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Research Article ISSN 2229 – 3795

ASIAN JOURNAL OF MANAGEMENT RESEARCH 44

Volume 5 Issue 1, 2014

A causal model of compensation and benefits and reward management on

organizational effectiveness of MNCs Sorasak Tangthong

King Mongkut’s Institute of Technology Ladkrabang, Thailand

[email protected]

ABSTRACT

An empirical study is conducted to investigate the influence of compensation and benefits

and rewards management on Organizational Effectiveness of MNC in Thailand. The

conceptual model created for this study will comprise of compensation and benefits and

reward management as the independent observed variable, three HR mediating variables, and

Organizational Effectiveness as the dependent variable. A total of 7 theoretically-based

hypotheses are developed, indicating possible positive and negative relationships among the

variables in the model. Input consists of 224 top management, human resources

managers/leaders and line managers. The proposed model is empirically tested by using

AMOS of Path Analysis modeling. The test results found compensation and benefits and

rewards management and the three HR mediating variables have an influence on

Organizational Effectiveness, thereby better establishing compensation and benefits and

rewards management and Organizational Effectiveness, and confirming most of the findings

of previous research on the subject, while providing some fresh insights into the

interrelationships between the variables.

Keywords: Compensation and benefits and rewards management, Human resource

management (HRM) practices, Organizational effectiveness, Thailand’s manufacturing

industry

1. Introduction

Human resource practices are fast becoming an integral part of an organizational strategy to

enhance performance in an increasingly competitive global environment. As Porter (1986)

explained, competing internationally has become a necessity for many firms. The removal of

geographical boundaries, and the subsequent erosion of cultural and distance barriers, have

stimulated international business. As a result, multinational companies (MNCs) emerge as the

dominant players in the new global economy (Shah et al., 2012). These are companies with

operations in more than one country (Porter, 1990). To compete internationally, companies

must expand beyond their national boundaries and their success depends on the coordination

and control of their subsidiaries. In the case of human resource practices, the ability of MNCs

to design and adapt human resource practices from their headquarters to achieve human

resource objectives at the subsidiaries (Rosenzweig and Nohria, 1994) will determine their

performance. One of these practices is compensation and benefits and rewards management.

They are used by MNCs to attract, retain and motivate their employees (Harzing and

Ruysseveldt, 2005). To be able to introduce such practice across multiple countries is a

challenging and complex task, requiring HR practitioners to develop new concepts and skills

A causal model of compensation & benefits and reward management on organizational effectiveness of

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in managing people outside their traditional boundaries (Plessis, 2010). They will have to

take into account the diverse culture, laws and regulations, standards of living, to name a few,

of the different countries where MNCs are carrying out their international operations. Thus,

there are different levels and types of compensation and benefits and rewards management

being implemented in each of these countries. But despite the variations, its principle goal

remains, which is to attract, retain and motivate employees, thereby achieving success for the

organization.

To ensure that compensation and benefits and rewards management is able to achieve its goal,

it must be implemented fairly for all employees. Otherwise, as an example, Marsden et al.

(2002) has shown that employee motivation will be reduced where performance-based pay,

which is a compensation scheme, is not operating fairly, and unless it is seen as equitable

internally and competitive externally, good employees are more likely to leave the

organization (Schuler, 1998). Compensation and benefits and rewards management can be

expressed in monetary and non-financial forms. The former tend to focus on actual payment

to employees. To be able to provide payment that is fair and equitable has become an

important issue for organizations. For many, particularly among large MNCs, job evaluations

have been carried out to provide a firm base on which to build an equitable salary structure.

Job evaluation, itself, is used to cover a number of distinct methods for systematically

assessing the relative value of jobs within an organization (EL-Hajji, 2012). It is a way to

remove pay anomalies, disordered, irrational or illogical pay differences and to create a fair

pay system. Job evaluation can help to achieve this by acting as a procedural aid to pay equity

for work of equal value and is a useful means for pay determination that can be used towards

establishing a wage and salary structure (EL-Hajji, 2012). To create a payment structure

through job evaluation now seems to be the norm for most MNCs. One of the reasons that job

evaluations are needed in these organizations is due to the low levels of employee

performance, caused largely by incompetent and ineffective pay systems, or even lack of pay

systems. Thus, there is the need for either the development of a rational pay system or the

justification of existing ones in terms of consistency, equity, pay-differentials on grounds of

job requirement, job content, equal pay for work of equal value, and equal pay legislations

and policies (EL-Hajji, 2011).

In relation to the non-financial aspect of compensation and benefits and rewards management,

organizations are determined to motivate employees in other ways besides financial payments.

