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AFFECT OF COMPENSATION SYSTEM ON PSYCHOLOGICAL CONTRACT AND ITS IMPACT ON ORGANIZATIONAL COMMITMENT AND PERFORMANCE OF NURSES WHO WORK AT PRIVATE HOSPITAL IN PADANG.

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AFFECT OF COMPENSATION SYSTEM ON PSYCHOLOGICAL CONTRACT AND ITS IMPACT ON ORGANIZATIONAL

COMMITMENT AND PERFORMANCE OF NURSES WHO WORK AT

PRIVATE HOSPITAL IN PADANG

THESIS

Undergraduate Thesis Proposal

Thesis is submitted as a partial fulfillment of the requirement for an Undergraduate Degree in Management Department – Faculty of Economics

BY:

UTARI FRINELVA 0810 524 026

INTERNATIONAL MANAGEMENT DEPARTMENT ECONOMICS FACULTY

ANDALAS UNIVERSITY PADANG

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Alumni no. at University:

8989 Utari Frinelva

Alumni no. at Faculty:

a) Birth’ Place/Date: Taluk/ June 21,

1990

b)Parent’ Name: Eri Afrizal

c) Faculty: Economic

d)Major: Management International

e) ID Number: 0810524026

f) Graduation Date: 05 July 2012

g)Grade: Very Satisfactionary

h)GPA: 3.01

i) Length of Study: 3 years 11 months

j) Parents’ Address: Taluk, Lintau Buo

AFFECT OF COMPENSATION SYSTEM ON PSYCHOLOGICAL CONTRACT AND ITS IMPACT ON ORGANIZATIONAL COMMITMENT AND PERFORMANCE OF

NURSES WHO WORK AT PRIVATE HOSPITAL IN PADANG

Bachelor Thesis by: Utari Frinelva Supervisor: Dr. Harif Amali Rivai, SE, Msi

Abstract

This research investigates the effects of compensation system on psychological contract and its impact on organizational commitment and employee performance. The researcher determines psychological contract as mediating variables. The total of 147 nurse who work at Private Hospital in Padang participated on this research. The findings indicate that compensation system has a direct and positive relationship with psychological contract, compensation system has a direct and positive relationship with organizational commitment, psychological contract has a direct and positive relationship with organizational commitment and organizational commitment has a positive relationship with employee performance. The results indicated that there is a not mediating role of psychological contract in the relationship with compensation system and organizational commitment.

Key words: Compensation System, Psychological Contract, Organizational Commitment and Employee Performance

This bachelor thesis has already examined and passed on July 05, 2012. The abstract of research has been approved by supervisor and examiners:

Signature 1 2 3

Name Dr.Vera Pujani,SE.M.tech Fajri Adrianto, SE.M.Bus Dr. Harif Amali Rivai, SE, MSi

Approved by,

Head of Management

Department

Alumnus had registered to Faculty / University and get the alumnus number:

Staff of Faculty/University

Alumni No. at Faculty: Name : Signature :

Alumni No. at University: Name : Signature:

____________ Signature Dr. Harif Amali Rivai, SE,MSi

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Alumni no. at University: Nurhidayati Pritama Alumni no. at Faculty:

k) Birth’ Place/Date: Padang Panjang/

October 11, 1990

l) Parent’ Name: Drs. Izhar Syafawi

m)Faculty: Economic

n) Major: Management International

o) ID Number: 0810524048

p)Graduation Date: 10 Januari 2012

q)Grade: Outstanding (Dengan Pujian)

r) GPA: 3.54

s)Length of Study: 3 years 6 months

t) Parents’ Address: Padang Panjang

THE EFFECT OF COMPENSATION SYSTEM ON EMPLOYEE’S MOTIVATION AND JOB SATISFACTION : CASE IN NON ACADEMIC STAFF AT ANDALAS UNIVERSITY

Bachelor Thesis by: Nurhidayati Pritama Supervisor: Dr. Harif Amali Rivai, SE, Msi

Abstract

This research examined the analysis effect of compensation system and identified to what extent the effective compensation system can affect the employee’s motivation and job satisfaction for non academic staff at Andalas University. The data obtained through questionnaire. The study found that Andalas University has implemented its effective compensation system

in line with the theory, except job satisfaction as results from effective compensation system. It means that non-academic

staff strongly believed that compensation system can affect their motivation to work, and motivation can increase job

bsatisfaction. Meanwhile, there is no direct and positive relationship between effective compensation system and employee’s job satisfaction. Therefore Andalas University should enhance the effective compensation system in order to improve employee’s job satisfaction.

