The Relationship Between Compensation and Job Satisfaction

Proceedings The 3

UMY Grace 2022

(Universitas Muhammadiyah Yogyakarta Undergraduate Conference)

Business Management and Accounting_Volume 2 Issue 1 (2022)

“Strengthening Youth Potential for Sustainable Innovation” 333

The Relationship Between Compensation and Job

Satisfaction

Nurin Zafirah Mohammad Amiruddin

, Shazaitul Azreen Rodzalan

1,2

Faculty of Technology Management and Business, Universiti Tun Hussein Onn Malaysia, Batu Pahat,

Malaysia, 86400

Email: [email protected]

, [email protected]

ABSTRACT

The intensifying economic competition makes every

organization strive to increase its competitiveness in order

to sustain in business environment. The success of an

organization depends on the job satisfaction of the

employees in the organization. However, job dissatisfaction

occurs due to the salary received. Therefore, compensation

is considered as something that can make employees

satisfied with their jobs. This study aims to identify the level

of compensation as well as the level of job satisfaction

among manufacturing employees. In addition, this study

also aims to identify the relationship between compensation

and job satisfaction. Quantitative methods using

questionnaires was used in this study. Primary data was

distributed to a total sample of 375 employees in

manufacturing companies in Johor Bahru. SPSS software

was used to analyze the respondents' data. The results

showed that the compensation that manufacturing

employees received satisfied them. This study supports the

hypothesis that there is a positive relationship between

compensation and job satisfaction among manufacturing

employees. This study benefits employees; if salaries are

paid appropriately, employees will continue to meet the

next level of need. This study can also help employers to

improve compensation strategies in accordance with

employee satisfaction. In addition, the government should

plan a compensation package as employees play an

important role in driving the Malaysian economy.

Keywords: Job satisfaction, Compensation, Manufacturing

INTRODUCTION

Manufacturing sector is one of the sectors that contribute to

the development of the Malaysian economy. The

manufacturing sector is associated with production that uses

machinery, equipment, raw materials, and labor. This

proves when Malaysia is heavily dependent on electronics,

electrical machinery and appliances, chemicals and plastics,

and petroleum products for production and export to

Singapore, China, the EU, the United States, and Japan

(Yusoff & Salleh, 2017). The rapid growth of this sector

results in high employment opportunities (Samsi et al.,

2018). The increasing rate of manufacturing sector

employees causes employers to pay attention to employees’

needs to make sure they are satisfied with their jobs

(Varshney, 2020).

A recent survey found that 46% of Malaysian

employees are dissatisfied with their jobs (Hays, 2020).

This proves that Malaysia ranks highest in terms of

dissatisfaction among several Asian countries like China,

Hong Kong, Japan, and Singapore due to the salaries

received by Malaysian employees. Past studies have shown

that dissatisfaction in work makes employees unable to

perform their jobs well, and this makes employees withdraw

from their jobs (Loh, Thorsteinsson, & Loi, 2021).

To date, there is less research related to the problem of

compensation and job satisfaction in the manufacturing

sector in Malaysia. Therefore, the researcher chose to

conduct a study related to compensation and job satisfaction

among manufacturing employees in Johor Bahru, Johor.

LITERATURE REVIEW

Previous Study

The relationship between compensation and job

satisfaction has been discussed by a few researchers. Kumar

(2016) found that compensation cannot satisfy teachers as

poor compensation is a major factor of job dissatisfaction.

The compensation received by teachers is not comparable

to their job description.

Next, Ramli (2019) stated that high compensation

gives job satisfaction in turn improving employee

performance. Compensation should be given based on the

performance that impacts the financial performance of the

hospital, thus the provision of good compensation does not

burden the hospital finances. This is supported by Sugiono

and Efendi (2020) where high compensation leads to

increased job satisfaction and employee performance.

Organizations that value employees facilitate problems to

be solved in turn involve employees in making decisions

that bring benefits to the organization. But, Setyorini,

Yuesti, and Landra (2018) stated that compensation may not

necessarily improve employee performance. This is

supported by Saputra, Sudiro, and Irawanto (2018) where

compensation is proven to have no effect on job

performance.

However, compensation have positive effect on other

variables such as situational leadership (Setyorini et al.,

2018) and environment and discipline (Saputra et al., 2018).

Furthermore, Gelard and Rezaei (2016) stated that

compensation is an effective factor in employees’ job

satisfaction and motivation. If the needs of employees are

met, employees will behave effectively and be satisfied with

their jobs. This is supported by Fajarto, Aima, and Karsono

(2019) where motivated employees are more productive if

the compensation received is equal with job satisfaction.

Compensation towards job satisfaction is closely linked to

job insecurity and turnover intention.

Proceedings The 3

UMY Grace 2022

DOI: 10.18196/umygrace.v2i1.467

(University of Muhammadiyah Yogyakarta Undergraduate Conference)

Business Management and Accounting_Volume 2 Issue 1 (2022)

“Strengthening Youth Potential for Sustainable Innovation” 334

Past studies have shown that if the compensation

received is high, the turnover intention rate decreases

(Brahmannanda & Dewi, 2020). This is supported by

Vizano, Sutawidjaya, and Endri (2021) where employees

tend to move to other organizations if employees do not get

a clear picture of their careers. In order to maintain the

quality of higher education, lecturers should be

compensated in accordance with their job satisfaction.