Reward and recognition programs have been considered as one of the ways to motivate

employees successfully and to influence their behavior in achieving greater organizational

efficiency (Oosthuizen, 2001). There are two types of reward, which are extrinsic and

intrinsic rewards. Extrinsic rewards are the tangible rewards that can be physically given to

employees. They can be provided directly by the organization to employees through salary

and incentives or indirectly through contributions made to employee’s benefit plans, such as

medical benefits and life insurance. Intrinsic rewards are the intangible rewards that

employees experience from doing their jobs, such as the feeling of satisfaction, involvement,

growth, autonomy and self-competence (Allen et al., 2004). This is an indication that

employees are no longer working for just monetary gains. They are also paying attention on

personal growth, such as the improvement of capabilities, and acquiring new skills and

knowledge. As for the organization, non-financial rewards, such as support and recognition,

are being given by managers to employees to motivate them (Eisenberger and Cameron,

1996). Recognition is a process of giving employees a certain status within the organization

(Danish and Usman, 2010). The recognition of employees’ performance can be in the form of


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praise, awards or ceremonies (Yukl, 2002). Through reward and recognition programs,

employees’ morale will increase and a link will be created between the performance and

motivation of employees (Flynn, 1998).

The fact that employee motivation is needed to ensure organizational success illustrates the

idea that the relationship between compensation and benefits and rewards management, and

Organizational Effectiveness does not exist in a vacuum. There are other factors involved that

can have an impact on the relationship. For example, by taking into account employee

behavior (e.g. Morrison, 1996), they can help determine the best way to implement

compensation and benefits and rewards management and increase Organizational

Effectiveness. In this study, we focus on three such behaviors, which are job satisfaction,

employee engagement and employee motivation. They will mediate the relationship between

compensation and benefits and rewards management, and Organizational Effectiveness.

2. Theoretical background

The practice of using compensation and benefits and rewards management varies across

different organizations, particularly among MNCs, where they operate outside their national

boundaries. In addition, there are other factors, such as employee behavior, that can influence

the effectiveness of using compensation and benefits and rewards management. As a result,

several theories have been used to explain the consequences of different compensation

decisions, and how they can direct and control employee behavior to determine firm

performance.

2.1 Reinforcement and expectancy theories

Reinforcement theory explains how a particular response, which is followed by a reward, can

happen again in the future (Thorndike's Law of Effect). In the case of compensation

management, high employee performance that is followed by a monetary reward will make

future high performance more likely. Thus, the key to this theory is that it emphasizes the

way someone is experiencing the reward. Similarly, expectancy theory (Vroom, 1964) is

concerned with the link between rewards and behaviors, although it focuses more on

expected, rather than experienced, rewards. The expectancy theory has motivation as a

function of two other factors, which are expectancy and valence. Expectancy is the perceived

link between effort and performance. Valence is the expected value of outcomes.

Compensation systems vary according to their impact on these two factors. In relation to

expectancy, pay systems differ most in their impact on the perceived link between behaviors

and pay, whereas the valence of pay outcomes remain the same under different pay systems.

2.2 Equity theory

Equity theory describes employee perceptions of what they contribute to the organization,

what they get in return, and how their return-contribution ratio compares to others inside and

outside the organization. This will determine how fair employees perceive their employment

relationship to be (Adams, 1963). Their efforts must be comparable to the perceived reward

to be viewed as equitable (Adams, 1965). Any perceptions of inequity will cause employees

to take actions and restore equity.

2.3 Agency theory


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Agency theory focuses on how employee compensation can be used to align the various

interests and goals of the organization’s stakeholders (Eisenhardt, 1989; Fama and Jensen,

1983). The divergent interests between the managers and their employees can lead to agency

costs. To reduce these costs, the interests between managers and employees need to be

aligned. The agency theory states that the managers (principle) must have a contracting

scheme that will help align the interests of employees (agent) with their interests. These

contracts can be classified into two types, which are behavior oriented, such as merit pay, and

outcome oriented, such as stock options, profit sharing and commissions. To determine which

type of contract should be used by organizations will depend on the following six factors

(Eisenhardt, 1989). First is risk aversion, where averting risks among agents can make

outcome-oriented contracts more costly. Second is outcome uncertainty, in which profit is an

example of an outcome and by linking pay to profits (outcome-based contract), is more costly

to the extent that profits vary, meaning there is a risk of low profits. Third is job

programmability. As jobs become less programmable or less routine and less structured, it

will be more difficult for organizations to monitor and, thus, more likely to use outcome-

oriented contracts. Fourth is measurable job outcomes, meaning as job outcomes become

more measurable outcome-oriented contracts are more likely to be used. Fifth is ability to pay,

where outcome-oriented contracts contribute to higher compensation costs due to the risk

premium. Sixth is tradition, which is the tradition or custom of using, or not using, outcome-

oriented contracts will make such contracts more, or less, likely.

