Compensation is very important for the performance of the employees. Therefore they are very important for the organization too. This study aimed to examine the effect of compensation on employee performance in Mizan Tepi University Teaching Hospital. The study was conducted from November 2018 to June 2019 and included all employees of the hospital. A questionnaire was designed to collect the data on the elements related to compensation like basic salary, bonus, house rent allowance, overtime policy, leave policy and employee performance. The study was used explanatory research design and both primary and secondary data was used to conduct this study. Stratified random sampling technique was used to infer the target population of the study. The data was collected from the employees of Mizan Tepi university teaching hospital. The collected data was analyzed by SPSS 20 Version. Descriptive and explanatory statistics was used to analyze the data and a sample of 213 employees was used to collect the data. However, only 200 employees responded to the questionnaires and hence, the response rate was 94 percent. Besides, descriptive statistical tools like frequency, percentage, mean and standard deviation are used to illustrate the demographic characteristics of the respondents and to assess the perception of employees from data collected through questionnaire and the study revealed that majority of the respondents feel disagreed on compensation elements of the organization. Inferential statistical methods like correlation analysis was used to assess the relationship between compensation elements and employee performance, multiple linear regression analysis also was employed to examine the influence of compensation elements on employee performance by using primary data collected through five scale likert questionnaire. Based on the findings of the study, all factors of employee performance have a positive and statistically significant correlation with employee performance. The multiple linear regression analysis (R2) implies that about 54.4% shows that compensation elements determine the variation of employee performance of Mizan Tepi university teaching hospital. Also the regression result revealed that all explanatory variables except bonus have a significant effect on employee performance. This indicated that compensation elements determine employee performance of Mizan Tepi university teaching hospital. Therefore, Mizan Tepi university teaching hospital should implement compensation elements appropriately and continuously as an indispensable tool to improve and maintain sustainable employee performance.
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