CHAPTER II

REVIEW OF RELATED LITERATURE

2.1

Leadership
Many researchers and experts in the field of leadership have told that the

leaders or managers in today's organizations need to be able to inspire and

encourage their employee to achieve revolutionary change (Yang, 2012).

Rozalina (2011) made a study about the influence of leadership style and
conflict management to the employee performance in PT. Sinar Sosro regional sales
office at East Java. The purpose of the study is to determine and analyze the
influence of leadership style and conflict management to employee performance at
regional sales office of PT. Sinar Sosro at East Java. This research follows
Rozalinas (2011) recommendation to add job satisfaction variable.
The prior study done by Rozalinas (2011) resulted that leadership style and
conflict management simultaneously affect employee performance. The partial (ttest) showed that both variables do not independently affect. The researcher
concluded that transformational leadership style dimension of stimulus intellectual
gives a greater effect to employee performance, which means the leader support
employees to interact one another to pursue the organizations goals. The researcher
suggested that the next study might add more variables related to human resource
such work environment, salary and compensation, facility, motivation, participation
and variables related to organizational culture and job satisfaction.
Basically, leadership style can be categorized into three major styles
transactional, laissez faire and transformational leaderships (Omar et. al., 2013).
Transactional leaders believe that people are easily motivated by rewards and
punishments. In return there are series of transaction being communicated
between the leaders and their followers to describe how tasks must be done and
explain them the rewards for the job well executed as well as the punishment for
the failure. Transactional leaders are also more interested in seeking their interests

and share the benefits with their followers. A passive kind of leadership style is
laissez-faire leadership. Interaction or relationship between the leader and the
followers is very limited. Laissez-faire leadership represents a non-transactional
kind of leadership style in which important decisions are not made, actions are
postponed, leadership responsibilities ignored, and authority is not used.
Transformational leaders, in contrast focus on personal motivation and
development of their followers. They provide a vision and understanding of
organizational mission; inspire pride, respect and trust among their followers. Burns
(1978) as stated in Srithongrung (2011) explained that transformational leaders
achieve followers cooperation by inspiring them to comprehend with a purpose to
reach beyond their own desire and interest, while transactional leaders get
cooperation from followers by practicing exchanges with them and then monitoring
the exchange relationship. Transformational leadership style enhance employees
interest to satisfied their higher needs, such as self-esteem and actualization, while
transactional leadership style enhance on employees interest in satisfying their
lower-level needs, which are physical and safety needs (Lowe et. al., 1996).

2.2

Transformational Leadership
According to Belonio (2012), transformational leadership is a leadership

style that motivates and encourages the followers by supporting to higher ideals and
moral values which can inspire them to deliver, operate and behave beyond
expectations, and also transform both individuals and organizations. Northouse
(2010) defined transformational leadership as a process that changes people by
affecting emotions, values, ethics, standards, and long-term goals. This
transformation process involves assessing followers' motives, satisfying their
needs, and treating them as human beings. It also involves an unusual form of
influence on the leader's part that moves followers to accomplish more than what is
usually expected from them. Transformational leadership theorists suggest that
leaders must go further than just initiation and consideration of the structure. A
leader, through the four transformational leadership components of idealized
influence, inspirational motivation, intellectual stimulation, and individual

10

consideration, can often transform subordinate motivation and improve unit

performance beyond initial expectations (Yang, 2012).

Atmojo (2012) stated that transformational leadership through its four

components is a change-oriented-leadership where organization vision is not only
formulated but also implemented. The following is an explanation of four
transformational leadership components:
1. Idealized influence
Leader through his/her personal independence extremely influence his/her
subordinate.
2. Inspirational motivation
The ability of leader to emotionally inspire, motivate, encourage and
applause his/her subordinate.
3. Individualized consideration
The ability and responsibility of leaders to present satisfaction and boost
subordinate's productivity. The leader tends to be friendly, informal, close
to the subordinates, treat them equally, give advices, help and support for
individual development.
4.

Intellectual stimulation
The ability of leaders to stimulate the subordinates intellectually through
motivation.