2.4 Literature review and hypotheses

This section will be on previous literatures involving compensation and benefits and rewards

management as the independent variable, and its relationships with job satisfaction, employee

engagement, employee motivation as the mediating variables, and Organizational

Effectiveness, which consists of employee attrition, employee retention and employee

performance, as the dependent variable. Study indicates potential hypothetical associations

among these variables, which were derived after a systematic review of the theoretical and

empirical literatures. Altogether, 7 hypotheses were formulated, which are explained below.

2.5 Human resource management system

Compensation and benefits and rewards management is one of the many human resource

practices used by organizations to manage their employees and increase performance. To

understand the significance of human resource and its effect on firm performance as an

Organizational Effectiveness, the human resource process must be viewed as a whole.

Organizations can be viewed as systems (Ferguson, 2006; Rummler and Brache, 1995) and,

as a result, it is important to consider the human resource inputs, processes (practices) and

outputs that will lead to a sustained competitive advantage (Lado and Wilson, 1994) in

organizations. These allow the firm to acquire and develop its resources (inputs) to achieve

high performance (outputs), and thereby having a competitive advantage. The human

resource system is based on Barney’s (1991) resource-based view of the firm, consisting of

variables that a person brings to the firm, such as skills and motivation (Askov, 2000), and

the human resource processes, which include recruitment, selection, training, reward systems

and performance management (Den Hartog and Verburg, 2004; Huselid, 1995).

2.6 Firm performance and organizational effectiveness


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Firm performance serves as a final outcome of an effective HR system. Organizational

effectiveness is part of that construct and has been defined as the ability of organizations to

produce desire results, the notion of how effectual an organization is in accomplishing the

results the organization aims to generate. Organizational effectiveness has been used as

measures of productivity, service quality and profitability in Stavrou-Costea (2005). These

measures were chosen because they would lead to a full examination of firm performance

(Dessler, 2000; Fox, Byrne and Roualt, 1999). Nevertheless, researchers have used both

financial and non-financial metrics to measure organizational performance (Khan, 2010). The

financial measures include profit, sales, and market share. Non-financial measures include

productivity, quality, efficiency, and the attitudinal and behavioural measures such as

commitment, intention to quit, and satisfaction (Dyer and Reeves, 1995). This study will

focus on the latter, and thus, employee attrition, employee retention and employee

performance are chosen as performance indicators in this study.

2.7 Human resource practices

Under the HR system, human resource practices act as processes to transform existing human

resource inputs (Lado and Wilson, 1994). They are a set of distinct yet interrelated activities,

functions, and processes aimed at attracting, developing, and maintaining a firm’s human

resources. These HR practices, which are sometimes referred to as “high performance work

practices” or “high involvement work practices”, may include single HR practices or the

entire HR management systems. This study, however, will only focus on just one of them,

which is compensation and benefits and rewards management.

2.8 Compensation and benefits and rewards management

Compensation and benefits and rewards management is a human resource practice that act as

incentives to employees. Compensation refers to all forms of financial returns and tangible

benefits that employee receives as part of the employment relationship. It is considered to be

one of the central pillars of human resource management. It is concerned with the

formulation and implementation of strategies and policies aimed at compensating people

fairly, equitably and consistently in accordance with their value to the organization

(Armstrong, 2005). Benefits are indirect financial and non-financial payments employees

receive for continuing their employment with an organization. Reward is anything that is

extrinsically or intrinsically reinforced, maintain and improve the employees’ behavior in an

organization. It is crucial for attracting and retaining employees with competence, knowledge

and skills in order to achieve organization's strategic goals and create a supportive culture

(Galbraith, 1973). Altogether, compensation and benefits and rewards management have a

direct relationship with firm performance and indirectly through job satisfaction, employee

engagement and employee motivation.

In terms of a direct relationship, compensation is used by organizations to attract and retain

their most valuable and worthy assets (Khan, Aslam and Lodhi, 2011). It has a positive

relationship with employee retention (Hong et al., 2012) It can also be an incentive to

enhance employee performance (Gerhart and Milkovich, 1992). Benefits have been shown to

bond an employee to the organization, resulting in a strong relationship between benefits and

turnover (Shaw et al., 1998). Thus, there is a positive relationship between benefits and

employee retention (Gruber and Madrian, 1994; Lazear, 1986; Madrian, 1994). Rewards can

affect the performance of employees and their desire to stay with the organization

(Bamberger and Meshoulam, 2000; McDuffie, 1995). Thus, it has a direct relationship with


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employee performance (Qureshi et al., 2010). Both compensation and rewards are also

known to have strong associations with turnover intent (Dhiman and Mohanty, 2010).

Therefore, we hypothesize that:

H1. Compensation and Benefits and Rewards Management have a relationship with

Organizational Effectiveness.

