Tadele Shomoche

The Impact Of Compensation On Employees Motivation In Case Of CBE Hawassa Main Branch
ABSTRACT
The study investigates assess the impact of compensation on employees motivation taking the
case of Commercial Bank of Ethiopia (CBE) at Hawassa main branch. The method that would be
used to collect the necessary data was. The data were gathered from both primary and secondary
source of data. Questionnaires were distributed to all employees and manager of CBE, Hawassa
main branch questionnaires. Generally, this study can be used as a base for other researchers who
seek to conduct in depth assessment of the impact of compensation on employee‟s motivation at
Commercial Bank of Ethiopia, Hawassa main at branch.
Department of Management, BSTL College Hawassa I

ACKNOWLEDGEMENTS
First and for most, my deepest thanks goes to my God for giving me the health, and help me in
all the circumstances from the beginning up to the preparation of this paper. I would like to
thanks all employees of Commercial Bank of Ethiopia, Hawassa main branch for their
cooperation.
Department of Management, BSTL College Hawassa II

ACRONYMS AND ABBREVIATIONS
CBE Commercial Bank of Ethiopia
Km Kilometer
ETB Ethiopia Birr
Department of Management, BSTL College Hawassa III

LIST OF FIGURES
Figure 1 Map of Hawassa Town ..................................................................................................... 6
Department of Management, BSTL College Hawassa IV

LIST OF TABLES
Table 1 Budget Break Down........................................................................................................... 9
Table 2 Work Plan ........................................................................................................................ 10
Department of Management, BSTL College Hawassa V

TABLE OF CONTENTS
ABSTRACT ..................................................................................................................................... I
ACKNOWLEDGEMENTS ............................................................................................................ II
ACRONYMS AND ABBREVIATIONS ..................................................................................... III
LIST OF FIGURES ...................................................................................................................... IV
LIST OF TABLES ......................................................................................................................... V
TABLE OF CONTENTS .............................................................................................................. VI
CHAPTER ONE: INTRODUCTION ............................................................................................. 1
1.1. Background of the Study ...................................................................................................... 1
1.2 Statement of the problem ...................................................................................................... 2
1.3 Research Questions/ Hypothesis ........................................................................................... 2
1.4 Objective of the Study ........................................................................................................... 2
1.4.1 General Objective ........................................................................................................... 2
1.4.2 Specific Objectives ......................................................................................................... 2
1.5 Significance of the Study ...................................................................................................... 3
1.6 Scope of the Study................................................................................................................. 3
1.7 Limitation of the Study ......................................................................................................... 3
1.8 Organization of the report ..................................................................................................... 3
CHAPTER TWO: LITERATURE REVIEW ................................................................................. 4
2.1. Compensation ....................................................................................................................... 4
2.2. Incentive System .................................................................................................................. 4
2.3. Bonus System ....................................................................................................................... 4
2.4. Benefits................................................................................................................................. 4
2.5. Motivation ............................................................................................................................ 4
2.6. Pay and Employees Motivation............................................................................................ 5
CHAPTER THREE: RESEARCH METHODOLOGY ................................................................. 6
3.1 Description of the Study Area / Organization ....................................................................... 6
3.2 Research Design .................................................................................................................... 7
3.3 Type and source of data ........................................................................................................ 7
Department of Management, BSTL College Hawassa VI

3.4 Methods of data collection .................................................................................................... 7

3.5 Method of sampling .............................................................................................................. 8
3.6 Method of Data Analysis ...................................................................................................... 8
3.7 Ethical Consideration ............................................................................................................ 8
CHAPTER FOUR: BUDGET BREAK DOWN AND WORK PLAN .......................................... 9
4.1 Budget Break down ............................................................................................................... 9
4.2 Work plan ............................................................................................................................ 10
CHAPTER FIVE: CONCLUSION AND RECOMMENDATION ............................................. 11
5.1 CONCLUSION ................................................................................................................... 11
5.2 RECOMMENDATION ...................................................................................................... 11
REFERENCES ............................................................................................................................. 12
Department of Management, BSTL College Hawassa VII

