Begashaw Tsegaye

Addis Ababa University
School of Commerce
Department of Business Administration and Information System
The Role of Effective Compensation and Reward System on Employee

Performance in the Case of Commercial Bank of Ethiopia
A Thesis Submitted to Addis Ababa University, School of Commerce, for

Partial Fulfillment of the Requirements for Master of Arts Degree in
Human Resource Management
By: Begashaw Tsegaye
Advisor: Worku Mekonnen (PhD)
Addis Ababa, Ethiopia
June, 2017.
Addis Ababa University
School of Commerce
Department of Business Administration and Information System
The Role of Effective Compensation and Reward System on Employee
Performance in Commercial Bank of Ethiopia
Thesis Approval Sheet
Board of Examiners
Advisor Signature Date
External Examiner Signature Date
Internal Examiner Signature Date

Declaration
I, Begashaw Tsegaye, hereby declare that the thesis titled "The Role of Effective
Compensation and Reward System on Employee Performance in the case of Commercial
Bank of Ethiopia" is my original research work under the guidance of my advisor Dr. Worku
Mekonnen. This research has not been submitted for any degree in other universities. All
sources of materials used for this project have been duly cited and acknowledged.
Declared by, Signature Date
Begashaw Tsegaye
Advisor Signature Date

ACKNOWLEDGEMENT
First and for most, I would like to thank God for the courage He gave me. Secondly, I would
like to thank my advisor, Dr. Worku Mekonnen (Addis Ababa University) for his guidance to
effectively work this research study. I offer sincere thanks to employees of Commercial Bank
of Ethiopia for their cooperation during the survey and Commercial Bank of Ethiopia’s office
of Human Resource Transaction for providing me the necessary materials on the subject
matter of this study. I’m grateful to Ato Yonas G/egziabher, Commercial Bank of Ethiopia,
South Addis District Director of Human Resource Department for providing me very
important books to this research. I am also very grateful to all my families who encouraged
and supported me to accomplish my career.
List of Acronyms
CBE- Commercial Bank of Ethiopia

H.O-Head Office
HR-Human Resource
HRM-Human Resource Management
SPSS- Statistical Package for Social Science
List of Tables
Table 1: Sample Population…...............................................................................................24
Table 2: Reliability Statistics.................................................................................................26
Table 3: General Descriptive Statistics of Demographic information..................................27
Table 4: Chi-Square Tests gender of the respondent vs employee performance.................29
Table 5: Chi-Square Tests age of the respondent vs employee performance..........................30
Table 6: Chi-Square Tests education level vs employee performance...................................30
Table 7: Chi-Square Tests employment type vs employee performance...............................31
Table 8: Chi-Square Tests work experience * employee performance.................................31
Table 9: Chi-Square Tests marital status * employee performance.......................................32
Table 10: Chi-Square Tests monthly salary range * employee performance........................32
Table 11: Descriptive Statistics of Financial Reward...........................................................33
Table 12: Descriptive Statistics of Non-financial reward.....................................................35
Table 13: Descriptive Statistics Analysis of Employee Performance.................................36
Table 14: Employee Performance Statistics..........................................................................37
Table 15: Analysis of coefficient correlation of Financial & Non-financial and Employee
Performance..............................................................................................................................38
Table 16 Regression Model Summary of Financial Reward on Employee Performance........40
Table 17 ANOVA.................................................................................................................41
Table 18 Coefficient..............................................................................................................41
Table 19 Model Summary Analysis of Non-financial on Employee Performance..................42
Table 20 Model Summary Regression Analysis of Financial and Non-financial with

Employee Performance.............................................................................................................42
Table 21 Coefficients..............................................................................................................42
Table 22 Summary of Hypothesis...........................................................................................44

List of Figures
Figure 1 Elements of Total Rewards......................................................................10
Figure 2 the link between total rewards and Maslow’s hierarchy of needs.............18
Figure 3 Conceptual Framework of the Research....................................................22
IV
ABSTRACT
Compensation and reward management is one of the ways used by organizations for
attracting and retaining suitable employees to improve their performance. The main objective
of this study was to determine the role of effective compensation and reward system on
employee performance in Commercial bank of Ethiopia. The population of this study was
12,622 employees of the organization who works in Addis Ababa.. In this study, both primary
and secondary sources of data were used. The primary data were gathered through
questionnaires from 388 sample respondents from Commercial Bank of Ethiopia using simple
random sampling. A total of 388 sample sizes were selected from employees of the
commercial bank of Ethiopia and a total of 381 employees completed the questionnaire
properly. This study used journals, books, internet sources, and other references were used as
secondary sources of data. Data was analyzed using descriptive statistics such as frequency
tables and inferential statistics such as correlations and regression analysis using SPSS
version 20. The findings of this study indicated that there was a significant relationship
between compensation and reward system with employee performance. The study also
indicated both financial and non-financial compensation and rewards have a significant
relationship with employee performance. The non-financial compensation and rewards were
found to be a more motivational than the financial rewards in Commercial Bank of Ethiopia.
It was also found out that total rewards of CBE had an impact on employee performance.
Therefore, creating competitive and effective compensation and rewards should be developed
to motivate employees’ performance.
Keywords: Compensation, reward, employee performance, financial reward, nonfinancial

reward, total reward.
Table of Content
Chapter One: Introduction…......................................................................................1
1.1. Background of the Study..................................................................................1
1.2. Statement of the Problem.................................................................................3
1.3. Research Questions...........................................................................................4
1.4. Hypothesis….....................................................................................................4
1.5. Objective of the Study.......................................................................................5
1.5.1. General Objective..............................................................................................5
1.5.2. Specific Objectives.............................................................................................5
1.6. Significance of the study....................................................................................5
1.7. Scope of the Study..............................................................................................6
1.8. Limitations of the Study.....................................................................................6
1.9. Organization of the Study...................................................................................7
1.10. Definitions of Terms….......................................................................................7

Chapter Two: Review of Related Literature....................................................................8
2.1. Theoretical Framework of Compensation, Reward and Performance.....................8
2.1.1. Types of Rewards.................................................................................................8
2.1.2. Total Rewards.......................................................................................................9
2.1.3. Performance.........................................................................................................11
2.1.4. Impact of Reward on Performance....................................................................12
2.1.5. Motivation…........................................................................................................13
2.1.5.1. Types of Motivation….....................................................................................13
2.1.6. Reward Management…......................................................................................14
2.1.7. Reward Philosophy.............................................................................................15
2.1.8. Fundamental Views of Reward Management…..................................................17
2.2. Empirical Review.....................................................................................................20

Chapter Three: Research Methodology...........................................................................23
3.1. Research Approach....................................................................................................23
3.2. Descriptions of Study Area........................................................................................23
3.3. Research Design.........................................................................................................23
3.4. Population and Sampling Design...............................................................................24
3.5. Sources of Data Collection…......................................................................................25
3.6. Data Analysis Method.................................................................................................25
3.7. Reliability and Validity of the Research…......................................................................26

3.8. Ethical Considerations................................................................................................26
Chapter Four: Data Analysis and Interpretation................................................................27
4.1. General Demographic Information..............................................................................27
4.2. Analysis of Demographic versus Employee Performance using Chi-square Test........29
4.3. Data Analysis................................................................................................................33
4.3.1 Analysis of Financial reward....................................................................................33
4.3.2. Analysis of Non-financial reward.............................................................................35
4.3.3 Analysis of Employee Performance..........................................................................36
4.4. Analysis of coefficient correlation of Financial &Non-financial and Employee

Performance.......................................................................................................................38
4.5. Regression Analysis of the result................................................................................40
4.5.1 Regression Analysis of Financial Reward on Employee Performance.....................40
4.5.2. Regression Analysis of Non-financial on Employee Performance..........................42
4.6. Hypothesis Testing......................................................................................................43
Chapter Five: Summary of Major Findings, Conclusions and Recommendations...........45
5.1. Summary of the Major Findings................................................................................45
5.2. Conclusions of the Study............................................................................................47
5.3. Recommendations......................................................................................................48
5.4. Research Limitations and Areas of Future Research Work…..................................49
CHAPTER ONE
INTRODUCTION
1.1. Background of the Study
A company's employees are one of its most valuable assets, and managing them can be one of
the most important but challenging tasks. Whatever the strategy, organizations are encouraged to
pay attention to the happiness, well-being, and motivation of their staff. Productive and satisfied
employees represent a crucial element to a successful business organization.
The history of compensation and reward dates back to the 1900s. The owner or operator usually
bore the responsibility for people’s pay, and little was offered outside of cash compensation.
There was minimal government regulation, and, consequently, few safety nets such as medical
insurance, unemployment compensation, overtime pay, or social security. Early in the twentieth
century, benefits were practically nonexistent for the common worker. Benefits became popular
as an acceptable way to evade wage and price controls during World War II because benefits
were not counted as wages. Labor unions likewise increased their focus on benefits in the mid-
1900s. By the 1970s and 1980s, organizations recognized that strategically designed
compensation and benefits programs could give them the edge in a rapidly changing
environment. Integration became key, and compensation and benefits professionals emerged as
critical strategic partners in their organizations’ leadership—a position still occupied by leaders
in the field today. Increasingly, it became clear that the battle for talent involved much more than
highly effective, strategically designed compensation and benefits programs. While these
programs remain critical, the most successful companies have realized that they must take a
much broader look at the factors involved in attraction, motivation, and retention (WorldatWork,
2007).
An effective compensation and reward philosophy takes into account each step of the
organization’s performance management process, enabling organizations to (1) identify
constituents’ needs and expectations; (2) design jobs that produce maximum results at the
highest possible level of quality; (3) encourage leaders to build synergistic relationships with
employees; (5) require leaders to conduct formal performance appraisals with employees; and (6)
collaboratively create performance growth and development plans designed to enhance
performance. Money continues to be a very popular form of reward and a powerful motivator.
1
For example, in a survey, 79 percent of salespersons chose cash as their favored reward.
Interestingly, as respondents’ salary increased, the importance of cash decreased. Of those who
make under $50,000 per year, 83 percent chose cash, compared to 66 percent of those who earn
between $151,000 and $200,000 (Gilley, W. Gilley, A. Quatro, and Dixon, 2009).
Effective reward management is based on a well-articulated philosophy – a set of beliefs and

