Improving Employee Performance Using the Effect of Compensation and Motivation Moderated by Transformational Leadership

Solikhun Solikhun, Juni Gultom

Abstract


This study aims to examine the influence of compensation and motivation on employee performance, as well as the role of transformational leadership as a moderating variable in those relationships. Specifically, the objectives of this research are: (1) to determine the effect of compensation on employee performance, (2) to determine the effect of motivation on employee performance, (3) to determine whether transformational leadership moderates the relationship between compensation and performance, and (4) to determine whether transformational leadership moderates the relationship between motivation and performance. This explanatory research involved a population of 124 employees at entry, mid, and senior levels in a national private company engaged in palm oil plantation and CPO processing. The sampling technique used was saturation sampling, in which the entire population was included as respondents. Data were collected using a Likert scale from 1 to 7, and analyzed using the Structural Equation Modeling (SEM) approach based on Partial Least Squares (PLS).  The results show that both compensation and motivation have a positive and significant effect on employee performance. Fair and equitable compensation enhances work enthusiasm and productivity, while high motivation drives optimal performance. Transformational leadership does not strengthen the effect of compensation on performance, as compensation is a direct factor not heavily influenced by leadership style. However, transformational leadership significantly strengthens the effect of motivation on performance through inspiration, role modeling, and the support provided by leaders.


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