THE EFFECT OF EMPLOYEE COMPENSATION ON JOB

SATISFACTION A CASE STUDY ON WEST ARSI ZONE SELECTED

SECTORS EMPLOYEES

A RESEARCH PROPOSAL SUBMITTED IN PARTIAL FULFILLMENT OF

TO THE DEPARTMENT OF MANAGEMENT FOR REQUIREMENTS OF
MASTER OF BUSINESS ADMINISTRATION DEGREE

BY: IBRAHIM BULCHA HASEN

ID/NO: -PGE/28260/14

ADVISOR: GOSA LEMA. (ASSISTANT PROFESSOR )

MADDA WALABU UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

NOVEMBER, 2023

SHASHEMENE, ETHIOPHIA
Acknowledgments
The first and for most my thanks enchanted to the Almighty ALLAH (GOD) for graciously help
me in all my life endeavors me to accomplishment of the thesis from the beginning. I would like
to express my greatest & deepest appreciation to my advisor Gosa Lema. (Assistant Professor)
for his constructive and valuable criticism as well as advice in the course of this thesis proposal
preparations who genuinely guided me to the right direction. My special thanks go to my best
friend and older brother Muktar Hasen (Mukti) who lead me the best of my life and shaped
me through all my personal life as well as unforgettable supported to my education from beginning
to start MBA class. The last but not the least, I want to express my gratitude to those who have
shared me their busy time and their effort in consulting me to choose this topic.

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 Acronyms

BP -Basic pay

PP- Premium pay

JI- Job related Incentives

FB -Fringe benefits

L -Leaves

HI- Health and life insurance

RT- Retirement and termination benefits

WB- Welfare benefits

P -Payment

PO- Promotion opportunity

R- Recognition

JS- Job satisfaction

PA- professional allowance

SRS -stratified random sampling

ANOVA- Analysis of Variance

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Abstract
The purpose of this research will be examining the effects of employee compensation (i.e., pay,
fringe benefits, vacations, life and health insurance, retirement and leave benefits, rank
advancement, and social benefits) on job satisfaction in West Arsi Zone Employees in selected
sectors. This study will use descriptive and explanatory research design quantitative research
design with a quantitative research approach and casual research design by using inferential
statistics. The data that will be used for this study comes from primary and secondary data sources
will be used for analysis purpose mainly to identify and employees’ turnover rate in last decades
years. The target group for this study is all On West Arsi Zone Employees with selected sectors. A
stratified random sample (SRS) and a sample of respondents will be selected from West Arsi Zone
Employees with selected sectors shall be used. The data that will be collected with the data
collection instrument will be presented in tabular form and will be analyzed using STATA
percentages, mean values and standard deviations in accordance with the objectives of the study.
ANOVA/T test, Pearson correlation and the Multiple Regression Analysis Model will also use to
determine impacts of compensation on individual employee job satisfactions.

Key Words: Compensation Mechanism, Employee Job Satisfaction, Employee Benefits

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 Table of contents

Contents
page
Acknowledgments...................................................................................................................................... i
Acronyms ...................................................................................................................................................... ii
Abstract .................................................................................................................................................... iii
Table of contents ...................................................................................................................................... iv
CHAPTER ONE ........................................................................................................................................... 1
INTRODUCTION ........................................................................................................................................ 1
1.1. Background of the study ............................................................................................................... 1
1.2 Statement of the Problem .................................................................................................................... 3
1.3 objective of study ................................................................................................................................ 5
1.3.1 The general objective of the study ................................................................................................... 5
1.3.2 Specific objective of the study ......................................................................................................... 5
1.4 Research questionaries ........................................................................................................................ 6
1.5 Research hypothesis ............................................................................................................................ 6
1.6 Significance of Research..................................................................................................................... 7
1.7 Scope of the study ............................................................................................................................... 7
1.8. Limitations of the study ..................................................................................................................... 8
1.9 Organization of study .......................................................................................................................... 8
CHAPTER TWO .......................................................................................................................................... 9
LITERATURE REVIEW ............................................................................................................................. 9
2.1 Introduction ......................................................................................................................................... 9
2.2 Theory of compensation ..................................................................................................................... 9
2.2.1 Theory of Capital ............................................................................................................................. 9
2.2.2 Expectancy theory .......................................................................................................................... 10
2.2.3 Agency theory ................................................................................................................................ 11
2.3 Compensation mechanism ................................................................................................................ 12
2.3.1 Component compensation .............................................................................................................. 13
2.3.2 Work Satisfaction........................................................................................................................... 14

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 2.3.4 Concept of job satisfaction............................................................................................................. 14
2.3.5 Link compensation for job satisfaction .......................................................................................... 15
2.3.6 Compensation management related to employee job satisfaction ................................................. 16
2.4 Empirical review ............................................................................................................................... 17
2.4.1 The effect of total compensation on job satisfaction ..................................................................... 17
2.4.2. The effect of compensation is direct on job satisfaction ............................................................... 17
2.4.3. The effect of indirect compensation on job satisfaction and organizational commitment. ........... 17
2.5 Summary of Literature and Knowledge Gap .................................................................................... 18
2.6 Conceptual Framework ..................................................................................................................... 19
CHAPTER THREE .................................................................................................................................... 21
METHODOLOGY OF THE STUDY ........................................................................................................ 21
3.1 Description of the study area ............................................................................................................ 21
3.2. Research Approach .......................................................................................................................... 21
3.3. Research design ............................................................................................................................... 22
3.4. Sources of Data ................................................................................................................................ 22
3.5. Population ........................................................................................................................................ 23
3.5.1. Sample Size and Sampling Technique .......................................................................................... 23
3.6. Data Gathering Tools ....................................................................................................................... 24
3.6.1 Measurement of variables of the study .......................................................................................... 25
3.6.2 Questionnaires................................................................................................................................ 25
3.7. Method of Data Analysis ................................................................................................................. 25
3.8 Reliability and Validity ..................................................................................................................... 27
3.9. Ethical consideration ........................................................................................................................ 27
CHAPTER FOUR ....................................................................................................................................... 28
TIME SCHEDULE AND BUDGET FRAME ........................................................................................... 28
4.1 Time schedule ................................................................................................................................... 28
4.2. BUDGET FRAME........................................................................................................................... 29
Reference ................................................................................................................................................ 30
APPENDIX ............................................................................................................................................. 34

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 CHAPTER ONE

INTRODUCTION
1.1. Background of the study
Understand the importance of human resources through good performance to stay ahead of the
competition. There are two important policies to improve HR performance; compensation policy
and create a work environment for job satisfaction. The policy further defines employee
compensation, performance, liability and contribution, fully reflecting contribution-based
allocation. The compensation workers receive is not enough to pay the bills due to inflation, which
increases the cost of basic goods. Employee compensation refers to any type of wages or rewards
given to employees and the results of their work. Rewards include direct compensation, indirect
compensation, and non-financial rewards. Developing an effective and appropriate compensation
system is an important part of human resource management. An effective and appropriate
compensation system can help, attract and retain skilled and talented people who can help the
organization achieve its mission and goals. (Dessler, 2002).

According to various studies, adequate compensation has a significant impact on employees' job
satisfaction levels. (Livesey, 2020) (Ren, 2022) (Pakpahan & Sambung, 2022) (Spirczak et al.,
2022) (Kee et al., 2016) (Impact of Compensation and Benefits on Job Satisfaction, n.d) (Hartono
et al., 2021).Employee Expectation and its Impact on Quality of Work Life of Employees in Indian
Crackers Industry, 2019) (Iriani et al., 2023) Employees who receive fair and competitive
compensation tend to feel valued and appreciated by their organization, leading to higher levels of
job satisfaction. Additionally, compensation serves as a form of tangible recognition for
employees' contributions and efforts. The relationship between employee compensation and job
satisfaction has been a topic of interest for researchers and practitioners alike.

Compensation plays an important role in determining an employee's level of job satisfaction.

