The impact of ethical leadership on the intention to stay among the generation-Y workforce of MNCs in Penang, Malaysia: Mediating role of employee rewards

Ng, Yoong Nian; Salamzadeh, Yashar Article The impact of ethical leadership on the intention to stay among the generation-Y workforce of MNCs in Penang, Malaysia: Mediating role of employee rewards International Journal of Business Science & Applied Management (IJBSAM) Provided in Cooperation with: International Journal of Business Science & Applied Management (IJBSAM) Suggested Citation: Ng, Yoong Nian; Salamzadeh, Yashar (2020) : The impact of ethical leadership on the intention to stay among the generation-Y workforce of MNCs in Penang, Malaysia: Mediating role of employee rewards, International Journal of Business Science & Applied Management (IJBSAM), ISSN 1753-0296, International Journal of Business Science & Applied Management, s.l., Vol. 15, Iss. 2, pp. 16-37 This Version is available at: https://hdl.handle.net/10419/261645 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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Journal of Business Science and Applied Management, Volume 15, Issue 2, 2020 The Impact of Ethical Leadership on the Intention to Stay among the Generation-Y Workforce of MNCs in Penang, Malaysia: Mediating Role of Employee Rewards Yoong Nian Ng Graduate School of Business, Universiti Sains Malaysia Graduate School of Business, USM, Pulau Pinang, 11800, Malaysia Tel: +60124422558 Email: [email protected] Yashar Salamzadeh Graduate School of Business, Universiti Sains Malaysia Graduate School of Business, USM, Pulau Pinang, 11800, Malaysia Tel: +60175397929 Email: [email protected] Abstract The purpose of this study is to examine the determinants of the intention to stay for Gen-Y employees of multinational corporations (MNC) in Penang, Malaysia. Specifically, this research aims to assess the impact of ethical leadership as the independent variable on employees’ intention to stay as the dependent variable. In addition, the influence of employee rewards as mediator in these correlations is also examined. The survey was conducted among 138 Gen-Y employees currently employed in various MNCs in Penang, Malaysia. Data analysis is done via IBM SPSS for respondent profiling and SmartPLS for the construct variable analysis of goodness of data, reliability analysis, and the hypothesis testing of independent and mediating variables. The results show that the independent variable of ethical leadership has no positive correlation to the intention to stay of Gen-Y employees of MNCs in Penang, Malaysia. At the same time, the independent variable of employee rewards observes its dimension of pay and recognition (work appreciation) positively correlated to the dependent variable, while the dimension of promotion is surprisingly not. Accordingly, pay and recognition were found to mediate the relationship of ethical leadership to intention to stay. The subject of employee retention and turnover has been a common area of research in the field of social science, yet most of the studies have been done outside the Malaysian context. Further, most of the older studies have become irrelevant due to the dramatic demographical changes in the workforce, where the transition of the generation cohort has become more apparent in recent years. This study brings value in that the findings will close the gaps related to the dimensions proposed and is expected to help formulate a robust human capital retention strategy, critical to business sustainability. Keywords: generation-Y, ethical leadership, employee rewards, intention to stay, human capital, workforce Yoong Nian Ng and Yashar Salamzadeh 17 1. INTRODUCTION Human capital is without doubt an important asset in determining the success of business organizations all around the world today (Valenti & Horner, 2019). To sustain their competitive advantage, companies must look beyond factors typically regarded as critical, such as technology, economies of scale, and product offering, as these can be imitated easily. Rather, they should focus on retaining quality workforce or the people, which would ultimately be the differentiating factor in enhancing the organization’s core competitiveness. A study published in 2018 on the intended turnover of Asia Pacific countries by Singapore Business Review put Malaysia second at 38%, behind only Singapore at 46%. Keni et al. (2013) found that issues of employee turnover in Malaysia have surfaced since early 1991 and the trend has gradually increased owing to the high demand for workforce and better opportunities in the market. This suggested that the employee retention effort has not been successful, perhaps due to factors that have not been understood, although many researchers have attempted to discover the reasons. Among the conclusions from academic research done on this topic in earlier times include correlations on job satisfaction, organizational commitment, alternative jobs, and job searches (Price, 1975, 1977; Mueller & Price, 1990; Iverson & Roy, 1994; Mueller et al., 1994; Mitchell et al., 2001). While researchers believe they have a good understanding of the antecedents of employees leaving or staying through extensive data collection, organizations today are still not on top of the problem. To add to the dimension of the problem statement, the biggest generation demography in the workforce worldwide today is Generation-Y (Gen-Y, also known as Millennials), as