TESTING MEDIATING EFFECT OF JOB SATISFACTION ON THE RELATIONSHIP BETWEEN REWARDS AND EMPLOYEES' LOYALTY

SAJMMR Volume 3, Issue 7 (July, 2013) ISSN 2249-877X

South Asian Academic Research Journals http://www.saarj.com

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Publis hed by: South Asian Academic Research Jour nals

SAJMMR:

S o u t h A s i a n J o u r n a l o f

M a r k e t i n g & M a n a g e m e n t

R e s e a r c h

TESTING MEDIATING EFFECT OF JOB SATISFACTION ON THE

RELATIONSHIP BETWEEN REWARDS AND EMPLOYEES’ LOYALTY

Mrs. Shanthakumary Milroy Christy Mahenthiran Aloysius*

*Head,

Department of Human Resource Management,

Faculty of Management Studies & Commerce,

University of Jaffna, Sri Lanka.

ABSTRACT

The present study analyzed the impact of Job satisfaction on the relationship

between rewards and loyalty among the life insurance sales staff in Jaffna district.

The main objectives of the study were to find out the mediating effect of Job

satisfaction on the relationship of monetary rewards and loyalty and to find out

instrumental value of the monetary rewards system on loyalty of sales staffs of the

insurance companies All the analysis was made by using the responses of eighty

seven employees of four private sector Insurance Companies. Two hypotheses were

set out for the study.H1 was there is a strong positive relationship between monetary

rewards and loyalty. H2 was Job Satisfaction works as mediator in the relationship

of Monetary Rewards and Loyalty. The study found there is a low positive

relationship between monetary rewards and loyalty (0.225) and Job satisfaction fully

mediated the relationship between monetary rewards and loyalty.

KEYWORDS: Job satisfaction, Loyalty, Mediator, Monetary rewards.

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1. INTRODUCTION

Employees‟ loyalty and their work quality are main reasons behind the success of any kind of

industry. Especially in the service sector, majority of the main P s (product, people, process

management and physical evidence) depend on the employees who are engaging in providing

required services. According to Benjamin Schneider quoted by Keiningham and Aksoy,(2011),

the employee's loyalty-related attitudes precede a firm's financial and market performance.

Employees‟ loyalty is considered as major determinant of customer satisfaction which is one of

the major sources of competitive advantage of organizations. Suyan (2010)] defined employees‟



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loyalty as “being committed to the success of the organization and believing that working for this

organization is their best option. Not only do they plan to remain with the organization, but they

do not actively search for alternative employment and are not responsive to offers”. Therefore

creating loyalty among employees helps the organization to retain them and to prevent the

organizations from the risk of quitting key employees and increasing the strengths of the

competitors. Generally organizations give various rewards to promote motivation and

satisfaction of the staff and ultimately to enhance the productivity of them, it could be any form:

monetary or non monetary. The earlier writers such as F.W. Taylor believed the money would

motivate the employees to perform in an efficient way. On the other hand authors like

Herzberg(1973) said absence of monetary rewards bring dissatisfaction on the job. Even though

there are many arguments about financial rewards as a motivator and their influence on

performance of the employees and the productivity of the organization, financial rewards are

given to the employees to encourage them.

Insurance is a fast growing sector in Sri Lankan economy. According to statistics of Central

Bank of Sri Lanka(2011) there are 19 companies registered under Board of Insurance to provide

long and medium terms policies, especially life insurance policies, to the customers. Due to the

competition to increase their market share and as the way to appeal more customer awareness,

the companies introduce new packages with various benefits to the customers. But the customer

attitude towards life insurance does not reach highly „appreciated‟ level. Due to the lack of high

appreciation towards the life insurance, the sales staffs face lot of challenges in selling life

insurance policies. On the other hand, the sales staffs are paid commission on the basis of

performance. Problems associated in the working environment and the method of rewarding

them hinder the motivation of sales staff and contribute to labour turn over and subsequently

affect loyalty. Due these reasons, delighting employees is one of the major tasks of every

organization. Delighted employees would like to stay with the particular organization and

subsequently look after the customers well. On the other hand, due to the impact of the world

economy, the national economy of Sri Lanka has been facing various economic problems such as

increasing interest rate of bank deposits, the increasing trend of general price level and so on. At

present, bank interest rate for fixed deposits is seemed in two digits. Hence people rationally

think it as an investment rather than considering insurance as prudent or cover to life. Because

having fixed deposit in a bank gives highest return than any other means. All these above said

facts, selling of life insurance cover is a challengeable task in Northern Province.

