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Journal of Multidisciplinary Academic
RESEARCH ARTICLE
300
� Copyright Kemala Publisher
Science, Engineering and Social Science Series
All rights reserved
ISSN/e-ISSN: 2541 – 0369/2613 – 988X
Vol. 4, No. 5, 2020, Printed in the Indonesia
Compensation Effects and Organizational Climate on
Employees’ Performance by Organizational Commitment
Husni Imron1,*, Rhian Indradewa1, and Tantri Yanuar Rahmat Syah1
1Department of Economic and Management, Esa Unggul University, Jakarta
HR's main challenge is how to build a performance culture where employees can provide optimal performance.
In this study aims to determine the effect of compensation and organizational climate on organizational
commitment and influence effect on employee performance. One of the factors to improve employee
performance is high organizational commitment as well. Previous studies have suggested that compensation and
organizational climate influence the organizational commitment. Here, we found that organizational commitment
becomes one of the main factors that affect employee performance. This research was conducted by distributing
questionnaires by collected data. After the data collected, we processed this data using structure equational
modelling with compensation and organizational climate as independent variables (X), employee performance as
dependent variable (Y), and organizational commitment as intervening variables (Z). The result shows
compensation and organizational climate has positive relationship with organizational commitment. Thus, the
organizational climate and organizational commitment has positive and significant relationship with employee
performance due to compensation has a negative significant relationship with employee performance.
Keywords: Compensation, Organizational Climate, Organizational Commitment, Performance.
1. INTRODUCTION
Changes in business and industry indirectly impact the
need of human resources in a company as one of the
crucial factors in organization or company development.
A sufficient amount of it is able to help some big
companies such as Google and Apple to save their
expenses and gain higher profits [1]. Those professional
Human Resources are demanded to continuously adapt to
the changes, not only in their own professional
competence but also in Human Resources Management
(HRM) strategy [2]. It is expected that HR’s role and
competence can adapt to every year of business change
that lead to the requirement of certain competence needed
by the company. HR has significant role to recruit, as well
as to maintain and to develop its human capital in the
company [3]. It also functions as the key to have the
employees to possess the same vision and mission as the
company [4]. The primary challenge of HR is to build
performance culture of the employee to work optimally,
therefore, research and development is progressively
required to have a sustainable competitive quality of
human resources - related to its performance [5, 6, 7].
*Email Address: husni.stie@gmail.com
One of the factors to improve employees’ performance is
commitment [8]. Employees with high commitment and
trust will put their best effort to contribute to company
success [9]. The company just need to look for factors
that improve organizational commitment of its employees
so that they can perform well [10]. There are some factors
that influence significantly organizational commitment of
employees in a company. The factors are work
satisfaction, motivations, culture, leadership and
cooperation [11]. Compensation is also another factor
considered to influence the commitment of the employees
since the higher compensation given by the company to
its employees, the better commitment will be fulfilled
[12]. Thus, the compensation of influence organizational
commitment and employees’ performance is raises at PT
Gajah Tunggal Tbk. [13]. Some previous similar studies
showed the same result as well done [14, 15, 16]. The
studies did not put organizational commitment as
intervening variable whereas it has been one of another
important aspects in order to improve employees’ work
performance, especially research in pharmacy company in
Indonesia [17].
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of the Creative Commons Attribution 3.0 license.
From the description of the background of the study
and the previous studies mentioned before, the problems
going to be discussed in the present study are formulated
as the following: (1) To what extent compensation affects
organizational commitment? (2) To what extent
organizational
climate
affects
organizational
commitment? (3) To what extent compensation affects
employees’ performance? (4) To what extent
organizational climate affects employees’ performance?
And (5) To what extent organizational commitment
mediates compensation, and organizational climate on
employees’ performance? Based on the background and
the problems of the present study, therefore, the purposes
of the study are investigating the effect of compensation
on employees’ performance mediated by organizational
commitment and investigating organizational climate on
employees’ performance mediated by organizational
commitment.
