The mediating role of employee commitment in the relationship between compensation system and turnover intentions
| Date | 25 March 2024 |
| Pages | 721-755 |
| DOI | https://doi.org/10.1108/ER-05-2023-0270 |
| Published date | 25 March 2024 |
| Subject Matter | HR & organizational behaviour,Industrial/labour relations,Employment law |
| Author | Nemanja Berber,Dimitrije Gašić |
The mediating role of employee
commitment in the relationship
between compensation system and
turnover intentions
Nemanja Berber and Dimitrije Ga
si
c
Faculty of Economics in Subotica, University of Novi Sad, Subotica, Serbia
Abstract
Purpose –The main goal of this study is to determine the role of employee commitment in the relations
between the compensation system and turnover intentions of employees in the Republic of Serbia, as well as to
investigate whether there is a mediating effect of employee commitment in this relation.
Design/methodology/approach –The primary methodology implemented in the research was data
gathering, obtaining theoretical research works on the proposed relations and empirical studies based on the
PLS-SEM, analysed by IBM SPSS Statistics and SmartPLS data processing software. The data for the analysis
was obtained from a total sample of 764 employees, collected in the Republic of Serbia via an online
questionnaire.
Findings –The results indicated a positive statistically significant relationship between the formative
construct (compensation system) and reflective construct (commitment), as well as a negative statistically
significant relationship between the compensation system and reflective construct (turnover intentions).
Employee commitment partially mediates the relationship between the compensation system and turnover
intentions of employees.
Originality/value –The study was conducted in Serbia and is thus rooted in the specific national context
which is characterized by high power distance and high uncertainty avoidance and more collectivistic society
with feminine values more expressed. Most of the previous investigations related to the mentioned constructs
were performed in companies from more developed countries, including WesternEurope and the United States
of America, whereas there has been no such research conducted in Serbia to date. The results portrayed a
mismatch between the expectedrelations regarding the attitudes of employees to the rewards and the proposed
national context. Modern companies in Serbia need to follow a modern reward mechanism to build stronger
commitment and decrease turnover intentions. Moreover, in most earlier research works, compensation was
examined in terms of satisfaction with rewards, while this study was based on questions relatedto perceptions
of employees toward HR compensation practices (“The organization offers me”-type questions), not related to
their satisfaction. Further, in the majority of previous research works, the compensation system was examined
as a variable in combination with other HR processes (staffing, training and development, career development,
employee relations, HR planning, communication, etc.), as a HPWP, while in this case the authors used only the
practice of compensation (reward elements and employee performance evaluation) to investigate relations with
commitment and turnover intentions.
Keywords Human resource management, Compensation system, Employee commitment,
Turnover intentions, Republic of Serbia
Paper type Research paper
1. Introduction
Regardless of their business activity, companies should work towards encouraging their
employees to remain with the organization. One way to ensure this is to create an adequate
compensation system for employees. A compensation system is an important tool in human
resources that allows the company to influence employee behaviour. Lai (2011) emphasized
that the efficient design of the compensation system has a significant impact on the
development of the organization by revealing external competitiveness and internal and
individual fairness. External competitiveness attracts talent, while internal fairness helps
companies retain talent by ensuring that employees and colleagues, who make the same
Mediating role
of employee
commitment
721
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/0142-5455.htm
Received 30 May 2023
Revised 19 September 2023
18 January 2024
26 February 2024
Accepted 26 February 2024
Employee Relations: The
International Journal
Vol. 46 No. 4, 2024
pp. 721-755
© Emerald Publishing Limited
0142-5455
DOI 10.1108/ER-05-2023-0270
contribution, receive the same pay. Individual fairness allows employees to feel that their
potential is fully rewarded. Compensation means more than simple monetary and non-
monetary rewards given to employees for the work they perform, it is a significant tool that
managers can use to influence and manage employee behaviour. When designing
compensation systems, especially with the aim of achieving multiple goals, companies
should consider several basic factors, including employee health, position, performance,
skills, among others.
Based on different theoretical perspectives, human resource management (HRM) practices
have a great influence on turnover intentions in different contexts (Bambacas and Kulik,
2013;Maneesatitya and Fongsuwan, 2014;Tumi et al., 2022). Researchers in HRM
demonstrated the importance of human resource management in terms of how HRM can
enhance employees’commitment by increasing their level of commitment to an organization,
and thus leading to High Commitment HRM (HCHRM) (Gould-Williams et al., 2014), as a set of
HRM practices that affected employee commitment (Farndale et al., 2011), where employee
compensation (rewards) were seen as an integral part of high-involvement work systems
(Islam et al., 2023b). Also, the resource-based theory states that “firms can develop sustained
competitive advantage only by creating value in a way that is rare and difficult for
competitors to imitate”(Becker and Gerhart, 1996;Gerhart and Feng, 2021). Based on this
theory, HRM practices integrated into a human resource system have a considerable
influence on the development of organizational capabilities and the firm’s performance (Saa-
Perez and Garc
ıa-Falc
on, 2002). Today compensation is seen as one of the key HR practices
that could be used to achieve the above-mentioned goals (Selden et al., 2013;Mahmood et al.,
2019). From the aspect of social exchange theory (Cook and Hahn, 2021), it must be mentioned
that in the process of exchange related to employment, employees would show positive
attitudes and behaviours on the job, if they perceived and experienced the employers’HR
practices as positive towards them. It is expected that an adequate reward package and
compensation practice would be related to positive working attitudes and behaviours of
employees, like commitment and desire to stay in an organization.
