Compensation and employee performance: mediation of work motivation
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Abstract
This study aims to analyze the relationship between compensation provided by the company and employee performance by considering the mediating role of work motivation. The method used in this study is a quantitative approach using a questionnaire distributed to employees with a total sample of 97 people. In data processing, this study uses SmartPLS 4 to test measurement models and structural models. The results of the analysis showed that there was a significant positive relationship between compensation and employee performance. In addition, the study also found that work motivation plays a role as a mediator that strengthens the relationship between compensation and performance. These findings provide important implications for human resource management, where improving a fair and adequate compensation system can improve work motivation and, ultimately, overall employee performance. Therefore, an effective compensation management strategy should be a priority for companies looking to improve their employees' performance
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How to Cite
Sumarjo, W., Haerofiatna, H., Wirtadipura, D., & Tajudin, T. (2025). Compensation and employee performance: mediation of work motivation. Enrichment : Journal of Management, 15(2), 43-51. https://doi.org/10.35335/enrichment.v15i2.2252
References
Abbas, R., & Astuty, P. (2023). The Effect of Compensation and Motivation on Employee Satisfaction and Performance at PT Pasma Karya Indonesia. Journal Research of Social Science, Economics, and Management, 2(10), 2488–2497. https://doi.org/10.59141/jrssem.v2i10.473
Achmad, G. N., Adrianto, T., Riyanto, F. D., & Saman, A. (2020). HOW COMPENSATION AND MOTIVATION GIVE IMPACT TO EMPLOYEE PERFORMANCE? International Journal of Economics, Business and Accounting Research (IJEBAR), 4(01). https://doi.org/10.29040/ijebar.v4i01.855
Alkandi, I. G., Khan, M. A., Fallatah, M., Alabdulhadi, A., Alanizan, S., & Alharbi, J. (2023). The Impact of Incentive and Reward Systems on Employee Performance in the Saudi Primary, Secondary, and Tertiary Industrial Sectors: A Mediating Influence of Employee Job Satisfaction. Sustainability, 15(4), 3415. https://doi.org/10.3390/su15043415
Amjad, F., Abbas, W., Zia-UR-Rehman, M., Baig, S. A., Hashim, M., Khan, A., & Rehman, H.-. (2021). Effect of green human resource management practices on organizational sustainability: the mediating role of environmental and employee performance. Environmental Science and Pollution Research, 28(22), 28191–28206. https://doi.org/10.1007/s11356-020-11307-9
Anwar, G., & Abdullah, N. N. (2021). The impact of Human resource management practice on Organizational performance. International Journal of Engineering, Business and Management, 5(1), 35–47. https://doi.org/10.22161/ijebm.5.1.4
Baffoe, R. S., & Bediako, K. A. (2021). An Exploratory Study of Compensation Mix in Pay Administration System: The Ghanaian Situation. International Journal of Academic Research in Business and Social Sciences, 11(12), 2247–2258. https://doi.org/10.6007/IJARBSS/v11-i12/10907
Bakker, A. B., Demerouti, E., & Sanz-Vergel, A. (2023). Job Demands–Resources Theory: Ten Years Later. Annual Review of Organizational Psychology and Organizational Behavior, 10(1), 25–53. https://doi.org/10.1146/annurev-orgpsych-120920-053933
Bartol, K. M. (2023). Pay for Performance. In Principles of Organizational Behavior (pp. 137–160). Wiley. https://doi.org/10.1002/9781394320769.ch7
Boudlaie, H., Behrouz Keshavarz Nik, & Mohammadhosein Kenarroodi. (2020). Identification and ranking of compensation strategies for oil distribution companies. Technium Social Sciences Journal, 3(1), 112–140. https://doi.org/10.47577/tssj.v3i1.78
Brown, M., Nyberg, A. J., Weller, I., & Strizver, S. D. (2022). Pay Information Disclosure: Review and Recommendations for Research Spanning the Pay Secrecy–Pay Transparency Continuum. Journal of Management, 48(6), 1661–1694. https://doi.org/10.1177/01492063221079249
Cullen, Z. (2024). Is Pay Transparency Good? Journal of Economic Perspectives, 38(1), 153–180. https://doi.org/10.1257/jep.38.1.153
Dhingra, M., & Dhingra, V. (2020). An empirical research on relationship between adequate and fair compensation and quality of work life. Journal of Statistics and Management Systems, 23(2), 317–331. https://doi.org/10.1080/09720510.2020.1736315
Diamantidis, A. D., & Chatzoglou, P. (2019). Factors affecting employee performance: an empirical approach. International Journal of Productivity and Performance Management, 68(1), 171–193.