2.3

Job Satisfaction
Job satisfaction has been one of the mostly researched work related result in

the subject of both management and organizational behavior. As defined by

Robbins (2002) job satisfaction is a general attitude toward ones job. It is a positive
feeling about one's job resulting from an evaluation of its characteristics. In
empirical studies, researchers have often measured job satisfaction with two distinct
aspect: intrinsic, which is the level of satisfaction with characteristics associated
with the job itself and extrinsic, that is, level of satisfaction with various aspects
associated with the environment where the work is performed (Bogler, 2001).

11

Laurens (2012) made a research about the effect of job characteristics,

perceived organizational support, employee engagement toward job satisfaction at
EF English First Surabaya. The researcher observed that the problem for a company
nowadays is how to manage its employees to keep working in the company, mind
about the goals of the company, and fully engaging to it. Laurens (2011) explained
that EF English First education is the largest private education company in the
world with ten subsidiaries and non-profit organization wholly engaged in learning,
educational travel and academic degree programs. The researcher saw that as a
company that engaged in course learning, EF has different job characteristics in the
working hours than other companies. The study looked over some previous
researches that have shown that job characteristics and perceived organizational
support have significantly affect employee engagement. Furthermore, employee
engagement significantly affects job satisfaction. The study of Laurens (2012) gives
a comprehend view about job satisfaction, the definition and the recommendation
on how job satisfaction should be improved. In this study, job satisfaction is put as
the intervening variable from transformational leadership to employee
performance.

Results of the prior study done by Laurens (2012) showed that job
characteristics have significant effects toward employee engagement. Perceived
Organizational Support (POS) has a significant effect on Employee Engagement.
Employee Engagement has a significant effect on job satisfaction. Job
characteristics and Perceived Organizational Support (POS) simultaneously and
significantly affect employee engagement. Laurens (2011) suggested through these
findings that EF should pay more attention to these variables to gain the engagement
and the satisfaction of the employees. EF may also autonomy to its employees,
retreat or meeting for staff and teachers, and training and encouragement to the
employees to learn and grow professionally.

The concept of job satisfaction has been defined in many different ways.
From the psychological perspective of its relationship with leadership style, the
understanding of job satisfaction includes multi-dimensional attitudes to ones job,

12

and that attitudes have cognitive (evaluative), affective (or emotional), and
behavioral components (Judge & Klinger, 2003 as cited in Omar, 2013). This
concept of job satisfaction suggests that the employees form attitudes towards their
jobs by taking into account their feelings, their beliefs, and their behaviors. Robbins
(2002) proposed the idea of personality suitability towards the job which argued
that the satisfaction of someone or the possibility for he/she to leave his/her job is
depend on the level of personality suitability with the job environment. From
organizational management perspective, job satisfaction research has practical
applications for the enhancement of individual lives as well as organizational
effectiveness. The success of any organization is very much depended on the
commitment and hard work on the part of their employees. Because of that, job
satisfaction has been used as a tool to attract and retain the best employees within
the organization (Omar, 2013).

Robbins (2007) explained there are four

consequences of employee being satisfied or dissatisfied:

1. Exit: behavior directed toward leaving the organization, including looking
for a new position as well resigning.
2. Voice: actively and constructively attempting to improve conditions,
including suggesting improvements, discussing problems with superiors,
and some forms of union activity.
3. Loyalty: passively but optimistically waiting for conditions to improve,
including speaking up for the organization in the face of external criticism
and trusting the organization and its management to "do the right thing".
4. Neglect: passively allowing conditions to worsen, including chronic
absenteeism or lateness, reduced effort, and increased error rate.
Active

EXIT

VOICE

Destructive

Constructive
NEGLECT

LOYALTY

Passive
Figure 1
Responses to Job Dissatisfaction
Note: Robbins (2007)

13

Job satisfaction is subjective in nature, where each individual experiences

different level of job satisfaction. The more job aspects match individual's desire,
the higher job satisfaction, and vice versa. According to Luthans (2005) in Atmojo
(2012), there are three job satisfaction dimensions. First, job satisfaction is an
emotional response towards job situation. Hence, job satisfaction can be visualized
and predicted. Second, job satisfaction is often determined by how well outcomes
meet and exceed the expectations. Third, job satisfaction represents several related
attitudes. In the study conducted by Dorman and Zapf (2001), it is explained that
there are two factors that influence job satisfaction, personnel and organizational
factors. Personnel factor involves personality aspects, status, seniority, job match
dan life satisfaction. On the other hand, organizational factor involves reward
system, centralized authority, acceptance of supervisor, social and job reward as
well as work environment (Atmojo, 2012).