CHAPTER ONE: INTRODUCTION

1.1. Background of the Study
The reason behind developing business organization in the world is to make a profit. In order to
achieve this objective, organizations use material, information, machines and employees. Among
those, employees play the main and great role in the activities of the organization. The above
resources by themselves will not help the organization to accomplish its objectives, unless there
is an effective coordination and utilization of human and non-human resources. So, the principal
component or asset of an organization is its human resource or people at work. When employee
carryout their activities, organizations evaluate them for several different reason that includes
assessing for training programs, determining and giving feedback, and to make compensation.
Compensation is human resource management function that deals with every types of rewards
individuals receives in exchange for performing organizational tasks, organization compensates
employees through wages, salaries, bonus, benefit such as health insurance, vacation times,
pension program. These activities are important to increase motivation of employees as a result
performance of workers also increases (Dessler and Gray, 1994).
As it is mentioned in the definition of compensation, it is all about rewards individuals receive in
exchange for performing organizational task, in other way compensation is not only money,
rather it is divided into two as financial and non-financial compensation, financial compensation
includes salaries, wages, bonus, or commission and insurances. Non-financial compensations are
rewards like praises, self-esteem and recognitions (Dessler and Gray, 1994).
Motivation is both intrinsic and extrinsic states that energize humans to achieve the desired goal.
Motivational incentives playing a very significant role in the day to day performance of workers
in every organization workers motivation matters a lot and should be concerned for both
employees and the employer (Ivancevich, 1998).
Employees are performing well when they are motivated performance or productivity implies
both the concern of effectiveness and efficiency. Effectiveness refers to goal accomplishment.
However, it does not speak of the costs incurred in reaching the goal. This is where efficiency
comes in. efficiency evaluates the ratio of inputs consumed to outputs achieved. Performance
includes personal data such as measure of accidents, turnover, absences and tardiness
(Ivancevich, 1998).
Department of Management, BSTL College Hawassa 1

1.2 Statement of the problem

Commercial Bank is the most successful financial institution in Ethiopia. It provides different
services for people. In order to attract employees to their organization, they are expected to use
different employees handling tools in retaining and attracting new employees towards the
organization. One of the tools expected to be used by the organization in retaining and attracting
new employees and increasing their performance is compensation. But there are some challenges
which hinder compensation providing system such as the exact measurement of each employee
contribution and how to distribute compensation to keep employees motivated and good
performer. As the use of compensation in the organizations was not sufficiently investigated, the
researcher was motivated to analyses the organization concerning the impact of compensation on
employees motivation which leads to organizational effectiveness and efficiency.
1.3 Research Questions/ Hypothesis
The study would be attempted to address the following basic questions
 What are the types of compensations used in CBE Hawassa main branch?
 What attitudes and reaction do employees have toward compensations?
 To what extent motivation of employees is affected by compensation?
 Do well designed compensation methods motivate employees to perform better?
1.4 Objective of the Study
1.4.1 General Objective
The general objective of the study is assessing the impact of compensation on employee‟s
motivation CBE Hawassa main Branch.
1.4.2 Specific Objectives
 To identify kinds of compensation used in an organization.
 To identify the attitudes and reaction do employees have toward compensations.
 To identify the relationship between compensation and employees motivation in
the organization.
 To identify whether well designed compensation is used to motivates employees
to perform better.

1.5 Significance of the Study

The responsibility of carrying out any activities has its own either long term or short term
significances. This research has also much significance. Among other, the following are some of
them.
 Significance for other researcher: it wills used as a reference to those who need to
conduct research on these topic and identifying what is not studies.
 Significance for the organization: the result of the study will help the managers and
employees of this organization to assess compensation system and taking action
accordingly.
1.6 Scope of the Study
A complete evaluation and judgment of compensation system on employees motivation in all
banking industry in Ethiopia is a very much task and time taking. However, it is necessary to
narrow down this study into a manageable size due to cost and time. Therefore this study was
confined to the assessment of compensation impact on employees‟ motivation, in CBE Hawassa
branch which is found in Hawassa town.
1.7 Limitation of the Study
Shortage of time and lack of sufficient fund may have its own impact on the quality of the research.
1.8 Organization of the report
The rest of this paper organized as follows. The second chapter contains review of related
literatures including conceptual framework for analysis. Description of the study area, methods
of sampling, data collection and analysis are included under chapter three. The rest are budget
break down, work plan, conclusion and recommendation parts.