Dina, Lumbanraja, P., Ritha, & Absah, Y. (2017). Compensation, Employee Performance, and Mediating Role of Retention: A Study of Differential Semantic Scales. EUROPEAN RESEARCH STUDIES JOURNAL, XX(Issue 4A), 151–159. https://doi.org/10.35808/ersj/825
Gašić, D. (2021). The influence of national culture on the compensation system in selected countries. Anali Ekonomskog Fakulteta u Subotici, 46, 3–20. https://doi.org/10.5937/AnEkSub2146003G
Hair, J. F., Hult, G. T. M., Ringle, C. M., & Sarstedt, M. (2022). A Primer on Partial Least Squares Structural Equation Modeling (PLS-SEM) (3rd ed.). SAGE Publications.
Hassan, Z. (2022). Employee retention through effective human resource management practices in Maldives: Mediation effects of compensation and rewards system. Journal of Entrepreneurship, Management and Innovation, 18(2), 137–174.
Hepner, L. (2019). Innovative reward as a strategical culture designer. Strategic HR Review, 18(1), 13–16. https://doi.org/10.1108/SHR-10-2018-0086
Hong, P. (2017). The Literature Review on Compensation System Design. Modern Economy, 08(09), 1119–1128. https://doi.org/10.4236/me.2017.89077
Howard, L. W., & Dougherty, T. W. (2004). Alternative Reward Strategies and Employee Reactions. Compensation & Benefits Review, 36(1), 41–51. https://doi.org/10.1177/0886368703261273
Kang, E., & Lee, H. (2021). Employee Compensation Strategy as Sustainable Competitive Advantage for HR Education Practitioners. Sustainability, 13(3), 1049. https://doi.org/10.3390/su13031049
Kholilah, K., & Sari, Y. S. (2021). The impact of employee satisfaction as a mediator of compensation and career development on employee performance. International Journal of Business, Management and Economics, 2(1), 31–42. https://doi.org/10.47747/ijbmer.v2i1.216
Krijgsheld, M., Tummers, L. G., & Scheepers, F. E. (2022). Job performance in healthcare: a systematic review. BMC Health Services Research, 22(1), 149. https://doi.org/10.1186/s12913-021-07357-5
Kuvaas, B., Buch, R., Weibel, A., Dysvik, A., & Nerstad, C. G. L. (2017). Do intrinsic and extrinsic motivation relate differently to employee outcomes? Journal of Economic Psychology, 61, 244–258. https://doi.org/10.1016/j.joep.2017.05.004
Lazear, E. P. (2018). Compensation and Incentives in the Workplace. Journal of Economic Perspectives, 32(3), 195–214. https://doi.org/10.1257/jep.32.3.195
Madhani, P. M. (2014). Aligning Compensation Systems With Organization Culture. Compensation & Benefits Review, 46(2), 103–115. https://doi.org/10.1177/0886368714541913
Marin, R. (2021). Rewards Management in Organizations: A Retrospective on what Organizations Have Set out and achieved in order to Identify Future Actions. Journal of Organizational Management Studies, 2021(2021), 1–12. https://doi.org/10.5171/2021.642473
Martocchio, J. J. (2011). Strategic reward and compensation plans. In APA handbook of industrial and organizational psychology, Vol 1: Building and developing the organization. (pp. 343–372). American Psychological Association. https://doi.org/10.1037/12169-011
Medina, H. R. B., Campoverde, R. E., Paredes-Aguirre, M., Vargas, E. R. M., & Barzola, C. R. (2024). Work performance implications of meaning in life: The mediating role of Motivation. Wellbeing, Space and Society, 7, 100213. https://doi.org/10.1016/j.wss.2024.100213