guiding principles that are consistent with the values of the organization and help to enact them.
It recognizes that if Human Resource Management is about investing in human capital from
which a reasonable return is required, then it is proper to reward people differentially according
to their contribution. Importantly, reward management adopts a ‘total reward’ approach, which
emphasizes the importance of considering all aspects of reward as a coherent whole that is
integrated with other human resource initiatives designed to achieve the motivation, commitment
and engagement of employees (Armstrong and Murlis, 2004).
A high-performance culture is one in which people are aware of the need to perform well and
behave accordingly in order to meet or exceed expectations. Employees will be engaged in their
work and committed to the organization. Such a culture embraces a number of interrelated
processes that together make an impact on the performance of the organization through its people
in such areas as productivity, quality, levels of customer service, growth, profits and, ultimately
in profit-making firms, the delivery of increased shareholder value. In our more heavily service-
and knowledge-based economy, employees have become the most important determinant of
organizational success (Armstrong, 2007)
Commercial Bank of Ethiopia offers different types of benefit packages to its employees based
on different criteria. The major benefits include: housing allowance, fuel allaowance, hardship
allowance, disturbance allowance, acting allowance, cash indeminity allowance, representation
allowance, verification allowance, overtime payment, severance payment, annual bonus, annual
salary increment, medical expense for active and pensioners, medical abroad, tuition fee, loans,
maternity pay and other benefits (Commercial Bank of Ethiopia, 2007).
Therefore, I have conducted this study to find out the role of effective compensation and reward
system on employee performance so as to achieve huge organizational goals.
1.2. Statement of the Problem
According to a study done by American based Management institute, financial leverage,

economics of scale and new services and technologies among others are the strengths and
opportunities of Commercial Bank of Ethiopia (CBE), while high staff turnover along with work
inefficiencies and other macroeconomic issues are identified as its weaknesses and threats.
Employment turnover, especially for mid-level and upper level managers, is not only the
challenge for the state giant financial institution, CBE. It is rather becoming the general character
of the financial sector in general and public financial institutes in particular. Almost all of the
presidents and managers in the private financial institutions are from CBE. These infant private
finance institutes cannot find the human resources they need nowhere else except from the
seasoned public financial institutions, mainly CBE (Ethiopian Bankers’ Association, 2017)
Reducing staff turnover and attracting new employees is important for all banks. And for a bank
such as CBE, which dreams to become a world class bank by 2025, the issue becomes more
important. However, with the current rate of expansion, the banking sector might face the same
challenge in the future what it faces now. It will be impossible to keep increasing salaries every
time. Most bankers agree that staff mobility will be the biggest challenges of the banking
industry. Banks that respond to this situation with sound policies will reap the benefit of
retaining productive staff (Ethiopian Business Review, 2014). According to CBE’s Human
Resource Transaction record, for instance, in 514, 461 and 485 employees were terminated in
2010, 2011, & 2012 respectively. A total of 3,008 employees left CBE in only six years. This
showed it is a signal for CBE since rewards are the major factor for employees.
CBE’s overarching strategic result for vision 2025 is strong and stable financial position and
enhanced developmental partnership, stakeholder responsiveness process efficiency and
effectiveness and finally motivated and proficient employees (CBE-IS System Development and
Customization, 2012). So, a motivated and proficient employee is one of the major components
that CBE is planned to achieve by the year vision 2015.
If the problem of disagreement between the bank and the employees over the benefits of
employee continued, it will limit the motivation and the performance of employees, as well as
affect organizational performance particularly to that of CBE whose vision is to become a world
class bank by the year 2025.
It was a hot issue in the media in the month of July, 2011 as the state owned Commercial Bank
of Ethiopia (CBE) and its labor union were in dispute over salary increments, bonuses, overtime
payments, and employee reshuffling. The union took their case even up to the Supreme Court for
the right of the employees. The bank was forced to adjusted the employees salary and benefit
packages since July, 2011.Are CBE staffs now be a satisfied and a high performer?
1.3. Research Questions
The following questions regarding the role effective compensation and reward system on
employee performance guides the study:
1. To what extent compensation and reward packages available in CBE?
2. What is the relationship between compensation and rewards with employee performance
in CBE?
3. What is the effect of compensation and rewards on employee performance?
4. What is the relationship between demographic information with employee performance?
1.4. Hypothesis
H1: Financial compensation and rewards have significant relationship with employee
performance.
H2: Non-financial compensation and rewards have significant relationship with employee
performance.
H3: Financial compensation and rewards are a more motivating factor to increase employee
performance than non-financial.
H4: A total reward system has an impact employee performance.

1.5. Objective of the Study
1.5.1. General Objective
The general objective of the study is to find out the role of effective compensation and reward
system on employee performance in Commercial Bank of Ethiopia.
1.5.2. Specific Objectives
Moreover, the study has the following specific objectives:
 To study the extent of compensation and reward packages available in CBE.
 To examine the relationship between compensation and reward system with employee
performance?
 To examine whether compensation and rewards have an impact on employee

performance
 To examine the relationship of demographic information with employee performance
1.6. Significance of the study
This study can initiate CBE to develop effective practices of compensation and reward system
for its employee based on the results obtained and recommendations forwarded. The company
will improve the practices of compensation and reward related activities to boost employee
performance. It may also be used by other researcher as a reference who conducts a research on
the subject matters of this research area in the future. Furthermore, the research on CBE’s
compensation and reward system broaden the knowledge of the researcher. More importantly,
upon completion of this research, he will be awarded an academic qualification & certified for
his accomplishment.
1.7. Scope of the Study
This study focused only the compensations and reward system that CBE provides to its
employees. Additionally, the contents of compensation, reward, and performance are a wide
theory and the researcher has not covered all aspects of these issues because of time and limited
finance. Moreover, the title of this research was limited to the role of effective compensation and
reward system for employee performance. That is, it doesn’t consider the role of compensation
and reward system for the company’s productivity, development, organizational performance,
employee motivation, etc.
Practically, the study geographically limited to employees of Addis Ababa areas because it is
obvious it would be very difficult to conduct a study throughout the bank’s branches stretched
across Ethiopia. It would be more generalizable if the study took samples from the total
populations of the company.
Moreover, the researcher delimited its target population to employees who served the bank for a
year and above and non-clericals employees such as janitors, security guards, and messengers are
excluded as they are outsourced from commercial nominees’ plc.
1.8. Limitations of the Study

The research sample population of this study is taken from employees who work in Addis Ababa
area. This might affected the generalization of the research findings to the whole Commercial
Bank of Ethiopia’s employee since the total population of CBE is large as conducting and taking
sample from the whole population is not possible because of money and time constraints at this
level. Some of the employees were not willing to fill the questionnaires distributed. The
researcher has not employed a qualitative research method since the willingness of the top
managers to give interviews are poor due to the work overload they have and they fear they have
compromised confidentiality of the bank. This might affect the results of the study. Another
limitation is that the study included the main compensation and rewards and excluded some
variables of compensation and rewards offered by CBE due to shortage of time available.
1.9. Organization of the Study
The study’s report is organized in to five chapters. The first chapters deals with background of
the study, background of the organization, statement of the problem, objective of the study,
significance of the study, scope of the study, and limitation of the study. The second chapter
elaborated review of related literature that the researcher has utilized in support of the study. The
third chapter discussed about research methodology and design. Then, analysis of data has been
made on chapter four and finally, conclusions and recommendations which were given to the
company is the last chapter of this study.
1.10. Definitions of Terms
Compensation refers to all forms of financial returns and tangible service and benefits employee
receives as part of an employment relationship. The term compensation is used to mean
employee’ gross earning in the form of financial rewards and benefits as part of employement
relationship (Singh, 2012).
Reward management is about the development, implementation, maintainance, communication
and evaluation of reward processes. When centain conditions exist, reward system has been
demonstrated to motivate performance. Organizations typically rely on reward systems to do
four thinngs: motivate employees to perform effectively, motivate employees to join the
organization, motivate employees to continue work and motivate individuals by indicating their
position in the organization structure (Singh, 2007)
Total reward- typically encompass not only traditional, quantifiable elements like salary,
variable pay and benefits, but also more intangible non-cash elements such as scope to achieve
and exercise responsibility, career opportunities, learning and development, the intrinsic
motivation provided by the work itself and the quality of working life provided by the
organization (Armstrong, 2010).
Performance is indeed often regarded as simply the outcomes achieved: a record of a person’s
accomplishments. Performance management is an important HRM process that provides the
basis for improving and developing performance and is part of the reward system in its most
general sense (Armstrong , 2009).
CHAPTER TWO
REVIEW OF RELATED LITERATURE
In this chapter, a detailed discussion of related literature works about compensation, reward and
performance will be presented. Both theoretical and empirical framework of the study will be
discussed in detail to support this study.
2.1. Theoretical Literature of Compensation, Reward and Performance
2.1.1 Types of Rewards

Performance management can play an important part in a total reward system in which each
reward element is linked together and treated as an integrated and coherent whole. These
elements comprise base pay, contingent pay, employee benefits, and non-financial rewards,
which include intrinsic rewards from the work itself (Armstrong, 2006).
According to Armstrong (2010), rewards can bee seen broadely from two perspectives:
1. Financial Rewards
Financial rewards comprise all rewards that have a monetary value and add up to total
remuneration base pay, pay contingent on performance, contribution, competency or skill, pay
related to service, financial recognition schemes, and benefits such as pensions, sick pay and
health insurance.
2. Non-Financial Rewards
Non-financial rewards are those that focus on the needs people have to varying degrees for
recognition, achievement, responsibility, autonomy, influence and personal growth. They
incorporate the notion of relational rewards, which are the intangible rewards concerned with the
work environment (quality of working life, the work itself, work–life balance), recognition,
performance management, and learning and development.
Increasing motivation and raising levels of commitment and engagement are key organizational
imperatives. The development of reward management policies, structures and practices will be
underpinned by assumptions about how people can best be motivated to deliver high levels of
performances, discretionary effort and contribution. These assumptions may not be articulated
but the reward philosophies and policies of an organization can be no better than the
motivational theories and beliefs upon which they are based (Armstrong and Murlis, 2004).
2.1.2. Total Rewards

