visible organizational attributes. The
same also determines whether or not employees are willing to continue working for the organization.
If the pay level or benefit level is not satisfactory, the desirability of movement will increase and it
is more likely that withdrawal behaviors such as tardiness, absenteeism, and turnover increases
(March & Simon, 1958). This study aimed to find out the relationship of some of these behaviours
with teachers job satisfaction. Unsatisfactory pay and benefit levels may also reduce the motivation
of employees and eventually negatively impact individual, group, and organization performance.
Low teacher salaries are a major factor in the high exit rate for new teachers (Carnegie Foundation,
1990; Harris & Associates, 1992; Ingersoll, 2001; Page & Page, 1982). It is clear that compensation
has been a major factor in teacher turnover for some time, and remedies have not been forthcoming
to do anything about it. One could predict from equity theory (Cascio, 2003) that teachers who do
not believe that they are compensated equitably for the work and hardships they must endure will
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take action to remedy the inequity. One of these remedies as cited in the study is leaving the
profession. According to several researchers, compensation and job satisfaction are positively
associated with each other. Souza (2000) observes that compensation is a predictor of job satisfaction
in that employees who are paid highly show a greater job satisfaction, a view also held by (Joanne,
1980). Employee benefits are used by the organizations to recruit and retain talented employees.In
times of economic crisis, when organizations might not be able to offer their employees pay raises
and bonuses, benefits become one of the many tools employers use to increase loyalty, productivity
and job satisfaction. Based on the survey report conducted by Society for Human Resource
Management (SHRM), benefits have remained among the top two most important factors of job
satisfaction to employees. Thus, this study aimed at ascertaining these findings.
2.3 Theoretical Literature
The theoretical framework used in this study is based on the Expectancy Theory which focuses on
link between rewards and behavior. In this study the reward is compensation while the behavior is
job satisfaction. According to the theory, Motivation is the product of valence, instrumentality and
expectancy. Compensation systems differ according to their impact on these motivational
components and pay systems differ most in their impact on instrumentality. There is a perceived link
between behavior and pay. Employees reports of their satisfaction with their jobs, are directly related
to the extent to which their jobs provide them with such rewarding outcomes, as pay, variety in
simulation, consideration from their supervisor, a high probability of promotion, close interaction
with co-workers, an opportunity to influence decisions and control over their pace of work (Gupta,
2003).
Expectancy theory concentrates on the expectations which employees bring with them to work
situation, and the context and manner in which these expectations are satisfied. The underlying
hypothesis is that “appropriate levels of effort, and hence productivity, will only be extended if
employees expectations are fulfilled”. It does not assume a static range of expectations common to
all employees but rather points to the possibility of different sets of expectations. Rewards are seen
as fulfilling or not fulfilling expectations. Expectancy theory challenges management to demonstrate
to employees that extra effort will reap a commensurate reward. The link between effort and reward
needs to encompass both the pay packet and a variety of other extrinsic or intrinsic rewards. Reward
schemes must therefore create a positive link between the size of the pay packet and the effort
expended for employees are primarily motivated by money. (Joanne, 1980).

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2.4. Empirical Literature Review
Weiss, (1967) postulate that Minnesota Satisfaction Questionnaire (MSQ) is a tool that was devised
in order to measure job satisfaction at work. This tool is a satisfaction scale that has been used by
most researchers measuring job satisfaction, (Saner and Eyupoglu, 2012). Minnesota Satisfaction
Questionnaire is a self-administered questionnaire with two forms. The first is a 100- item long type
version and another, a 20 item short paper. The 20 item shorter version is a more detailed tool
compared to other scales that measure satisfaction. The 100-item long type paper contains five items
representing each aspect and the 20-item paper has a single facet. The main intention of the
Minnesota Satisfaction Questionnaire is to measure satisfaction in three forms namely; Intrinsic
Satisfaction, Extrinsic Satisfaction and General Satisfaction. Researchers usually calibrates all items
and combine into one combined score or adding intrinsic and extrinsic satisfaction when using the
short form. Extrinsic satisfaction are related to the environment in which the worker is exposed and
not the job and intrinsic satisfaction is related to the job itself and how the worker feels about the
job. Minnesota Satisfaction Questionnaire (MSQ) prefers subscales with improved reliability than
single items.