2. METHODOLOGY
A. Compensation
The compensation is something awarded to employees to
recompense their services to the company [18].
Compensation as an important factor to keep the best
quality of human resources in a company [18]. On the
other hand, compensation is termed as a gift for the
employees after accomplishing some assignments or
works given by the company which will finally reduce by
some points based on the company’s and government’s
regulation [19, 20]. Salary increase impacts the level of
employees’ turnover and it is more to those with high
work performance [21]. Employees who give their best
performance are usually offered higher salary to prevent
them from leaving the company. As a predictor of career
satisfaction, the offer is also accompanied by a chance of
being promoted and valuable compensation.
Compensation has two major components, namely,
direct compensation (honorarium, salary, incentive,
commission, and bonus) and indirect compensation
(financial use, such as insurance and vacation services
provided by the company). The compensation is a
feedback for employees in the form of monetary and non-
monetary [22]. In short, compensation has two dimensions.
The first dimension is factor related to money (direct) and
the second one is not associated with money (indirect).
B. Organizational Climate
Tracing back from 1930, researchers tried to divert their
attention from soft psychological environment to a hard
one to find a definition of a term of organizational climate
[23]. The first researcher who investigated organizational
climate was Kurt Lewin. He emphasized that
organizational climate refers to the environment that
unconsciously felt by the member of an organization.
Briefly, it points to how well the member of the
organization to have their own perception on organization
environment [24]. The organizational climate is the
perception that every member of an organization has about
their work environment [25]. Organizational climate is
enriched by the interaction between an organization and
the environment. It becomes one of the crucial parts of an
organization related to other phenomena occur in an
organization such as work satisfaction, work performance,
leadership behavior, quality of the interaction between
group work [26]. Organizational climate has five
dimensions that is work satisfaction, motivation, culture,
leadership and cooperation [27].
C. Organizational Commitment
Organizational commitment is a certain degree of trust of
employee for believing and accepting all the
organization’s aims by taking or leaving it [28].
Organizational commitment is a behavior that reflects of
feeling like or dislike of employee of an organization.
There are three components in organizational commitment
[29]. The first component, organizational commitment, is
affective commitment which points to emotional binding
between the employee and the organization in identifying
and getting involved in every organization activity. The
second component is the continuation of the employees’
commitment based on the associated fund by leaving the
organization. A normative component as the third
component is related to the obligation of the employee for
staying in the organization. Among those three
components, organizational commitment ties up the
employee and the organization in a bundle. Organizational
commitment has become one of the most popular work
attitudes that has been studied by practitioners and
researchers since its impact is significant to an
organization result for instance working performance of
employee. On the other hand, the organizational
commitment has three dimensions namely affective,
normative, and continuance commitment.
D. Employees Performance
Definition of employees’ performance is action done by
the employee in giving their contributions to an
organization in the term of the quality, the output quantity,
the output of period of time, the attendance at work, and
cooperative attitude [30]. Performance is the level of
success of someone in one period in doing his jobs, for
example standard work result, target or agreed criteria at
first place. The performance of an employee is a main
domain that indicates the effectivity of human resources.
Work performance is multi component concept with
working behavior also fundamental responsibilities as part
of job description. It requires bigger cognitive competence
facilitated by knowledge of technical demands or principle
to ensure one’s capability in executing a job successfully.
Individual’s capability of self-adaptation and supportive
provision are needed in dynamic working situation is a
terminology of adaptive performance. A good adaptive
work performance means that the employee can face
working environment that is easy to change, for example
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technology change, organization structure change,
deployment change and so on. Along with the adaptation
of the capability, many efforts have been done in order to
make sure the significance of non-work performance
component to create a better workplace such as contextual
performance. Contextual performance is a prosocial
behavior shown individually in work management.