According to WorldatWork (2007), total rewards can be defined as all of the employer’s
available tools that may be used to attract, motivate, and retain employees. This encompasses
every single investment that a company makes in its people and everything its employees value
in the employment relationship. A total reward is the monetary and nonmonetary return provided
to employees in exchange for their time, talents, efforts, and results. It involves the deliberate
integration of five key elements that effectively attract, motivate, and retain the talent required to
achieve desired business results. The five key rewards elements are:
A. Compensation- Pay provided by an employer to an employee for services rendered (i.e.,
time, effort, and skill). Includes both fixed and variable pay tied to levels of performance.
B. Benefits-Programs an employer uses to supplement the cash compensation that
employees receive. These health, income protection, savings, and retirement programs
provide security for employees and their families.
C. Work-Life-A specific set of organizational practices, policies, and programs plus a
philosophy that actively supports efforts to help employees achieve success at both work
and home.
D. Performance and Recognition-
a) Performance: The alignment of organizational, team, and individual efforts
toward the achievement of business goals and organizational success. It includes
establishing expectations, skill demonstration, assessment, feedback, and
continuous improvement.
b) Recognition: Acknowledges or gives special attention to employee actions,
efforts, behavior, or performance. It meets an intrinsic psychological need for
appreciation for one’s efforts and can support business strategy by reinforcing
certain behaviors (e.g., extraordinary accomplishments) that contribute to
organizational success.
E. Development and Career Opportunities-
a) Development: A set of learning experiences designed to enhance employees’
applied skills and competencies. Development engages employees to perform
better and engages leaders to advance their organizations’ people strategies.
b) Career opportunities: A plan for employees to advance their career goals. May
include advancement into a more responsible position in an organization
(WorldatWork, 2007).
According to Armstrong (2010), the concept of total rewards describes an approach to reward
management which emphasizes the need to consider all aspects of the work experience of value
to employees, not just a few such as pay and employee benefits. It aims to blend the financial and
non-financial elements of reward into a cohesive whole. It is a holistic view of reward which
looks at the overall reward system in order to determine how its elements should be integrated so
that they provide mutual support in contributing to the overall effectiveness of the system. The
concept of total rewards combines the impact of the two major categories of reward as defined
below:
i. Transactional rewards: tangible (financial) rewards arising from transactions between
the employer and employees concerning pay and benefits. These are all extrinsic.
ii. Relational rewards: intangible (non-financial) rewards concerned with the work
environment (quality of working life, the work itself, work–life balance), recognition,
performance management and learning and development.
Base Pay
Transactional Contingent Pay Total remuneration

Rewards
Employee Benefits Total
The Work Experience Rewards
Non-financial/
Non-financial recognition Intrinsic rewards
Relational Rewards Performance Mgt
Learning & Development
Figure 1: The Elements of Total Rewards (Armstrong, 2010).

2.1.3. Performance
Performance management can be defined broadly as the process of taking systematic action to
improve organizational, team and individual performance. It enables performance expectations to
be defined and creates the basis for developing organizational and individual capability. For
individuals and teams, performance management is associated with both financial and non-
financial rewards (Armstrong, 2010).
According to Ann Gilley, etal., 2009, the performance challenge facing every organization is to
develop management systems that make employees the firm’s greatest asset. Designing,
developing, and implementing an organization-wide performance management process links
performance to the organization’s strategic goals and objectives, constituent needs and
expectations, and employee compensation and rewards. Applying the concepts, principles, and
ideas of the performance management process at both the organizational and individual levels
promotes maximum efficiency and performance throughout the firm.Organizations have, over
the years, learned much about human productivity, employee work and motivation, components
of supervisor effectiveness, and the impact of organizational leadership and support with respect
to performance management. Effective performance management techniques are applicable at
the organizational, departmental (business process), and individual levels.
1. Organizational Level: The primary aim of performance management at the
organizational level is achievement of strategic goals and objectives. Common
organization goals and objectives include increases in sales, customer satisfaction, or
profits; greater community involvement; higher rankings or perceived quality compared
to competing firms; and so forth.
2. Department (Business Process) Level: No department or division is an island-all
interact with or support others. Every job interacts with others at the business process or
departmental level (e.g., finance, human resources, admissions, counseling, accounts
payable, etc.). Establishing goals for each process, function, and department collectively
helps the organization meet the needs and expectations of its internal and external
stakeholders.
Identifying interfaces between these business processes to reduce breakdowns or isolate potential
improvements improves organizational efficiency and overall performance. In turn,
organizations are able to uncover related opportunities for individual employee performance
improvement, growth, and development.
3. Individual Level: Employees execute the tasks and assignments required to meet individual,
departmental, and organizational responsibilities. Although the organizational and business
process levels may be architectural masterpieces, if performers cannot execute efficiently and
effectively, performance quality and outputs will be negatively affected. Unless organizations
create conditions by which their employees can produce adequate products and services,
organizational process goals will be jeopardized. Individuals are the heart of any organization—
we do the work! Hence, the discussion that follows focuses on performance management at the
individual level. It is suggested to have an enhanced performance management system that
consists of the following 11 steps:
1. Identify stakeholder needs and expectations
2. Link the job to the organization’s strategic goals and objectives
3. Provide resources
4. Establish preliminary job-related performance goals
5. Hire/promote/select qualified performers
6. Establish employee-specific performance goals
7. Develop performance standards and expectations
8. Coach and provide feedback
9. Conduct developmental evaluations
10. Create performance growth and development plans
11. Link compensation and rewards to individual goals, growth, and development (Gilley, W.
Gilley, A. Quatro, and Dixon, 2009).
2.1.4. Effects of Reward on Performance

Reward makes an overall positive impact on performance when it contributes to the development
of a high-performance culture, one in which the values, norms and HR practices of an
organization combine to create a climate in which the achievement of high levels of performance
is a way of life. Such a culture can be manifested in a high-performance work system. Within the
high-performance culture and work system, reward impacts on individual and organizational
performance by:
 Focusing attention on the values of the organization for high performance and the
behaviors required to achieve it;
 Ensuring that performance expectations are defined and understood;
 providing the means to encourage and recognize high performance;
 enhancing engagement and promoting positive discretionary effort;
 Persuading talented people to join and stay with the organization (Armstrong, 2010).
2.1.5. Motivation
A motive is a reason for doing something. Motivation is concerned with the strength and
direction of behaviour and the factors that influence people to behave in certain ways. The term
‘motivation’ can refer variously to the goals individuals have, the ways in which individuals
chose their goals and the ways in which others try to change their behaviour. Motivating other
people is about getting them to move in the direction you want them to go in order to achieve a
result. Motivating yourself is about setting the direction independently and then taking a course
of action that will ensure that you get there. Motivation can be described as goal-directed
behavior. People are motivated when they expect that a course of action is likely to lead to the
attainment of a goal and a valued reward – one that satisfies their needs and wants.Well-
motivated people engage in discretionary behavior – in the majority of roles there is scope for
individuals to decide how much effort to exert. Such people may be self-motivated, and as long
as this means they are going in the right direction to attain what they are there to achieve, then
this is the best form of motivation (Armstrong, 2009).
2.1.5.1. Types of Motivation

According to Armstrong (2009), motivation can be divided in to two:
1. Intrinsic motivation
Intrinsic motivation can arise from the self-generated factors that influence people’s behavior. It
is not created by external incentives. It can take the form of motivation by the work itself when
individuals feel that their work is important, interesting and challenging and provides them with
a reasonable degree of autonomy (freedom to act), opportunities to achieve and advance, and
scope to use and develop their skills and abilities. Intrinsic motivation can be enhanced by job or
role design.
2. Extrinsic motivation
Extrinsic motivation occurs when things are done to or for people to motivate them. These
include rewards, such as incentives, increased pay, praise, or promotion; and punishments, such
as disciplinary action, withholding pay, or criticism. Extrinsic motivators can have an immediate
and powerful effect, but will not necessarily last long. The intrinsic motivators, which are
concerned with the ‘quality of working life’ (a phrase and movement that emerged from this
concept), are likely to have a deeper and longer-term effect because they are inherent in
individuals and their work and not imposed from outside in such forms as incentive pay.
2.1.6. Reward Management

According to Armstrong (2010), reward management is fundamentally about people. It is
stakeholder orientated, integrated, and strategic and evidence based.
Reward management and people- reward management is concerned with people – especially
the employees who are rewarded for their efforts, skills and contribution but also the directors,
managers and reward specialists who plan, manage and administrate rewards.
A stakeholder approach- the purpose of human resource management (HRM) is to meet the
needs of all the stakeholders in the business – employees, customers, and suppliers and the
public at large as well as management and shareholders. Reward management shares that
purpose. In doing so, it can make a significant contribution to meeting the varied needs of
stakeholders successfully.
Integrated reward management-integrated reward management is an approach to reward
management that provides for reward policies and practices to be treated as a coherent whole in
which the parts contribute in conjunction with one another to ensure that the contribution people
make to achieving organizational, departmental and team goals is recognized and rewarded. It
consists of a related set of activities that impinge and impact on all aspects of the business and
the HRM practices within it. Integration takes three forms:
i. Strategic integration: the vertical integration of reward strategy with business strategy.
ii. HRM integration: the horizontal integration of reward strategies with other HR strategies,
especially those concerned with high performance, engagement, talent management and
learning and development.
iii. Reward integration: the internal integration of reward to ensure that its various aspects
cohere and that a total reward philosophy is adopted that means a full range of mutually
supporting financial and non-financial rewards is used.
2.1.7. Reward philosophy

Reward management adopts a ‘total rewards’ approach that emphasizes the importance of
considering all aspects of reward as a coherent whole that is linked to other HR initiatives
designed to win the engagement of employees and further their development. Some of the
reward philosophies are described as follows which was written by Armstrong (2010):
A. Distributive justice
Distributive justice refers to how rewards are provided to people. They will feel that they have
been treated justly if they believe that the rewards have been distributed in accordance with the
value of their contribution, that they receive what was promised to them and that they get what
they need.
B. Procedural justice
Procedural justice refers to the ways in which managerial decisions are made and reward policies
are put into practice. The five factors that affect perceptions of procedural justice are:
1) The viewpoint of employees is given proper consideration.
2) Personal bias towards employees is suppressed.
3) The criteria for decisions are applied consistently to all employees.
4) Employees are provided with early feedback about the outcome of decisions.
5) Employees are provided with adequate explanations of why decisions have been made.
C. Fairness
A fair reward system is one that operates in accordance with the principles of distributive and
procedural justice. This states that pay systems will be fair if they are felt to be fair. The
assumptions underpinning the theory are that:
i. There is an unrecognized standard of fair payment for any level of work.
ii. Unconscious knowledge of the standard is shared among the population at work.
iii. Pay must match the level of work and the capacity of the individual to do it.
iv. People should not receive less pay than they deserve by comparison with their fellow
workers.
D. Equity
Equity is achieved when people are rewarded appropriately in relation to others within the
organization. Equitable reward processes ensure that relativities between jobs are measured as
objectively as possible and that equal pay is provided for work of equal value.
E. Consistency
A consistent approach to reward management means that decisions on pay do not vary arbitrarily
without due cause between different people or at different times. They do not deviate irrationally
from what would generally be regarded as fair and equitable.
F. Transparency
Transparency exists when people understand how reward processes function and how they are
affected by them. The reasons for pay decisions are explained at the time they are made.
Employees have a voice in the development of reward policies and practices.
G. Strategic alignment
The strategic alignment of reward practices ensures that reward initiatives are planned by
reference to the requirements of the business strategy and are designed to support the
achievement of business goals.
H. Contextual and culture fit
The design of reward processes should be governed by the context (the characteristics of the
organization, its business strategy and the type of employees) and the organization’s culture (its
values and behavioral norms). The design will be affected by the political and social factors
present in the organization.
I. Performance and reward
Reward strategies, policies and practices focus on performance and contribute to the
achievement of a high-performance culture. This is one in which people are aware of the need to
perform well and behave accordingly in order to meet or exceed expectations. Employees will be
engaged with their jobs and the organization and be prepared to exercise productive discretionary
effort in getting their work done.
J. Segmentation
Different segments of the workforce, and individuals at different stages in their career, will be
motivated by different combinations of rewards. A total rewards package should be tailored to
meet these different needs. Organizations may consider segmenting their package for different
types of jobs, or to reflect the different types and levels of contribution people make, or to
respond to different needs.
2.1.8. Fundamental views of Reward Management