Employees tend to like the job with challenging activity or target, the
activity that gives them chances to use their skills and abilities. Jobs with little
challenge create boredom, but too much challenge will bring frustration and the feel
of failure. Employees also want a reward or compensation system that is not
confusing and meets with their expectations. Employees put a big concern on their
work environment, how they can perform well and be comfortable. Many of the
workers want something from their job that is more than just money or prestige, for
most of employees, to work is also to fulfill their needs of social interaction. That
is why it is important for employee to have friendly and supportive coworkers
(Robbins, 2002). Atmojo (2012) stated the factors that contribute to employee
satisfaction include: activities, compensation, independence, reward, social status
and social services.

2.4

Organizational Commitment
Definitions of organizational commitment have been in vast array from

simple such as the psychological attachment of workers to their organizations (Chen

et. al., 2002) to a broader definition which Porter et. al. (1974) defined it as manifest
of a strong belief in and acceptance of the organizational goals and values, a

14

willingness to exert a considerable amount of efforts on behalf of the organization

and a desire to remain within the organization. Another definition of organizational
commitment is a psychological state that characterizes the employees
relationships with the organization, and has implications for the decision to
continue as a member of the organization" (Meyer & Allen, 1997 as cited in Yang,
2012). Robbins (2007) identified organizational commitment as "the state in which
an employee identifies with a particular organization and its goals, and wishes to
maintain membership in the organization". Wang (2007) took the view that
organizational commitment is the employees bond, goal conformance,
identification acceptance, and loyalty to the organization.

Commitment is viewed as attitude that show personal sacrifice made for the
purpose of the organization, do not depend mainly on aid or penalty and indicate a
personal captivation with the organization (Dhamikka et. al., 2012). O'Reilly and
Chatman (1986) gave idea of commitment's three dimensions, which are:
compliance (instrumental involvement of specific, extrinsic rewards), identification
(involvement based on a desire for affiliation) and internalization (involvement
predicted on conformance between individual and organizational values). Crewson
(1997) explained a much more covering conceptualization of organizational
commitment so as it is an individual's identification and involvement in certain
organization. His definition of organizational commitment conjoins three distinct
features. First, a strong axiom and compliance of the organizations goals and values.
The second, the desire to work hard for the organization. The last, the eagerness
and persistence of being a member of the organization. However, identified three
different dimensions of organizational commitment named as identification,
affiliation, and exchange commitment (Dhammika et. al., 2012). Organizational
commitment was further developed and measured as a global concept with three
distinct components. The first is value commitment. It is a strong belief in and
acceptance of the organizations goal and values. The second is effort commitment,
which is a willingness to exert considerable effort on behalf of the organization.
The third is retention commitment, means a definite desire to maintain
organizational membership (Yang, 2012).

15

Commitment can be formed at the very beginning when individual initially

joins as a member of organization, through well-developed socialization and
orientation program. Employee understanding on company details, vision and
mission through socialization and orientation program will hasten the unification of
employee as an individual within the organization. Commitment directs individual
to work according to the company expectation and individual expectation, which
encourages better work performance (Luthans, 2005 in Atmojo, 2012).
OReilly and Chatman (1986) found that there are three distinctive types of
organizational commitment outcome which then are studied by Balfour and
Wechsler (1996) and summarized as:
1. Internalization Commitment
This commitment refers to an individuals contribution in his or her
organization based on the individuals goals, values and beliefs that are
corresponding with organizations goals, values and beliefs. The
consistency in value results in employees great behavior and the desire to
remain in the organization because the employees feel that the organization
and them are the same.
2. Identification Commitment
Identification commitment refers to an individuals involvement in his or
her organization based on the individuals wants and desires to be accepted
as the team member of the organization. It results great participation in
teamwork and more roles to obtain peers acceptance.
3. Compliance Commitment
Compliance commitment is the commitment that refers to an individuals
performance in his or her organization based on extrinsic rewards. This
commitment is built by payment, job security, promotion and professional
growth opportunities. This commitment type results in employees wants to
remain in an organization.