Compensation is a useful tool in the hands of offices administrations to contribute to organizational
effectiveness and can positively influence employee behavior and performance. Compensation is
a combination of all cash incentives and benefits that an employee receives from the company and
represents the total compensation of an individual employee (Jeanette et al., 2013). These benefits

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bind employees to the employer organization, leading to a strong relationship between
compensation payments and organizational commitment (Shaw et al., 2005). Direct Compensation
including Basic Salary, House Rent, Traveling Expenses, Travel Leave, Medical Reimbursement,
Special Allowances, Bonus, Profonde funds/ Gratuity etc. means monetary benefits such as Given
at a specific time and interval. Indirect compensation refers to non-monetary benefits offered and
provided to employees in exchange for their services to the company. Those policies include
overtime policies, automobile policies, hospitalization policies, insurance policies, travel
allowance limits, retirement benefits and vacation homes. Job satisfaction is the employee's
perception of the work environment that meets their needs and values, as well as a person's reaction
to their environment (Saha, 2016).

Job satisfaction primarily focuses on people's reactions to their jobs or specific aspects of them,
such as pay, supervision, and working conditions. Finally, job satisfaction has been linked to an
employee's desire to leave, and HR policy has been found to be the strongest predictor of
organizational commitment (Holtom et al., 2008; Vandenberghe and Tremblay, 2008). Job
satisfaction, along with other factors such as stress, motivation, judgment, and talent, are indicators
of specific behaviors in the workplace. "Job satisfaction is one of the individual factors that directly
affect job performance and organizational commitment," Colquitt, Lepin, and Wesson (2011)
stated that compensation is the sum of all cash incentives and payments received from an
organization.

Prayoga and Achmad (2017) observed the effect of compensation on job satisfaction, as well as
the effect of compensation on employee performance. Compensation has been well researched and
found to increase employee satisfaction and productivity. In addition, Huo and Boxall (2018)
investigated how the value of work, measured by job satisfaction, influences the relationship
between HR practices and employee well-being. Work tools have been shown to moderate the
positive effect of training on job satisfaction while creating a positive effect of pay on job
satisfaction. Compensation can be classified as intrinsic or extrinsic benefits, financial or non-
financial, and direct or indirect, all of which have a significant impact on job satisfaction and
ultimately engagement (Shortland, 2018).

Smart employers know that retaining quality employees requires providing the right compensation
and benefits package. (Kimberlee Leonard, 2019). A benefit is a payment given to employees for

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the work they have done for the organization. This means that the employee is entitled to both
financial and non-financial benefits in exchange for his contribution to the organization. An
insufficient benefit contributes to satisfaction with the law and increases employee turnover.
Organizations compensate employees through wages and salaries, bonuses, and benefits such as
health insurance, vacation, and retirement programs. These activities are important for increasing
employee performance. (Dessler and Gray, 2005)

In an organization, employees are the key resources through which all other goals are achieved.
Employees will display pleasant positive attitudes when they are satisfied with their work. Thus,
high job satisfaction will increase the productivity of the organization and consequently increase
the overall performance of the organization. (Calvin Mzwenhlanhla Mabaso and Bongani Innocent
Dlamini, 2017).

This study focuses on the impact of the compensation system on employee job satisfaction. The
performance of the organization depends on the performance of the employees who will express
their job satisfaction. The job satisfaction of the employees of the organization will definitely
increase if the employee problems are solved properly. This study will assess the relationship
between variables such as job security, reward system, job satisfaction, organizational
performance, employee turnover employee performance and socio-economic factors. Because of
these variables, it is will easily identified the common problems of employees in an organization.
Proper management by providing a system of compensation, incentives and rewards to employees
and taking care of a productive work-life balance for the organization. In this regard, the HR
department plays a very important role in many organizations in solving personnel problems and
organizational development. The main purpose of this research is to evaluate the effect of
compensation on employee job satisfaction, determine whether the company's current
compensation policy affects employee job satisfaction, and determine whether an organization is
successful in office and field works through various methods, including questionaries, interviews
and several data collection. Questionnaire information and feedback will be distributed to staff
working in various departments/offices of West Arcia Zone.

1.2 Statement of the Problem

HR managers are responsible for creating work systems and ensuring fair employee compensation
internally and externally (Martocchio, 2017). Previous research by Saputri (2018) concluded that

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there is a positive relationships and significant relationship between compensation and employees
in the company. Further, following Siddiqui's previous research, Tahmeem (2018) stated that
compensation affects job satisfaction and employee job performance.

If compensation is provided properly, employees will be satisfied with their work and achieve
organizational goals. Marcus (2017) says that more work engagement will lead to better job
performance and increase job satisfaction. Previous research Sukidi, Wajdi (2016) found that
compensation affects job satisfaction and employee performance, and job satisfaction affects
employee performance.

Eyupoglu's (2017) definition of "a pleasant or positive emotional state resulting from the
appreciation of work experience" is probably one of the most widely used definitions of job
satisfaction in the literature. However, geographically speaking, job satisfaction can be defined as
an affective reaction to work on those results by comparing the actual results with the desired
results. Job satisfaction is a pleasant or positive emotional state resulting from job evaluation or
work experience. In other words, job satisfaction is a positive or negative emotional assessment of
how satisfied employees are with their jobs. (Bayarçelik, 2016).

Several studies addressed the role of job satisfaction in mediating the link between employee
rewards (such as salaries, fringe benefits, vacation, insurance, pension and social benefits) and
organizational commitment in manufacturing (Chan and Ao, 2018; Saha, 2016; Mustapha and
Zakaria, 2013; Saeed et al., 2013). According to empirical findings, different pay schemes have
several an impact on job satisfaction, which affects employee engagement (Saha, 2016; Kuvaas,
2006). Consequently, it is reasonable to believe that job satisfaction may act as a mediating
variable in the relationship between reward systems and employee job satisfaction.

However, it will be noted that none of these studies addressed the role of compensation as a role
in employment of job satisfaction in west Arsi zone mainly in last decades according to public
service and human resource management sectors. Do employees in the West Arsi zone with each
sector like pay fringe benefits, life and health insurance, retirement and fair promotions benefits,
and job satisfaction social benefits? What role does job satisfaction play in the relationship
between salary structures? Does lack of fair compensation mechanism will makes poor job
satisfaction and leads to maladministration and corruptions? Currently, most of the local

4
employees of the Ethiopian delegation discuss informally about the compensation package related
to fairness, transparency, effectiveness and the ability to increase job satisfaction and other issues,
but not enough attention has been paid to investigate their perceptions about the compensation
package implemented. Therefore, the specific research problem is to know the effect of available
financial compensation, direct and indirect focus (short benefits) and its effect on employee job
satisfactions. There are also some researchers who study job satisfaction factors in the private and
public sectors such as Mabaso, (2018), Mehari and Peteti, (2017). But the researcher who did
research in this topic couldn’t investigate the factors of job satisfaction in the public sector, mainly
in this geographical area in this West Arsi zone area, as the researcher's knowledge and in this
sector. This researcher informed that the lack of adequate compensation in the West Arsi Zone is
leading to high employee turnover rates. This not only affects their overall job satisfaction but also
negatively impacts their personal lives and overall quality of life which is affected by the current
inflation in the world. Based on the research gaps identified earlier regarding the effects of
compensation on employment and job satisfaction of employees in West Arsi Zone, here are some
potential problem statements that could be formulated, such as the current status of compensation
practices and their impact on employment and job satisfaction among employees, which remains
poorly understood. In addition to this, the specific impact of compensation on job satisfaction
levels among employees in the West Arsi Zone has not been thoroughly investigated, hindering
the ability to design effective strategies for improving overall job satisfaction. In general,
researchers can further refine and tailor these problem statements based on their specific research
objectives and the current state of knowledge in the field.

1.3 Objective of study

1.3.1 The general objective of the study

The general purpose of this research is to investigate the effect of employee compensation on job
satisfaction in west Arsi Zone employees.

