The Mediating Role of Perceived Equity in the Relationship Between Compensation and Employee’s Retention in the Palestinian Banking Sector رسالة ماجستير

Abstract

This study aimed to investigate the influence of compensations on employees' retention, particularly, the mediating role of perceived equity among employees within the banking sector of Palestine. The study took place between July 2025 and January 2026, concentrating on the banking institutions present in the West Bank, Palestine. The study addresses the empirical problem of sustaining a skilled workforce in the banking sector during times of economic instability and growing competition, advocating the need for fair and competitive compensation systems. A quantitative approach was adopted in the study, and data was collected using a structured questionnaire. The target population included 6,879 employees of the banks in Palestine in the West Bank. Aiming for a variety of banks and job levels, a stratified sampling method was designed, but in the end, the sample was formed from employees who were available and had the willingness to take part. A total of 297 valid questionnaires were collected and analyzed. The survey encompassed questions pertaining to demographic variables, dimensions of compensation (salary, bonus, and training), dimensions of perceived equity (distributive, procedural, and interactional equity), and employee retention. Descriptive statistics were analyzed using SPSS, while the measurement and structural models and the mediation effect were analyzed using SmartPLS (PLS-SEM). The findings show that overall compensation, perceived equity, and employee retention were at moderate levels. It was found that compensation has a positive impact on employee retention and a highly positive impact on perceived equity. Moreover, perceived equity significantly and positively contributes to employee retention. Furthermore, the mediation analysis showed that perceived equity partially mediated compensation and employee retention which means that compensation impacts retention directly and also indirectly through employee perception of equity. In light of the findings, the study recommends Palestinian banks enhancing their compensation system by improving transparency, consistency, and fairness with regard to salaries, bonuses, and training. Improving the distributive, procedural, and interactional equity will help to improve employee retention and, in the long run, help bolster stability within the organization. Nonetheless, there are a number of limitations that warrant caution when evaluating the findings. These include a cross-sectional study design, that limits causal inference, the limited scope of generalizability to the banking industry in West Bank Palestine, and sensitivity to compensation issues and possible response bias. Also, the time, political and economic conditions that existed when the data were collected may have influenced the perceptions of the respondents