With regards to the indirect relationship that compensation and benefits and rewards

management have on firm performance through job satisfaction, employee engagement and

employee motivation, they are found to have a positive and significant relationships with job

satisfaction, employee engagement and employee motivation. For instance, Khojasteh (1993)

found pay and security to be greater motivators and salary packages are of great importance

to create job satisfaction (Grace and Khalsa, 2003). Other researchers added that the main

factors that create greater job satisfaction includes financial rewards, faculty workload (Miller

et al., 2001), and compensation (Boyt et al., 2001). Furthermore, Rehman et al. (2010) have

found that job rewards are a strong determinant of job satisfaction, thereby supporting a

previous study by Clifford (1985). Bhattacharya and Mukherjee (2009) also explained how

rewards play a vital role in employee engagement, which depends on staff feeling that they

are fairly rewarded for their skills, knowledge and contribution. Rewards are seen as an

incentive to employee engagement. Most HR professionals now believe that it is not possible

to retain employees only by paying high salaries and offering attractive benefits. They need

to create enthusiasm for the employees’ roles, their works and the organizations, and ensure

that they are well integrated. Rewards, therefore, play a major role in this respect

(Bhattacharya and Mukherjee, 2009). In addition, Ram and Prabhakar (2011) have found that

both intrinsic and extrinsic rewards are positively related to employee engagement. Ali and

Ahmed (2009) further found a positive relationship between rewards and benefits, and work

motivation.

Based on the above, we hypothesize that:

H2. Compensation and Benefits and Rewards Management have a relationship with Job

Satisfaction.


Employee Engagement.


Employee Motivation.

2.9 Job satisfaction

Job satisfaction is in regard to one's feelings or state-of-mind regarding the nature of their

work and is a positive emotional feeling, a result of one’s evaluation towards his job and his

job experience by comparing between what he expects from his job and what he actually gets

from it as well as a function of the range of specific satisfactions and dissatisfactions that

he/she experiences with respect to the various dimensions of work. This positive feeling

comes from the perception of the individual’s job as fulfilling or allowing the fulfillment of

their job values, provided these values are compatible with their needs (Dunnette and Locke,

1976). It is generally recognized in the organizational behavior field that job satisfaction is


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the most important and frequently studied attitude (Islam et al., 2012). There are three

important dimensions to job satisfaction (Locke, 1976). The first is that job satisfaction is an

emotional response to a job situation. Second, job satisfaction is usually determined by how

well outcomes meet or exceed expectations. Third, job satisfaction represents several related

attitudes (Mitchell and Larson, 1987). Job satisfaction is listed as one of the primary concerns

in human resource management department because it helps retain the employees and raises

their performance level (Mehr et al., 2012). For organizations to be effective, they must

ensure the satisfaction of their employees (Likert, 1961; McGregor, 1960). Job satisfaction

has been cited numerous times as the main reason for employees to leave their jobs (Barak et

al., 2001). Job satisfaction also has a significant correlation to employee retention (Van Saane

et al., 2003). When employees are satisfied with their jobs, they will perform well in the

organization (Judge et al., 2001). Halkos and Bousinakis (2010) have found that increased

satisfaction by employees will lead to increased productivity.

From the above, we hypothesize that:

H5. Job Satisfaction has a relationship with Organizational Effectiveness.

2.10 Employee engagement

Employee engagement is the harnessing of organization members’ selves to their work roles;

in engagement, people employ and express themselves physically, cognitively, and

emotionally during role performances. Another definition is employees feel positive emotions

toward their work, find their work to be personally meaningful, consider their workload to be

manageable, and have hope about the future of their work and employee engagement as the

involvement with and enthusiasm for work. To become fully engaged is to be involved in and

enthusiastic about the work (Falcone, 2006). There are two aspects of employee engagement,

which are cognitive engagement and emotional engagement/physical engagement. Cognitive

engagement is the extent to which a worker is aware of their mission at work and their role in

the organization. Emotional engagement/physical engagement is the extent to which the

worker empathizes with others at work, and connects in a meaningful way with their co-

worker (Kahn, 1990, 1992; Luthans and Peterson, 2002). Most of the key measures that

reflect and drive organizational performance are products of engaged and committed

employees (Siddhanta and Roy, 2010). Baumruk and Gorman (2006) believed that if

employees exert extra time, effort and initiative in their work, then this will contribute to the

success of the business. Studies have, therefore, been conducted and have shown that there is

a positive relationship between employee engagement and organizational performance

outcomes like employee turnover and employee retention (Halbesleben and Wheeler, 2008;

Kgomo, 2010). With this kind of positive attitude, engaged employees have also been linked

to better performance (Harter, Schmidt and Hayes, 2002; Towers Perrin, 2007).