The following fundamental concepts influence the aims of reward management, reward strategy
and how people are valued.
1. The Resource Based View
The role of reward management is to contribute to the acquisition and retention of such people.
This is the view that it is the range of resources in an organization, including its human
resources, that produces its unique character and creates competitive advantage. HRM delivers
added value and helps to achieve sustainable competitive advantage through the strategic
development of the organization’s rare, hard to imitate and hard to substitute human resources.
2. Human Capital Management
It is human capital that is the differentiator for organizations and the actual basis for competitive
advantage’. Human capital management (HCM) is often described as being about measurement
in the sense of obtaining, analyzing and reporting on data relating to employees that inform
HRM decisions. But it is sometimes defined more broadly without the emphasis on
measurement. Human capital management is an integrated effort to manage and develop human
capabilities to achieve significantly higher levels of performance.
3. Human Process Advantage
A distinction should be made between human process advantage and human capital advantage.
The former results from the establishment of ‘difficult to imitate, highly evolved processes
within the firm’, while the latter follows from employing people with competitively valuable
knowledge and skills. This suggests that one of the roles of reward management is to
differentiate from rather than imitate the ‘best practices’ of other firms.
4. Motivation theory
Motivation is the force that energizes, directs and sustains behavior. Motivation theory explains
how motivation works and the factors that determine its strength. It deals with how money and
other types of rewards affect the motivation to work and levels of performance, what creates job
satisfaction, and the link between job satisfaction and performance. It therefore influences
decisions on how people should be valued, the choice and design of financial rewards and the
use of non-financial rewards. A distinction is made between extrinsic and intrinsic motivation.
Extrinsic motivation occurs when things are done to or for people to motivate them. There are
four main categories of motivation theories as described below.
a. Instrumentality theory
Instrumentality theory states that people only work for money. It assumes that people will be
motivated to work if rewards and penalties are tied directly to their performance; thus the awards
are contingent upon effective performance.
b. Content (needs) theory
This theory focuses on the content of motivation in the shape of needs. It provides guidance on
what needs should be satisfied by the reward system if motivation is to occur. The basis of
content theory is the belief that an unsatisfied need creates tension and a state of disequilibrium.
The main needs identified by these and other writers are those for achievement, recognition,
responsibility, autonomy and the opportunity to develop and use skills. These have to be taken
into account in deciding how people should be rewarded and also in achieving motivation
through job design.
Figure 2 the link between total rewards and Maslow’s hierarchy of needs (WorldatWork, 2007)
c. Process theory
In process theory, the focus is on the psychological processes or forces that affect motivation, as
well as on basic needs. The three main theories are:
i. Expectancy theory states that motivation will be high when people know what they have
to do to get a reward, expect that they will be able to get the reward and expect that the
reward will be worthwhile.
ii. Goal theory which states that motivation and performance are higher when individuals
are set specific goals, when goals are difficult but accepted, and when there is feedback
on performance.
iii. Equity theory which states that people will be better motivated if they are treated
equitably, and demotivated if they are treated inequitably. The main distinction between
content and process theory is that the former provides guidance on what needs should be
satisfied by a reward system while the latter indicates how they should be satisfied,
especially in pay schemes that are contingent on performance, contribution or skill. In
their case, process theory is the most important.
d. Cognitive Evaluation Theory
Cognitive evaluation theory argues that placing strong emphasis on monetary rewards decreases
people’s interest in the work itself, thus dampening a powerful alternative source of motivation.
In other words, extrinsic rewards erode intrinsic interest.
5. Principal agent theory
Principal agent theory, sometimes known as agency theory, is based on the supposition that the
separation between the owners (the principals) and the agents (the managers) means that the
principals may not have complete control over their agents. The latter may therefore act in ways
which conflict with what the principals want. So it is desirable to provide for ‘incentive
alignment’, which means paying for measurable results deemed to be in the best interests of the
owners.
6. The Psychological Contract
A psychological contract is a set of unwritten expectations that exist between individual
employees and their employers. A psychological contract is a system of beliefs that encompasses
the actions employees think are expected of them and what response they expect in return from
their employer(Michael Armstrong, 2010).
2.2. Empirical Review
A study in South Asian country of Bangladesh, on the title of the “Impact of Rewards on
Employee Performance in Commercial Banks of Bangladesh indicated that there is a statistical
significant relationship between all of the independent variables with dependent variables
employee work performance and all the independent variables have a positive influence on
employee work performance. Based on result of the study, it showed that only extrinsic or
intrinsic rewards are not sufficient to motivate employee to perform work highly. The results of
correlation matrix, there was a positive relationship among extrinsic rewards, intrinsic rewards
and employees’ performance. There is also strongly relationship between extrinsic rewards and
intrinsic rewards. Basic pay was a highly significant factor which affected employee
performance than performance bonus. Challenging work was a highly significant factor which
affected employees’ performance (Aktar, Sachu and Ali, 2012).
A study conducted in West African country, Nigeria on the title of the “Effect of Rewards on
Employee Performance in Organizations indicated the presence of a relationship between
rewards and employee performance and that there is a significant difference on the effects of
intrinsic and extrinsic rewards on employee performance. The respondents agreed that when
their work provides an opportunity for growth, they will enjoy it. Respondents opined that when
their contributions are recognized by superiors in the organization they feel motivated.
Respondents perceived that extrinsic rewards, such as: a competitive salary and cash bonus for
exceeding work targets motivate them to achieve greater feats (Ihedinmah, Chijioke, Egbunike,
Chinedu, 2015).
A study conducted in our neighboring country, Kenya on the “Effect of Reward on Employee
Performance: A Case of Kenya Power and Lighting Company Ltd., Nakuru, Kenya” showed
cash bonuses (i.e. financial reward) had no significant effect on employee performance. The
findingsof the study showed that cash bonus have no effect on employee performance
(p=0.8).Those who had received and those who had not received cash bonus perceived it to
affect their performance the same; hence concluded it did not have a significant effect on
performance of employee (Njanja, Maina, Kibet & Njagi, 2013).
A study in the Kenyan Country Government studied on the title of “Influence of Compensation
and Reward on Performance of Employees at Nakuru County Government showed that there was
a strong relationship between compensation and reward on employee performance in the county
government of Nakuru. There was a weak positive relationship between compensation and
reward and employee performance (r=0.290). The overall findings revealed appreciable
influence of the compensation & reward on employee performance. The adopted pay strategy of
basing compensation to knowledge was effective and had rippled the effects of motivating
employees to further their studies which would in turn enhance employee performance (Njoroge
& Kwasira, 2015).
In our country, Ethiopia, a study in Dessie town on four commercial banks (Commercial Bank of
Ethiopia, Construction and Business Bank, Dashen Bank, and Wegagen Bank) showed many
employees believed that the current compensation and benefit was not fair and banks need to
cope-up with ongoing cost of life. Compensation and benefit packages were not periodically
updated and evaluated for effectiveness. Furthermore, the existing benefits are not well
communicated to employees. When employees are participating on compensation process banks
need to take factors like market condition, nature of the jobs, competitors, government
regulations and also the internal factors like values of the job grades through job analysis. Some
employees felt that organizations considering seniority than performance. They explained that
there was great imbalance of salary payment and benefits between supervisor and clerical officer,
this may affect the majority of employees‟ perception on compensation management system and
benefit policy (Ponduri and Soudikar, 2016).
In Jimma, survey conducted on the effect of compensation on employees’ motivation in Jimma

University academic staff showed that payment, promotion, recognition, working conditions, and
payment influence work motivation. The study also indicated there was significant and positive
relationship between compensation and work motivation. The study has shown that Jimma
University staffs were not motivated and satisfied in payment system of the university. The
findings of this study also indicated that there was a relationship between compensation and its
components and employee work motivation. Moreover, money they earned from their job was
not satisfactory and staffs dissatisfied with the assignment of responsibility in the university and
fairness promotion is in appropriate (Negash, Zewude, Megersa, 2014).
Compensation and Reward:
Financial Reward
 Recognition
 Working condition Employee performance
 Staff development
Non-financial Reward
 Basic pay
 Benefit Packages
Figure 3: Conceptual Framework of the Research (Source: Aktar, Sachu and Ali, 2012)
CHAPTER THREE
RESEARCH METHODOLOGY
In this chapter, a detailed description of research methods and techniques used in the study for
the collection, analysis and presentation of data was presented.
3.1.Research Approach
The researcher used quantitative approach to answer the research questions. This is based on the
assumption that quantitative method was enough to address the research problem. A quantitative
research enables the researcher to collect objective and numerical data to apply statistical tools
and used to establish relationships of the variables used in this study.
3.2.Descriptions of Study Area
This study was studied in Commercial Bank of Ethiopia, Addis Ababa area. Data was collected
from 12 Grade IV braches. There are four Districts in Addis Ababa namely North, South, east
and West Addis. The study selected three branches from each District. From Noth Addis District,
Addis Ababa, Arat Kilo and Gulelem branches were selected. In South Addis District, Lideta,
KirkosKebele, TemenjaYaz were selected. In East and West Addis Districts, Africa Godana,
MeskelAdebabay and Megenagna and Teklehaimanot, Addis Ketema and Abakoran branches
were the study area of this study.
3.3. Research Design
Research design is the blueprint for fulfilling research objectives and answering research
questions. In other words, it is a master plan specifying the methods and procedures for
collecting and analyzing the needed information (Adams, Khan, Raeside & White, 2007).The
study used a descriptive and inferential design to identify the role of effective compensation and
reward system on employees of Commercial Bank of Ethiopia. Descriptive research design for
the demographic information and frequency and table were used to describe the result.
Regression analysis was used to determine the impact of compensation and reward on employee
performance.
3.4. Population and Sampling Design
According to CBE’s record as of December 2016, employees of CBE in total reached 28,278
working in 1140 branches stretched across the country. However, this study focuses only
employees of CBE in Addis Ababa working in the Head Office (H.O) and four Districts in Addis
Ababa, North, South, East and West Addis Districts. This study used simple random sampling.
Table 1: Sample Population
Offices No. of Employees) No. of Branches
Head Office 3045 0