Prosocial behavior as behavior of achievement of (1)
every member of the organization; (2) individual, group,
or organization or the interaction among its members in
playing the role; (3) a behavior to drive individual, group,
or organization improvement as the main aim. It can be
concluded that employees’ performance has three
dimensions namely work performance, adaptive
performance, and contextual performance. Therefore, a
triarchy model is created as can be seen from the Figure 1.
Figure 1. Triarchy Model of Employees’ Performance
E. Research Hypotheses
Based on the description of the literature explained above,
the present study proposes some hypotheses as follows:
The higher compensation received by the employee, the
less possibility of the employee to leave the company. It
shows that there is a significant relationship between
compensation and commitment of the employee to
organization. A similar statement that compensation has
significant positive effect on organizational commitment
in a company, therefore a hypotheses is proposed as the
following:
(H1): Compensation has significant effect on
organizational commitment
The dimensions of organizational climate have significant
and positive correlation to organizational commitment in
telecommunication companies in Malaysia. Organizational
climate impacts on organizational commitment related to
motivation of the employee. Here, organizational climate
has positive effect on organizational commitment. Based
on the detailed literature mentioned above, a hypothesis is
proposed as the following:
(H2) : Organizational climate has positive effect on
organizational commitment
Compensation describes an important relationship
between employee and a company. Employee shows his
best work performance for financial or non-financial
reward. Therefore, compensation can also be said that it is
a vital key to keep company’s best employees and to
improve the employees’ performance [31]. A research
about the effect of compensation on employees’
performance in bank sector in Pakistan [31]. The study
showed that there is a positive and significant relationship
between compensation and employees’ performance. A
positive relationship between compensation and
employees’ performance [32]. Based on the detailed
literature previously stated, the hypothesis is formulated as
the following:
(H3) : Compensation has positive effect on employees’
performance
Good organizational climate is a primary pre-requirement
for success of every company, therefore it is particularly
important to ensure a good organizational climate for
employees’ performance. A research to find out the
relationship between organizational climate and
employees’ performance capacity. Here, organizational
climate is effected to employees’ performance with
significantly, psychologically. Therefore, based on those
previous literature, a hypothesis is formulated as the
following:
(H4) : Organizational climate has positive effect on
employees’ performance.
Organizational commitment has significant effect on work
satisfaction, and work satisfaction has significant effect on
employees’
performance.
Here,
organizational
commitment, particularly, affective commitment, has
significant effect on employees’ performance. Therefore, a
hypothesis can be formulated as the following:
(H5) : Organizational commitment has positive effect on
employees’ performance.
Furthermore, the research model for five hypotheses is
showed in Figure 2.
Figure 2. Research Model
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Here, the current study was conducted in four biggest
different pharmacy companies, that is PT Kalbe Farma
Tbk., PT Dankos Farma, PT Hexpharm Jaya, dan PT
Finusolprima. Answering the research questions, the
researcher applied quantitative approach. The aim of this
kind of approach is to test the research model, the
significance relationship between the variable and the
factors, and the hypotheses [33]. Questionnaire was
addressed to select the respondents from the four
companies by applying quantitative method. The phases in
this study were four namely pretest survey, research model
establishment, confirmation of the study, and data analysis
[34]. Random probability sampling was also applied in
this study. Acceptable ratio to minimize deviation is 15
respondents for each dimension/parameter for the model.
Therefore, there are 13 dimensions proposed in this
research with 255 sample employed as the respondent.
Survey was conducted by distributing questionnaire to the
employees of PT Kalbe Farma Tbk., PT Dankos Farma,
PT Hexpharm Jaya, dan PT Finusolprima. The data then
analyzed by applying Structural Equation Model (SEM)
analysis method to investigate the correlation between the
variables. There are two exogeneous variables in this study,
namely, compensation and organizational climate; and two
endogenous variables that is organizational commitment
and employees’ performance. To measure compensation
variable with his four (4) statements in organizational
climate variable which consist of ten (10) statements, six
(6) statements for measuring organizational commitment
and finally another six (6) statements for measuring
employees’ performance [35, 36, 37].