Thus, we hypothesize that:

H6. Employee Engagement has a relationship with Organizational Effectiveness.

2.11 Employee motivation

Employee motivation is one of the policies managers used to increase effectual job

management amongst employees in organizations and defined as something a need or desire

that causes a person to act as a psychological process that gives behavior purpose and


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direction, include as an internal drives to satisfy an unsatisfied need and the will to

accomplish. Motivation, itself, is described by Hellriegel et al. (1992) as the force acting on

or within a person that causes the person to behave in a specific, goal-directed manner. It

stimulates the people into action and achieves a desired task (Luthans, 1998). A motivated

employee is a productive employee, who contributes to the effectiveness of the organization

(Matthew et al, 2009). The significance of employee motivation, influencing the behaviors of

employees to behave in certain ways, can ultimately decide the success or failure of an

organization (Manzoor, 2012). This would imply that organizational success depends heavily

on employee motivation. There is thus a relationship between employee motivation and

organizational effectiveness. For example, motivation at work is directly related to turnover

intention (Dysvik and Kuvaas, 2010). Employee motivation also influences employee

retention (Aguenza and Som, 2012). When motivation is high employees are more likely to

enjoy working, spend more time and energy in their work tasks, leading to better performance

(Deci and Ryan, 2000, 2002). In Solomon et al. (2012), findings have found a positive

correlation between motivation and employee productivity.

Therefore, we hypothesize that:

H7. Employee Motivation has a relationship with Organizational Effectiveness.

2.12 Research framework

Having reviewed the literature, it is possible to develop a comprehensive framework,

presented in Figure 1, consisting of Compensation and Benefits and Rewards Management as

the independent variables, Job Satisfaction, Employee Engagement, Employee Motivation as

the Mediating variable and Firm performance in terms of Organizational Effectiveness as an

observed variable, which has three factors of employee attrition, employee retention and

employee performance, as the dependent variable.

CBR - Compensation and Benefits and Rewards Management; JS – Job Satisfaction; EEG - Employee

Engagement; EM – Employee Motivation; OE – Organizational Effectiveness

Figure 1: Initial structural model

3. Research methodology


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3.1 Scope of the study

Study focuses on a causal model of HRM Practices as a compensation and benefits and

rewards management on firm performance, in terms of organizational effectiveness, in

Thailand’s MNCs within the manufacturing industry. Research was conducted in FDI’s

manufacturing in the key industrial zone of the country, represented mainly in Eastern

Seaboard industrial estate, Rayong province, the key industrial zone of Thailand. These areas

attracted the most investment (www.boi.go.th).

3.2 Research variables

The variables involved in the relationships between compensation and benefits and rewards

management and firm performance were identified after reviewing the literature. Each of

these variables was operationalized using the following number of items: compensation and

benefits and rewards management, three mediating variables, and observed variable as an

organizational effectiveness with three factors, as stated in the research framework and

hypothesis section. The majority of these items were used in previous empirical studies on

the relationship between HRM practices and firm performance, particularly in the field of

manufacturing industry. To check the face validity of the variables used, the following

complementary actions were taken:

1. The list of items extracted from the literature was mixed, and a panel of experts was

asked to independently classify them into categories, based on the theoretical

definitions given for each variable.

2. Another panel of experts was separately asked to assign labels to unlabeled groups of

items, based again on the definitions given for each variable.

Both tasks were repeated until members of each panel have reached a final agreement on the

items contained in their categorizations.

3.3 Survey instrument

Questionnaire was used as the primary research instrument. It was in the form of a self-

assessment and can be divided into ten parts. Part one contains eight items, asking for

information about the organization, such as the industry sector that they are in, whether or not

they provide direct investment from overseas, their country of origin, whether they have

received investment promotion (BOI) in Thailand and the number of employees in the

organization. These questions are part of the selection process to find out which organizations

are relevant in this study. Part two contains six items, concerning personal information of the

respondents, such as gender, age, current title/position, level of education and years of work

experience. Part three has a total of six items, regarding Compensation and Benefits and

Rewards Management. They were developed from Ferguson (2006), Kgomo (2010) and

Martin (2011). Part four to Part six involves the mediating variables, which are Job

Satisfaction with six items, Employee Engagement with eight items and Employee

Motivation with seven items, respectively. These were adapted from Carden (2007), Kgomo

(2010) and Springer (2010). Part seven has a total of sixteen items that are made up of three

factors of Organizational Effectiveness, namely employee attrition with six items, employee

retention with five items and employee performance with five items These were developed

from Bhattacharya (2000), Carden (2007), Chew (2004), Ferguson (2006), Kgomo (2010),

Martin (2011), Rose (2012) and Springer (2010). Lastly, Part eight allows for the respondents


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to provide any further comments about the questionnaire and whether they intend to use this

study, once the data has been analyzed, to manage human resource in their organizations.

