Does Pay Drive Performance? A PLS-SEM Analysis of Compensation and Employee Outcomes in Nepal

Abstract

Background: Compensation is an important human resource management practice that influences employees’ motivation, job satisfaction, and performance. In Nepal’s private sector, organizations need effective compensation systems to attract, retain, and motivate employees. Understanding the relationship between financial and non-financial compensation and employee performance can support organizations in developing effective employee management practices.

Purpose: The purpose of the study is to identify the impact of compensation on employee performance for private sector in Nepal. Specifically, the study tries to identify the current status of compensation package on employee performance, to examine the impact of compensation status on employee performance and to assess the mediating role of job satisfaction and motivation in relationship between compensation and employee performance.

Design/methodology/approach: The study adopted an explanatory research design. Equity theory is used for major study because it gives comprehensive insight about compensation model. The primary data for this study was collected from 405 respondents, using a non-probability convenience sampling method. Structured questions were administered through the KOBO toolbox to gather the necessary information. The collected data was then analyzed using descriptive and inferential analysis using MS Excel and Smart PLS 4.0.

Findings: The relationship between employee performance, job satisfaction, and motivation is well-established. This study concludes that financial compensation, non-financial compensation, employee motivation and job satisfaction have a positive and significant relationship with employee performance

Conclusion: Compensation plays a crucial role in enhancing employee motivation, which in turn influences job satisfaction. When employees feel fairly compensated, they are more likely to be motivated, leading to improved job satisfaction and ultimately better performance. Therefore, adequate compensation can act as a powerful driver for motivating employees and enhancing their overall work output.

Keywords: Compensation, job satisfaction, employee motivation, employee performance, financial compensation, non- financial compensation.