1.3.2 Specific objective of the study

More specifically, the research has the following specific objectives;

➢ To investigate job related incentive like basic pay, Premium pay have effect on job
satisfaction

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 ➢ To investigate the effect of health and life insurance on job satisfaction

➢ To assess the effect of retirement and termination benefits have effect on job satisfaction

➢ To examine the effect of fringe benefits like leaves on job satisfaction

➢ To assess the effect of recognition on job satisfaction

➢ To examine the effect of employee promotion on job satisfaction

➢ To investigate lack of compensation on effects employment turnover rate

1.4 Research questionaries

Based on the research gaps identified above, the following specific research questions will be
prepared;

✓ Does job related incentive like basic pay, premium pay affect job satisfaction?

✓ Does health and life insurance affect job satisfaction?

✓ Does retirement and early termination of employment affect job satisfaction?

✓ Do Fringe benefits like leave have effect on job satisfaction??

✓ Does recognition affect job satisfaction?

✓ Does promotion affect job satisfaction?

✓ Does lack of compensation level affects employment turnover?

1.5 Research hypothesis

➢ Increasing salary has a positive effect on job satisfaction.

➢ Work-related incentives have a positive effect on job satisfaction

➢ Fringe benefits have a positive effect on job satisfaction

➢ Promotion of employees has a positive effect on job satisfaction

➢ leaves have a positive effect on job satisfaction

➢ health and life insurance have a positive effect on job satisfaction

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 ➢ Employee benefits have a positive effect on job satisfaction

➢ Recognition has a positive effect on job satisfaction

➢ Employee promotion has a positive effect on job satisfaction

➢ Retirement has a positive effect on employee job satisfaction

➢ lack of compensation has positive effects employment turnover rate

1.6 Significance of Research

The results of this study will be important in several ways. To begin with, the study will try to
determine the level of employee satisfaction with various compensation components. Based on the
results, the report will include some conclusions and send a signal to the company's Finance and
Human Resource Management to take corrective actions to increase employee satisfaction and
ultimately increase the company's productivity. Second, the study will help relevant organizations
and departments of multinational corporations by providing a clear study of the potential of
compensation systems to improve company performance and ensure employee job satisfaction;
specifically, West Arsi zone employees. Finally, it will allow researchers to gain extensive
experience on the impact of payment mechanisms on employee satisfaction. I hope the final results
of the study will have significance for various stakeholders related to job satisfaction to suggest
effective ways to increase employee satisfaction in this organization in order to fulfill their
commitments to job satisfactions. Furthermore, the findings of this study will give the government
a fair view of the workforce satisfied and dissatisfied in the workplace and ultimately lead them to
negotiate for better conditions for making smart working environments.

1.7 Scope of the study

The scope of this study will be limited to examine the effects of compensation mechanisms on job
satisfaction and in the case of West Arsi Zone employees in some sectors that will be randomly
selected. Salary, fringe benefits, health and life insurance, retirement and termination of
employment, vacation, promotion, and employee welfare will be used as determinants of job
satisfaction. The research will be defined by many factors. Some of them will be: First, since the
study is academic research with a limited cost, the researcher will be focus only on West Arsi Zone
employees with selected sectors under zone. Second, the aim of the study will be to investigate the
effect of financial compensation on employee job satisfactions. Beside this Due to lack of time
7
resources, the geographical area of the study and the number of more than 33 sectors under zone
that will be only focuses on west Arsi Zone employee’s office that will be found on Shashemene
town with sample taking. This research will be about descriptive and explanatory type of research.

1.8. Limitations of the study

The limitation of this study may be only covering Weast Arsi Zone employee’s office due to lack
of finance. Besides these employees may hide their true feelings to existing compensation
practices, which can affect the results as well as the lack of empirical research in compensations
that will affect their daily job satisfactions to get information from respondents is quite difficult
due to busy schedule. When this research will be done; Due to various problems faced by the
researcher, some respondents were not willing to complete the questionnaire.

1.9 Organization of study

This research is divided into five parts; Chapter I is an introductory chapter that will includes
research background, problem formulation, research questionaries, research hypothesis, research
objectives, research scope, limitations and benefits of research. The second chapter will provide a
literature review on the impact of employee compensation on job satisfaction. The third chapter
discusses the proposed study methodology including research design, target population and
sampling techniques, data sources and research methods used in the study, data sources and
collection methods. The fourth chapter will include data presentation, data analysis and data
interpretation. The last fifth chapter will provide a summary of findings, conclusions and
recommendations.

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 CHAPTER TWO

LITERATURE REVIEW
2.1 Introduction
There is extensive research and studies linking employee compensation to employee satisfaction.
Human resource management practices, including compensation, can make a corporation more
competitive than its competitors (Schuler and MacMillan 2004). Thomas E. Catanzaro (2001)
described the impact of compensation on employee satisfaction in an article about compensation
and motivation. Compensation has been found to have a significant impact on employee
motivation. It also discusses various compensation factors, including intrinsic and extrinsic factors,
and their potential impact on employee satisfaction. Wright and Barney (2007) argue that human
resources should not be overlooked because they can provide a competitive advantage for a
company. Therefore, it should be managed the same as other functions of the company. (Huselid,
2005) emphasizes the use of high-performance work practices, i. H. Comprehensive employee
recruitment, incentive compensation and performance management, comprehensive employee
training, and career planning are sure to increase employee productivity, increase employee
satisfaction, and reduce turnover. The significant and positive relationship between compensation
structure and employee satisfaction (Chang, 2006) shows that compensation is an important task
in human resource management. If the design and management of the compensation system is
appropriate, the company can attract the talent they need, satisfy their employees and thus retain
their existing talent. In this dimension, we must define two constructs / variables used in this
process. The effect of compensation on employee attraction. These are dependent and independent
variables, compensation packages and job satisfaction.

2.2 Theory of compensation

2.2.1 Theory of Capital

Equity theory suggests that employees' perceptions of what they contribute to the organization,
their income, and how their income contribution compares to others inside and outside the
organization determine how fair the employment relationship is (Adams, 1963). The perception of
inequality is expected to lead workers to take action to restore equality. Unfortunately, some of
these actions (for example, resignation or lack of cooperation) may not be beneficial to the

9
organization. Two recent empirical studies provide good examples of the kind of counterintuitive
behavior that can result from inequality. In the first study, Greenberg (1990) investigated the effect
of an organization's reduction in employee wages on theft rates and imputed stock. Both
organizational units have reduced their costs by 15%. The third group received no salary and
served as the control group. The reason for the salary reduction is communicated to the two salary
groups in different ways. In the "Equitable Explanation" pay group, managers provide substantial
information and express significant regret to explain the reason for the pay cut. In contrast, the
"inadequate explanation" group received less information and showed no regret. The monitoring
team received no remuneration (thus no disclosures). The control group and the two paid groups
started with the same theft rate as the stock. After monthly deductions, the theft rate in the
corresponding exposure group was 54% higher than in the control group. However, in the
"inadequate explanation" condition, the theft rate was 141% higher than the control group. In this
case, communication has a large, independent effect on the attitude and behavior of employees.
Cowherd and Levine (1992) sampled 102 work units in 41 corporations to investigate whether the
size of the pay gap between low-level workers and top managers affects product quality. Cowherd
and Levine suggest that people often compare their salaries to those higher up in the organizational
structure. If low-level employees are treated unequally, they may try to reduce their efforts to
achieve equality. In the study, quality is defined as the perception of customers about the quality
of goods and services. They predict that extra role or citizenship behaviors such as offering to help
others freely, following spirit rather than letter, and correcting mistakes that are usually overlooked
are less likely when they are paid the difference between hourly management and seniors. it's big.
The results support this hypothesis, showing that workers may also use other standards of
comparison, such as past or expected employment or living expenses. organizations must be
careful not to overlook the potential negative consequences of executive pay for motivating other
employees.