From Part three to Part seven of the questionnaire, the respondents are asked to describe on a

5-point Likert scale with: 1 = Strongly Disagree, 2 = Disagree, 3 = Agree, 4 = Moderately

Agree, and 5 = Strongly Agree. To reduce the possibility of the existence of key information

bias, a set of questions in the survey contain some revert questions for some of the variables,

such as Employee Attrition and Job Satisfaction, to ensure that the respondents were

confident about answering the questions contained in the questionnaire (Cannon and

Perreault, 1999). The questionnaire was first written in English and then translated into Thai.

In order to ensure linguistic consistency, this was back-translated into English by an

experienced translator, and the necessary corrections were made in the Thai version. The

questionnaire was pre-tested to about 30 managers to find out whether reliability by Alpha –

Coefficient of Cronbach was positive in between 0.80-0.90, regarding the relationship of

compensation and benefits and rewards management and firm performance, in terms of

organizational effectiveness.

3.4 Population, sample and data collection

The population being studied are from MNCs with FDI that have been promoted under BOI.

It refers to foreign investment with projects involving foreign capital of at least 10% to invest

in the key industrial Zone 2 of Eastern Seaboard, Rayong Thailand. There are a total of 255

firms at the targeted zone as a unit of analysis. This research defined FDI for data collection

using stratified sampling of first step and simple sampling for the second step. Top

management, Human Resource Manager/Leader and Line/Functional Manager will be

selected as representatives of those affected by the organizations using HRM practices. In

total, there are 224 samples. There were two channels for distributing the questionnaire. The

questionnaire was sent electronically via email and distributed to all target respondents, but

before doing so, Human Resource, which is the main department to answer the questionnaire,

was contacted by telephone, so as to allow them to coordinate with other line managers and

top management about completing the questionnaire. Questionnaire was also sent by using a

cover letter, explaining the purpose of the study, as well as a copy of the questionnaire. To

encourage participation in answering the questionnaire, respondents were promised that they

would receive a summary of the research findings after the fieldwork is completed. Within

eight weeks, we collected the questionnaires and those that were sent by email were also

received. 224 were returned and adequately completed.

3.5 Statistical method

To test the conceptual model, we used path analysis. The main reason that this technique was

used is that path analysis is a flexible, powerful and robust statistical method that can be used

to examine the relationships between measured (observed) variables, which also require a

highly flexible and comprehensive statistical methodology. The hypotheses are tested by

using AMOS. Results are provided in the following tables and figures.

3.6 Reliability and validity

This research has tested reliability analysis of all items to measure Cronbach’s Alpha for the

scale items to ensure internal consistency. Multi-item measures were developed base on

Cronbach’s alpha > 0.70 (Nunnally, 1978). This research then calculated Cronbach’s Alphas

for each variable. For all items, the reliability measure was 0.945.


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Table 1: Profile of respondents

Variable Frequency Percentage

Gender

Male 140 62.5

Female 84 37.5

Age

21-30 37 16.5

31-40 115 51.3

41-50 67 29.9

51 and above 5 2.2

Position / Title**

Line Manager 173 77.23

HR Leader 33 14.70

Top Management 18 8.00

Country of Origin

Asia 151 67.4

Europe 40 17.9

North America 28 12.5

Middle East and Africa 3 1.3

Australia 2 0.9

Note: Position/Title** Top Management: CEO, Managing Director, General Manager: HR

Leader: HR Director, Sr. HR Manager, HR Manager, HR Leader,. : Line Manager: Any Line

Manager in manufacturing, such as Manufacturing Manager, Production Manager, Quality

Manager and others.

Table 2: Descriptive statistics for major variables

Variable Mean Std. Deviation

HRM Practices( HRMP) 3.8612 0.45368

Organizational Citizenship Behaviors( OCB) 4.1094 0.42817

Job Satisfaction( JS) 3.7641 0.44871

Employee Engagement( EE) 4.0268 0.48907

Employee Motivation( EM) 3.7806 0.49188

HR Flexibility( HRF) 3.5050 0.58622

Organizational Effectiveness 3.9621 0.5579

Table 3: Results of measurement model

Item Result

CMIN / DF 1.674

GFI 0.977

CFI 0.981

NFI 0.965

RMSEA 0.060

Notes: Based on a five –point Likert scale ranging from “Strongly disagree” (1) to “Strongly

agree” (5); Fit statistics for measurement model are in Table 4.