Min, J., Kim, Y., Lee, S., Jang, T.-W., Kim, I., & Song, J. (2019). The Fourth Industrial Revolution and Its Impact on Occupational Health and Safety, Worker’s Compensation and Labor Conditions. Safety and Health at Work, 10(4), 400–408. https://doi.org/10.1016/j.shaw.2019.09.005
Mogrovejo, D., Franco-Medina, J., & Pacheco, A. (2025). The art of talent management: keys to maximizing performance in the travel industry. Cogent Business & Management, 12(1). https://doi.org/10.1080/23311975.2024.2448772
Murtiningsih, R. S. (2020). The Impact of Compensation, Training &Development, and Organizational Culture on Job Satisfaction and employee Retention. Indonesian Management and Accounting Research, 19(1), 33–50. https://doi.org/10.25105/imar.v19i1.6969
Obloj, T., & Zenger, T. (2022). The influence of pay transparency on (gender) inequity, inequality and the performance basis of pay. Nature Human Behaviour, 6(5), 646–655. https://doi.org/10.1038/s41562-022-01288-9
Ozcelik, H., & Barsade, S. G. (2018). No Employee an Island: Workplace Loneliness and Job Performance. Academy of Management Journal, 61(6), 2343–2366. https://doi.org/10.5465/amj.2015.1066
Patiar, A., & Wang, Y. (2020). Managers’ leadership, compensation and benefits, and departments’ performance: Evidence from upscale hotels in Australia. Journal of Hospitality and Tourism Management, 42, 29–39. https://doi.org/10.1016/j.jhtm.2019.11.005
Putra, U., & Masdupi, E. (2019). The Effect of Compensation and Organizational Commitments to Turnover Intention with Work Satisfaction as Intervening Variables. Case Study at PT. BNI Life West Sumatra Region. Proceedings of the Third Padang International Conference On Economics Education, Economics, Business and Management, Accounting and Entrepreneurship (PICEEBA 2019), 411–423. https://doi.org/10.2991/piceeba-19.2019.47
Raharjanti, N. W., Wiguna, T., Purwadianto, A., Soemantri, D., Indriatmi, W., Poerwandari, E. K., Mahajudin, M. S., Nugrahadi, N. R., Roekman, A. E., Saroso, O. J. D. A., Ramadianto, A. S., & Levania, M. K. (2022). Translation, validity and reliability of decision style scale in forensic psychiatric setting in Indonesia. Heliyon, 8(7), e09810. https://doi.org/10.1016/j.heliyon.2022.e09810
Ringle, C. M., Wende, S., & Becker, J.-M. (2024). SmartPLS 4. Boenningstedt: SmartPLS. https://www.smartpls.com
Rönkkö, M., & Cho, E. (2022). An Updated Guideline for Assessing Discriminant Validity. Organizational Research Methods, 25(1), 6–14. https://doi.org/10.1177/1094428120968614
Russo, G. M., Tomei, P. A., Serra, B., & Mello, S. (2021). Differences in the Use of 5- or 7-point Likert Scale: An Application in Food Safety Culture. Organizational Cultures: An International Journal, 21(2), 1–17. https://doi.org/10.18848/2327-8013/CGP/v21i02/1-17
Sahito, Z., & Vaisanen, P. (2020). A literature review on teachers’ job satisfaction in developing countries: Recommendations and solutions for the enhancement of the job. Review of Education, 8(1), 3–34. https://doi.org/10.1002/rev3.3159
Su, J., Jiang, J., Zhang, B., & Cao, L. (2023). Industry salary gap incentive and enterprise innovation. Journal of Asian Economics, 87, 101633. https://doi.org/10.1016/j.asieco.2023.101633
Van Herpen, M., Van Praag, M., & Cools, K. (2005). The Effects of Performance Measurement and Compensation on Motivation: An Empirical Study. De Economist, 153(3), 303–329. https://doi.org/10.1007/s10645-005-1990-z
Wilton, N. (2022). An introduction to human resource management. Sage Publications Ltd.