2.2.2 Expectancy theory

Fromm's expectancy theory states that employee behavior will be influenced by three important
variables: 1. Expectancy (E) refers to incentives that have a certain intensity to motivate the
employee to work on a chosen goal 2. Instrumental value (I), when the desired level of performance
is achieved, gets the subjective probability of a desired reward, an individual's judgment, or an
estimated reward; 3. Reward premium (V), refers to the goal after the reward obtained in the minds

10
of the relative value of the size of the parties. A person's motivation for certain behavior (stimulus
intensity) is the product of three variables E, I, V, i.e., M = E × I × V.

Expectancy theory suggests that the intensity of behavioral bias depends on the desired intensity
of the individual behavioral outcome and the attractiveness of the outcome to the actor. When
employees think that through hard work, a good performance appraisal result can be obtained, and
good performance appraisal results can bring about the need to satisfy the return needs, they will
tend to devote more effort. Therefore, from the theory of expectations, we can derive the
assumption that an increase in the level of reward resulting from a corresponding level of
performance will increase the employee's motivation to improve performance. A large number of
empirical studies have also confirmed a positive link between performance pay and performance
(Jenk-ins, 1998).

2.2.3 Agency theory

Agency theory focuses on the divergent interests and goals of society and how employee
compensation can be used to align these interests and goals. Employers and employees are two in
a business entity, the former taking the role of directors and the latter the role of agents. The
remuneration of the employees is the costs of the agency. It is natural that employees expect high
agency costs, while employers try to minimize them. Agency theory states that the principal must
choose a contractual scheme that helps align the agents' interests with the principal's own interests.
These contracts can be classified as either behavior oriented (eg merit pay) or outcome oriented
(eg share option schemes, profit sharing and commissions). At first glance, result-oriented
contracts seem like an obvious solution. As profits grow, so do rewards. The reward goes down
when profits go down. When leading people in an organization, a manager must first satisfy the
needs of employees, compensation, by definition, means all cash payments and all assets, rather
than financial payments to reward employees. Compensation refers to all forms of financial
performance and tangible services and benefits that employees receive as part of their employment
(Singh, 2007). Market prices; Provide incentives for employees to improve their performance;
Ensure that benefit packages are profitable and motivate employees, and ensure that all
compensation-related policies and programs are in line with government requirements (Hamel,
2008).

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2.3 Compensation mechanism
Compensation means all cash payments and all assets used in lieu of finance to reward employees.
Compensation is one of the functions of human resource management that deals with any form of
reward that people receive for performing organizational tasks. According to Bratton and Emas
(2007: p. 360), "reward" refers to any monetary, financial or psychological payment that an
organization gives to employees in exchange for their performance. Organizations must make three
key decisions about monetary rewards: how much to pay, to whom to pay, and how much to pay.
Thang (2004) says that monetary rewards as part of the overall work relationship: "Compensation
and rewards can be a powerful tool to motivate employees to achieve organizational goals.
Rewards can be financial and non-financial rewards and various strategies to distribute rewards."
(Armstrong 2010), 267). There are different reward systems. Financial rewards can be based on
pay and performance related pay. Base pay is determined by internal and external rates, which is
a form of performance appraisal and market rates, and fixed. in a period of time, which is defined
in terms of years, months, and weeks. Wage levels are negotiated through individual contracts or
collective bargaining agreements with unions (Armstrong 2010, 275). but about achieving personal
goals, this also refers to intrinsic rewards such as recognition, autonomy, promotion, and more
demanding job opportunities (Karrell et al., 1995, p. 498). It is used for performance appraisal,
continuous performance evaluation and payment to the team. Standard assessment methods
include ratings, ratings, 12-point scale, and factor comparison. Compensation management is one
of the central pillars in personnel management (HR). Regarding the formulation and
implementation of strategies and guidelines designed to reward people fairly, fairly and
consistently according to the organization's values (Armstrong, bn, l2005) Armstrong and Brown
(2005) confirmed that compensation management is an integral part of human resources.
management approach to managers and so on., support the achievement of business goals and
strategic importance in the sense of solving problems in the board. long term by appreciating
employees for what they want to achieve; Therefore, it is integrated with other functions of human
resources management. Bob & Anyebe, (2003) consider compensation management as the core of
a well-articulated philosophy: Beliefs and guiding principles that align with organizational values
that recognize that human resource management is at stake. In his analysis, Armstrong (2005) says
that compensation management fosters a positive working relationship with a psychological

12
contract that takes a holistic compensation approach that recognizes that people have several ways
to be compensated.

2.3.1 Component compensation

Executive compensation systems typically consist of four components, including salary, bonuses,
incentives, and long-term benefits. Total compensation includes all forms of cash compensation
(eg, base salary, differential shift, overtime, expected salary, bonus, commission, etc.) and the
dollar value of employer-sponsored benefit packages (eg, medical and dental insurance, short-
term.) paid vacation, old age allowance, life insurance). According to Singh (2007), remuneration
is generally divided into direct and indirect components. The term direct compensation is usually
used to mean financial compensation in the form of cash and includes basic compensation, parental
leave, overtime pay, shift pay, incentives, bonuses, profit sharing and commissions, etc. including
things like indirect payments or salary supplements or additional benefits refer to services such as
provident funds, pension funds, medical and health insurance, as well as sick leave and other
benefits and discounts. Total compensation refers to all types of wages or rewards provided to
employees as a result of work and can be divided into three categories: Base salary, performance
salary, and indirect salary (Long, 2006). Although it remains the largest, most easily calculated
component of most major payment systems, indirect payments, often referred to as "Benefits," are
a significant 13 and cost-increasing factor for many organizations. The term indirect pay
recognizes that benefits are an integral and important part of compensation in most organizations,
and that employee pay should be commensurate with base pay and performance pay. On average
(Long 2006), indirect payments can be any cost that is not included in the employee's base or
performance pay, with an average of 10-40% of the organization's total compensation. The six
main categories of indirect payments are: 1. Statutory Benefits, including employer contributions
to pension plans, employment insurance, and Work Safety and Insurance Board; 2. deferred
income plan, commonly called pension or annuity plan; 3. Benefits related to health, such as life,
medical, dental or disability insurance; 4. Pay off time, such as holidays and holidays; 5. Employee
services, from employee assistance programs to cafeteria services; 6. Various benefits ranging
from providing agency vehicles to purchasing discount products or agency services. The law
requires elements of indirect compensation, such as: For example: social security, unemployment
benefits and disability pensions. Another indirect element is in the hands of the employer and can
be a great opportunity to provide benefits for both the employee and the employer.

13
2.3.2 Work Satisfaction
Job satisfaction is one of the major concerns of organizations because it affects work outcomes
such as employee productivity and performance, absenteeism and turnover (Onukwube, 2012).
Most workers are proud of their various jobs because they are satisfied (Onukwube, 2012). In fact,
employees show high levels of job satisfaction and low turnover motivation when their
characteristics meet their needs (Bright, 2008). "Employee" job satisfaction causes turnover and
absenteeism. Therefore, it is very important to keep employees in their workplace to ensure
employee job satisfaction (Robbins, 2003). Employee satisfaction has a huge impact on overall
company productivity and profitability. Employees with a high level of job satisfaction care about
the quality of their work, are more committed to the organization, and are more productive.
Employee expectations from the compensation plan is that it is fair and equitable, that it offers
meaningful rewards and recognition based on skill, and that it is competitive. Warner (2001) found
that there are seven dimensions of job satisfaction, which shows how many 14 jobs are meaningful
to people, people's salary, opportunities for advancement, and recognition.