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Table 4: Pearson’s correlation coefficients

CBR JS EEG EM OE

CBR -

JS 0.351** -

EEG 0.464** 0.617** -

EM 0.320** 0.339** 0.614** -

OE 0.464** 0.589** 0.509** 0.445** -

N=376

Notes: **. Correlation is significant at the 0.01 level (2-tailed).

Table 4 provides a general picture of associations between the constructs, where Pearson’s

correlation coefficients were estimated. Standard is between -1.00 to 1.00. The fact that none

of the calculations is above 0.80 indicates the non-existence of Multicollinearity problems.

4. Test results

We tested the proposed hypothesis using path analysis. For the conceptual framework, we

found that this path analysis complies with the empirical data:, CMIN/DF 1.647, as well as the

favorable nature of the other fit indices (RMSEA=0.060(<0.08), NFI=0.965(>0.90),

CFI=0.981(>0.90), GFI=0.977(>0.90), which were taken at an acceptable threshold level

(Hooper et al., 2008; Kline, 2005). Results are shown in Table 3. The standardized path

coefficients are presented in Figure 2 to ensure the relationships exist between the variables,

so as to be in line with the hypotheses. The results in Figure 2 present the following:

1. Compensation and Benefits and Rewards Management has direct, significant and

positive influence on Organizational Effectiveness (β=0.24**, ρ < 0.01), positive

influence on Job Satisfaction (β=0.27**, ρ < 0.01), positive influence on Employee

Engagement (β=0.19**, ρ <0.01), and positive influence on Employee Motivation

(β=0.32**, ρ <0.01), thus supporting H1, H2, H3, H4.

2. Job Satisfaction has direct, significant and positive influence on Organizational

Effectiveness (β=0.43**, ρ <0.01), thus supporting H5.

3. Employee Motivation has direct, significant and positive influence on Organizational

Effectiveness (β=0.22**, ρ <0.01), thus supporting H7.

4. There are no direct influence on Organizational Effectiveness, and thus no support for

the following hypotheses test on H6 of Employee Engagement and Organizational

Effectiveness.

5. However, results from the test have found new relationships between the variables

that have significant influences: Job Satisfaction has direct, positive influence on

Employee Engagement (β=0.41**, ρ <0.01). Employee Motivation has direct, positive

influence on Job Satisfaction (β=0.25**, ρ <0.01), and Employee Engagement

(β=0.41**, ρ <0.01) respectively.

According to the results of the hypotheses, the only significant results obtained are those

reported in the final model, shown in Figure 2.


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Note: N = 376

Figure 2: Structural model

5. Study results and discussions

According to the test results, shown above, they have provided some fresh insights into the

relationships between the variables. They have confirmed that there is a positive relationship

between compensation and benefits and rewards management (CBR), and organizational

effectiveness (β=0.24**, ρ <0.01). This is in line with previous studies like Shaw et al.

(1998), Hong et al. (2012), Qureshi (2010), Dhiman and Mohanty (2010), and are examples

of how important it is that to increase performance in organizations, CBR must be

implemented to prevent employees from leaving the organizations, retain them and increase

their performance. In relation to the mediating variables, the relationship between CBR and

organizational effectiveness, as shown in Table 5, and from the results in Figure 2, CBR is

also indirectly related to organizational effectiveness through the mediating variables. Thus,

there are all still significant positive relationships between CBR and organizational

effectiveness.

Table 5: The indirect relationship between CBR and organizational effectiveness

CBR 0.27** ---> Job Satisfaction 0.43** ---> Organizational Effectiveness = 0.12**

CBR 0.32** ---> Employee Motivation 0.22** ---> Organizational Effectiveness = 0.07**

As for the relationship between the three meditating variables: job satisfaction and

organizational effectiveness, results have shown a positive correlation between job

satisfaction and organizational effectiveness (β=0.43**, ρ <0.01), thus supporting previous

findings (Barak et al., 2001; Van Saane et al., 2003; Halkos and Bousinakis, 2010). It is also

important that employees are motivated so that they can increase organizational effectiveness,

as the findings demonstrate. It has a positive relationship with organizational effectiveness

(β=0.43**, ρ <0.01), thus supporting previous findings (Dysvik and Kuvaas, 2010; Aguenza

and Som, 2012; Solomon et al., 2012). However, there is no connection between employee


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engagement and organizational effectiveness. Findings contradict earlier researches by

Kgomo (2010), and Halbesleben and Wheeler (2008). But in Kgomo (2010), research was

conducted in South Africa’s contact center service industry, whereas this study was done in

Thailand’s manufacturing industry. In Halbesleben and Wheeler (2008), study was conducted

in a variety of industries, such as education, healthcare, and banking, not just the

manufacturing industry, and it was done in the US, not Thailand. But given the above

explanations, employee engagement is not the only factor that has an effect on organizational

effectiveness. Employees are satisfied with their jobs through the use of CBR (β=0.27**, ρ

<0.01), as shown in the results, further supporting these previous studies (Rehman et al.,

2010; Clifford, 1985). Employee engagement is also influenced by CBR, as shown in the

result (β=0.19**, ρ <0.01), and further supported by Bhattacharya and Mukherjee (2009), and

Ram and Prabhakar (2011). Employees are motivated through the implementation of CBR, as

the result clearly shows (β=0.32**, ρ <0.01), and supported by Ali and Ahmed (2009).