Zafar, M., Sarwar, A., Zafar, A., & Sheeraz, A. (2021). Impact of Compensation Practices on Employee Job Performance: An Empirical Study. In J. Xu, G. Duca, S. E. Ahmed, F. P. G. Márquez, & A. Hajiyev (Eds.), Advances in Intelligent Systems and Computing (pp. 315–324). Springer, Cham. https://doi.org/10.1007/978-3-030-49889-4_26
Zhou, X., & Shaw, J. D. (2019). Compensation, Rewards, Remuneration. In Management. Oxford University Press. https://doi.org/10.1093/obo/9780199846740-0156
Achmad, G. N., Adrianto, T., Riyanto, F. D., & Saman, A. (2020). HOW COMPENSATION AND MOTIVATION GIVE IMPACT TO EMPLOYEE PERFORMANCE? International Journal of Economics, Business and Accounting Research (IJEBAR), 4(01). https://doi.org/10.29040/ijebar.v4i01.855
Alkandi, I. G., Khan, M. A., Fallatah, M., Alabdulhadi, A., Alanizan, S., & Alharbi, J. (2023). The Impact of Incentive and Reward Systems on Employee Performance in the Saudi Primary, Secondary, and Tertiary Industrial Sectors: A Mediating Influence of Employee Job Satisfaction. Sustainability, 15(4), 3415. https://doi.org/10.3390/su15043415
Amjad, F., Abbas, W., Zia-UR-Rehman, M., Baig, S. A., Hashim, M., Khan, A., & Rehman, H.-. (2021). Effect of green human resource management practices on organizational sustainability: the mediating role of environmental and employee performance. Environmental Science and Pollution Research, 28(22), 28191–28206. https://doi.org/10.1007/s11356-020-11307-9
Anwar, G., & Abdullah, N. N. (2021). The impact of Human resource management practice on Organizational performance. International Journal of Engineering, Business and Management, 5(1), 35–47. https://doi.org/10.22161/ijebm.5.1.4
Baffoe, R. S., & Bediako, K. A. (2021). An Exploratory Study of Compensation Mix in Pay Administration System: The Ghanaian Situation. International Journal of Academic Research in Business and Social Sciences, 11(12), 2247–2258. https://doi.org/10.6007/IJARBSS/v11-i12/10907
Bakker, A. B., Demerouti, E., & Sanz-Vergel, A. (2023). Job Demands–Resources Theory: Ten Years Later. Annual Review of Organizational Psychology and Organizational Behavior, 10(1), 25–53. https://doi.org/10.1146/annurev-orgpsych-120920-053933
Bartol, K. M. (2023). Pay for Performance. In Principles of Organizational Behavior (pp. 137–160). Wiley. https://doi.org/10.1002/9781394320769.ch7
Boudlaie, H., Behrouz Keshavarz Nik, & Mohammadhosein Kenarroodi. (2020). Identification and ranking of compensation strategies for oil distribution companies. Technium Social Sciences Journal, 3(1), 112–140. https://doi.org/10.47577/tssj.v3i1.78
Brown, M., Nyberg, A. J., Weller, I., & Strizver, S. D. (2022). Pay Information Disclosure: Review and Recommendations for Research Spanning the Pay Secrecy–Pay Transparency Continuum. Journal of Management, 48(6), 1661–1694. https://doi.org/10.1177/01492063221079249
Cullen, Z. (2024). Is Pay Transparency Good? Journal of Economic Perspectives, 38(1), 153–180. https://doi.org/10.1257/jep.38.1.153
Dhingra, M., & Dhingra, V. (2020). An empirical research on relationship between adequate and fair compensation and quality of work life. Journal of Statistics and Management Systems, 23(2), 317–331. https://doi.org/10.1080/09720510.2020.1736315
Diamantidis, A. D., & Chatzoglou, P. (2019). Factors affecting employee performance: an empirical approach. International Journal of Productivity and Performance Management, 68(1), 171–193.