This study applied Likert Scale to measure data gotten
from the questionnaire. The study also utilized
confirmatory factor analysis to assess value of Kaiser-
Msyer-Olkin measure of sampling (KMO) and measures
of sampling adequacy (MSA) with 0,5 – 0,9 is the
minimum acceptable value (Malhotra, 2013). Cronbach
alpha reliability analysis was also applied with >0.6 is the
standard value of acceptable internal consistency. Testing
the hypotheses, the writer used estimated coefficients and
p-value by LISREL 8.8. if the estimated value is under
0.05, it means that p-value has significant effect [38, 39].
3. RESULT AND DISCUSSION
This study used LISREL 8.8 software to find out the
correlation between compensation, organizational climate,
organizational commitment and employees’ performance.
A. Statistical Descriptive
Here, 255 sample employed in this study, namely, PT
Kalbe Farma (48.6%), 62 samples of PT Hexpharm Jaya
(24.3%), 38 samples of PT Finusolprima Farma (14.9%),
and 31 samples of PT Dankos Farma (12.2%). Based on
their length of working time, 100 employees (39.2%) have
been working for more than 10 years, 89 employees
(34.9%) have been working for 5 up to 10 years and 66
employees (25.9%) have been working less than 5 years.
For their educational level, 200 employees are
undergraduate (78.4%), 46 employees is diploma graduate
(18%) and post-graduate is 9 people (3.5%).
B. Normality and Linearity Test
Applying normality test by using multivariate normality
analysis, the result does not fulfill the criteria since the p
value of skewness and kurtosis is <0.05. However, this
problem can be overcome by having GoF parameter
NNFI > 0.9 which is 0.94 (see Table I).
Table I. Multivariate Normality Test Result
Parameters
Skewness
Kurtosis
Skewness &
Kurtosis
Value
2.043
27.422
Z-Scores
6.095
3.333
Chi-Square
48.252
P-Value
0.000
0.001
0.000
Linearity test is done to find out whether the variables
have linear significant relationship or not. A strong
correlation shows that there is a linear relationship
between dependent variables and independent variables.
Linearity test result shows that deviation from linearity
value is 0.05. In other words, there is a linear relationship
between dependent variable and independent variable (see
Table II).
Table II. Linearity Test Result
Relationship of Variables
Deviation from
Linearity
Organizational Commitment → Compensation
0.479
Organizational Commitment → Organizational Climate
0.087
Employees Performance → Organizational Commitment
0.094
C. Validity Test
Applying LISREL system analysis after the data was
entered, the writer discovered a model is showed in Figure
3.
Figure 3. Research Basic Model with factor loading value
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Acceptable factor loading (FL) value of each indicator is
0.50. And from the figure above, factor loading (FL) value
of each indicator is above 0.50.
D. Reliability Test
Testing the fit of the model used, the reliability of every
indicator is also important to measure the consistency of
the research instruments. Construct Reliability (CR) value
must be above 0.70 and the Average Variance Extracted
(AVE) value is above 0.50 to show the consistency level
of the research instrument. The result of AVE value testing
of this research model is showed in Table III.
Table III. Construct Reliability and Average Variance
Extracted
Variable
Construct
Reliability
Average
Variance
Extracted
Description
Compensation
0.704
0.612683
Reliable
Organizational Climate
0.859
0.651420
Reliable
Organizational Commitment
0.866
0.585267
Reliable
Employees Performance
0.840
0.599543
Reliable
E. Model Fitting Test
The result of the test of some goodness of fit index
parameter as shown in table 5 indicates that 4 parameters
fit suggestable cut-off value. Therefore, the research
model in figure 4 can be proceed to test the hypotheses
(see Table IV and Figure 4).