Districts 9,577 371
East Addis Ababa District 2363 91
North Addis Ababa District 2590 90
South Addis Ababa District 2379 83
West Addis Ababa District 2245 107
Grand Total 12,622 371

(CBE’s Human Resource Transaction Management record, Dec., 2016)
These four Districts in Addis have 371 branches in Addis Ababa with employees of 9577 and
3045 employees in H.O which sum up a total of 12,622 target populations. CBE’s branches are
mainly categorized in to four depending on the number of customers and employees. They are
categorized as Grade-I, Grade-II, Grade-III and Grade-IV. Grade-I branches has least employees
and less market share while Grade-IV has big market share and customers with more employees
than all the rest grades. The researcher randomly selected Grade-IV branches as a sample. There
are 24 Grade-IV branches in Addis Ababa and the researcher took 50 % of these 24 branches as a
sample which is 12 Grade-IV branches. The researcher selected three branches from each
District on a lottery basis and employees from the H.O. were taken as a sample population. Head
Office population accounts 24% of the target population while the combined four districts
account 76% of the target population. Selection of the sample population was also based on this
proportion. Therefore, In order to determine the sample size of the population, the study used
Yamane’s (1967) formula with 95% confidence and 5% acceptable sampling error. Based on the
following formula 388 employees were taken as a sample.
Where, n= is the required sample size

N= is the population size
e= the acceptable sampling error (Yamane Taro, 1967).
Therefore, proportionately 93 employees from H.O and 295 employees from 12 branches (atleast
24 employees from each branch) were selected as a sampple and questionnaire was distributed
accordingly. Questionnaires were randomly distributed in all braches while the employees were
leaving for luch and collected after they finished their work before leaving their home.
3.5. Sources of Data Collection Methods
Once the research methodology and the sampling size were formalized, then the processes of
collecting survey questionnaire from respondents were carried out. Both primary and secondary
data were used for this research. Of the data gathering tools, the study used written
questionnaires administration approaches to gather datum. The primary data was collected from
the respondents by using survey questionnaire. A questionnaire was distributed to 388 sample
employees and 381 questionnaires filled and 7 questionnaire was not returned. The secondary
data was collected from various books, documents, Journals, Articles and internet sources related
to compensation and reward systems.
3.6. Data Analysis Method
The quantitative data collected from the respondents, described and analyzed using statistic
software called SPSS (Statistical Package for Social Science) version 20. The data was entered
and coded into the SPPS spreadsheet to describe and analyze the results along with figures and tables
to present and discuss the results of the study. A descriptive statistical such as mean, frequencies
and standard deviation were used to describe the profile of respondents, employee performance
levels and effects of employee compensation and reward. Chi-square test was used to test
whether demographic variables and employee performance have significant relationship or not.
Correlation test was used to determine the nature, direction and significance level of the
relationship of compensation and reward with employee performance. Regression analysis was
also carried out to determine the impact of compensation and reward system on employee
performance.
3.7. Reliability and Validity of the Research
The data was tested for its reliability using Cronbach’s alpha. The data have relatively high
internal consistency (Cronbach’s Alpha=0.827). The questionnaires were taken from various
journal articles and for its validity the researcher conducted a pilot test on two of CBE’s branch
by distributing 30 questionnaires. Based on the pilot test, improvements were made by
consulting my advisor and then after all it was found to be valid and reliable.
Table 2: Reliability Statistics

No. Variables Cronbach's Alpha N of Items
1 Financial Rewards .706 11

2 Non-financial rewards .723 15
Employee performance
3 .801 15
4 Grand .827 41
3.8. Ethical Considerations

This study used proper citation of the copy right holders. Any confidential information of the
bank or the employees has not been disclosed since the main intention was to gather data for the
research purpose. This research is conducted on the consent of the bank and with the
arrangement of Addis Ababa University, School of Commerce with authorized legal letter to the
researcher.
CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION
This chapter discusses the results survey which is the analysis of data obtained from data 381
respondents as seven questionnaires were not returned to the researcher.
4.1. General Demographic
Information Table 3: Descriptive
Statistics
Frequency Percent
male 203 53.3
Gender female 176 46.2
Total 379 99.5
Total 381 100.0
Frequency Percent
Below 25 83 21.8
26-35 199 52.2
Age 36-45 63 16.5
Above 46 32 8.4
Total 381 100.0
Frequency Percent
Diploma 31 8.1
Education Degree 268 70.3
MA/MSC 81 21.3
Total 381 100.0
Frequency Percent
1-5 171 44.9
6-10 116 30.4
Work 11-15 45 11.8
Experience 16-20 21 5.5
21-25 15 3.9
above 26 13 3.4
Total 381 100.0
Single 195 51.2
Married 172 45.1
Marital Status Divorced 8 2.1
widowed 2 .5
Total 381 100.0
Below 4000 39 10.2
40001-6000 128 33.6
6001-10000 158 41.5
Salary Range 10001-15000 46 12.5
15001-25000 9 2.4
Above 25001 1 .3
Total 381 100
(Source: Researcher’s Survey)
As we can see from the above table 3, male and female in CBE constitutes about 53.3% and
46.2% respectively which shows the samples taken represented male and female is relatively
distributed on fairly basis.
According to the above table 3 , age category of the respondent shows highly dominated by
youngsters between ages 26-35 which accounts more than half of the respondents (52.79%)
followed by 22.02% of the respondents are below age 25, while age group of 36-45 and above 46
constitutes 16.71% and 8.49% respectively. This indicates that most of the employees are young
and highly implies CBE’s employment trend focuses on new and young employees.
Regarding to the employee education qualification, the above table 3, clearly indicated that
majority of the work forces (70.53%) acquired their first degree and Master degree holders
constitute 21.32% of the respondent while the rest 8.16 % of the respondents are Diploma
holders. This shows that majority of the employees are degree holders because the company
adopted a recruitment policy of young fresh graduate and a minimum of bachelor degree is
required to join the workforce of CBE.
The management staffs accounts20.05% and professional employees’ represented by 79.95%.

Categorizing the employees in such a way helps the researcher to determine whether the
performance of the employees vary from the management and the professionals.
Majority of the respondents (44.9%) joined CBE as new comers for the company from the last
five years and 30.4% of the respondents spent their employment time for 6-10 years with the
organization. There are also employees who served the bank for 11-15 years and are about
11.8% and 5.5% of the employees served for 16-20 years working in the bank. 3.9% and 3.4% of
the respondents served the bank and spent their life with CBE for 21-25 and above 26 years
respectively working for the company. Therefore, the sample is more of from employees that
joined CBE in the last five years.
Since most of the employees of CBE are youngsters, the above table shows almost half of the
employees are single about 51.2% while 45.1% of the respondents are married. Unluckily, there
are 2.1% and 0.5% of the employees are divorced and widowed respectively. Since marital status
has its own impact on employee performance, the researcher has accessed this result for
comparison between their statuses.
The salary range of the employee indicated most of the respondent’s (41.47%) salary ranges
from ETB 6,001-10,000 while 33.60% of the employees earn a salary of between ETB 4,000-
6000. Employees of CBE which account about 10.24% earn a salary of below ETB 4,000.00 and
relatively high paid employee’s salary ranges from ETB 10,000-15,000, who are management
and administrative staffs, constitute 12.07% of the respondents. There are employees who earn a
salary of between ETB 15,000-25,000 and above 25,000 which accounts 2.36% and 0.26% of the
employees. Therefore, comparing the salary of the employee helped us to compare the
performance of the employees since it is part of the reward.
4.2.Analysis on Demographic versus Employee Performance using Chi-square Test
Gender of the respondent * Employee Performance
Table 4: Chi-Square Tests

Value df Asymp. Sig. (2-sided)
Pearson Chi-Square 36.959a 28 .120
Likelihood Ratio 44.960 28 .022
Linear-by-Linear Association .922 1 .337
N of Valid Cases 379
a. 36 cells (62.1%) have expected count less than 5. The minimum expected count is .46.
As the Chi-Square Table above shows, the p value is (sig. = .120) is greater than the significance
value of α=0.05, indicating that there is no relationship between gender and employee
performance in CBE.
Age of the Respondent * Employee Performance

The Chi-Square of age and employee performance indicated that the p value is (sig. = .164) is
greater than the significance value of α=0.05, indicating that there is no relationship between age
and employee performance in the case of CBE
Education level * Employee Performance

Linear-by-Linear Association 10.740 1 .001
The Chi-Square, Table 5 above, indicated that the p value is (sig. = 0.004) is less than the
significance value of α=0.05, indicating that there is significant relationship between education
qualification and employee performance in Commercial Bank of Ethiopia.
Employment type * Employee Performance Table
7: Chi-Square Tests
The Chi-square above indicated that the p value is (sig. = 0.135) is greater than the significance
value of α=0.05, indicating that there is no significant relationship between employment type
(professional and administrative) and employee performance.
Work experience * Employee Performance

The Chi-square test of work experience and employee performance’s p value is ((sig. = 0.008) is
less than the significance value of α=0.05, which indicates that there is significant relationship
between work experience and employee performance.
Marital Status * Employee Performance

The Chi-square test of p value in the above table is ((sig. = 0.045) is less than the significance
value of α=0.05, therefore, marital status has significant relationship with employee
performance.
Monthly salary range * Employee Performance


According to the above table, the p value is ((sig. = 0.054) is greater than the significance value
of α=0.05, which shows us there is no significant relationship between salary range and
employee performance.
4.3. Data Analysis
4.3.1 Analysis of Financial reward
Table 11: Descriptive Statistics of Financial Reward
N Mean Std. Deviation
I'm satisfied with the current salary scale of CBE for the job
381 2.22 1.089
I’m doing now
CBE's salary is competitive compared to other companies in

381 2.55 1.261
Eth.
My salary is based on the current market & is enough to satisfy

381 1.81 .936
my basic needs
Annual salary increment and adjustment is fair & reasonable 381 2.16 1.094
Bonus scheme of CBE is motivating to increase employee

381 3.65 1.163
performance
Overtime payment in CBE is reasonable & initiates for high

381 1.88 1.004
performance
Medical benefits are easily accessible & offer satisfactory

