Exploring the Impact of Compensation and Benefits on Employee Retention: A Comprehensive Analysis

Abstract

Employees are very important to the success of any organisation. They are the fulcrum that holds the organisation together and they have also been described as the major assets of the organisation. Thus, the main aim of this study is to investigate the relationship between compensation and benefits and employee retention among Small Medium Enterprises (SMEs) in Malaysia. Drawing upon the Social Exchange Theory (SET), this empirical study developed a conceptual framework tested using quantitative method. The study focuses on small and medium enterprises in Malaysia. The unit of analysis is at the level of individual employee who works with these SMEs. This study independent variable is compensation and benefits while the dependent variable is employee retention. The total number of questionnaires distributed were 755. Usable questionnaires were 481 representing 62% response rate. During the process of data screening, it was found that 35 of the obtained questionnaires cannot be used due to ineligible handwriting and other issues. This study utilises confirmatory factor analysis (CFA) and structural equation modeling (PLS-SEM) using both SPSS and SmartPLS software. The findings show that compensation and benefits significantly and positively influenced employee retention. This study contributes significantly to the body of literature in the areas of employee retention and engagement. Theoretically, the study further expands the SET and Job demands-resources (JD-R) theories by building a framework that empirically tested the relationship between compensation and benefits and employee retention.