Table IV. Goodness of Fit Index
Index
Result
Cut-off Value
Criteria
CFI
0.94
≥0.9
Fit
TLI/NNFI
0.94
≥0.9
Fit
NFI
0.93
≥0.9
Fit
IFI
0.94
≥0.9
Fit
df
458
>0
Fit
RMSEA
0.121
≤0.08
Less Fit
GFI
0.65
≥0.9
Less Fit
AGFI
0.60
≥0.9
Less Fit
Figure 4. Fit Research Basic Model with t-value
F. Hypotheses Test
Hypothesis Test is done by using t-value with level of
significance of 0.05. If the value is > 1.96, so Ho is
rejected (see Table V).
Table V. t-value Test Results
Variable
t-
value
Description
Result
Compensation →
Organizational Commitment
5.28
Positive and
significant
H1 accepted
Organizational Climate →
Organizational Commitment
7.36
Positive and
significant
H2 accepted
Compensation →
Employees’ Performance
-3.15
Negative and
significant
H3 rejected
Organizational Climate →
Employees’ Performance
3.22
Positive and
significant
H4 accepted
Organizational Commitment
→ Employees’ Performance
7.96
Positive and
significant
H5 accepted
Table V shows the result of hypotheses testing was gained.
T-value for the effect of compensation on organizational
commitments is 5.28 (t value > t table 1.960) which means
that there is a significant positive effect of compensation
on organizational commitment. T-value for the effect of
organizational climate on organizational commitments is
7.36 (t value> t table 1.960) which means that there is a
significant and positive effect of organizational climate on
organizational commitment. T-value for the effect of
compensation on employees’ performance is -3.15 (t value
< t table 1.960) which means that there is a significant and
negative effect of compensation on employees’
performance. T-value for the effect of organizational
climate on employees’ performance is 3.22 (t value > t
table 1.960) which means that there is a significant and
positive effect of organizational climate on employees’
performance. T-value for the effect of organizational
commitment on employees’ performance is 7.96 (t value >
t table 1.960) which means that there is significant and
positive effect of organizational commitment on
employees’ performance.
G. Intervening Effect
Table VI shows direct and indirect effect from independent
variable compensation and organizational climate toward
dependent variable employees’ performance with
intervening variable which is organizational commitment
(see Table VI).
Table VI. Direct and Indirect Effect
Relationship
Direct
Effect
Indirect
Effect
Compensation → Organizational
Commitment → Employees Performance
0.000
0.247
Compensation
→
Organizational
Commitment → Employees Performance
0.261
0.348
Intervening variable test using SPSS shows that indirect
effect from two independent variable (compensation and
organizational climate) to variable dependent have bigger
effect than direct effect from each variable. Based on the
result of the hypothesis test, compensation has positive
and significant effect on organizational commitment. The
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result means that the better compensation got by the
employee, the higher organizational commitment the
employee give to the company. A good compensation
management from a company motivates the employee to
build a better relationship with the company and to
improve organizational commitment. A positive and
significant effect of compensation and organizational
commitment. Here, the result of this study showed that
organizational climate has positive and significant effect
on organizational commitment of the employee. Here, a
positive and significant correlation between organizational
climate and organizational commitment especially
affective commitment from the employee. Thus, it’s
indicated organizational climate has positive effect on
organizational commitment. Therefore, it is particularly
important to create a trustworthy work environment
among employees to improve organizational commitment
for the company.
Furthermore, the test of the hypothesis showed that
compensation has significant negative effect on
employees’ performance. It means that the higher
compensation that the employee gets, the lower work
performance that the employee will give to the company.
This result is different from a result of a study conducted
compensation and employee performance. The study
showed a result that compensation has positive effect on
employees’ performance. Here, compensation has less
significant and positive effect on employees’ performance.
The compensation has negative effect on performance
since these companies are the biggest ones and have stable
growth each year, salary raise is a common and standard
thing for those who do not have good work performance,
so that the employees are not being motivated to perform
better. There are some employees are less promoted by the
company than the new employees. The condition leads
them to work accordingly, and there are also some of them
are not being paid properly which ultimately effects the
result of the questionnaire. The result of the discussion
answered why compensation has effects on organizational
commitment, but it does not improve the employees’
performance. It can be caused by the high employees’
commitment but differently impacts their performance.