CHAPTER TWO: LITERATURE REVIEW

2.1. Compensation
Compensation is human resource management function that deals with every type of rewards
individuals receive in exchange for performing organizational task. It also refers to all the
extrinsic rewards employees receive in exchange for their work. Compensation composed to the
bases wage or salary, any incentives or bonus and any benefit. The base wage or salary is the
hourly, weekly or monthly pay employees receive for their work (Rue, 1997).
2.2. Incentive System
The term “incentive” has been used both in the restricted sense of participation and widest sense
of financial motivation. It is used to signify inducements offered to employees to put forth best in
order to maximize production results. Incentive encourages a worker to put in more productive
effort voluntary. Workers are not exert willingly their effort to produces and where near their
capacities unless their interest in work created by some kinds of rewards (Sharma, 1998).
2.3. Bonus System
Bonus system is used in continuous process and assembly lines where efforts of a number of
workers are required to complete the job and therefore, it is not participate to assess the output of
individual workers where it is necessary to pay a collective or group bonus to retain in the
incentives payment idea (Daft, 1998).
2.4. Benefits
Many organizations provide numerous extrinsic rewards in an indirect manner. With indirect
compensation, employees receive the tangible value of the rewards without receiving the actual
cash. A benefit is an indirect reward, such as health insurance, vacation pay, and retirement
pensions given to an employee or group of employees as a part of organizational membership
(Sharma, 1998).
2.5. Motivation
Motivation can be defined as inner forces that impulses human being to behave in a variety of
ways and is, therefore a very important parts of the study of human individuality. Because of the
central importance to the study of people at work motivation has been a subject for continued
research for the greater parts of this century. Many theories have already been proposed and
continued to appear these theories are two kinds. They may be bases on assumptions by

practicing managers, resulting from experience and direct observation or they may be the result
of methodological research usually by industrial psychologist and similar specialists (Ivancevich,
1998).
Traditionally, assumption made by managers about motivation has largely reflected a “carrot and
stick” approach. Ample evidences of the prevalence of this approach may be seen in the system
of rewards and punishment applied in both direct and subtle ways that are characteristics of very
much works of organization. Sometimes describes as a rational economic theory. It is
exemplified in the ideas of Fredirick Taylor and his followers in the so called “scientific
management school” which introduced method of time and motion study into work organization
at the beginning of this century. This theory is based on assumptions that workers are motivated
mainly materials such as assumptions inevitability have a fundamental effect upon the
organizational environment, managerial style, working arrangement and methods. In Taylor‟s
system, for example, time and motion studies were used to maximize efficiency and performance
little heed was paid to the potential influences or importance of human factors upon work
performance (Tyson and York, 2001).
2.6. Pay and Employees Motivation
Increasing pay roll costs and competitions in the global market places have caused managers to
search for ways to increase motivation by linking compensations to employees‟ performances.
High performances require many motivations. Ability, adequate equipment, health‟s safety, and
other conditions all help raise performances level. But employees‟ motivation to works harder
and better is obviously an important factor. A number of studies indicate that if pay is tied to
performances, the employee produces a higher quality and quantity of work (Dessler, 1998).