The intention to stay with the organization is a manifestation of the employee’s
commitment to the organization (Kehoe and Wright, 2013). Employee turnover causes the
organization to lose its talents, interferes with the organization’s smooth operation and
increases its overall costs. Therefore, employee departure leads to possible interruptions in
the normal operational processes and reduces overall performance (Morrow and McElroy,
2007). The study of Vandenberghe and Tremblay (2008) stated that the salary was a critical
factor among the incentives that companies would give in exchange for the employees’
contribution towards achieving organizational goals. Cash pay is often used as an incentive
to perform (Gardner et al., 2004) and as a means of retaining the best employees (Trevor et al.,
1997). On the other hand, employee commitment can be seen as an emotional attachment to
and involvement of employees with an organization. It is the bond between employees and an
organization, manifested in the employees’will to continue to work for the organization. It is a
manifestation of employees’positive reactions to organizational HR practices. It is related to
job satisfaction and motivation and to lower turnover intentions (Kerekes et al., 2023).
Drawing on these premises, the authors claim that the compensation system has a positive
relation to employee commitment and a negative relation to turnover intentions. Also, since
turnover intentions are a manifestation of employee commitment, the authors state that
employee commitment can mediate relations between compensation system and employee’s
intentions to quit.
The research gap can be explained by the fact that, although many studies examined the
relationships between different HR practices, organizational commitment and employee
turnover intentions, only few papers investigated employee commitment as a mediator in the
relationship between HR practices and employee turnover intentions (Tumwesigye et al.,
ER
46,4
722
2020). Also, most of the research works were based in developed economies, as opposed to
emerging economies. Present authors aimed to isolate the compensation system as a practice,
not to investigate people’s attitudes (satisfaction with rewards, as in earlier studies).
Moreover, the majority of previous studies examined compensation as a part of HR process,
along with all other practices. Therefore, the specific goal of this research work was to
determine the effects of the compensation system on the commitment and turnover intentions
of employees in the Republic of Serbia, as well as the role of commitment in the
compensation–turnover intention relation. Based on this overall objective and the
introductory remarks, the following research question was formulated:
R1. What is the role of employee commitment in the relationship between the employee
compensation system and turnover intentions?
Regarding the context, the Republic of Serbia has its specific developmental process and
history (from the socialist period with state-owned companies and planned market economy
to a modern, democratic society, with coordinated market economy, in the process of joining
the EU), as well as specific cultural dimensions (high power distance and high uncertainty
avoidance, and more collectivistic society with feminine values more prominent). In addition,
most of the previous research works related to the above-mentioned statement were
conducted in companies from more developed countries, in Western Europe and the United
States, while in Serbia there had been no such studies conducted in the past.
The methodology of the paper was based on obtaining theoretical research materials on
the proposed relations and empirical research material and data analysis by using the PLS-
SEM method. Based on the data analysis on a sample of 764 employees in the Republic of
Serbia, the authors of this paper aimed to investigate the proposed model of the compensation
effects on employee commitment and turnover intentions. This study is vital since the
proposed model has not yet been examined in this specific context (Serbia), moreover, there is
not enough evidence on this topic in the relevant literature. This investigation is especially
valuable given its specific insight into the mediating effect of commitment on the relation
between the compensation system and turnover intentions. Earlier works focused only on the
direct relations between mentioned constructs, without a more comprehensive mediation
analysis.
The paper consists of four parts. The first section is devoted to the theoretical
development of the hypotheses and the main argument related to compensation in HRM,
relations between the compensation system and employee commitment, and relations
between the compensation system and turnover intentions. The second part outlines the
research methodology, explanation of the questionnaire used in the data collection and the
sample. The third part is devoted to the obtained results from the analysis in the SmartPLS 4
statistical program for data processing, and a discussion. The last section offers concluding
remarks and deductions based on the theoretical and empirical part of the study, as well as
the detailed implications, future exploration recommendations and limitation of this research.
2. Theoretical background
It is paramount to focus on the social exchange theory, especially given the theoretical roots of
employee compensation system, commitment and turnover intentions. Blau (1964, p. 91)
stated that social exchange refers to “voluntary actions of individuals that are motivated by
the returns they are expected to bring and typically do in fact bring from others”. The basic
assumption of social exchange theory is that positive, beneficial actions by an organization
towards employees contribute to the establishment of high-quality exchange relationships
that create obligations for employees to reciprocate in positive, beneficial ways (Ko and Hur,
2014). It further provides a basis for understanding the role that organizations and managers
Mediating role
of employee
commitment
723
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