2. LITERATURE REVIEW

Monetary rewards and their influence on various organizational related factors are the main

focus of many researchers from the inception of the scientific management thoughts to recent

studies. It is accepted by many authors that the monetary rewards have impact on motivation

(Khan,Aslamand,&Lodhi,2011) ,(Khan, Farooq &Ullah, 2010), job satisfaction (Galanou, et.

al,2011) and the loyalty (Abdullahet al, 2011) of the employees. Many HR experts agreed that

one of the main aims of any reward system is to retain the employees with the organization.

Despite the reward system is attractive, if there is no loyalty among employees; the retention

might not be possible.



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The term “Rewards” refers to all of the monetary and non-monetary payments that employees

received from their employment. Monetary reward consist of all form of rewards are given to the

employees in money terms, such as pay, commissions, bonus and etc According to

Dessler(2008) there are three major objectives of rewards system: attracting new employees,

encouraging them for good performance and maintaining commitment to the organization.

Cascio(2003) cited by Döckel, & others pointed out rewards are given to the employees to retain

them (Döckel Basson and Coetzee,2006).

Many researchers studied the influence of monetary rewards on employees‟ loyalty. Golparvar1

and Nadi, 2010) analyzed relations between rewards and encouragement of loyalty, they

identified a strong significant correlation between the said variables. Galanou, et. al (2011) found

rewards system influenced the level of satisfaction. Different rewards system has different power

to cause differences in job satisfaction and further they stated job satisfaction can strengthen

commitment and employees‟ loyalty. Abdullah et.al (2011) investigated the relationship

between job satisfaction factors and loyalty factors, they found strong association between the

two variables and they further quoted findings of Jawahar(2006)that the job satisfaction has

connection with loyalty. Turkyilmaz et.al(2010) did an empirical study on job satisfaction and

loyalty in public sector organizations in Turkey. They revealed a strong relationship between

employees‟ satisfaction and their loyalty. On the other hands, researchers like Iaffaldano and

Muchinsky(1985) reported uncertain degree of association in between job satisfaction and

loyalty. The concluded the relationship is weak between job satisfaction and loyalty.

Mediating impact of job satisfaction in between different variables has investigated by many authors.

Abu Elanain(2010) did an analysis on testing the direct and indirect relationship between

organizational justice and work outcomes, concluded that job satisfaction play partial mediation

between organizational justice on commitment and intention of quitting from the organization.

Another study revealed job satisfaction has fully mediation effect on the relationship between

perceived organizational support and organizational citizenship behaviours and partially mediated on

the relationship of perceived organizational support and organizational commitment ( Ladebo,

Abubaka and Adamu,2011). Mediating effect of job satisfaction studied by Ibrahim and

Boerhaneoddin,(2010) on the relationship between compensation structure and organizational

commitment. They concluded job satisfaction strongly mediated the relationship between studied

independent and dependent variables. By considering all these findings, we have the evidence to

justify the relationship between monetary rewards and job satisfaction ,monetary rewards and loyalty

and job satisfaction and loyalty.

3. SIGNIFICANCE OF THE STUDY

The main purpose of the reward system of any organization is to fulfill three important goals of

the organizations such as attracting potential employees, retain present employees and inducing

them to do their best. Due to the high competition among the participants in the insurance

industry, the companies are trying to retain their talent employees by providing attractive reward

packages, though unemployment of the country is 4.9% of labour force in 2010. At the same

time, 65000 agents are engaged in marketing of life insurance product (Central Bank of Sri

Lanka,2011) these agents are dealing with customers and the sales staffs of the particular

companies. Therefore loyalty of the sales people is important to ensure the growth of the market



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share and through profit. In this scenario, the present study will help the insurance companies to

identify the psychological status of the sales staff with regard to their reward system. Further it

will be useful the future researchers to study the status of the industry in Jaffna district as less

number of studies addressed service quality and customer satisfaction and no study conducted to

find out the mediating effect of job satisfaction in creating and strengthening loyalty among

insurance sales people with monetary rewards. Therefore the study will be significant due its

contribution to fill the research and knowledge gaps.