The result of this study also displayed the effect of
mediation (intervening) of organizational commitment.
Therefore, it can also be concluded that compensation
indirectly give positive effects on employees’ performance.
Here, the result of this study displayed that
organizational climate has positive and significant effect
on employees’ performance. This result indicates that the
higher the level of organizational climate that a company
has, the better of work performance of the employees give.
Here, a many factor of organizational climate has positive
effect on employees’ performance, such as change
management, conflict management, problem management,
risk taking, and intrapersonal relationship within
organization. Another research also discovered that
employees’ performance is positively influenced by strong
organizational climate. The seventh result of hypothesis
test showed that organizational commitment as intervening
variable has positive and significant effect on employees’
performance in organization. It can be concluded that the
higher organizational commitment of the employee gives
to the company, the better work performance that the
employee will show. Organizational commitment factors
such as affective commitment, continuation of
commitment, and normative commitment that have
positive and significant effect on work satisfaction and
employees’ performance. One of the organizational
commitment factors, affective commitment, has emotional
interest with employees’ interest in identifying and being
involved in every organization activity. On the other hand,
the continuation factor is associated with the employee’s
decision of leaving the company since it relates to money
factor. And normative factor points to the obligation that
the employees must remain in the organization. Here, the
organizational commitments have positive and significant
effect on employees’ performance. However, affective
commitment was the only factor which has the strongest
effect.
5. CONCLUSIONS
The first hypothesis test result is that compensation has
positive and significant effect on organizational
commitment which means that the higher compensation
that the employees get, the higher commitment they will
give to the company. The second result is that
organizational climate has positive and significant effect
on organizational commitment of the employees. It means
that the better organizational climate is created, the higher
commitment of the employee will be shown. The third
result stated that compensation has negative and
significant effect on employees’ performance. It tells us
that the better the compensation is, the worse performance
is shown by the employees will. The fourth result show
that organizational climate has positive and significant
effect on employees’ performance. The fifth test indicates
that organizational commitment has significant negative
effect on employees’ performance.
This study is only limited to 255 respondents from four
pharmacy companies. Other factors from each variable
have not been researched. The researcher applied limited
dimension and factors based on some theories and case
studies in pharmacy companies, other kind of companies
are excluded. Therefore, further exploration is suggested
and required by another researchers. Another further
research is available to be conducted in order to get
another detail result, for instance, organizational climate
perspective. A culture, leadership, motivation, cooperation
and work satisfaction effect other factors is improve
organizational climate. The result of this study is expected
to give contribution to HR practitioners in each pharmacy
company in order to figure out what factors that support
performance of the employee. This study also highlighted
some dimensions of the variables (compensation and
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organizational climate) need to be paid attention to in
order to improve the employees’ commitments and
performance. This research also implies that a company
must pay a careful attention to its organizational climate to
ensure the organizational commitment and performance of
the employees are well maintained. The company can also
keep the satisfaction level of the employees to increase
their own employees’ organizational commitment. There
are two important dimensions of compensations, namely
directly and indirectly. Direct compensation can be in
form of cash, for example salary, bonus, or subsidy as
results of their achievement. Indirect compensation can be
in form of facilities provided by the company, such as
health insurance or work insurance. Company also must
be able to manage other dimensions of its own
organizational climate. To create a better culture of the
company, it is a must to make sure that every employee
real comprehends and implements every value that the
company has in every single of his activity. HR
Department also must be more intensively improve the
competence of leadership of all leaders from top to bottom
in order to give positive influence on employees’
commitment and performance. Company can also produce
another kind of projects and activities between
departments to improve the employees’ performance.
Motivation of the employee is also necessary to maintain
so that working rotation works properly and boredom can
be avoided. However, in the other hand, stress level of the
employee needs to be monitored. And the steps are
important to improve organizational climate which will
ultimately increase organizational commitment.
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Received: 24 August 2020, Accepted: 20 October 2020