CHAPTER THREE: RESEARCH METHODOLOGY

This chapter deals with the research design and the methodology that will be used in gathering
data for the study. It contains description of study area, the research design, research approach,
population & sampling method, and the sample size, source of data, data collection procedure
and data analysis techniques and ethical consideration section
3.1 Description of the Study Area / Organization
Hawassa city, formerly called Awassa, was founded near the Lake-Hawassa. It is located in
between Shashamane, and Yirgalem town which are about 25 and 45 K.m away from the city. It
is about 275 km far from Addis Ababa. Geographically, Hawassa city is located in between
7o5‟Latitude North and 38.o28 longitude to East. The lake and the land along the edge of the
lake have got different names in Sidama Language. The Lake has been called „Hawassa”, which
means „big‟ in Sidama language; and the land nearby it was called „Ada‟are‟, equivalent in
meaning to the phrase “the field of cattle”. As it is comfortable place for rearing animals. Hence,
the town established in the land adaare has got its name from the lake -Hawassa. The inherent
attractiveness of the lake Hawassa was the major inspiring reason for the people to establish the
town in this site. So far, the place was not occupied by residents; rather, it was used by
pastoralists for raising their livestock. As the access of water and grasses for their cattle caught
the attention of high land people, they used to make frequent visit to this area, and settled here.
Figure 1 Map of Hawassa Town

The Commercial Bank of Ethiopia (CBE) has a long and distinguished history of providing
financial services. The state Bank of Ethiopia was founded in 1942 with two objectives;
performing both the duties of commercial and central banking. The 1963, Commercial Bank of
Ethiopia was legally established as Share Company to take over the commercial activities of the
state bank of Ethiopia Commercial Bank which performs all kinds of banking, business and
generally leading African bank. Having entered into an agreement with the western union in
1994, the CBE is pioneer in giving nation income, money transfer, worldwide through the
western union and money transfers vice in Ethiopia. Commercial Bank of Ethiopia currently has
more than 140 western union location all over the country, the state owned commercial bank,
still dominate the market in terms of assets, deposits, the growing competition, from private
banks over the most reliable and strong Commercial Bank, both in the country and in the region.
3.2 Research Design
The type of research design that was applied for the purpose of this study is descriptive method.
Because this research is descriptive it identifies or examines the challenges that hinder the
implementation and provide suggested solution to achieve the objective of reform based on the
research findings. Hence the required data has been collected and analyzed using the methods
given below.
3.3 Type and source of data
The research was depending on both qualitative and Quantitative types of data in order to answer
the research questions. The data source for this study was both primary and secondary which are
collected through interview. The source of secondary data was empirical data from website, and
other related sources had been used.
3.4 Methods of data collection
The primary data were collected mainly by structured questionnaire, semi structured and
personal interviews. The questionnaires that were designed are both closed and open ended. The
researcher can use checklist to control the distribution and the collection of data from
respondents. Secondary data sources can be published or unpublished data like annual reports,
websites and other related documents which can show the objective of the study.

3.5 Method of sampling

From different sampling methods to make the sample more representative to population the
researcher want to use stratified random sampling and purposive sampling techniques because of
the nature of groups in the entire population. The sampling technique that used to select sample
from CBE Hawassa main branch employees is the stratified random sampling technique by
categorizing in to two categories of stratum of Category A & B CBE Hawassa main branch
employees.
3.6 Method of Data Analysis
The gathered data would be complied, classified, processed, organized and interpreted carefully
to understand their complete meaning and implications. The information obtained would be
analyzed in simplest and meaningful manner through tabulations, percentage, and also graphs to
understand their complete meaning and implications nearby to arrive at effective conclusion and
possible recommendations.
3.7 Ethical Consideration
The researcher tries to clearly inform to the respondents about the purpose of the study that it is
purely for academic reason. The right to maintain privacy guaranteed anonymity; guaranteed
confidentiality; and avoiding harm these all are accordingly will be applied in this study.

CHAPTER FOUR: BUDGET BREAK DOWN AND WORK PLAN

4.1 Budget Break down
No Description Estimated costs (ETB)
1 Stationary and coping 1500.00
2 Removable disk 500.00
3 Literature /Book Purchase 500.00
4 Proposal Binding 550.00
5 Traveling Cost 340.00
Total 3390.00
Contingency (5%) 169.5
Grand Total 3558.5 ETB
Table 1 Budget Break Down