381 3.92 1.094
health care services
Fuel allowance fully covers my transportation expenses 381 3.73 1.101
Housing allowance covers my rent fully 381 1.48 .716
Mortgage loan offered by CBE is a motivating to buy the

381 3.27 1.435
property that satisfies my need in the market
Valid N (listwise) 381

From the above table 11, we can see that the highest mean score of M=3.92; SD=1.094 was for
the medical benefits of CBE are easily accessible & offer satisfactory health care services for its
employee. Furthermore, fuel allowance, bonus scheme and mortgage loan offered by the
company relatively have a high mean value of M=3.73; SD=1.101, M=3.65; SD=1.165, &
M=3.27; SD=1.1435 respectively. This showed benefit packages such as fuel, bonus scheme and
mortgage loan are encouraging for the employees. However, housing allowance with the lowest
mean M=1.48; SD=0.716 has dissatisfied the employees followed by the salary of the employee
has not considered the current market as the mean value is M=1.81; SD=0.936 and the employee
do not agree with the overtime payments of the company as M=1.88; SD=1.004. More
importantly, Commercial Bank of Ethiopia employees are not satisfied with their current salary
scale (the mean is M=2.22; SD=1.089) and they do not believe the annual salary increment and
adjustment is fair and reasonable (M=2.16; SD=1.094) which made them their employer’s salary
scale is barely competent compared to other companies (M=2.55; SD=1.261). Therefore,
employees of CBE are highly satisfied with the benefit packages of the company particularly on
fuel allowance, cash bonus and mortgage loan. However, they are not satisfied with the housing
allowance, over time payment and salary scale of the company.
Since the Mean (M) values of the above variables ranges from a positive lowest mean value to a
highest mean values of (M=3.92 and 1.48) respectively there is a positive relationship among the
variables and employee performance. An increase in one variable (independent variable) will
increase weakly or strongly the employee performance (dependent variable) depending the mean
values of the independent variable. For instance, in the above table, if there is an increase of
medical benefits (M=3.92) available, there is an increase in employee performance. Therefore,
there is a strong relationship between medical benefits and employee performance.
4.3.2. Analysis of Non-financial reward
Table 12: Descriptive Statistics non-financial

There are best opportunities for career 381 3.12 1.236
Staff development has helped me to do my task 381 2.90 1.211
I'm empowered to give decisions in my work place 381 2.90 1.157
I'm free from pressure & criticism 381 2.71 1.171

The bank recognizes on time for employees who deserves
381 2.74 1.058
recognition
There is fair and equitable promotion and growth 381 2.65 1.106
I'm happy that CBE invests on human capital to upgrade 381 3.40 1.095
My organization has safe work environment 381 3.44 1.154
I’m happy with the culture of my work place and social life 381 3.94 .963
A good sprit of team work 381 3.94 1.006
There is clear rules and procedures 381 3.87 1.177

When employees face problems, the MGT fixes 381 2.65 1.057
I am always interested doing my job 381 3.95 .969
Unlike the financial reward, the non-financial compensation and reward system of CBE was
relatively having a high mean value. The minimum mean value for the non-financial variables
were M=2.65 while the maximum mean M=3.95 which shows employees of CBE are relatively
satisfied on the non-financial compensation program. The table also shows the employees
interested doing their job and their team spirit is high (M=3.95 & 3.94). However, the
respondents doubted the fairness of the growth and promotion (M=2.65; SD=1.106). In addition
to this, we can see that the management’s responsiveness towards the employees problem is
average (M=2.65; SD=1.057). Overall, the minimum and maximum means were (M=2.65 &
3.95) which is moderate and strong respectively which means if there is a moderate and high
increase in the independent variables, there will be a moderate and strong relationship between
the independent and employee performance respectively. Likewise an increase in one variables
of the independent variable will increase the dependent variables positively.
4.3.3. Analysis of Employee Performance

Table 13: Descriptive Statistics Employee Performance

I enjoy my tasks and the division of work
381 3.39 1.188
approach
I am always committed to the mission and
381 4.00 .923
vision
I love my work 381 4.02 .978
I cooperate well with my colleagues in office 381 4.13 .775
My Performance level has effect on my salary 381 2.25 1.125
I am given a chance to apply my own methods 381 2.45 1.229
I am given an opportunity to improve my

381 3.47 1.130
performance through learning more skills
Employees with higher education qualification

381 2.43 1.204
perform better than lower qualification
I feel my Performance contributes for the

381 4.14 .902
growth of my organization

As we can see from the above table 13, the minimum mean value ranges from M=2.25 to 2.45
while the maximum mean ranges from M=3.39 to 4.14. We can see that the performance of the
employee weakly affected their salary (M=2.25; SD=1.125. The employee have a moderate
chance of applying their own methods (M=2.45; SD=1.229) and education qualification
moderately affected their performance (M=2.43; SD=1.204). Therefore, when we look at the
aggregate result, the employees of CBE’s are a high performer. The employees love their work,
committed to the mission and vision of the organization and contributes for the growth of the
organization since it has a high mean value of (M=4.02, 4.00 and 4.14) respectively. This shows
that there is a strong positive relationship between the independent variables and the dependent
variable that is employee performance.
Statistics
Table 14: Employee Performance
N Valid 381
Missing 0
Mean 3.36
Commercial Bank of Ethiopia’s employee performance’s grand mean is (M=3.36). The

employees’ performance level has reached about 67.2%. Therefore, CBE’s employees’
performance level is relatively high.
4.4. Analysis of coefficient correlation of Financial &Non-financial and Employee
Performance Table 15: Correlations
Basic Pay Benefit Staff Recognition Working Employee
Packages Development Condition Performance
Pearson
1 .453** .406** .330** .323** .233**
Correlation
Basic Pay
Sig. (2-tailed) .000 .000 .000 .000 .000
N 381 381 381 381 381 381
Pearson
.453** 1 .321** .219** .390** .224**
Benefit Correlation
Packages Sig. (2-tailed) .000 .000 .000 .000 .000
N 381 381 381 381 381 381
Pearson
.406** .321** 1 .368** .319** .381**
Staff Correlation
Development Sig. (2-tailed) .000 .000 .000 .000 .000
N 381 381 381 381 381 381
Pearson
.330** .219** .368** 1 .241** .314**
Correlation
Recognition
Sig. (2-tailed) .000 .000 .000 .000 .000
N 381 381 381 381 381 381
Pearson
.323** .390** .319** .241** 1 .412**
Working Correlation
Condition Sig. (2-tailed) .000 .000 .000 .000 .000
N 381 381 381 381 381 381
Pearson
.233** .224** .381** .314** .412** 1
Employee Correlation
Performance Sig. (2-tailed) .000 .000 .000 .000 .000
N 381 381 381 381 381 381
**. Correlation is significant at the 0.01 level (2-tailed).

According to the above correlation table 15, there is a weak but statistically significant
relationship between basic pay and employee performance in CBE (r = 0.233, p < 0.01). It also
showed there was weak but statistically significant relationship between benefit packages and
employee performance in CBE (r = 0.224, p < 0.01). The table also showed there was a moderate
and, statistically significant positive relationship between recognition and employee performance
in CBE (r = 0.314, p < 0.01) in CBE. There is relatively moderate and statistically positive
relationship between staff development and working condition with employee performance in
CBE (r=0.381 & r=0.412, p < 0.01) respectively.
4.5. Regression Analysis of the result
Regression and correlation are closely related. Both techniques involve the relationship between
two variables, and they both utilize the same set of paired scores taken from the same subjects.
However, whereas correlation is concerned with the magnitude and direction of the relationship,
regression focuses on using the relationship for prediction. In terms of prediction, if two variables
were correlated perfectly, then knowing the value of one score permits a perfect prediction of the
score on the second variable. Generally, whenever two variables are significantly correlated, the
researcher may use the score on one variable to predict the score on the second ( Robert Ho, 2006).
Since from the correlation analysis we found that the financial and non-financial have significant
relationship with employee performance though it is weak and moderate relationship in CBE. Then,
to find out how significantly it affects the employee performance a regression analysis was
conducted
4.5.1. Regression Analysis of Financial Reward on Employee Performance

Table 16 Model Summary
Model R R Square Adjusted Std. Error of the
R Estimate
Square
1 .248a .062 .059 .486
a. Predictors: (Constant), Financial Reward
A measure of the strength of the computed equation is R-square, sometimes called the coefficient
of determination. R-square is simply the square of the multiple correlation coefficients R in the
Model Summary (See table 16 above), and represents the proportion of variance accounted for in
the dependent variable (employee performance) by the predictor variable (financial reward). As
we can see from the above table, the correlation coefficients are 0.248, and the R-square is 0.62.
Thus, the predictor variables of the financial reward have shown 6.2% of the variance in the
dependent variable (employee performance). Therefore, The Adjusted R squared is coefficient of
determination which tells us the variation in the dependent variable due to changes in the
independent variable, from the findings in the above table the value of adjusted R squared was
0.059, an indication that there was variation of 5.9 % on employee performance due to changes
in financial rewards at 95% confidence level. Hence, 24.8 % of employee performance explained
by financial rewards.
Table 17ANOVAa
Model Sum of Squares df Mean Square F Sig.
Regression 5.877 1 5.877 24.912 .000b
1 Residual 89.404 379 .236
Total 95.281 380
a. Dependent Variable: Employee Performance
b. Predictors: (Constant), Financial Reward
The ANOVA table above, presented results from the test of the null hypothesis that R-square is zero. An
R-square of zero indicates no linear relationship between the predictor and dependent variable. The
ANOVA table showed that the computed F statistic is 24.912, with an observed significance level of less
than 0.001. Thus, the null hypothesis financial compensation and rewards have no significant
relationship with employee performance is rejected.
Table 18Coefficientsa
Model Unstandardized Standardize t Sig.
Coefficients d
Coefficients
B Std. Error Beta
(Constant) 2.744 .126 21.703 .000
1
Financial Reward .215 .043 .248 4.991 .000
a. Dependent Variable: Employee Performance
The Coefficients Table above shows that the standardized Beta coefficient between the predictor
variable financial reward and the dependent variable employee performance. The Beta coefficient is
positive and statistically significant at the 0.001 level. Thus, the more the company offers the
financial reward, the better performance of the employee, Beta = 0.248, t = 4.991, p< .001. Since
the predictor value is one, the standardized Beta Coefficient (0.248) is the same as the multiple R
coefficients. Therefore, A unit increase in the financial reward will increase performance by 0.215
other things remain constant.
4.5.2. Regression Analysis of Non-financial and Employee Performance
Table: 19 Model Summary