Lecturers can develop their careers with better quality if the

compensation is well (Permana et al., 2021).

Theoretical Framework

Based on the review from past studies, this study

hypothesized that:

𝐻

: There is a positive relationship between compensation

and job satisfaction.

Conceptual framework aims to show independent

variables and dependent variable in this study. Independent

variable is compensation which consists of financial

rewards and non-financial rewards as the components of

compensation and dependent variable is job satisfaction in

this study.

METHOD

Population and Sampling

The population of this study were manufacturing

employees in Johor. To attain the objectives, the data was

collected randomly by convenience sampling from

manufacturing companies around Johor Bahru, Johor with

population of 15,934 employees. Therefore, a minimum of

375 respondents as sample size is required (Krejcie &

Morgan, 1970).

Research Instrument

The questionnaire was divided into three sections which are

Section A, Section B, and Section C. Section A consists of

the demographic of the respondents such as gender, age,

ethnicity, working experience, and income level. Section B

consists of compensation questions adopted from Gerald

(2011). Section C consists of job satisfaction questions

adopted from Macdonald & Maclntyre (1997). The

questions will ask respondents to rate themselves using 5-

point Likert-type scale ranging from 1 (strongly disagree) to

5 (strongly agree).

Data Collection

This study collects both primary and secondary data, which

used to address the hypothesis and research questions.

Primary data is data obtained directly from the respondents;

data comes from the original and first source. Sources of

information from the primary data were collected through

questionnaires. While secondary data is data that is already

available. Secondary data is easy to find and obtain because

it is already available in libraries, internet searchers,

journals, articles, and so on. Secondary data is more in the

form of notes that have been booked or in the form of

reports.

RESULT AND DISCUSSION

There are 15,934 employees working in

manufacturing companies around Johor Bahru. A total of

375 questionnaires were distributed. However, only 211

respondents provided feedback. Therefore, the reaction rate

for this study is 56%. The data received were analyzed using

SPSS software as shown in Table 1, Table 2, Table 3, and

Table 4.

There are five demographic questions namely gender,

age, ethnicity, working experience, and income level.

Respondent demographics were analysed and discussed

using frequency and percentage. Based on the result that

shown in Table 1, there are 211 respondents who take part

in this study. Most of the respondents are female (51.2%).

Majority of the respondents are between 18 and 27 years old

(44.1%) and ethnic Chinese had the highest percentage

(37.9%). While for working experience shows that most of

the respondents have working experience in between 0 and

5 years (41.7%). Income level shows that 40.3% of the

respondents have an income level in the range of RM 1,001

to RM 3,000.

Table 1: Respondent Demographics

Items

Frequency

Percentage

(%)

Gender

Male

Female

103

108

48.8

51.2

Age

18 – 27 years

28 – 37 years

38 – 47 years

48 years and above

44.1

33.2

14.2

8.5

Ethnicity

Malay

Chinese

Indian

Iban

Melanau

36.5

37.9

20.4

3.3

1.9

Working

experience

0 – 5 years

6 – 10 years

11 – 15 years

16 years and above

41.7

33.6

15.6

9.0

Income level

RM 1,000 and below

RM 1,001 – RM 3,000

RM 3,001 – RM 5,000

RM 5,001 and above

24.2

40.3

24.6

10.9

Table 2 shows the mean and standard deviation for financial

rewards. FR1 shows the highest mean value for financial

rewards with a mean value of 3.85 while FR12 has the

lowest mean value with a mean value of 2.62. For standard

deviation, FR11 has the highest standard deviation value for

financial rewards with a standard deviation value of 1.403

while FR2 has the lowest standard deviation value with a

standard deviation value of 1.000.

Compensation

Financial Rewards

2. Non-Financial

Rewards

Job Satisfaction

Proceedings The 3

UMY Grace 2022

DOI: 10.18196/umygrace.v2i1.467

(University of Muhammadiyah Yogyakarta Undergraduate Conference)

Business Management and Accounting_Volume 2 Issue 1 (2022)

“Strengthening Youth Potential for Sustainable Innovation” 335

Table 2: Mean and Standard Deviation for Financial

Rewards

Label

Statement

Mean

Standard

deviation

FR1

I get my salary on time.

3.85

1.153

FR2

I receive a good salary.

3.65

1.000

FR3

I receive a salary that tallies with my

qualifications.

3.57

1.112

FR4

I am happy with the salary structure.

3.41

1.085

FR5

I get a pay increment every year.

3.36

1.173

FR6

I always receive bonus from the

superior.

3.09

1.270

FR7

I share the profits generated from

company projects.

2.90

1.125

FR8

I able to uplift my welfare through

projects held in the workplace.

3.06

1.056

FR9

I am paid for extra time worked.

3.53

1.212

FR10

I get medical allowances from

company whenever I am sick.