This bachelor thesis has already examined and passed on January 10, 2012. The abstract of research has been approved by supervisor and examiners:

Signature 1 2 3

Name Dr. Harif Amali Rivai, SE, MSi Fajri Adrianto, SE.M.Bus Asmi Abbas, SE. MM

Approved by,

Head of Management

Department

Alumnus had registered to Faculty / University and get the alumnus number:

Staff of Faculty/University

Alumni No. at Faculty: Name : Signature :

Alumni No. at University: Name : Signature:

Dr. Harif Amali Rivai, SE,MSi Nip. 197110221997011001

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1 CHAPTER 1

INTRODUCTION

1.1 Background of the research

Nursing staffs in most medical institutions or private organizations in all

corners of the world are probably the most undervalued staff members despite the

fact that these are the people who take care of our loved ones around the clock

when they are hospitalized. Many of the nurses even take on the responsibilities of

the medical supervisors or the doctors in command, and this makes them a very

important part of the medical system (International Council for Nurses, 2007;

Koonar, 2008). Koonar (2008) further says that in the medical profession, nursing

staffs are the one who have variety of jobs to perform and need to juggle with

many jobs at many places in the hospital or in medical centers and still are under

paid and undervalued.

Compensation becomes one of the most important considerations in

Human Resources Management practices. It is not only about reward that give to

the employees, but also includes of how it is allocated and sent a message to the

employees about what the organizations believe to be important and worth

encouraging (Ghazanfar et al, 2011).

By giving the compensation to the employees, organization then expects

employees to follow regulations and rules, work according to the standard set for

them. Besides the expectation to have fair pay, they also expect a good working

condition, fair treatment, secure career, power and involvement in decision. These

expectations could be different. Understanding of employee’s motivation is

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2010 ). Meanwhile, an organization need to spend more on compensation to make

sure that their employees are motivated enough to give their best performance

(Belcher and Atchison, 1987; cited from Ghazanfar, 2011).

Generally, organizational commitment defined as a person attachment to

the organization where he works. Organizational commitment is needed by

organizations that are competent resource within the organization can be

preserved and maintained. According (McNeese-Smith,1996;cited from Nur

Cahyani 2007) showed that significant organizational commitment relate

positivelly employee performance.

Commitment is a concept of management that puts of human resource as a

central figure in the company. Without the commitment of the organization is

difficult to expect active participation and deph of human resources. Commitment

is not something that can be present for granted, but must be born. Commitment

must be maintained in order to continue to grow and exist in the heart of human

resources, through appropriate and techniques.

Organizational commitment is loyalty to the organization and mobilization

of all employees in the development of its goals, purposes, and infrastructure

(Kim et al.,2005;cited from Anvari 2011). There are three kinds of organizational

commitment consist of affective commitment, normative commitment and

continuance commitment (Aube, Rousseau and Morin,2007;cited from Anvari

2011). Affective commitment describes the emotional attachment and

involvement of an individual with an organization, continuance means perceived

cost of leaving organization and normative is perceived cost to remain in the

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Organizational commitment refers to the relative strength of an

individual’s identification and involvement in a particular organization (Steers,

1977). In this research consider two organizational commitment components that

have received substantial research attention affective and continuance

commitment (Glazer et al,2004;cited from Anvari 2011). Affective commitment is

the emotional attachment and identification with one’s organization (Allen and

Meyer, 1990). Continuance commitment refers to commitment based on the

employee’s attitude towards leaving the organization. In general, an employee

with high continuance commitment is less likely to leave the organization because

of costs involved with such a move.

Affective commitment shows the level of employee attachment with the

organization including beliefs, willingness and desire regarding organizational

goal achievements. Affective commitment of employees toward the organization

has three different shapes consist of: 1).identification, 2).formation and

3).maintaining. In affective commitment, emotions for the organization form at

the beginning stage and then made identification of emotions with the

organizational goals and objectives, finally try best to maintain these emotions

toward the organization.

Psychological contracts have been shown to be highly significant within

this employment context because they help the employee frame the relationship

and this serves to guide their behaviour. It should be noted that they are

distinguishable from the normative contract (Rousseau 1995) because they reside

in the mind of the individual, and can therefore act as double-edged swords

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between parties (Rousseau and Parks 1993). By showing the positive and negative

implications of psychological contracts this rapidly growing body of knowledge

has been an important aspect in helping managers to understand the employment

relationship.