Mode R R Square Adjusted Std. Error of
l R the Estimate
Square
a
1 .483 .233 .231 .439
a. Predictors: (Constant), Non-Financial Reward
As we can see from the above Table 19, the correlation coefficients are 0.483, and the R-square is 0.233.
Thus, the predictor variables of the non-financial reward have shown 23.3% of the variance in the
dependent variable of employee performance. From the findings in the above table the value of adjusted
R squared was 0.231, an indication that there was variation of 23.1% on employee performance due to
changes in financial rewards at 95% confidence level. Therefore, 48.3% of employee performance
explained by non-financial rewards.
4.5.3. Regression Analysis of Financial and Non-financial Compensation and Rewards with
Employee Performance
Table 20 Model Summary

Model R R Square Adjusted R Std. Error of the
Square Estimate
1 .484a .234 .230 .439
a. Predictors: (Constant), Nonfinancial Reward, Financial Reward
From the above table, it showed that offering both the financial and non-financial rewards (total rewards)
explained 23% variance in the dependent variable. Performance explained 48.4% by total rewards.
Therefore, the null hypothesis total rewards have no impact on employee performance rejected.
Table 21Coefficientsa
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) 2.111 .133 15.827 .000
Financial Reward .027 .044 .031 .604 .000
Non-Financial Reward .370 .040 .469 9.221 .000
a. Dependent Variable: Employee Performance (Source: Researcher’s Survey)
42
From the above regression table, it was found that holding financial and non-financial rewards to a
constant zero, employee performance will be 2.11, a unit increase in financial rewards will increase
employee performance by 0.027. Likewise, an increase in non-financial rewards will lead to increase
in employee performance at Commercial Bank of Ethiopia by 0.370 other things remain constant.
4.6. Hypothesis Testing
Testing the hypothesis formulated based on the above statistics of employee performance using
the correlation Table 22 above, it can be generalized as follow:
H1: Financial compensation and reward have a significant relationship with employee
performance
There wasa weak and statistically significant relationship between financial compensation and
reward with employee performance (r = 0.248, p < 0.01). Although it showed a weak strength, but it
has a positive relationship. It means that if there is an increase in compensation and reward, then
employee performance also increase weakly. So, there is direct relationship. Therefore, the null
hypothesis financial compensation and rewards have no significant relationship with employee
performance was rejected and the alternative hypothesis was accepted.
H2: Non-financial compensation and rewards have a significant relationship with
performance.
There was moderate and significant relationship between non-financial and employee performance
in CBE (r = 0.483, p < 0.01). The non-financial compensation and rewards and employee
performance has a positive relationship which means if there is an increase in the non-financial
compensation and rewards, then employee performance also increase moderately. Therefore, this
hypothesis was accepted & the null hypothesis was rejected.
H3: Financial compensation and rewards are a more motivating factor to increase the
employee performance than non-financial
Since the financial rewards relationship with the employee performance was weak (r=0.248, P<
0.01) and less than the non-financial (r=0.483) which is moderate, then, the non-financial rewards
were a more motivating factor than the financial one in the case company. Therefore, the null
43
hypothesis of this was rejected & the alternative was accepted.
H4: Total reward system has an impact on employee performance
From the above discussions, both financial and non-financial rewards have weak and moderate
significant relationship with employee performance respectively. Therefore, employee performance
is affected by total rewards since the values are positive in both cases. Hence, the null hypothesis
total reward system has no impact on employee performance was rejected and the alternative
hypothesis was accepted. The Significance level has been shown in the regression part of this study.
Table 22: Summary of Hypothesis

Hypothesis Result
H1 Financial compensation & rewards have significant r/ship Accepted

with employee performance
H2 Non-financial compensation & rewards have significant Accepted
r/ship with employee performance
H3 Financial compensation & rewards a more motivating Rejected
factor to increase employee performance than no-financial
H4 Total rewards have an impact on employee performance Accepted
Chapter Five
Summary of Major Findings, Conclusions and Recommendations
This is the last chapter which summarizes the major findings of the study. Commercial Bank of
Ethiopia offers various compensation and rewards to its employee. The major findings of the
research was summarized and concluded here below.
5.1. Summary of the Major Findings
Financial compensation and reward of CBE such as fuel allowance, bonus scheme, mortgage loan
and medical benefits offered by the company relatively have a high mean value. Therefore,
employees of CBE are highly satisfied with the benefit packages of the company particularly on fuel
allowance, cash bonus and mortgage loan. However, the employees are not satisfied with the salary
scale of the organization, over time payment and housing allowance indicating the employees are
dissatisfied.
The non-financial compensation and reward system of CBE relatively have a high mean value
compared to the financial which showed employees of CBE are satisfied on the non-financial
compensation program of CBE.
Overall performance of employees in commercial Bank of Ethiopia was high and the performance
of the employee is weakly affected by their salary. The employees of CBE love their work,
committed to the mission and vision of the organization and contributed for the growth of the
organization. Therefore, when we look at the aggregate result, the employees of CBE’s were a good
performer.
The Chi-Square test indicated that there was no significant relationship between performance of the
employee with age group, salary and employee type (whether professional or administrative).
However, the test has showed that education qualification, work experience and marital status has
significant relationship with the performance of employee.
The correlation analysis explained that there was a weak but statistically positive significant
relationship between basic pay and benefit packages with employee performance in CBE. It also
showed that recognition, staff development and working condition have a moderate positive
relationship with employee performance in CBE. The correlation analysis also showeda weak and
statistically significant relationship between financial compensation and reward with employee
performance. It means that if there was an increase in compensation and reward in CBE, employee
performance also increases. There was a moderate and significant relationship between non-
financial and employee performance in CBE. The non-financial compensation and rewards and
employee performance has direct relationship which means if there was an increase in the non-
financial compensation and rewards, then employee performance also increase moderately.
Financial rewards relationship with the employee performance was weak and was lower than the
non-financial. Hence, non-financial rewards were a more motivating factor than the financial one in
the case company. Employee performance of CBE was significantly affected by total rewards the
mean values are positive in both cases.
The regression analysis conducted indicated that the financial and non-financial rewards have a
significant effect on employee performance. The variables of the financial rewards have shown a
6.20% variance in the dependent variable which is employee performance in CBE. In addition, the
non-financial compensation and reward affected employee performance by 23.3%.
5.2. Conclusions of the Study
Based on the findings of this research, the following major conclusions were drawn based on the
results obtained. .
Commercial Bank of Ethiopia’s employees’ performance was found to be a good performer.
Financial compensation and rewards that CBE offering was not adequate for the employees and the
non-financial compensation and rewards offered by CBE were very encouraging for the employees. .
Based on this study, Commercial Bank of Ethiopia developed effective non-financial compensation
and rewards. However, the financial rewards of CBE were not effective to improve the employees’
performance.
There was a total reward approach in Commercial Bank of Ethiopia. However, the extent and the
benefit packages attached to the total rewards are not satisfactory for the employees. An increase in
financial and non-financial reward rewards will also increase employee performance in Commercial
Bank of Ethiopia.
There was statistically positive significant relationship between basic pay, benefit packages,
recognition, staff development and working condition with employee performance in CBE.
Moreover, Both financial and non-financial rewards have significant relationship with employee
performance in Commercial Bank of Ethiopia. However, the significance level of the financial
compensation and reward on employee performance is weak and statistically significant positive
relationship.
5.3. Recommendations
Employees are the most valuable asset for every organization because it is the employees who make
the organization to fall and rise. Therefore, organizations need to cope up with needs of the
employee so as to motivate them by designing effective compensation and rewards. If employees’
needs are not fulfilled and dissatisfied by the rewards of their employers, they will look other
opportunities for better job. This is a burden for organization since employee turnover increases the
cost of hiring, training new staffs.
Commercial Bank of Ethiopia needs to consider current financial compensation and reward system
as the study indicated employees satisfaction is below average. This hugely affects employee
performance. CBE is the biggest bank in Ethiopia in financial strength, market share stretched across
the country. However, the study indicated that the compensation and reward compared to other
companies are an average. This implies there are other companies offering better benefit packages
even having the least market share in the country. Therefore, CBE has to design effective
compensation and reward system to improve employee performance even by making the employees
to that of employee engagement level.
CBE has to develop other forms of benefits like insurance payment, extra cash payment other than
bonus based on performance, and cost of service like subsidized cafeteria and so on. Unlike pay for
performance, most benefits are available to workers as long as they are employed by the
organization regardless of their performance. Therefore, CBE should link the compensation and
rewards system with the employees’ performance to create fairness.
Managers should use feedback mechanisms from the employees and other stakeholder to adopt
which motivational measures to use. Managers should employ both the intrinsic and extrinsic
motivations in order to get the best results from their employee.
Commercial Bank of Ethiopia should ensure the provision of good welfare packages with a good
policy system that will encourage and promote employees performance. The pay should continue to
be competitive with the banking industry standards and efforts should be made to offer even better
pay to avoid losing the developed human forces.
5.4. Research Limitations and Areas of Future Research
Like all other research studies, this study has its own limitations which need to be studied in the -
future. The first limitation is the geographic sample limited to Addis Ababa areas. The result
might be different outside the city of Addis Ababa where life living costs are lower than Addis
Ababa which is the future works of other researchers. Secondly, sample branches were taken
from big branches called Grade IV only. Since the salary and benefits of the administrative
staffs, not professional staffs, are different from each grades; the salary and benefits increase
from Grade I to Grade IV. This might have affected the result of the research. Therefore, future
works will need to take samples from the whole Grades to show the effect.
REFERENCES
Ann Gilley, Jerry W. Gilley, Scott A. Quatro, and Pamela Dixon, 2009. The Praeger
Handbook of Human Resource Management. Washington DC: Greenwood Publishing Group.
B. D. Singh, 2007. Compensation and reward management. 2nd ed. New Delhi: Anurag Jain.
B. D. Singh, 2012. Compensation and Reward Managent. 2nd ed. New Delhi: Anurag Jain.
CBE-IS System Development and Customization, 2012. Commercial Bank of Ethiopia.