3.1 PROBLEM STATEMENT

According to Central bank of Sri Lanka, 19 companies registered by Insurance Board of Sri

Lanka up to 2011. Among these 12 companies are engaging long term and general insurance

business, while 5 companies are only in general insurance business and 2 companies are in long

term general business. However, a large number of men and women are employed directly and

indirectly in the industry. At the same time there are six companies with significant size of

market share operating in Jaffna including government sector: Sri Lanka Insurance, Ceylinco,

Aviva, Union Assurance, HNB Assurance and Janasakthi. After the war number of financial

institutions opened their branches in Jaffna District and a significant number of young men and

women got job opportunity in these organizations. There are two types of staffs employed in

insurance companies: sales and non sales staff. Sales staffs are paid commission on the basis of

their own sales figures. Some of the companies pay a portion of commission as basic salary, and

the balance are paid in the form of commission. Since the major element of compensation is

given in monetary terms, a few companies give non monetary rewards as well. Employees are

highly depressed due to the commission system and job insecurity. They can be terminated from

the service for their poor performance. Carrot and stick approach is generally practiced by the

companies. The field survey revealed that the labour turn over in the industry might be 10%.

This is a common problem among all private sector insurance companies. But after selling a

certain amount of policies sales staff do not like to leave from the organization due to the loss of

earnings of commission from previously sold policies. In this situation, the extent to which

employees are willingly serve for the organization is questionable. On the other hand one of the

previous researchers found that the performance based reward system increased job satisfaction

and reward system is seemed to a strong predictor of all facet job satisfaction in Sri Lankan

Insurance industry. The following question addresses the problem of the study.

Does job satisfaction mediate the relationship between monetary rewards and employees‟ loyalty

among Insurance sales staff?

4. OBJECTIVES AND HYPOTHSES OF THE STUDY

The following objectives set out for this research.

1 To examine the mediating effect of job satisfaction on the relationship between

monetary rewards and loyalty

2 To identify the relationship between rewards and loyalty



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4.1 CONCEPTUAL MODEL

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4.2 HYPOTHESES

H1- There is a positive relationship between monetary rewards and loyalty

H2- Job Satisfaction works as mediator in the relationship between Monetary Rewards and

Loyalty

5. METHODOLOGY

The total population of the sales staff in the insurance industry is approximately 1820 in Jaffna

district. Convenient random sampling technique was used to select sample employees. Eighty

seven sales staffs from four major private insurance companies have been selected for the

purpose of the study. With the support of SPSS16.0 Version all analysis has been done.

5.1 RESEARCH DESIGN

The study used a self-administered questionnaire as its instrument and has two parts. Part I

measured demographic variables of the sample employees. Part III has the five scale questions

ranging from highly satisfied to highly dissatisfied to measure rewards, loyalty and the job

Satisfaction. Prior to the analyses, all variables were examined for accuracy of data entry and

missing values. Missing cases were excluded from the data while carrying out analyses. At the

same time direct interview method also used to get some insights of the employees and the

managers.

5.2 VALIDITY AND RELIABILITY

There are three concepts considered to carry out the study, they are monetary rewards, loyalty

and Job satisfaction. The perception of adequacy and the level of its satisfaction about monetary

rewards, loyalty job satisfaction operationalized using the self administrated questionnaire and

also validity and the reliability of the questionnaire were tested.

Job satisfaction was operationalized by the Minnesota Satisfaction Questionnaire. This is a 20-

item questionnaire rated on a 5-point Likert type scale with anchors 1 = “Very Dissatisfied” and

5 = “Very Satisfied”. The internal consistency reliability of the job satisfaction scale was found

to be .82. (Ünuvar,2006).

Loyalty

Monetary

Rewards

Job Satisfaction



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As far as monetary rewards and loyalty are concerned, the questionnaire consist of 12 items in

each variables with 5 point Likert scale questions. The test-retest reliability is also found to be

significant and varied from 0.71 to 0.762 (Monetary rewards),0.79 to 0.823 (loyalty)

TABLE 1 RELIABILITY OF VARIABLES

Factor Cronbach's Alpha

Monetary Rewards 0.762

Loyalty 0.823

Job Satisfaction 0.82

6. RESULTS AND DISCUSSION OF FINDINGS

6.1 DESCRIPTIVE STATISTICS

Participants‟ mean tenure within the organisation was approximately 44 months and the standard

deviation 27.1136. Minimum and maximum level of experience with the particular organization

is 12 months and 96 months respectively. The average remuneration earned by the sample sales

staff was Rs 38,303.57 and the standard deviation was 17,888.46, this salary level is fairly high

enough among other industries with the same qualification. Minimum and maximum level of

salary seems Rs 15000/- and Rs 120,000/- the salary level is higher in comparing with non sales

staff. The level of qualifications amongst the sample was quite impressive with approximately

14.3% of the sample have professional qualification , 67.9% reported to G.C.E(O/L) and

G.C.E(A/L); 5.4% of sample completed Bachelor degree and 12.5% of sample are working with

master degree. All these employees are employed in the sales division but in different grades.

