Abstract:
The main purpose of this study was to examine the effect of compensation on employees’
performance in private and Commercial Bank of Ethiopia in Ambo Town. The study used
descriptive survey research design. Data were collected through survey questionnaire from
employees of selected commercial banks in Ambo town. The population for this study was
employees of commercial banks who were working at different branches in Ambo town. From the
total population of 346, 185 employees were selected using stratified random sampling from each
Bank. Accordingly, 185 questionnaires were administered to the respondents and the researcher
collected all the questionnaires. Data were analyzed by using descriptive and inferential statistics
using SPSS version 23. Pearson correlation, multiple regression analysis and independent t-tests
were used to analyze data. The findings of the study revealed that compensation packages such as
salary, bonus, overtime, health insurance and non-financial compensation had significant
association with employee performance in Commercial banks in Ambo town. Salary (r=0.52,
p<.01), bonus (r=0.36, p<.01), overtime (r=0.39, p<.01), health insurance (r=0.50, p<.01), and
non-financial compensation (r=0.49, p<.01) had statistically significant strong correlation with
employee performance. The result of the multiple regression analysis has shown that about 55%
of the employee performance was explained by compensation packages (salary, bonus, overtime,
health insurance and non-financial compensation). Lastly, employees in private banks had more
compensation packages [salary (t=4.84, p<0.01); bonus (t=9.91, p<0.01); overtime (t=4.84,
p<0.01); health insurance (t=4.84, p<0.01); non-financial compensation (t=4.84, p<0.01) and
employee performance (t=10.51, p<0.01)] than employees of CBE. Thus, CBE and private banks
should modify their human resource strategies to improve their compensation packages and
employee performance.