16

Robbins (2007) identified three separate dimensions to organizational

commitment: affective commitment, continuance commitment and normative
commitment:
1. Affective commitment refers to the employees emotional attachment to,
identification with, and involvement in a particular organization. Employees
with a strong affective commitment continue employment with an
organization because they want to do so.
2. Continuance commitment refers to an awareness of the costs associated with
leaving an organization. Employees whose primary link to the organization
is based on continuance commitment remain because they need to do so.
3. Normative commitment reflects a feeling of obligation to continue
employment. Employees with a high level of normative commitment feel
that they ought to remain with the organization.

Margono (2011) studied about employees perceptions on organizational

support and affective commitment toward turnover intention in the case of Toko
Emas Harapan at Surabaya. The study explain that to achieve better performance,
organizations should be able to utilize its resources including maximizing the
human resource. One of the problems faced by organizations in relation with human
resource is high turnover rate. For the small and medium enterprises (SMEs) like
Toko Emas Harapan, the researcher realized high turnover rate has been
encountered within a year. To decrease the turnover rate, several studies agreed that
the organization should define turnover intention among its employees. The study
determined the antecedents of turnover intention such as Perceived Organizational
Support (POS) and affective commitment. It confirmed the mediating effect of
affective commitment in relation with POS and turnover intention. In the
relationship of this study, affective commitment is seen as one of three components
of organizational commitment. The study of Margono (2011) gives more
understanding about affective commitment.

17

The results of the study of Margono (2011) showed that POS positively
affected affective commitment. Affective commitment has a negative effect on
turnover intention. POS negatively affected on turnover intention. Affective
commitment is confirmed to be a mediating variable between POS and turnover
intention. The recommendation was to increase POS (informal training, firness,
care, values, and appreciation of good performance) so that it would achieve
affective commitment to lower the turnover intention of employees in Toko Emas
Harapan Surabaya. Statistical results of the study done by Margono (2011) proved
that the POS is significant and has positive effect on affective commitment.
Affective commitment was significantly and negatively influence on turnover
intention, the POS directly affect turnover intention. Affective commitment as an
intervening variable or proved to mediate the relationship between POS and
turnover intention.

2.5

Employee Performance
Employees need the appropriate working environment to perform better. A

proper working environment will inspire employees to put up the right attitudes or
behavior to their job. Employees who find their organizations image captivating
and/or positively evaluate their job performance in the organization are likely to
perform a high level of both internal job satisfaction and organizational
commitment (Yurchisin & Park, 2010).

Organizations irrespective of their type and nature are affected with

employee performance since it has a direct connection for organizational
performance and effectiveness. Scholars have specified performance as a
multidimensional construct (Shaw et. al, 2003). Katz and Kahn (1978) in
Dhammika et. al. (2012) showed a tree way of conceptualization of job
performance, which are joining and staying in the organization, dependably
fulfilling or exceeding standards of performance demanded by the organization and
innovative and spontaneously going beyond the recommended role. Another
characteristic between two types of performance was identified as job-specific task
performance and non-job-specific task performance. Performance can be also

18

categorized between task performance and contextual performance dimensions of

employee performance. Task performance is job behaviors that deliver a direct
relation to the organizational technical core while contextual performance supports
the broader organizational, social and psychological environment in which
technical core must function. Further, formal performance reflects completion of
assigned tasks, performing of assigned tasks and other formal performance aspects
of the job. Contextual performance measures the beyond technical performance
requirements to include results such as quality and quantity of products, and work
relationships and processes that are essential to individual and organizational
success (Motowidlo & Scotter, 1994; Jung et. al., 2009). Recent attention is paid to
another aspects of employee performance, literally known as helping behavior.