[Online] Available at: www.combanketh.et [Accessed April 2012].
Charles R. Greer, 2003. Strategic Human Resource Management. 3 ed. Boston: Pearson
Custom Publishing.
Commercial Bank of Ethiopia, 2007. Reward and Compensation. Addis Ababa: Commercial
Bank of Ethiopia.
Ethiopian Bankers Association, 2017. Checkmate The Struggle to Retain Staff May Lead to
Salary War in the Financial Sector. [Online] Available at: http://www.ethiopianbankers.com
[Accessed 22 October 2014].
Ethiopian Business Review, 2014. Staff Retention: The Way Ethiopian Banks Do. [Online]
Available at: http://ethiopianbusinessreview.net [Accessed July 2014].
John Adams, Hafiz T.A. Khan, Robert Raeside & David White, 2007. Research Methods for
Graduate Business and Social Science Students. 1 ed. New Delhi: Sage Publications.
Michael Armstrong and Helen Murlis, 2004. Reward Management. 5th ed. London: Kogan
Page Limited.
Michael Armstrong, 2006. Performance Management. 3rd ed. London and Philadelphia:
Kogan Page Limited.
Michael Armstrong, 2008. Strategic Human Resource Management. 4 ed. London and
Philadelphia: Kogan Page Limited.
Michael Armstrong, 2009. Armstrong's Handbook of Human Resource Management Practice.
11 ed. London and Philadelphia: Kogan Page Limited.
Michael Armstrong, 2010. Armstrong's Handbook of Reward Management Practice. 3rd ed.
New Delhi: Kogan Page Limited.
Nnaji-Ihedinmah, Nnadozie Chijioke and Egbunike, Francis Chinedu, 2015. Effect of

Rewards on Employee Performance in Organizations: A Study of Selected Commercial Banks
in Awka Metropolis. European Journal of Business and Management, 7(ISSN 2222-1905
(Paper) ISSN 2222-2839 (Online).
Nyandema, Caleb Ochenge and . Were Susan, 2014. The role of reward systems in employee
motivation in Kenyan deposit taking microfinance institutions, case study Faulu Kenya.
International Journal of Social Sciences Management and Entrepreneurship, Volume 1(2), pp.
203-220.
Rijalu Negash, Shimelis Zewude, Reta Megersa, 2014. The effect of compensation on
employees motivation in Jimma University academic staff. Basic Research Journal of
Business Management and Accounts, Volume 3(2), pp. 17-27.
Robert Ho, 2006. Handbook of Univariate and Multivariate Data Analysis and Interpretation
with SPSS. New York: Taylor & Francis Group, LLC.
Serena Aktar, Muhammad Kamruzzaman Sachu and Md. Emran Ali, 2012. The Impact of
Rewards on Employee Performance in Commercial Banks of Bangladesh: An Empirical
Study. Journal of Business and Management, 6(2), pp. 09-15.
Sheila Wambui Njoroge & Josephat Kwasira, 2015. Influence of Compensation and Reward
on Performance of Employees at Nakuru County Government. Journal of Business and
Management, November, 17(11), pp. 87-93.
WorldatWork, 2007. The WorldatWork Handbook of Compensation, Benefits & Total

Rewards. New Jersey : John Wiley & Sons, Inc..
Yamane Taro, 1967. Statistics; An Introductory Analysis. 2nd ed. New York: Harper and
Row.
School of Commerce
Department of Human Resource Management
(Graduate Program)
SURVEY QUESTIONNAIRE TO BE FILLED BY EMPLOYEES OF CBE
Dear Employees of Commercial Bank of Ethiopia,
This survey questionnaire aims to study “the Role of Effective Compensation and Reward
System on Employee Performance” in your organization (CBE). It is purely conducted for
academic purpose. The responses to this questionnaire will be kept strictly confidential and is
subject to ethical rules of research at Addis Ababa University. Therefore, I kindly request you
to fill the questionnaire honestly and neatly assuring that the data will be used solely for the
intended academic purpose only. Your response is very crucial to gather data for this study.
Please read the instructions carefully and answer all questions and if you have any inquiry call
the researcher, Begashaw Tsegaye, at Mobile NO. +2519-1036-4811 for more explanation.
NB: No need of writing your name and ID number on any of these pages.
Addis Ababa, Ethiopia
April, 2017.
Part 1: General Demographic Information
Please circle the alternative that most closely represents your personal information:
1. Gender: 1) Male 2) Female

2. Age: 1) Below 25 2) 26-35 3) 36-45 4) Above 46
3. Education level:
1) Diploma 2) Degree 3) MA/MSC 4) PHD 5) Other
4. To which group your employment type belongs?

1) Professional 2) Administrative
5. How long have you served in CBE? (Work experience in years)

1) 1-5 2) 6-10 3) 11-15 4) 16-20 5) 21-25 6)
above 26
6. Marital status: 1) Single 2) Married 3) Divorced 4) Widowed
7. In which of the following does your monthly salary range fall in?
1) Below ETB 4,000 2) 4,001-6,000 3) 6,001-10,000
4) 10,001-15,000 5) 15,001-25,000 6) Above 25,001

Part-2: Overall Employee Opinions
The following questions are prepared on a 5 five point Likert Scale. If the item indicated
strongly matches with your response choose number 5 and if you completely disagree with the
item choose number 1. This is to know how you feel about the compensation and reward
system of CBE. Be honest and give a true picture of your feelings.
(1=Strongly Disagree, 2=Disagree, 3=Neutral, 4=Agree, 5=Strongly Agree)
Strongly Strongly
Disagree Agree
No Items Disagree Neutral Agree
(1) (2) (3) (4) (5)
8 I’m satisfied with the current salary scale of CBE for

the job I’m doing now.
9 CBE’s salary is competitive compared to other

companies in Ethiopia.
10 My salary is based on the current market and is

enough to satisfy my basic needs.
11 Annual salary increment and adjustment is fair and

reasonable.
12 The bonus scheme of CBE is a motivating to

increase employee performance.
13 The overtime payment in CBE is reasonable &

initiates for high performance.
14 Medical benefits are easily accessible and offer

satisfactory health care services.
15 My fuel allowance fully covers my transportation

expenses.
16 Housing allowances covers my rent fully.
17 Mortgage loan offered by CBE is a motivating to

buy the property that satisfies my need in the
market.
18 There are best opportunities for career development
in my organization.
19 Staff development has helped me to do my task very

effectively.
20 I’m empowered to give decisions in my work place.
21 I’m free from pressures & criticism from immediate

supervisors/manager.
22 The bank acknowledges and recognizes on time for

employees who deserves formal recognition for their
performance.
23 There is fair & equitable promotion and growth

opportunity in CBE.
24 I’m happy that CBE invests on human capital to

upgrade the employee’s skill & knowledge.
25 There is total reward approach in CBE to increase

the employee performance.
26 My organization has a safe work environment and

job security.
27 I’m happy with the culture of my workplace and

social life.
28 A good sprit of team work and helping each other is

the best practice of my work place.
29 There is clear rules and procedures for every aspects

of my job.
30 When employees face problems, the management

fixes the issue on time.
31 There are too much work overloads that bothers me.
32 I am always interested doing my job effectively and

efficiently.
Part-3: Measures of Employee Performance
Here are items that help to measure employee performance. Please give them a rank based on
a five point Likert Scale. Select No. 1 if you are strongly disagree with the statement and 5 if
you are strongly agree with the statement.
(1=Strongly Disagree, 2=Disagree, 3=Neutral, 4=Agree, 5=Strongly Agree)

Rank
No. Items 1 2 3 4 5
33. I enjoy my tasks and the division of work

approach.
34. I am always committed to the mission and vision of

my organization.
35. I love my work and I am motivated to complete the

tasks that are assigned to me always.
36. I cooperate well with my colleagues in office.
37. My performance level has direct effect on my

salary level.
38. I am given a chance to apply my own methods.
39. I am given an opportunity to improve my

performance through learning more skills.
40. In my organization employees with higher

educational qualifications perform better than those
with lower qualification.
41. I feel my performance contributes for the growth of

my organization.
Thanks a lot for your timely frank responses

and coordination!!!

Begashaw Tsegaye

Uploaded by

Copyright:

Available Formats

Begashaw Tsegaye

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Begashaw Tsegaye

Uploaded by

Copyright:

Available Formats

Addis Ababa University

Department of Business Administration and Information System

The Role of Effective Compensation and Reward System on Employee

A Thesis Submitted to Addis Ababa University, School of Commerce, for

By: Begashaw Tsegaye

Advisor: Worku Mekonnen (PhD)

Addis Ababa, Ethiopia

Department of Business Administration and Information System

The Role of Effective Compensation and Reward System on Employee

Performance in Commercial Bank of Ethiopia

Thesis Approval Sheet

Advisor Signature Date

External Examiner Signature Date

Internal Examiner Signature Date

Declared by, Signature Date

Advisor Signature Date

CBE- Commercial Bank of Ethiopia

Table 2: Reliability Statistics.................................................................................................26

Table 3: General Descriptive Statistics of Demographic information..................................27

Table 4: Chi-Square Tests gender of the respondent vs employee performance.................29

Table 5: Chi-Square Tests age of the respondent vs employee performance..........................30

Table 6: Chi-Square Tests education level vs employee performance...................................30

Table 7: Chi-Square Tests employment type vs employee performance...............................31

Table 8: Chi-Square Tests work experience * employee performance.................................31

Table 9: Chi-Square Tests marital status * employee performance.......................................32

Table 10: Chi-Square Tests monthly salary range * employee performance........................32

Table 11: Descriptive Statistics of Financial Reward...........................................................33

Table 12: Descriptive Statistics of Non-financial reward.....................................................35

Table 13: Descriptive Statistics Analysis of Employee Performance.................................36

Table 14: Employee Performance Statistics..........................................................................37

Table 16 Regression Model Summary of Financial Reward on Employee Performance........40

Table 19 Model Summary Analysis of Non-financial on Employee Performance..................42

Table 20 Model Summary Regression Analysis of Financial and Non-financial with

Table 22 Summary of Hypothesis...........................................................................................44

Figure 1 Elements of Total Rewards......................................................................10

Figure 3 Conceptual Framework of the Research....................................................22

Keywords: Compensation, reward, employee performance, financial reward, nonfinancial

Chapter One: Introduction…......................................................................................1

1.1. Background of the Study..................................................................................1

1.2. Statement of the Problem.................................................................................3

1.3. Research Questions...........................................................................................4

1.5. Objective of the Study.......................................................................................5

1.5.1. General Objective..............................................................................................5

1.5.2. Specific Objectives.............................................................................................5

1.6. Significance of the study....................................................................................5

1.7. Scope of the Study..............................................................................................6

1.8. Limitations of the Study.....................................................................................6

1.9. Organization of the Study...................................................................................7

1.10. Definitions of Terms….......................................................................................7

2.1. Theoretical Framework of Compensation, Reward and Performance.....................8

2.1.1. Types of Rewards.................................................................................................8

2.1.2. Total Rewards.......................................................................................................9

2.1.4. Impact of Reward on Performance....................................................................12

2.1.5.1. Types of Motivation….....................................................................................13

2.1.6. Reward Management…......................................................................................14

2.1.7. Reward Philosophy.............................................................................................15

2.1.8. Fundamental Views of Reward Management…..................................................17

2.2. Empirical Review.....................................................................................................20

3.1. Research Approach....................................................................................................23