The Effect of Salary and Reward on Performance through Productivity

Abstract

This study investigates the effect of salary and reward on employee performance with productivity as a mediating variable to understand how compensation practices translate into performance improvements. The purpose is to clarify both the direct and indirect mechanisms through which salary and reward influence organizational outcomes. Employing a quantitative research design, data were collected using structured questionnaires from employees and analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) in SmartPLS to test the hypothesized relationships among constructs. The results indicate that salary and reward have significant positive effects on both productivity and performance, and productivity significantly mediates the relationships between compensation variables (salary and reward) and performance, supporting the mediation model. However, the direct effect of productivity on performance was not supported in this context, suggesting that additional factors may influence performance beyond productivity alone. In conclusion, while salary and reward are important drivers of work outcomes, their impact on performance is enhanced when productivity is considered as an intermediary process. The study is limited by its cross-sectional design, which constrains causal interpretations and generalizability across contexts. Nevertheless, the findings contribute to human resource management literature by highlighting the role of productivity in linking compensation and performance, offering practical insights for organizations aiming to optimize compensation strategies to improve employee outcomes.

Keywords

Performance Productivity PLS-SEM Reward Salary