Employee performance is defined as results obtained from job functions or

activities performed as behavior and results (Armstrong & Baron, 2005).
Evaluation towards employee performance can be assessed by several parties
involved and by a representative evaluator. Robbins (2002) states that usually the
best work evaluation is to be done by employees direct supervisor. This is related
to the fact that direct supervisor is the person responsible for his/her subordinates
performance for comprehensive evaluation. Robbins (2002) also suggests that
recently not all direct supervisor can directly observe subordinates performance
because of newly implemented performance system, such as independent team
creation, distant work method which creates gap between the supervisor and the
subordinates. There are five methods of individual performance evaluation, they are
written essay, critical incidents, graphic rating scales, behaviorally anchored rating
scales and forced comparisons. Mathis and Jackson (2002) in Atmojo (2012), states
that, employee performance in the context of productivity depends on three major
factors: first, innate ability to accomplish task which consist of talent, interest,
personality factor, and psychological factor. Second, employee effort level which
includes motivation, work ethics, work attendance and work planning. Third,
support provided to the work force such as training, tools, known expectation and
productive work colleagues. Robbins (2002) explained that there are two
measurements in evaluating employee performance. The first is individual

19

outcomes. By using work outputs, planner manager will be able to conclude the
quantity criteria to be produced. The second is behavior. In many cases, it is difficult
to determine which are the final outputs of workers activity. The performance of a
group can be evaluated instantly but it is difficult to evaluate each member's
contribution. Behavior can be evaluated through employee's punctuality, providing
monthly report or the appropriateness of manager's leadership style. Study done by
Dhammika et. al. (2012) used five roles to assess employee performance named:
job, career, innovator, team and organization.

2.6

Relationship

between

Transformational

Leadership

and

Job

Satisfaction
In empirical studies it has been concluded that transformational leadership
behavior has a deep and constant influence upon the job satisfaction of employees
(Bogler, 2001; Nemanich & Keller, 2007; Podsakoff et. al., 1990). One conclusion
pointed out that transformational leaders are considered to enhance the job
satisfaction of their subordinates by making employees feel extraordinary (through
individual consideration) and by making them feel they are needed for a higher
purpose (through idealized influence and inspirational motivation). Another
conclusion was job satisfaction is positively related to participative decision making
and to transformational leadership. With regard to the influence of the individual
transformational leadership dimensions, Leithwood et. al. (1996) in Yang (2012)
indicated that transformational leadership behavior with individual consideration
and structuring was positively related to teacher job satisfaction. The study of
Emery and Barker (2007) provides evidence supporting the application of
transformational leadership in its influence to job satisfaction.

In the choice of leadership style, transformational leadership has been

studied to be positively related to job satisfaction in various parts of organization
as compared to other styles of leadership such as transactional and laissez faire
(Mohammad et. al., 2011; Voon et. al., 2011; Emery & Barker, 2007). Leadership
style also becomes an important role in the organization to influence employees
job satisfaction as concluded by Lashbrook (1997), Bartolo & Furlonger (2000),

20

and other researchers. Four dimensions of transformational leadership idealized

influenced, inspirational motivation, individualized consideration and intellectual
stimulation have been studied to be positively related to job satisfaction
(Mohammad et. al., 2011; Bushra et. al., 2011 as cited in Omar et. al., 2013).
Transformational leadership also reduces work pressure and promotes job
satisfaction (Medley & La Rochelle, 1995).

