The Effect of Non-Financial Compensation on Employee Performance

Topics: Human resource management, Arithmetic mean, Performance appraisal Pages: 18 (5671 words) Published: October 12, 2011
The Effect of Financial and Non Financial Compensation to the Employee Performance Arik Prasetya† and Masanori Kato Graduate School of Asia Pacific Studies, Ritsumeikan Asia Pacific University Beppu-shi, Oita-ken, Japan Abstract-- This study aims (1) to examine the employee responses in terms of their performance to an implementation of the compensation policy that includes both financial and non financial compensations, (2) to analyze the influence of both financial and nonfinancial compensation collectively and individually. This research was conducted at PT. Telkom Malang Regional Office, by a proportional random sampling technique with the sample size of 57 employees. The results of the descriptive statistical analysis of financial and nonfinancial compensation showed that the compensation policy of PT. Telkom Malang Regional Office is in line with expectations of employees. Based on the results of multiple regression analysis, there are significant influences of financial and nonfinancial compensation to the employee performance. However it was noted that promotion did not influence the employee performance in this company. Keywords: financial compensation, salary, incentive, non financial compensation, promotion, employee performance

Job performance is influenced by many factors. According to Kreitner and Kinicki (2007), performance management is “continuous cycle of improving job performance with goal setting, feedback and coaching, and rewards and positive reinforcement”. In this study the focus was given to compensation scheme. An investigation was conducted at PT. Telkom Malang Regional Office to see how such factors of compensation scheme affect job performance of the employees. The question that prompted the current investigation was "What degrees at which the salary, incentives, benefits, promotion, self-development, and work environment collectively or individually have influence on employee performance?".

Compensation is one of the physical needs that influence motivation which in turn will affect the employee performance. Providing appropriate compensation within the meaning of fair and adequate to meet the requirements is one of the personnel department functions that are difficult to implement. Compensation includes the financial returns to the services renered by employees as part of employment relationships. Compensation is a form of rewards that flow to employees arising from their employment (Dessler, 1995). Compensation has a big influence in the recruitment of employees, motivation, productivity and employee turnover (Bernardin & Russell, 1993). The level and magnitude of compensation should be of concern because the level of compensation will determine the lifestyle, self esteem, and the value of the company. Cascio (1991) describes that the principles that must be considered in granting effective compensation are: a. The principle of fairness, taking into account the ratio between the highest and lowest salaries, cost of living, and so forth. b. The principle of justice, where there should be a good element of justice in connection with the element of working time and job performance. The employees who perform similar tasks get the same compensation as well. †

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The 2 International Research Symposium in Service Management Yogyakarta, INDONESIA, 26 – 30 July 2011



c. The principle of security, with attention to things that are not directly related to the job or position, such as illness, layoffs, accidents at work, epidemics, natural disasters, or the like. d. The principle of clarity, in terms of easily calculated, or easily understood by employees. e. The principle of cost control, should be controlled in the sense that any element of extravagance. f. The principle of balance, which must be consider to the balance between compensation as it relates to employment or occupation, with which...
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