Dina, Lumbanraja, P., Ritha, & Absah, Y. (2017). Compensation, Employee Performance, and Mediating Role of Retention: A Study of Differential Semantic Scales. EUROPEAN RESEARCH STUDIES JOURNAL, XX(Issue 4A), 151–159. https://doi.org/10.35808/ersj/825
Gašić, D. (2021). The influence of national culture on the compensation system in selected countries. Anali Ekonomskog Fakulteta u Subotici, 46, 3–20. https://doi.org/10.5937/AnEkSub2146003G
Hair, J. F., Hult, G. T. M., Ringle, C. M., & Sarstedt, M. (2022). A Primer on Partial Least Squares Structural Equation Modeling (PLS-SEM) (3rd ed.). SAGE Publications.
Hassan, Z. (2022). Employee retention through effective human resource management practices in Maldives: Mediation effects of compensation and rewards system. Journal of Entrepreneurship, Management and Innovation, 18(2), 137–174.
Hepner, L. (2019). Innovative reward as a strategical culture designer. Strategic HR Review, 18(1), 13–16. https://doi.org/10.1108/SHR-10-2018-0086
Hong, P. (2017). The Literature Review on Compensation System Design. Modern Economy, 08(09), 1119–1128. https://doi.org/10.4236/me.2017.89077
Howard, L. W., & Dougherty, T. W. (2004). Alternative Reward Strategies and Employee Reactions. Compensation & Benefits Review, 36(1), 41–51. https://doi.org/10.1177/0886368703261273
Kang, E., & Lee, H. (2021). Employee Compensation Strategy as Sustainable Competitive Advantage for HR Education Practitioners. Sustainability, 13(3), 1049. https://doi.org/10.3390/su13031049
Kholilah, K., & Sari, Y. S. (2021). The impact of employee satisfaction as a mediator of compensation and career development on employee performance. International Journal of Business, Management and Economics, 2(1), 31–42. https://doi.org/10.47747/ijbmer.v2i1.216
Krijgsheld, M., Tummers, L. G., & Scheepers, F. E. (2022). Job performance in healthcare: a systematic review. BMC Health Services Research, 22(1), 149. https://doi.org/10.1186/s12913-021-07357-5
Kuvaas, B., Buch, R., Weibel, A., Dysvik, A., & Nerstad, C. G. L. (2017). Do intrinsic and extrinsic motivation relate differently to employee outcomes? Journal of Economic Psychology, 61, 244–258. https://doi.org/10.1016/j.joep.2017.05.004
Lazear, E. P. (2018). Compensation and Incentives in the Workplace. Journal of Economic Perspectives, 32(3), 195–214. https://doi.org/10.1257/jep.32.3.195
Madhani, P. M. (2014). Aligning Compensation Systems With Organization Culture. Compensation & Benefits Review, 46(2), 103–115. https://doi.org/10.1177/0886368714541913
Marin, R. (2021). Rewards Management in Organizations: A Retrospective on what Organizations Have Set out and achieved in order to Identify Future Actions. Journal of Organizational Management Studies, 2021(2021), 1–12. https://doi.org/10.5171/2021.642473
Martocchio, J. J. (2011). Strategic reward and compensation plans. In APA handbook of industrial and organizational psychology, Vol 1: Building and developing the organization. (pp. 343–372). American Psychological Association. https://doi.org/10.1037/12169-011
Medina, H. R. B., Campoverde, R. E., Paredes-Aguirre, M., Vargas, E. R. M., & Barzola, C. R. (2024). Work performance implications of meaning in life: The mediating role of Motivation. Wellbeing, Space and Society, 7, 100213. https://doi.org/10.1016/j.wss.2024.100213
Min, J., Kim, Y., Lee, S., Jang, T.-W., Kim, I., & Song, J. (2019). The Fourth Industrial Revolution and Its Impact on Occupational Health and Safety, Worker’s Compensation and Labor Conditions. Safety and Health at Work, 10(4), 400–408. https://doi.org/10.1016/j.shaw.2019.09.005