2.7

Relationship

between

Transformational

Leadership

and

Organizational Commitment
Researchers (Koh et. al., 1995; Podsakoff et. al., 1996) concluded that the
dimensions of transformational leadership affect employees organizational
commitment, especially charismatic vision and individual consideration. Other
conclusion also said that these same transformational leadership factors had
significant direct effects on employees commitment to stay in the job. From another
perspective, the transformational leadership factors of vision, inspirational
motivation, and intellectual stimulation were also found to have an impact upon
both affective commitment (Podsakoff et. al., 1996) and continued commitment
(Rafferty & Griffin, 2004) to the organization. Inspirational communication will
display a uniquely positive relationship with affective commitment. The authors
further proposed when the leader provides positive and encouraging messages,
there will be increases in the attractiveness of the organization to individuals, and
this will positively impact on the extent to which individuals identify, and feel
attached to the organization as a whole. It was also indicated that intellectual
stimulation has a unique, positive relationship with both affective and rational
commitment to the organization. The explanation for these results is that when
leaders push followers to consider problems in new perspectives and to become
actively engaged in how the workplace operates, the employees experience an
increased sense of investment in the organization, exhibited by greater effort to earn
the success of that organization. This increased sense of investment increases
commitment to continue to work for the organization (Yang, 2012).

21

2.8

Relationship between Job Satisfaction and Employee Performance

Moorman (1993) discusses that a widely believed common experience of

managers is that happy workers are productive workers. When satisfaction and
productivity data are gathered for the organization as a whole, it is found that
organizations with more satisfied employees tend to be more effective than
organizations with less satisfied employees. Job satisfaction is one of the criteria
for determining the condition of the organization. Providing effective services is
highly dependent on human resources and employees job satisfaction will have an
affect on the quality of service they perform (Fitzgerald et. al., 1994 as cited in
Crossman et. al., 2002). Jones et. al. (2009) found that there is a significant
relationship between job satisfaction and employee performance. Job satisfaction
or dissatisfaction can also predict employee's behavior. If employees do not like
their work environment, they will respond somehow. It is best for employers to
handle the dissatisfaction rather than trying to control various responses it causes.

2.9

Relationship between Organizational Commitment and Employee

Performance
Commitment can firstly be built at the starting point of contact of member

within the organization using well-developed socialization and orientation program

(Atmojo, 2012). An empirical study done by Tsui. et al. (2013) showed that
organizational commitment is known to influence job performance in both short
and long term. Employee perceptiveness on company details, vision and mission,
his/her role and contribution, through socialization and orientation program
accelerates the unification of employee as individual within the organization.
Commitment moves individual to perform according to the company expectation
and individual expectation, which drives better work performance (Luthans, 2005
as cited in Atmojo, 2012).

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2.10

Theoretical Framework
Job Satisfaction

Transformational
Leadership

Employee Performance

Organizational
Commitment
Figure 2
Theoretical Framework
Note: Atmojo (2012)

Atmojo (2012) provided one of the empirical tests on relationship between

transformational leadership to employee performance through job satisfaction and
organizational commitment. Conclusion of Atmojo (2012) research told that
transformational leadership had significant influence to job satisfaction and
organizational commitment. The result is aligned with results of other study by
Yang (2012) and Belonio (2012). The study of Atmojo (2012) also concluded that
job satisfaction and organizational commitment had a significant effect on
employee performance. This result is also aligned with the result of study done by
Belonio (2012).

2.12

Hypothesis
This study has the following hypotheses:

H1: Transformational leadership significantly influences PT. X Surabaya

employee job satisfaction.
H2: Transformational leadership significantly influences PT. X Surabaya
organizational commitment.
H3: Job satisfaction significantly influences PT. X Surabaya employee
performance.
H4: Organizational commitment significantly influences PT. X Surabaya
employee performance.

23

2.13

Operational Framework
Job
Satisfaction
H1+

Transformational
Leadership

Motivation Inspiration
Idealized Influence
Intellectual Stimulation
Individual
Consideration

H3+
Activities
Compensation
Independence
Reward
Social Status
Social Services

H2+
Organizational
Commitment

Employee
Performance

H4+

Job
Career
Innovator
Team
Organization

Affective
Normative
Rational
Figure 3

Figure 3
Operational Framework
Note: Adopted from Atmojo (2012)

The framework is adopted from the model of Atmojo (2012). The model
studied about the influence of transformational leadership on job satisfaction,
organizational commitment and employee performance. Atmojo (2012) found that
transformational leadership through its four indicators gives positive implications
to job satisfaction and organizational commitment, and job satisfaction and
organizational commitment also gives positive implications to employee
performance