Impact of Compensation and Work Environment on Job Satisfaction and Employee Retention

Abstract

The purpose of this paper is to determine the effects of Compensation Satisfaction and Work Environment on Employee Retention in private organizations in Karachi, Pakistan, with the mediating role of Job Satisfaction. A quantitative research design has been used involving a cross-sectional survey. Data was collected from employees working in private organizations in Karachi through a structured Likert scale questionnaire. The proposed model has been analyzed through PLS-SEM (SmartPLS 4), N = 400, which allows for the simultaneous estimation of both measurement and structural models, including mediation test via bootstrapping. Results found that Compensation Satisfaction had a positive significant effect on Job Satisfaction; Work Environment had a positive significant effect on Job Satisfaction; Job satisfaction significantly explained Employee Retention, while Work environment also showed a significant direct effect on Retention. The direct effect of compensation satisfaction and retention is not significant, hence compensation works mainly through attitudes as opposed to directly retaining workers. Mediation analysis shows a highly significant path of compensation satisfaction to job retention through job satisfaction. There is no evidence found at a 5% level of significance that the work environment has an indirect effect on retention through job satisfaction. The data and study are cross-sectional and self-reported, hence cautious causal claims with potential common-method bias should be applied. The generalizability of results outside Karachi’s private sector may also be limited. Managers should retain employees by making them satisfied with their jobs through transparent/fair compensation practices and making them happy with the working environment—in terms of supportive supervision, reasonable workload, resource adequacy—since the working environment retains directly as well as indirectly via satisfaction channels. This is a Pakistan-context private-sector model testing both compensation satisfaction and work environment as antecedents to employee retention, with explicit mediation by job satisfaction.