2.3.4 Concept of job satisfaction

Locke (2006) defined job satisfaction as "Job satisfaction is basically a pleasurable and enjoyable
emotional state of entering the job and employee's attitude towards work." Job satisfaction is
important to reduce and motivate turnover. Previous research has shown that there are various
tools to manage job satisfaction, including salary, recognition, career opportunities, and
meaningful work (Mathauer et al., 2006). If people are happier, they will be more active and
productive in their work (AlHussami, 2008). Satisfaction and satisfaction not only depend on the
work but also on the expectations of the workers towards the work (Hussami, 2008). Job
satisfaction is considered the most important element in an organization. To be successful,
organizations must make their employees happy (Wubuli, 2009). Job satisfaction is an important
factor in private companies for better performance. Job satisfaction is basically the sum of job
satisfaction, job responsibilities, motivation, and rewards. Job satisfaction is a combination of
extrinsic and intrinsic job satisfaction. Extrinsic job satisfaction includes all external factors such
as communication style, management cooperation, salary and working conditions, while intrinsic
job satisfaction includes the type of work performed by the employee and the tasks faced by the
employee. If an employee is satisfied, they will do well in the workplace. The main component of
job satisfaction is the attitude towards the work group; general terms and conditions; Attitude

14
towards the company; Cash profit; and attitude towards supervision. Health, age, job satisfaction,
social status, and political and social activities are other factors that contribute to job satisfaction
(Byars & Rue, 2004, p. 321). Dipboye et al. (2004) divided job satisfaction theories into three
groups: dual factor theory, comparison theory, and theory of mind. The theory of two or two factors
tries to show how job satisfaction is influenced by internal factors such as responsibility and
performance. This suggests that the most important conditions or determinants of job satisfaction
are internal factors (Borzaga and Tortia, 2006; Ellickson, 2002; Kim, 2004; Wright and Davis,
2003). This conclusion of some authors, such as Herzberg, is wrong and fashionable, because the
result of all responsibility and performance is an external factor (choice) that should be prioritized
instead of non-internal factors. Therefore, job satisfaction is influenced by external factors such as
salary and working conditions. Comparison theory includes concepts such as needs and values,
which measure what employees expect from their jobs and compare them to their needs and values.

2.3.5 Link compensation for job satisfaction

Some studies have found that job factors such as salary, recognition, meaningful work, career
opportunities, and job security affect job satisfaction (Pouliakas and Ioannis, 2010); if the work is
difficult, boring or risky (Scully et al. 2008); if the work is interesting, prestigious or demanding
(De Jonge and Wilmar, 2008); and if this work means less freedom for workers, leaving room to
learn skills that allow one to find oneself in order to achieve something of value (Bockerman and
Ilmakunnas 2009; Clark 2008; Linz 2003).. However, the importance of wages and performance
in meeting the needs the economy of the workers can never be overestimated because the workers
receive wages and allowances as part of the work relationship; This statement has been supported
by all the authors of job satisfaction in their description to determine the job satisfaction of
employees in their companies, who have written about things such as salary, recognition,
promotion, meaningful work, autonomy, and supervision. All these determinants of job
satisfaction can be determined by critical examination which is very important for job satisfaction.
There is a significant relationship between wages/rewards and employee job satisfaction (Nelson,
2008). According to Armstrong and Murlis (2006), rewards are a means to meet various employee
needs. These disaffected employees often reduce morale and productivity (Garrett, 2003). Job
satisfaction can be increased by increasing autonomy, reducing stress and most importantly
increasing the compensation package (Whitt, 2006).

15
2.3.6 Compensation management related to employee job satisfaction
It is important for companies to know what makes employees satisfied with the services provided.
According to (Singh, 2007), personal satisfaction with compensation depends on what is expected
and how much is received. Feelings of satisfaction or dissatisfaction arise when people compare
the nature of their professional skills, knowledge, efforts, and performance (input) with the
combination of extrinsic and intrinsic compensation (output) they receive. Employee satisfaction
is always a major concern for managers and companies because it has several effects on
productivity. It affects workers' willingness to do work, how much effort they will put in, and how
they will do it. An employer has the responsibility to ensure the satisfaction of all employees.
Employee satisfaction not only increases productivity but also improves the quality of work.
Satisfied employees are likely to be more motivated, 16 productive and committed to the company,
so wise companies make efforts to attract and retain high-performing employees and reward them
consistently to do more (Becker and Gerhart, 2006). According to Branham (2005), "Study Gallup"
also showed companies with high employee satisfaction: 86 percent better customer value, 76
percent success in reducing sales, 70 percent better profitability, and 78 percent better safety
record. Employees who do a good job supporting the company cannot be compensated for their
efforts. Employers who choose to pay low wages know that these workers work hard for minimum
wage and compensate these employers accordingly (Timpe, 2006). At the same time, those same
employers pay more to other workers who don't want to work for minimum wage. This labor
injustice causes resentment because hardworking workers eventually realize that they are not being
paid fairly for their work and look for other companies that value their work more. Employee
satisfaction is influenced by comparison with other people in the same job and organization. In
fact, employees compare their input / output ratio with others (Singh, 2007). In addition to finding
out how to improve employee engagement, a company must understand what employees feel,
think, and want. By increasing employee loyalty, performance can improve, productivity can
increase, commitment can be strengthened, and attrition can be reduced. According to (Lin 2002),
employee satisfaction factors include salary and work environment. Chang (2006) Employee
satisfaction factors in internal marketing, gender, educational background, seniority and
compensation.

16
2.4 Empirical review
Empirical review, observations, experiments and evidence-based studies for this study, various
studies conducted by different researchers are reviewed.

2.4.1 The effect of total compensation on job satisfaction

Most of the previous studies used the direct effects model to investigate the relationship between
job satisfaction using different samples, 621 employees from different sectors in Belgium (Carolin
et al., 2015) and 327 employees of a social work organization (Jonathan et al., 2015). 2010), 214
individuals from 22 non-profit organizations in the US Midwest (Hienjin et al., 2012), and 730
employees from the retail industry (Miguel et al., 2014). This study 17 found that the manager's
ability to provide what employees want in their work environment is an important determinant of
job satisfaction (Carolin et al., 2015; Jonathan et al., 2010; Hyenjin et al., 2012; Miguel et al.,
2014). Therefore, compensation is hypothesized to have a positive effect on job satisfaction.

2.4.2. The effect of compensation is direct on job satisfaction

Some recent studies have used the direct effects model to explore compensation for job satisfaction
based on a diverse sample, including 434 undergraduates and postgraduates (Enache et al., 2013),
and 337 bank employees from private and public banks. In Kerala, India (Elizabeth & Zakaria,
2015), 352 nurses work in a private hospital in Damascus, Syria (Ali & William, 2014) and 180
critical care nurses in three hospitals in Amman, Jordan (Ahmad et al., 2012). This study found
that the ability of organizational managers to directly compensate employees is an important
determinant of job satisfaction (Enache et al., 2013; Elizerberth & Zakkaria, 2015; Ali & William,
2014; Ahmad et al., 2012). Therefore, direct compensation is hypothesized to have a positive effect
on job satisfaction.

2.4.3. The effect of indirect compensation on job satisfaction and organizational

commitment.
The study used a direct effect model to examine the relationship between job satisfaction and
indirect compensation using a different sample, including 108 four- and five-star hotel managers
in the Aegean region of Turkey (Ebru et al., 2010), and 418 police officers. from the Korean
National Police Service (Mathew et al., 2012), 547 members of the Institute of Certified Public
Accountants of Uganda (ICPAU) (Samuel & Twaha, 2014) and 200 new graduates with less than
two years of employment in Malaysia (Mazuki et al., 2011). This study found that the ability of
organizational managers to design and manage the right work environment that provides indirect
17
compensation to employees increases organizational commitment (Ebru et al., 2010; Mathew et
al., 2012; Samuel & Twaha, 2014; Mazuki et al. et al., 2011). Therefore, H1b is hypothesized:
direct compensation has a positive effect on job satisfaction.