TABLE 2 CORRELATION BETWEEN THE VARIABLES

Variables r r2 Significance

Monetary Rewards &Loyalty 0.225 0.051* 0.037

Monetary Rewards & Job Satisfaction 0.463 0.214** 0.000

**Correlation is significant at the 0.01 level (2‐tailed).

*Correlation is significant at the 0.05 level (2‐tailed).

According to the above table relationship between monetary rewards and loyalty is low positive

at 5% significant level. Therefore there is a significance relationship between monetary rewards

and loyalty(the value of significance is less than 0.05) Therefore the H1 was accepted. According

to r2 value 5%of variation in loyalty is explained by monetary rewards. i.e 96% of variation is



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explained by factors other than monetary rewards. At the same time relationship between

monetary rewards and Job satisfaction is moderate positive at 0.01 level.21.4% of variation in

job satisfaction is explained by the changes of monetary rewards. So there is evidence to say that

the monetary rewards have significant effect on job satisfaction.

6.2 THE MEDIATOR

Baron and Kenny(1986) suggested some conditions to test the influence of mediator.

CONDITION 1

Regressing mediator on predictor variable and the predictor variable must affect the mediator.

CONDITION 2

Regressing criterion variable on predictor variable and predictor variable must be shown to affect

criterion variable.

CONDITION 3

Regressing criterion variable on predictor variable and on mediator variable. Separate

coefficients for each equation should be estimated and tested. In the third equation the mediator

must affect criterion variable. After meeting all these condition the effect of predictor variable

must be less in third equation than the second one.

TABLE 3 REGRESSION ANALYSIS FOR EXAMINING THE MEDIATING OF

EFFECT OF JOB SATISFACTION

Variable Predictor Beta t Adj r2 F

Equation 1 Job Satisfaction Mon. Rewards .463 4.783** .205 22.878

Equation 2 Loyalty Mon. Rewards .225 2.115* .039 4.475

Equation 3 Loyalty Mon. Rewards .144 1.734 .539 50.762

Job

Satisfaction

.797 9.762**

**p < .01, *p <.05

In the above analysis the mediator (Job Satisfaction)was regressed on predictor( Monetary

rewards, the results was found as significant. In the second equation, the criterion variable

regressed on predictor, the value is seemed as significant. In the third equation, loyalty regressed

on predictor and mediator. The relationship between loyalty and monetary rewards was not

significant i.e it was lower than the second one. But the relationship between loyalty and job

satisfaction was significant. As suggested by Baron and Kenny, all the conditions were met. A



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fully mediating effect of job satisfaction established in between predictor and the criterion

variables. Therefore H2 was accepted.

7. FINDINGS

1 Even though monetary rewards are given all the companies, the level of loyalty among

the employees is at very lower level among the employees who have lower level

experience with the companies and are seeking opportunity to join other companies. The

main reason for the situation is job insecurity.

2 People who have high length of service in a particular insurance company revealed their

desire to work for the particular company not because of the loyalty because of the

commission earned from the sold insurance policies. If they leave from the organization

they will lose the earnings.

3 Some companies called the compensation as commission; people who are working for the

particular organization said it reduces their dignity among the society.

4 The majority of the sales staff who are in the middle and higher level reported that the

level of income earned from the employment is good enough to satisfy their entire needs

and helps their self esteem and sense of worth.

5 Monetary policy of the country has impact on the selling of life insurance policies,

especially interest rate.

6 The sales staff said customer who are in the middle and lower income level have negative

attitude towards insurance policies, the products were not designed to match them.

8. CONCLUSION

The study mainly aimed to investigate the mediating effect of job satisfaction on the relationship

of monetary rewards and employees‟ loyalty and it was confirmed. At the same time level of

loyalty among sales staff seemed to low and the relationship between monetary rewards and

loyalty was also low. This situation created the main aim of compensation was questionable.

Therefore the study suggests the related authorities to consider the strategies to strengthen

employees‟ loyalty as a way to ensure to increase market share and the performance.

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TESTING MEDIATING EFFECT OF JOB SATISFACTION ON THE RELATIONSHIP BETWEEN REWARDS AND EMPLOYEES' LOYALTY

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