Mogrovejo, D., Franco-Medina, J., & Pacheco, A. (2025). The art of talent management: keys to maximizing performance in the travel industry. Cogent Business & Management, 12(1). https://doi.org/10.1080/23311975.2024.2448772
Murtiningsih, R. S. (2020). The Impact of Compensation, Training &Development, and Organizational Culture on Job Satisfaction and employee Retention. Indonesian Management and Accounting Research, 19(1), 33–50. https://doi.org/10.25105/imar.v19i1.6969
Obloj, T., & Zenger, T. (2022). The influence of pay transparency on (gender) inequity, inequality and the performance basis of pay. Nature Human Behaviour, 6(5), 646–655. https://doi.org/10.1038/s41562-022-01288-9
Ozcelik, H., & Barsade, S. G. (2018). No Employee an Island: Workplace Loneliness and Job Performance. Academy of Management Journal, 61(6), 2343–2366. https://doi.org/10.5465/amj.2015.1066
Patiar, A., & Wang, Y. (2020). Managers’ leadership, compensation and benefits, and departments’ performance: Evidence from upscale hotels in Australia. Journal of Hospitality and Tourism Management, 42, 29–39. https://doi.org/10.1016/j.jhtm.2019.11.005
Putra, U., & Masdupi, E. (2019). The Effect of Compensation and Organizational Commitments to Turnover Intention with Work Satisfaction as Intervening Variables. Case Study at PT. BNI Life West Sumatra Region. Proceedings of the Third Padang International Conference On Economics Education, Economics, Business and Management, Accounting and Entrepreneurship (PICEEBA 2019), 411–423. https://doi.org/10.2991/piceeba-19.2019.47
Raharjanti, N. W., Wiguna, T., Purwadianto, A., Soemantri, D., Indriatmi, W., Poerwandari, E. K., Mahajudin, M. S., Nugrahadi, N. R., Roekman, A. E., Saroso, O. J. D. A., Ramadianto, A. S., & Levania, M. K. (2022). Translation, validity and reliability of decision style scale in forensic psychiatric setting in Indonesia. Heliyon, 8(7), e09810. https://doi.org/10.1016/j.heliyon.2022.e09810
Ringle, C. M., Wende, S., & Becker, J.-M. (2024). SmartPLS 4. Boenningstedt: SmartPLS. https://www.smartpls.com
Rönkkö, M., & Cho, E. (2022). An Updated Guideline for Assessing Discriminant Validity. Organizational Research Methods, 25(1), 6–14. https://doi.org/10.1177/1094428120968614
Russo, G. M., Tomei, P. A., Serra, B., & Mello, S. (2021). Differences in the Use of 5- or 7-point Likert Scale: An Application in Food Safety Culture. Organizational Cultures: An International Journal, 21(2), 1–17. https://doi.org/10.18848/2327-8013/CGP/v21i02/1-17
Sahito, Z., & Vaisanen, P. (2020). A literature review on teachers’ job satisfaction in developing countries: Recommendations and solutions for the enhancement of the job. Review of Education, 8(1), 3–34. https://doi.org/10.1002/rev3.3159
Su, J., Jiang, J., Zhang, B., & Cao, L. (2023). Industry salary gap incentive and enterprise innovation. Journal of Asian Economics, 87, 101633. https://doi.org/10.1016/j.asieco.2023.101633
Van Herpen, M., Van Praag, M., & Cools, K. (2005). The Effects of Performance Measurement and Compensation on Motivation: An Empirical Study. De Economist, 153(3), 303–329. https://doi.org/10.1007/s10645-005-1990-z
Wilton, N. (2022). An introduction to human resource management. Sage Publications Ltd.
Zafar, M., Sarwar, A., Zafar, A., & Sheeraz, A. (2021). Impact of Compensation Practices on Employee Job Performance: An Empirical Study. In J. Xu, G. Duca, S. E. Ahmed, F. P. G. Márquez, & A. Hajiyev (Eds.), Advances in Intelligent Systems and Computing (pp. 315–324). Springer, Cham. https://doi.org/10.1007/978-3-030-49889-4_26
Zhou, X., & Shaw, J. D. (2019). Compensation, Rewards, Remuneration. In Management. Oxford University Press. https://doi.org/10.1093/obo/9780199846740-0156