2.5 Summary of Literature and Knowledge Gap

Job satisfaction is an important factor in private companies for better performance. Job satisfaction
is the sum of job role, job responsibility, motivation and reward. Job satisfaction is a combination
of extrinsic and intrinsic job satisfaction. (Byars & Rue, 2004, p. 321). The company needs to
know that the employees are satisfied with the services provided. According to (Singh, 2007),
personal satisfaction with compensation depends on what is expected and how much is received.
Feelings of satisfaction or dissatisfaction arise when people compare the nature of their
professional skills, knowledge, efforts, and performance (input) with the combination of extrinsic
and intrinsic compensation (output) they receive. Compensation is a combination of all cash
incentives and benefits that an employee receives from the company and represents the total
compensation of an individual employee (Jeanette et al., 2013). The compensation structure
includes things like retirement plans, health insurance, life insurance, disability insurance, paid
vacation, paid vacation, flexible hours, and educational support. This benefit ties workers to the
employer organization and results in a strong relationship between compensation payments (Shaw
et al., 2005).

Job satisfaction becomes very important for the company in creating the continuity of the
company. Employee engagement with the company reflects the employee's willingness to stay and
work and dedicate themselves to the company. Employee job satisfaction also reflects the
employee's level of identification with the company, the employee's involvement in the company,
and the employee's desire to stay with the company. Job satisfaction is an individual's commitment
to the organization" (Schermerhorn et al., 2011). That is, the higher the satisfaction, the higher the
level of pride in being a member of the organization, because of strong identification with the
organization. Robbins and Kazy (2011): "Organizational commitment, employees the degree to
which they identify with a particular organization and their goals and aspirations to maintain
organizational membership" (Newstroom, 2007) Most previous studies have examined the
relationship between job satisfaction and organizational commitment using different models and
different organizations However, none of these studies have this it should be noted that de did not

18
investigate the specific structures on effect of compensation on job satisfaction in Ethiopia.
compensation (i.e., compensation, benefits, life and health insurance, pension and leave, etc.) on
job satisfaction in West Arsi zone employees under several sectors. Specifically, how does job
satisfaction can be influenced by compensation structure? Besides this in most office there are
several problems that rises mainly concerning to lack of adequate compensations levels, perceived
inequality in compensations, economic factors which mainly affects society at all such as inflations
and organizational performance that may leads employees to several types’ maladministration.
Such a deep problem in practice and the existence of employee dissatisfaction with the existing
compensation package led researchers to study and recognize the effect of compensation on
employee job satisfaction.

2.6 Conceptual Framework

The conceptual model formulated to summarize the relationship between compensation schemes
and job satisfactions. The conceptual framework demonstrates how these factors influence job
satisfaction in the organization among possible features based on researcher experience and
understanding. Accordingly, for the study the below conceptual framework has been adopted based
on the above theoretical and empirical literatures reviewed which shows the most prefer link
between the dependent and independent variables.

19
 Independent Variables Dependent Variable

Employee Compensation
Mechanisms

• Premium pay

• Basic pay

• Job related Incentives

• Fringe Benefits
Compensation Job Satisfaction
• Leaves

• Health and Insurance

• Retirement and
Termination benefits

• Employee welfare benefits

• Employment recognitions

• Employment turnover rate

Figure 1 conceptual frame work

Source: construction based on the literature review

20
 CHAPTER THREE

METHODOLOGY OF THE STUDY

This chapter stretches an outline of the research design, description of the study area and
methodology that will be used in the study. Therefore, this chapter will present the research
approach, the research design, the research method, the sources of data, the study population, the
sample size and sampling technique, the procedures of data collection, the data gathering tools,
and the methods of data analysis.

3.1 Description of the study area

West Arsi Zone is one of the 21 administrative zones in the Oromia regional state of Ethiopia. This
zone is named after a subgroup of the Oromo, who inhabit it. It covers an area of 11,776.72 km2,
divided into 12 districts (weredas). Under zone offices there are 33(thirty-three) sectors and total
employees under zones are 952 in total according to public service and human resource
management office bureau. From those employees there are 4 employees above master’s degree
holders, 120 are holders of Master’s degree, 598 are holders of bachelor degree holders and others
are diploma and certificate holders. The population was officially estimated at 2,929,894 in mid-
2022.The administrative center of this zone is Shashamane, with an estimated 208,368 inhabitants
in mid-2022. The zone is located in the southern part of the country, about 250 km south-east of
the capital city, Addis Ababa to capital town of zone Shashemene. The total area of the zone is
approximately 9,503 square kilometers. The Zone is known for its diverse economic activities,
including agriculture, trade, and manufacturing. Overall, West Arsi Zone is a zone that mainly
characterized by its agricultural significance, cultural diversity, and potential for development.
There are various employees that work in different government offices, including administrators,
civil servants, law enforcement officers, and other public servants. Overall, the study focuses on
investigating the effects of compensation on employment and job satisfaction in the case of West
Arsi Zone. (Source from west Arsi zone office 2023 data)

3.2. Research Approach

Both qualitative and quantitative approaches will be designed to investigate the problem under
study. Employing mixed approach uses to neutralize the biases of applying any of a single
approach (Creswell, 2008). Qualitative research is a means for exploring and understanding the
meaning individuals or groups ascribe to a social or human problem. Quantitative research is a
21
means for testing objective theories by examining the relationship among variables. These
variables, in turn, can be measured, typically on instruments, so that numbered data can be
analyzed using statistical procedures. Therefore, the researcher will be used these quantitative and
qualitative approach helps us to investigate the impacts of compensation on employee’s job
satisfactions.

3.3. Research design

The plan of action philosophical assumption to specific methods is known as research design
(Creswell and Plano,2007). The focus of this thesis will be to see how compensations affects work
satisfaction in the case of West Arsi zone employees. The study will use both descriptive and
explanatory approaches through surveys to assess the impacts of compensation on employee job
satisfaction in case of West Arsi zone. The purpose of the explanatory approach field study will
be used to assess the extent of the relationships or correlations between the independent variables
and dependent variables and to briefly explain cause and effects between variables. While
descriptive surveys will be designed to see employee’s opinions on compensations package and
their job satisfaction. Descriptive studies will present facts, existing conditions concerning the
nurture of persons, a number of objectives or class of events and may entail procedures of
enumeration and induction analysis, classification details and measurement (Creswell ,2014).

3.4. Sources of Data

Primary and secondary data sources will be employed to collect the data for this study. Structured
questionnaires will be used to obtain primary data from the case of West Arsi zone employees
which found with selected office under zone. Primary data will be collected using self-
administered questionnaire and semi-structured instruments to collect data from employees
working in the organization and key informant interviews with west Arsi zone human resource-
managing.

The secondary data source for this study will be analyzed to strengthen document papers mainly
in order to evaluate employees turn over for last decades for sake of lack of compensation status.
Secondary data relevant to the research work is collected from west Arsi Zone human resource
documents such as office records and reports, journals, manuals, books, and files from internet or
web pages.

22
3.5. Population
According to Bryman (2004), a population is "the complete collection of persons, companies,
plants, or objects that share one or more traits that are of interest to the study and are drowned by
generalization." The participants in this study will be all West Arsi Zone office employees under
selected sectors.

3.5.1. Sample Size and Sampling Technique

The target population of this study is all the employees in the case of West Arsi zone employees
with selected sectors. stratified random sampling (SRS) will be employed in the selection of the
sample respondents from the employees who work at different job categories and levels in the
company as well as from several zone offices with randomly selections. The sample size will be
determined by using the formula of Yemane (1976). A 95% confidence level and e = 0.05 are
assumed.

It was calculated as follows:

n = N/1+N (e)^2

Were,

n=Sample size,

N= Population,

e= standard error

In order to have a sample from respondents’ researcher will try to select randomly in West Arsi
Zone Employees in selected sectors from those 33 sectors researcher will select Eight (8) sectors
and having total populations 280 employers.

N = Total Population= 280

e = Sample error = 0.05

n=280/1+280(0.05) ^2

=165 sample will be selected from populations.