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CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY
3.1 Introduction
This chapter highlights the variable definitions, Research types, Research approach, Sample
Design, Source of Data, Data Collection Instruments, Data Presentation Tools, Data Analysis and
Interpretation and Ethical Consideration of the Study.
3.2. Variable Definitions /Operational Variable
Employee satisfaction, also known as job satisfaction, is the extent to which an individual is happy
with their job and the role it plays in their life.
compensation plan helps to reduce the turnover rate of the company. Employees will be more
incentivized to stay in their role and this saves potential.
Compensation independent there fore employee satisfaction dependent
3.3. Research Types
The research type of this study will be a descriptive research to determine the impact of
compensation on employee job satisfaction
3.4. Research Approach.
The research approach of the study will employ both quantitative and qualitative research
approaches. Because mixed approach will cope more information required for the study in
analyzing numeric data and non-numeric data precisely. As Kothari (1990) argues that the
quantitative approach involves the generation of data in numeric form which can be subjected to
accurate quantitative analysis in a formal and inflexible fashion. Technique of this approach is like
questionnaires. While the qualitative approach to research will concern with subjective assessment
of attitudes, opinions and perception. Such an approach to research generates results either in non-
quantitative form or in the form which are not subjected to rigorous quantitative
analysis. Therefore, both quantitative and qualitative research approach will be proposed as very
useful for this study in order to use questionnaires and interviews to achieve the stated specific
objectives.
In the study, quantitative approach will be used to gather a full data that related to numeric
form through questionnaires to collect data from respondents of employees of Saxansaxo

17
Company and qualitative approach will be used to expressive the data from opinions of officials
of the Saxansaxo Company.
3.5 Sample Design.
3.5.1. Population of the study
The population of this study contains two categories the first category will be senior officials of
the Saxansaxo Company and second category will be employees. In detail, first group Human
Resource officer will be purposively selected this is because of his responsibilities towards the
study areas, the second group will be a randomly selected 84 employees.
3.5.2 Sample Size
The sample size of research will be based on the number of employee’s at Saxansaxo group of
companies. However, the researcher will use the Rule of Thumb formula; which ensures the proper
and better representatives of the total population of 84 employees.
Since the target population is 84, the researcher will use the formula which states: if the population
is less than or equal to 1000 take 30% of the population as a sample size. Therefore
If 1000 target populations = 30% (which equals 300)

120 target population = X?

= 1000X = 300*84 X= 25+1 = 26

1000 1000

Thus, this study will have a sample size of 25 employees plus one purposively selected official.
3.5.3 Sampling Techniques
The sampling technique that will adopt in the research will be probability and non-probability
sampling techniques due to the nature of the research methods chosen. Probability technique gave
chance for each person in target population while Non-probability units have not equal chance to
be chosen. From the probability sampling, simple random sampling will be used for employees.
From the non-probability sampling, purposive sampling will be used in the study to collect data
purposively from the human resource office personnel.

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3.6 Source of Data
3.6.1 Primary Data
The primary data for this study will be gathered through structured and unstructured
questionnaire and interviews.

3.6.2 Secondary
The researcher will also gather secondary data sources from the national documents, reports,
different books, published materials and websites on the subject.
3.7 Data Collection Instrument
The data collection instrument will be questionnaires and interviews. Questionnaire is
combinations of questions in written form that given to the respondents to answer them. The open
and closed-ended questionnaires will be used to collect data; the reason for use of this tool is to
minimize bias.
3.8 Data Presentation Tools
After the field work, all the data will analyze in a computer by using SPSS programmer of data
analyzing, version 23.0 program for analysis from which frequency tables, charts and graphs will
made.
3.9. Data Analysis and Interpretations
Data from primary and secondary sources of the proposed study will be organized. The qualitative
data analyzed through design, description, analyze, and interpretation. While, quantitative data
will be prepared and entered data encoded by the computer and analyzed using both Microsoft
Excel for data analyzes to produce attractive tables, graphs. SPSS through analysis tools such as
frequency in order to get pie charts, graphs and bar charts
3.10 Ethical Consideration
For the ethical consideration of this study, the aim of the study will be clearly explained to the
study participants. Information will be collected after obtaining informed consent from each
participant. The personal information of study participants will be kept entirely anonymous, and
confidentiality will be assured throughout the study period.

19
REFERENCE
Adams, J.S. (1965). Inequity in social exchange. In L. Berkowitz (Ed.), Advances
in experimental social psychology (Vol. 2, pp. 267-299). New York: Academic Press.
Budhwar, P.S. and Debrah, Y.A, (2001). Human Resource Management in Developing Countries.
London: Routledge
Hackman, R., and Oldham, G. R. (1976). Motivation through the Design of Work: Test of a
Theory. Organizational Behaviour and Human Performance.
industry", International Journal of Contemporary Hospitality Management, Vol. 18 Issue: 4,
pp.290-301
Petrescu A.I, and Simmons R. (2008) "Human resource management practices and workers' job
satisfaction", International Journal of Manpower, Vol. 29 Issue: 7, pp.651-667
Shrivastava and Purang, (2009) Employee satisfaction of job satisfaction: Comparative study on
Indian banks. Asian Academy of Management Journal, Vol. 14, 2, 65-7
Spector, P. E. (1997). Job Satisfaction: Application, Assessment, Causes, and Consequences.
Publications, Inc. Thousand Oaks, CA: Sage