Psychological contract represents the mutual beliefs, perceptions, and

informal obligations between an employer and an employee. It sets the dynamics

for the relationship and defines the detailed practicality of the work to be done. It

is distinguishable from the formal written contract of employment which, for the

most part, only identifies mutual duties and responsibilities in a generalized form

(Robinson 1994).

Increasing job performance is among the most theoretically and practically

important problems in organizational research (Staw,1984). Employee

performance is an important building block of an organization and factors which

lay the foundation for high performance must be analyzed by the organizations.

Performance is a major multidimensional construct aimed to achieve results and

has a strong link to strategic goals of an organization (Mwita, 2000;cited from

lubis 2008).

Every organization need an compensation system in order to enhance

organizational commitment, psychological contract and employee performance.

The same thing will be happened in the context of health industry (e.g Hospitals).

The currect research is purposed to the test the theoritical model which explains

relationships among compensation system and psychological contract,

compensation system and organizational commitment, psychological contract and

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performance. Object of this study is a nurses who work at Private Hospital in

Padang. Analysis is conducted through analyzing the implementation of

compensation system by (Thierry, 1987; cited from Herpen et al., 2005) and then

research examines impacts of two factors (i.e.,compensation system,

psychological contract) on organizational commitment and employee performance

in the context of Private Hospital. The relationship between of each variable is

ilustrated in the figure 2.1. Private Hospital choosen is nurses who work Private

Hospital in Padang.

1.2 Problem Statements

Therefore the problem can be formulated as follows:

1. To what extent the compensation system affects the psychological contract

of nurses who work Private Hospital in Padang?

2. To what extent the compensation system affects the organizational

commitment of nurses who work at Private Hospital in Padang?

3. To what extent the psychological contract affects the organizational

commitment of nurses who work at Private Hospital in Padang?

4. To what extent the organizational commitment affects employee

performance of nurses who work at Private Hospital in Padang?

5. Does the mediating impact of psychological contract between

compensation system and organizational commitment of nurses who work

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1.3 Objectives of Research

Based on the problem statements above, the objectives of the research are:

1. To exam the effect of compensation system on psychological contract of

nurses who work at Private Hospital in Padang.

2. To exam the effect of compensation system on organizational commitment

of nurses who work at Private Hospital in Padang

3. To exam the effect of psychological contract on organizational

commitment of nurses who work at Private Hospital in Padang.

4. To exam the effect of organizational commitment on employee

performance of nurses who work at Private Hospital in Padang.

5. To exam mediating effect of psychological contract in the relationship

between compensation system and organizational commitment of nurses

who work at Private Hospital in Padang.

1.4 Contributions of research

The results of this research are expected to provide information relevant to

organizational commitment and employee performance in the context of Private

Hospital, to understand variables of an organizational commitment and employee

performance and to strengthen theories or concepts related to factors that

influencing organizational commitment, employee performance, compensation

system and psychological contract.

It is expected this research provide the data and information for the next

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7 1.5 Scope of research

This research is aimed the effect of compensation system on

psychological contract and its impact on organizational commitment and

employee performance of nurses who work at Private Hospital in Padang.

Variable to analyzing this research is limited to dimension of effective

compensation system explained by (Thierry ,1987; cited from Herpen et al.,2005).

1.6 Outline of Research

In order to make it easier and make moderate the forwarding of content,

this research is divided into five chapter, they are:

CHAPTER I : Introduction

That is containing about background of the study, problem

statement, and objective of research, scope of research and

contribution of research

CHAPTER II : Literature Review

Is the chapter that evaluates the containing bibliography about

basis for theory. Basis for theory tells us about definition of

compensation system, organizational commitment,

psychological contract and employee performance, previous

research, and correlation between compensation system,

organizational commitment, psychological contract and

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8 CHAPTER III : Research Method

Explaining about research method which discussing about

research design, population and sample, data collecting method,

operationalization of variables, data processing, data analysis

method and data analysis.

CHAPTER IV : Results and Discussion

Explaining about surveys result that consists of respondent

characteristic, frequency of distribution each variable, validity

test, reliability test, normality test, fit model, hypothesis testing,

and discussion about analysis effect compensation system and

organizational commitment on psychological contract and its

impact of nurses performance who work at Private Hospital in

Padang.

CHAPTER V : Conclusion, Limitations, and Recommendations.

On this chapter will explain about conclusion of research,

suggestions of research, limitation of the research, implication

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