23
 Sr/ No Sectors Number of Employees
Employees Proportionate sample size from
stratum
Nh= (Nh/Ns) n
1 Zone administration bureau 52 52/280(165) =31
2 Public service &HRM bureau 54 54/280(165) =32
3 Communication bureau 22 22/280(165) =13
4 Investment and industry 19 19/280(165) =11
bureau
5 Education bureau 33 33/280(165) =19
6 Construction bureau 27 27/280(165) =16
7 Transport bureau 36 36/280(165) =21
8 Health bureau 37 37/280(165) =22
Totals 280 165

N.B Sample size from each sample will be calculated by class of employees in relative to the total
number of employees found and managed under west Arsi zone employees under zone office and
sample by stratified randomly sampling is obtained by multiplying sample size which is obtained
from the universe or total population.

3.6. Data Gathering Tools

Berg (2007) claims that researchers can get a better, more substantive image of reality by
combining many lines of sight; open-ended and closed-ended questionnaires will be utilized. There
will be several tools that researcher uses in order to evaluate the effects of compensation on
employee job satisfaction in case of West Arsi zone. From those Questionnaires and surveys: One
of the most common methods of gathering data on the effects of compensation on employee job
satisfaction is through questionnaires and surveys, Interviews which can provide a more in-depth
understanding of the effects of compensation on job satisfaction, Salary and benefits data which
can provide insights into how compensation policies impact job satisfaction and retention,
Employee feedback systems which can utilizing employee feedback systems, such as suggestion
boxes, can provide valuable information on the effects of compensation policies on employee
satisfaction, as well as insights into potential areas for improvement if available, Turnover rates

24
which can provide insight into how compensation policies impact employee retention and job
satisfaction, Social media monitoring which provide insights into employee opinions and
perceptions of compensation policies, allowing organizations to make data-driven decisions
regarding compensation, main tools that will be used as data gathering.

3.6.1 Measurement of variables of the study

In a study on the effects of compensation on employee job satisfaction can be measured using
different scales or surveys that assess an individual's overall level of contentment and fulfillment
in their job, various variables can be measured in order to understand the relationship between
these factors to the Premium pay, Basic pay, Job related Incentives, Fringe Benefits, Leaves,
Health and Insurance, Retirement and Termination benefits, Employee welfare benefits.
Employment recognitions and Promotion. It will consist of questions related to the main variables
related to compensation that will effects on job satisfaction of respondents and most of the
questions will be stated in a five-point Likert scales ranging from strongly disagree to strongly
agree where 1 stands for (strongly disagree); 2 (disagree); 3(neutral); 4 (agree) and 5(strongly
agree) by Hackman and Oldham (1975). In Addition to this other variable such as demographic
status will be answered as requested by choosing from option.

3.6.2 Questionnaires
Questionnaires will be written forms that ask specific questions of all members of a sample group
and allow respondents to respond at their leisure (Gall et al., 2007). In research, the questionnaire
is the most widely used instrument. Data received via questionnaires is easier to evaluate and
interpret than data will be obtained from verbal replies. Due to this, questionnaires will be prepared
in English for top and middle-level employees and in Afan Oromo for low-level employees and
distributed to all participants in this study. There will be two parts to the questionnaire. The first
part looks into the individuals' basic backgrounds and the second section, which also includes
closed-ended and open-ended question items. The questionnaire will include both open-ended and
closed-ended questions to provide respondents the chance to freely share their feelings.

3.7. Method of Data Analysis

Once the researcher collected the questionnaires, it will be edited, coded, classified, and putted in
tabulation form to acquire data are all part of data analysis. The newest version of STATA will be
used to statistically evaluate the quantitative data gathered from the questionnaire. Tables, charts,

25
and graphs will be used to present the data. Code and feed in to the STATA computer software for
analysis. Initially screening of data is done using sort functions. Quantitative data will be collected
become analyzed using descriptive statistical techniques such as frequencies, mean, standard
deviation. Qualitative data will be categorized and reported in emergent themes. Measures of
central tendency will give expected summary statistics of the variables being tested. Descriptive
statistics will give the profile of the target population, i.e., frequencies and percentages, means,
standard deviations, whereas inferential statistics will be used ANOVA/T tests are statistical
techniques used to compare the means of different groups or conditions, Pearson correlation and the
Multiple Regression Analysis Model to determine impacts of benefit package on individual
employee job satisfaction. Multiple regressions and correlation as a form of inferential statistical
analysis is used in determining the relationship between the dependent and independent variables.
It will be analyzed and interpreted using narration, thematic, and description techniques. The data
will be computed by regression analysis model. The following regression model will be used to
determine the variation or quantitative associations between the variables as follows: By using the
mentioned variables, the following equation is formulated in order to measure effects of
compensations on job satisfactions.

JS= β0+ β1BP+ β2PP+ β3FB+ β4L+ β5HI+ β6RT+ β7P+ β8PO+ β9R+ β10PA ε

Were

β0 = variable coefficient of =

β1 = variable coefficient of basic pay

β2= variable coefficient of premium pay

β3= variable coefficient of fringe benefits

β4 = variable coefficient of leaves

β5= variable coefficient of health and life insurance

β6= variable coefficient of retirement and termination benefits

β7= variable coefficient of the effect of payment

26
β8= variable coefficient of promotion opportunity

β9= variable coefficient of Recognition

β10=variable coefficient of professional allowance

ε = standard error

JS = job satisfaction

3.8 Reliability and Validity

Reliability of the data collection instrument is the consistency of measurement and frequently
assessed using a test–retest reliability method (Cooper and Schinder, 2014). Cronbach's alpha will
be used to determine the internal consistency of objects. Cronbach Alpha is a measure of the
internal consistency of the elements that collectively cover the specific factor, according to
Raigama (2010). In this study the internal consistency of the question items of the instrument will
be tested using Cronbach’s alpha and thus a minimum Cronbach’s α= 0.70 will be considered as
sound and reliable. In addition to this the researcher will use opinions of experts of the organization
for the questionnaires whether they are correctly processed or not. This facilitated the necessary
revision and modification of the research instrument thereby enhancing validity.

3.9. Ethical consideration

According to McMillan and Schumacher (2006), the researcher will be morally accountable for
the subject's rights and welfare by understanding professional rules, legal considerations, and
ethical obligations. For the study to be effective, the researcher must gain both consent and
authorization. By maximizing potential benefits and reducing potential hazards, the researcher
safeguarded the participants' rights. It will be critical that the researcher preserve the participants'
privacy and will ensure that the data is not misrepresented. Some questions may be eliminated
because they will be irrelevant, while others will be changed. In general, the researcher will
indicate that in the questionnaire, all employees will be assured that all data of this study will be
used for academic purpose and analyzed secretly. In addition, the researcher will get permission
from the concerned body like the manager of the organization for their willingness to give
necessary data for the researcher and that didn’t contradict Madda Walabu University research
guidelines.

27
 CHAPTER FOUR

TIME SCHEDULE AND BUDGET FRAME

4.1 Time schedule
This study will take about ten months in the year 2023 starting from January to October 2023 G.C.
The table below explain when the study is expected to carry out and when each of the important
activities will be completed and also shows the time requirement along with the size of the
researcher phase

S.NO Activities

JUN JULY AUG SEPT OCT NOV DEC JAN

1 Title selection

2 Proposal
development

3 Consulting
advisor

4 Final proposal
submission

5 Proposal defense

6 Data collection

7 Data analysis

8 Report writing

9 Report the
finding

28
4.2. BUDGET FRAME
To conduct the study source of fund will be financed and the detail of the allocation to each of
the material needed for research is summarized in the following table.

