Effect of Compensation on Motivating Employees in Public and Private Banks of Peshawar(BOK and UBL)

Abstract

The research focuses on the effect of different components of compensation on motivation of employees. Compensation is divided into three basic components, namely Fixed Pay, Flexible Pay and Benefits. Vroom’s Expectancy theory is selected for measuring motivation in this research. Two of the prestigious banks of the country were selected as the target for study namely; United Bank limited and Bank of Khyber Ltd. A 20 item questionnaire was developed for the testification of the hypothesis in the study. One of the objectives of the study was to check what component of Expectancy theory has an effect on the motivation level of employees; be it Effort-Performance, Performance-Outcome or Valence of Outcome and secondly to check what component of Compensation Based Pay is effecting motivation level of employees; Fixed Pay, Flexible Pay or Benefits. Validity of the Questionnaire was tested by using Cronbach’s Alpha. It was calculated to be 0.832, which by convention is greater than 0.7 and hence reliable. Convenient Sampling was used to gather data from both the banks. A total of 95 Questionnaires were collected, 45 from United Bank Limited and 51 from Bank of Khyber. Regression and Chi-Square was applied to check the results. Regression established that there is a strong relationship of compensation with motivation; whereas, ChiSquare was used for individual relationships of each component (variable) with motivation (eg: Flexible pay with Valence). The result showed that employees are not motivated because of believe in their skills neither are they motivated when told that they would be rewarded on the other hand, they get motivated if rewarded by something they value