Torres, E.N. and Kline, S. (2006)."From satisfaction to delight: a model for the hotel
management department. Polish Journal of Management studies, 7, 58-70 Hasibuan, M. S. P.
(2017). Manajemen sumber daya manusia (edisi revisi). Jakarta: Bumi Aksara. Hair, J.F., Black
W.C., Babin, B.J. & Anderson, R.E. (2010). Multivariate Data Analysis (7th ed). United States :
Pearson. Indonesia KKR (2015). Rencana Strategis Kementerian Kesehatan tahun 2015-2019.
Indrawati, A.D., (2013). Pengatruh Kepuasan Kerja terhadap Kinerja Karyawan dan Kepuasan
Pelanggan pada RS. Swasta di kota Denpasar. Jurnal Manajemen, Strategi Bisnis dan
Kewirausahaan Vol. 7, No. 2, Agustus 2013. Landra, N., Yuesti, A., & Setyorini, RR. (2018). The
Effect of Situational Leadership Style and Compensation to Employee Performance with Job
Satisfaction as Intervening Variable at PT Bank Rakyat Indonesia (Persero), Tbk Denpasar
Branch, International Journal of Contemporary Research and Review, 9, 0976 – 4852.
Mangkunegara, A.P. (2017), Manajemen Sumber Daya Manusia Perusahaan. PT. Remaja
Rosdakarya, Bandung. Mariam, S (2016). Kepentingan Kebijakan Pembuatan Peraturan Daerah
Provinsi Daerah Khusus Ibukota (DKI) Jakarta No. 4 Tahun 2007 (Pengendalian, Pemeliharaan
dan Peredaran Unggas) dan Implikasinya Terhadap Usaha Pendistribusian Unggas di DKI Jakarta
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APPENDICES A: QUESTIONNAIRE

We would like to introduce ourselves as a HRM students. As a part of our research study we have
undertaken this project/ proposal entitled “THE IMAPCT OF COMPENSATION ON
EMPLOYEE JOB SATISFACTION; THE CASE OF SAXANSAXOS COMPANY”
We are sure that the valuable information provided by you will be a great help to us and it will be
used only for academic purpose & the information provided by you would be kept confidential.

SECTION A: RESPONDENT’S BIO DATA

Note: please tick mark [√] wherever necessary

1. Gender
1) Male 2) Female
2. Age
1 ) Below 25 years 2) 26 to 30 years

3) 31 to 40 years 4) Above 40 years

3. Marital status

1) Single 2) Married
3) divorced 4) widowed

4. Educational background

1) High school 2) 1st Degree

3) 2ndDegree 4) Masters
5) PHD/Doctorate

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SECTION B: The Role of compensation on employee satisfaction.

On the scale of 1-5 tick in the appropriate box on how you strongly agree or
disagree with the statements given.

Scale 1 2 3 4 5

Strongly Disagree Average Agree Strongly

Disagree Agree

1 2 3 4 5
Statement
1. Compensation has role on employee
satisfaction.

2. There is no relationship between employee

satisfaction and compensation.
3. There is compensation package at saxansaxo
company.
4. Saxansaxo pays Sufficiency of income to meet
family expense
5. There is mismatch between my rewards and my
position.
6. Agree receive non-financial compensation

7. Clarity and ability to understand the pay and

allowance system followed by the management

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8. Clarity and ability to understand the incentive
system followed by the management.
9. I receive my salary at the right time.

10. I get chances to gain something through the pay

and incentive systems of saxansaxo company

SECTION C: Employee Job Satisfaction

1 2 3 4 5
Statement
1. The volume of workload I am expected to do is
reasonable and I never felt that I am overloaded.
2. I appreciate the existing compensation system

which utilized in my organization as compared to

the other.
3. My company considers close match of my right
skills at the right position based on developed
criteria and competition within the organizational
structure.
4. I am happy with the recognition I have received
from my organization as a result of my
performance.
5. I am happy with the existing reward structure of the
company since it is fair and reasonable and meets
my interest
6. I am happy with the overall job security given to me
in my working organization

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 7. The job gives me considerable opportunity for
independence, creativity and freedom fully without
any interference from others unnecessary.
8. I am satisfied with my job which is offered to me by
the company.

9. I am satisfied with the current working hour

undertaken in my organization according to may
rewards.
10. Personally fulfilling my responsibilities under I
employed give me a great satisfaction and
motivation to do more.

Interview Questions
1. How do you feel about the impact of compensation on employee’s job satisfaction?
2. What process does the departments utilize for motivating employees in order to maintain
employee satisfaction?
3. What challenges do you face when compensating employees?
4. What do you believe are the major assets of your training program? Major weaknesses? 5.
How does your department assess teaching effectiveness?
5. Explain your department's relationship with the library and/or the computing center. ?

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