S.NO Item Quantity cost per unit total cost

1 Cost of internet 1500

2 Printing cost 800

3 Photocopy cost 750

4 Personal cost 3500

5 Transportation 2000

6 Secretary 750

Equipment and
supplies

7 Pen 5 15 75

8 Pencil 3 10 30

9 Ruler 1 30 30

10 Papers 2pad 600 1200

11 Binding 2 50 100

12 Flash disk 1 450 450

Total 11,185 birrs

Contingents (10%) 12,303.5birr grand

=1118.5birr total

29
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 APPENDIX
Madda Walabu University

College of Business and Economics

Masters of Business Administration

Questionnaires to be filled by officers

This questionnaire is prepared by MBA student of Madda Walabu University, college of business
and economics. The objective of this questionnaire is to collect information concerning the effect
of employee compensation on job satisfaction: a case study on West Arsi zone employees in
several sectors. You are kindly requested to complete this questionnaire sincerely and honestly.
All information you provide will be kept with strict for academic purpose and will not be used for
other purpose than the intended purpose.

General direction

• Please take a few minutes to complete this questionnaire

• Please answer the questions correctly and as accurate as possible

• Tick or circle the correct answer in the boxes provided against the questions where
provided.

• Write brief answers where explanation is required.

• You need not write your name on the questionnaire.

Abbreviations

SD: - Strongly Disagree for which response scores 1

DA: -Disagree for which response scores 2

N: - Neutral for which response scores 3

A: - Agree for which response scores 4

SA: - Strongly Agree for which response scores 5

SECTION A: Demographic Information

1. Sex A. Male B. Female

34
 2. Age A. 21-25 B. 26-30 C.31-35 D.36-40 E above 40

3. Educational status

A. below Diploma
B. Diploma
C. degree
D. masters
E. above masters
4.Work experience

A. 0-3 B. 4-6 C. 7-10 D. 11-15 E. Above 15

5.Department which you’re working:

zone administration bureau public service & HRM communication bureau

investment and industry Education bureau construction

transport bureau health bureau

Others Specify______________

Section B: Questionnaires

This survey asks questions about your company’s compensation package you offer to your employees. If
there is something that I have neglected to consider please don’t hesitate to include or comment. Please
check (√) that applies and answer open ended question under each heading.

1. BASIC PAY

S.NO Questionaries Evaluations

Strongly Disagree Normal Agree Strongly

Disagree Agree
1 Pay increase directly linked to productivity
in my company.
2 My company provides employees with
salary/wage increase to adjust the cost of
living.
3 Salaries paid in my company are better
when compared to what employees could

35
 earn in another company doing the same
job.
4 Employees’ detainment with my
organization is highly depending up on the
sound salary structure.
What do you propose or suggest further ought to be included in your basic pay
scheme?..............................................................................................................................................
...... ....................................................................................................................................................
2. Job related Incentive

S.NO Questionaries Evaluations

Strongly Disagree Normal Agree Strongly

Disagree Agree
1 Cash Bonuses are awarded besides regular
wages as performance incentives to
increase employee productivity.
2 My company has profit sharing plan that
award employees a percentage of
company’s profit
3 My company uses commission as
incentive to increase employee
productivity.
What do you propose or suggest further to include in your incentive
scheme?..............................................................................................................................................
...... ......................................................................................................................................
3.Fringe Benefits

S.No Questionaries Evaluations

Strongly Disagree Normal Agree Strongly

Disagree Agree
1 Job-related education opportunities are
provided and the reimbursement of the
expenses is made by the Company.
2 Executives are provided with fueled
company car or petrol allowance to bear
their travelling expenses.
3 My company allows reimbursement of
telephone and cellular phone expenses.
4 My company provides transport facilities.

36
 5 Company provides loan to their employees
with the lower rate of interest to meet their
additional financial needs.

What do you propose or suggest further to include in your fringe

benefits?.............................................................................................................................................
....... ......................................................................................................................................
4.Leaves

S.No Questionaries Evaluations

Strongly Disagree Normal Agree Strongly

Disagree Agree
1 Company considers employees personal
problem and duly granted annual leave.
2 Company provides female employees with
adequate paid maternity leave
3 My company provides sick leave as per
the norms and in certain genuine cases
sick leave is extended beyond the standard
days till employees get cure
4 Employees are permitted time off from
work to attend for their higher studies
class.
5 In my company there is a provision of
encashment of annual leave which are not
used by the employees and payment is
made at the end of the year.
What do you propose or suggest further including in your leave
benefits?.............................................................................................................................................
.................................................................................................................................................
5. Health and Insurance

S.NO Questionaries Evaluations

Strongly Disagree Normal Agree Strongly

Disagree Agree
1 Employees are provided continuation of
salary during work related disability in
our company.
2 My company covers life insurance for all
employees with the reasonable

37
 contribution from their monthly
salary/wage.
3 Employees’ medical insurance is
sponsored by our company.
4 Medical bills with reasonable amounts
are imbruted for all employees in my
company.
5 Women employees are not engaged in
arduous or harmful to their health.
What do you propose or suggest further to include in your health and insurance
benefits?.............................................................................................................................................
...... .........................................................................................................................................
6. Retirement and Termination benefits

S.NO Questionaries Evaluations

Strongly Disagree Normal Agree Strongly

Disagree Agree
1 My company employs defined
contribution pension plan and offers at
the time of retirement as regard to
company policy.
2 Severance pay is granted to employees up
on termination of employment based on
length of service.
3 There is provident fund scheme in
addition to pension plan in our company
4 My company has an extension of medical
benefits and Insurance continuance offer
to retirees.
5 Funeral expenses are covered when
company employee dies.
What do you propose or suggest further to include in your retirement and termination
benefits?.............................................................................................................................................
...... ............................................................................................................................................
7. Effect of payment on job satisfaction

S.NO Questionaries Evaluations

Strongly Disagree Normal Agree Strongly

Disagree Agree

38
 1 My salary adequately meets my needs
and I am satisfied with my current job.
2 The fringe benefits provided to me by
company motivated me to work harder.
3 My salary is compatible with my job and
I am satisfied with my current pay.
4 My basic pay is compatible to other
people in other industries with the same
level and experience.
5 Leave benefits provided with my
company is motivated me to be satisfied
on job.
6 Health and insurance benefits provide by
company is motivated to work hard and I
am satisfied
7 Company welfare benefits are satisfied
employees on their job.
8 Company management decisions making
style help me to be productive and
courage to do a job.
9 Senior and hard-working employees
receive recognition from the company,
this motivates me to work hard
What do you propose or suggest further to include in your payment
structures?..........................................................................................................................................
. ..............................................................................................................................................
8.Employee promotion opportunity

S.NO Questionaries Evaluations

Strongly Disagree Normal Agree Strongly

Disagree Agree
1 Those who do well in job stand fair
chance of being promoted. Then am
motivated and satisfied on my job.
2 Management decision planning
emphasizes on developing my careers.
3 Company rules and regulations give
rooms for promotion opportunity. This
has direct relationship to my job
satisfaction.

39
 4 Those who working for long years has
got promotion then it motivated me to
work harder.
5 Those working harder are getting the
chance of higher Status
What do you propose or suggest further to include in your promotion
opportunity?.......................................................................................................................................
...................................................................................................................................................
9. Recognition Job satisfaction

S.NO Questionaries Evaluations

Strongly Disagree Normal Agree Strongly

Disagree Agree
1 Company management is open minded
and polite towards employees and
employees are committed on their job.
2 I enjoy working with my co-workers it
motivates me to work hard.
3 Company rules and regulations are safe
for employees the most of employees are
committed on their
4 Company information flow process
encourages working hard and forced me
always on job.
5 Those who work hard are having getting
the chance of prizes.
6 Company rule and regulations considers
family life
What do you propose or suggest further to include in your
Recognition?......................................................................................................................................
..................................................................................................................................................
10.Job satisfaction

S.NO Questionaries Evaluations

Strongly Disagree Normal Agree Strongly

Disagree Agree
1 I am generally satisfied with my
organization
2 Management tries their best to ensure that
employees will not leave from the
company

40
 3 When the compensation increased, my
satisfaction on job is increasing
4 The company compensation system is
closely related with
5 I am satisfied on company recognition
and reward system
What do you propose or suggest further to include in your job
satisfaction?........................................................................................................................................
................................................................................................................................................

Thank you

41