4.2 Work plan
No Description August September October November
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
1 Literature Survey Δ
2 Data collection
3 Conducting analysis ○
4 Progress report
5 Compilation and
verification of the
recommendations
6 Proposal draft report

submission
7 Proposal final report

compiling, binding
8 Final Proposal report □

submission
Table 2 Work Plan

CHAPTER FIVE: CONCLUSION AND RECOMMENDATION

5.1 CONCLUSION
The purpose of this section is to deal with the finding briefly according to the analysis being
finished in the previous section. Based on the analysis in the previous chapter the researcher is in
a position to conclude the following. The conclusions are based on the respondents‟ view of the
research questions.
The researcher identified the existing compensation system and result on motivation of
employees to perform better in commercial bank of Ethiopia, at Hawassa main branch, in
Hawassa town; this is to arrive at conclusion due to similarities of employee‟s responses.
 There was consistency in compensating employees in bonus, overtime, and
allowance such as transportation allowances.
 There were equal payment between males and females working the same job in
the organization.
There are different types of compensation in commercial bank of Ethiopia, Hawassa main
branch. This includes allowances, overtime payment and bonus. These compensation systems
identified, designed and planned were increase employees motivation and minimizing grievance.
5.2 RECOMMENDATION
 If the manager act as understand and ensure coordinated sense of existing purpose, the
employees will able to share and understand the ideas and vision.
 The organization should have to continue to compensate all employees or relatively to
their job. So as to increase the sense of fairness.
 It is advisable if the organization has an understanding of human behavior, their need,
emotion and sees their action and reaction to compensation.
 It is advisable if the organization expands or increases types of compensation used in the
organization more than the current times.

REFERENCES
Byars ,R.(1997). Human Resource Management 5th edition. Zob Zwettler Pub.
Daft.(1998). Study why organizational behavior 7th edition. South western college pub.
Dessler.(1998). Human Resource Management 9th edition. Prince Hall. Publisher
Dessler and Gray.(1994).Human Resource Management, 6th edition. Prince Hall. Publisher.
Ivancevich.(1998). Human Resource Management 8th edition.MC Graw-Hill com panies, Inc.
Sharma,C., S.(1998). Hospital Administration and Human Resource Management 8th edition,
IAM-Indian Academy of Management.
Shaun, T., & Alford, Y.(2001). An Introduction to Human Resource Management 1st edition.
Mart on Ltd, Berwich Tweed

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The Impact Of Compensation On Employees Motivation In Case Of CBE Hawassa Main Branch

Department of Management, BSTL College Hawassa I

Department of Management, BSTL College Hawassa II

ACRONYMS AND ABBREVIATIONS

CBE Commercial Bank of Ethiopia

ETB Ethiopia Birr

Department of Management, BSTL College Hawassa III

Department of Management, BSTL College Hawassa IV

Department of Management, BSTL College Hawassa V

Department of Management, BSTL College Hawassa VI

3.4 Methods of data collection .................................................................................................... 7

Department of Management, BSTL College Hawassa VII

CHAPTER ONE: INTRODUCTION

Department of Management, BSTL College Hawassa 1

1.2 Statement of the problem

Department of Management, BSTL College Hawassa 2

1.5 Significance of the Study

Department of Management, BSTL College Hawassa 3

CHAPTER TWO: LITERATURE REVIEW

Department of Management, BSTL College Hawassa 4

Department of Management, BSTL College Hawassa 5

CHAPTER THREE: RESEARCH METHODOLOGY

Figure 1 Map of Hawassa Town

Department of Management, BSTL College Hawassa 6

Department of Management, BSTL College Hawassa 7

3.5 Method of sampling

Department of Management, BSTL College Hawassa 8

CHAPTER FOUR: BUDGET BREAK DOWN AND WORK PLAN

1 Stationary and coping 1500.00

2 Removable disk 500.00

3 Literature /Book Purchase 500.00

4 Proposal Binding 550.00

5 Traveling Cost 340.00

Contingency (5%) 169.5

Grand Total 3558.5 ETB

Table 1 Budget Break Down

Department of Management, BSTL College Hawassa 9

4.2 Work plan

No Description August September October November

6 Proposal draft report

7 Proposal final report

8 Final Proposal report □

Table 2 Work Plan

Department of Management, BSTL College Hawassa 10

CHAPTER FIVE: CONCLUSION AND RECOMMENDATION

Department of Management, BSTL College Hawassa 11

Department of Management, BSTL College Hawassa 12

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