Study also finds additional relationships, such as job satisfaction has a direct and positive

effect on employee engagement (β=0.41** ρ <0.01), further supporting Garg and Kumar

(2012), who have reported in their research that job satisfaction is an important driver of

employee engagement. Employee motivation has a direct and positive effect on job

satisfaction (β= 0.25**ρ <0.01), which is further supported by Saleem et al. (2010), and

employee engagement (β=0.41** ρ <0.01), although the latter has no known studies to

support such findings.

5.1 Implications, limitations and recommendations for further studies

Based on the results, we can conclude that CBR of MNC’s have a directly significant and

positive influence on organizational effectiveness, which consists of employee attrition,

employee retention and employee performance. In particular, results suggest a strong

correlation between CBR and organizational effectiveness. This can prove useful to managers

who wish to retain employees in their organizations and increase their performance. Thus,

CBR should be used by managers, where employees are given positive recognition and

reward when they perform well. Appropriate compensation should be provided for the

amount of work or quality of work that employees do. Benefits that employees receive should

be equitable.

While the results clearly show a strong direct and positive relationship between CBR and

organizational effectiveness, there is also an indirect relationship between CBR and

organizational effectiveness, affecting the two mediating variables of employee motivation

and employee job satisfaction, and these in turn have a positive effect on organizational

effectiveness. Managers should develop a program for both of these variables to reduce the

level of employee attrition, where employees may leave their jobs and look for a new one,

and to increase employee performance, where employees perform better at work and their

performance can also exceed expectation. In relation to job satisfaction, managers should

make their employees feel that their jobs are significant and their work should always be

appreciated. As for employee motivation, there should be a program where employees are

encouraged to make improvements at work that are acceptable by the organization, and to get

ahead, thus allowing them to fulfill their ambitions.

Overall, our findings show that CBR still has a high and positive effect on organizational

effectiveness, whether directly or indirectly. Such findings can be beneficial for managers

intending to manage human resources by using CBR, and increase performance in their


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organizations. This study has, thus, created a perfect model to persuade both organizations

and academics to understand the importance of using HRM practices, particularly CBR. They

can help firms find ways to better implement CBR that are in line with corporate business

strategies. Furthermore, job satisfaction and employee motivation play a crucial role as

mediators in the relationship between CBR and organizational effectiveness. Therefore,

organizations should understand the importance of developing programs and activities

relating to these two mediating variables to enhance organizational effectiveness.

Although this study has shown the positive influences of compensation and benefits and

rewards management on organizational effectiveness, it does have its limitations. Firstly, the

study was conducted in Thailand and was limited only to the one key industrial FDI’s zone.

Thus, the findings and conclusions drawn from this research only represent the Thai context.

Recommendations for future research is to include other countries, particularly those in

Southeast Asia that are going to be involved in the development of the AEC (ASEAN

Economic Community) in 2015. By doing this will enable studies on CBR to become more

intricate due to the additional contexts of diversity and cross culture. The present study

focuses on just one HRM practices, which means that any future studies could be done for

other HRM practices like hiring and recruitment, training and development, and employee

relation, employee diversity to which these practices have an effect on organizational

effectiveness. As for foreign direct investment, the current study focuses on all FDIs in

Thailand. Future research could be to focus on a particular FDI from their country of origin,

such as America, Europe, and Asia, especially Japanese investment firms, which are the

largest group of foreign investors in Thailand (http://thailand.prd.go.th). Study should also

not be limited to local companies in Thailand. Lastly, since this research focuses on all

sectors of the manufacturing industry, it would be more beneficial if further research was

done on a particular sector of the manufacturing industry, such as the automotive, electronics,

and foods and beverage. Study can be expanded to other industries, such as service,

hospitality and airline.

5.2 Conclusion

This study highlights the usefulness of having compensation and benefits and rewards

management, as one of the key human resource practices, that organizations can use as a

management tool to attract, retain and motivate their employees. However, it is not the only

factor that can determine the effectiveness of organizations. There are other variables

involved besides the two mediating variables that have already been discussed above. While

these two variables may have helped to further understand the relationship between

compensation and benefits and rewards management, and organizational effectiveness,

organizations also need to consider other aspects to determine the performance outcome of

organizations, such as leadership, culture, working process, policies, and so on.

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