3.25

1.290

FR11

I receive transport allowances every

month.

2.80

1.403

FR12

I am paid an accommodation

allowance every month.

2.62

1.298

Total

3.26

0.829

Table 3 shows the mean and standard deviation for non-

financial rewards. NFR2 shows the highest mean value for

non-financial rewards with a mean value of 3.82 while

NFR8 has the lowest mean value with a mean value of 2.68.

For standard deviation, NFR10 has the highest standard

deviation value for non-financial rewards with a standard

deviation value of 1.271 while NFR2 has the lowest

standard deviation value with a standard deviation value of

0.885.

Table 3: Mean and Standard Deviation for Non-

Financial Rewards

Label

Statement

Mean

Standard

deviation

NFR1

I am always praised for any good

work I do at the workplace.

3.66

1.036

NFR2

I work in good physical working

conditions at the workplace.

3.82

0.885

NFR3

I get superior's recognition for the

good work I do.

3.67

0.938

NFR4

I receive appropriate gifts from the

superior for the good work I do.

3.33

1.084

NFR5

I have been recognised by the

superior.

3.65

0.976

NFR6

I expect a promotion anytime this

year.

3.16

1.146

NFR7

I get an appreciation for the extra

responsibilities I hold at the

workplace.

3.53

0.967

NFR8

I have been provided with

accommodation by the company.

2.68

1.230

NFR9

I have been provided with means of

transport to and from the workplace

every day by the company.

2.79

1.259

NFR10

I have been provided with medical

treatment by the company.

2.94

1.271

NFR11

I get leave whenever I have a serious

problem.

3.76

1.048

NFR12

My superior attends to my social and

professional problems.

3.31

1.003

Total

3.39

0.651

Table 4 shows the mean and standard deviation for job

satisfaction. JS1 shows the highest mean value for job

satisfaction with a mean value of 4.05 while JS9 has the

lowest mean value with a mean value of 3.52. For standard

deviation, JS9 has the highest standard deviation value for

job satisfaction with a standard deviation value of 0.958

while JS6 has the lowest standard deviation value with a

standard deviation value of 0.709.

Table 4: Mean and Standard Deviation for Job

Satisfaction

Label

Statement

Mean

Standard

deviation

JS1

I receive recognition for a job well

done.

4.05

0.767

JS2

I feel close to the people at work.

3.94

0.793

JS3

I feel good about working at the

company.

3.89

0.785

JS4

I feel secure about my job.

3.83

0.749

JS5

I feel good about my job.

3.92

0.755

JS6

I believe superior is concerned about

me.

3.73

0.709

JS7

I get along with my superior.

3.85

0.760

JS8

I believe work is good for my physical

health.

3.80

0.868

JS9

My salaries are good.

3.52

0.958

JS10

All my talents and skills are used at

work.

3.77

0.854

Total

3.82

0.469

Based on the Table 5, financial rewards are 0.430 correlated

with job satisfaction. It indicates that the relationship

between financial rewards and job satisfaction are

interrelated with positive value of the correlation

coefficient. According to Pearson correlation, it considered

as moderate strength of correlation coefficient since 0.430

is fall under the range of 0.40 to 0.59. Hence, there is a

moderate relationship between financial rewards and job

satisfaction. While non-financial rewards are 0.487

correlated with job satisfaction. It indicates that the

relationship between non-financial rewards and job

satisfaction are interrelated with positive value of the

correlation coefficient. According to Pearson correlation, it

considered as moderate strength of correlation coefficient

since 0.487 is fall under the range of 0.40 to 0.59. Hence,

there is a moderate relationship between non-financial

rewards and job satisfaction.

Table 5: Correlation between Independent Variables

with Job Satisfaction

Proceedings The 3

UMY Grace 2022

DOI: 10.18196/umygrace.v2i1.467

(University of Muhammadiyah Yogyakarta Undergraduate Conference)

Business Management and Accounting_Volume 2 Issue 1 (2022)

“Strengthening Youth Potential for Sustainable Innovation” 336

Job Satisfaction

Financial Rewards

Non-Financial

Rewards

Pearson Correlation

0.430

0.487

P-value

0.000

211

CONCLUSION AND RECOMMENDATION

Based on the overall findings of this study, it is possible to

conclude that non-financial rewards have become key

rewards, and in fact, are one of the reasons why employees

are satisfied with their jobs. Furthermore, the results of this

study clearly suggest that there is a relationship between

compensation and job satisfaction. This demonstrates that,

despite the fact that the relationship appears

straightforward, it has an impact on job satisfaction among

manufacturing employees. The researcher suggests that

future researcher to conduct advanced studies that combine

quantitative and qualitative research methods such as

conducting interviews with respondents or observation

methods in the workplace. This study can be used in future

with same and some other combinations of variables to have

more accurate and specific results.

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Proceedings The 3

UMY Grace 2022

DOI: 10.18196/umygrace.v2i1.467

(University of Muhammadiyah Yogyakarta Undergraduate Conference)

Business Management and Accounting_Volume 2 Issue 1 (2022)

“Strengthening Youth Potential for Sustainable Innovation” 337