Analyzing the Impact of Compensation Equity on Employee Turnover Intention and the Mediating Effect of Job Satisfaction in the Restaurant Industry in Islamabad

Abstract

The restaurant industry worldwide grapples with persistent high turnover rates, with emerging economies, notably Pakistan, facing pronounced challenges in this regard. While restaurants contribute significantly to economic expansion and job development, the sector contends with operational risks, particularly employee turnover, rendering it high-risk for investors. In Islamabad, the vibrant restaurant industry, integral to the city's cultural and economic vitality, confronts the pressing issue of retaining skilled and motivated workers, as evidenced by prevalent high turnover rates. This research delves into the crucial examination of how compensation equity impacts employee turnover intentions within the restaurant sector, with a particular focus on the mediating role of job satisfaction. Utilizing self-administered questionnaires distributed among 300 employees in restaurant industry in Islamabad through stratified random sampling, the study employed SPSS and smart-PLS for data analysis. The findings robustly supported all hypotheses (H1–H3), establishing a significant correlation between compensation equity and turnover intentions. Notably, the study affirmed the mediating influence of job satisfaction in the relationship between compensation equity and these critical outcomes. The practical implications of this research extend to policymakers and organizational managers, offering valuable insights into the dynamics of employee turnover intentions, particularly as influenced by enhanced compensation equity strategies. By illuminating the complex relationship between wage fairness and employee turnover intentions in the restaurant industry, this study closes a significant research gap and adds to the body of knowledge. Keywords: Employee turnover intention, job satisfaction, compensation equity, TRA, and the Pakistani restaurant industry. The study builds on the theory of reasoned action, expanding its application to investigate how compensation equity, in conjunction with job satisfaction, shapes employees' behavioral intentions in the restaurant industry. As a result, the study's conclusions provide insight into the complex function that pay equity plays in raising job satisfaction and decreasing the likelihood of employee turnover in the particular setting of Islamabad's restaurant sector.