identified by Gursoy et al. (2013). In Malaysia, Gen-Y accounts for around 50% of the workforce, with age group participation between 17 and 37 years old according to data published by Khazanah Research Institute and the Department of Statistics Malaysia in 2017. It is accurate to conclude that Gen-Y is now the core of the country’s workforce. As noted by Tay in 2011, Gen-Y will become the main pillar of the workforce, and hence, the transition towards a knowledge-based economy as a goal of Vision 2020 lies on their shoulders. The biggest issue, as put forward by Goh (2012), is that Gen-Y employees are one of those least committed to remaining in the same organization compared to the other generations as investigated by other previous researchers. She went on to say that many MNCs in Malaysia observed that job hopping is a trend, especially among the Gen-Y workforce, mainly due to job dissatisfaction. This observation is supported by the studies of Al Battat & Mad Som (2013), and Zulbahari & Alias (2014) among others. Wan Yusoff et al. (2013) used the word “unprecedented” to describe the turnover rate associated with the Gen-Y workforce in Malaysia. The subject of ethical leadership, meanwhile, has been gaining traction especially in Malaysia in the recent years. The magnitude of the financial scandal on our very own 1MDB dwarfs those of worldrenowned cases like Enron and WorldCom. The common threat underlying these corporate scandals is the failure of corporate leadership to demonstrate ethical leadership, leading to a negative impact on employee outcomes and, worse, the country’s financial loss in the case of 1MDB. Brown & Trevino (2006) stated that this topic has great potential for academic research. The positive relationship of ethical leadership to positive behaviours at work are all significantly reported (Mayer et al., 2009; Brown & Mitchell, 2010; Loi et al., 2012, Nejati et al., 2019). Improved employee performance, job satisfaction, trust in leaders, organization commitment, and affective commitment are the positive outcomes of ethical leadership behaviour according to Avey et al. (2011), Walumbwa et al. (2011), and Kuo (2013). A review of the literature on Gen-Y retention shows that there are many factors influencing this activity. Some of the factors in this long list are management initiatives, work-family balance, job satisfaction and leadership style in their organization (Rubel et al., 2017; Schwepker & Schultz, 2015; Madden et al., 2015). As in recent years many companies have faced issues about the intention to leave in their Gen-Y employees (Nabi et al., 2017; Wiggins, 2016; Lyons et al., 2015; Hassan et al, 2020) there is a crucial gap to be filled on Gen-Y employee retention (Hom et al., 2017). What is more, most of the studies in this field have been done in a western context and there is a gap on doing more research in non-western countries as well (Wiggins, 2016; Kang et al., 2015; Hom et al., 2017; Graen & Grace, 2015). The context of Malaysia meanwhile is interesting considering its diverse racial composition and multiculturalism, presenting cross-cultural conflicts that are predominant in the workplace (Montesino, 2012). This is accentuated by the economic disparities between the different racial groups. Montesino (2012) added that the manifestation of multi-culturalism in the Malaysian workplace can represent a challenge for the management, as well as an opportunity for the future. Int. Journal of Business Science and Applied Management / Business-and-Management.org 18 In view of the limitation of pragmatic evidence pertaining to Gen-Y (specifically) employees’ intention to stay in a job or organization to the relative competitive economic advantage to retain them, this study seeks to provide an empirical justification for the impact of ethical leadership, while also investigating the role of employee rewards as a moderating factor. The fundamental idea is to further close the gap, to identify new variables and relationships that may assist human resource (HR) organizations in devising a strategy to retain Gen-Y talent whenever possible. This study seeks to answer the following: whether perceived ethical leadership leads to Gen-Y employees’ intention to stay; whether employee rewards play a role in mediating the relationship of perceived ethical leadership and intention to stay; or whether employee rewards are the more critical variables in predicting Gen-Y employees’ intention to stay in the context of MNCs in Penang, Malaysia. 2. LITERATURE REVIEW 2.1 The Gen-Y Workforce Gen-Y is generally defined as people born from 1980 to 2000, according to Queiri et al. (2015). This approximately matches the range provided by the Department of Statistics Malaysia. Gursoy et al. (2013), Stillman & Stillman (2017) and Twenge (2010) remarked that employees of this generation have a positive reputation for their energy, drive and demands on their work environment. They are comfortable with change, value personal development, and enjoy challenging work. On the negative side, Gen-Y is said to be over-confident, highly achievement-oriented, narcissistic and often criticized for having a short attention span and less commitment to their employing organization (Mastrolia & Willits, 2013). Queiri & Madbouly (2017) wrote that Gen-Y enters the workforce with desirable traits, better education, and an ability to multi-task. They are technology savvy, technically skilled, achievement oriented, culturally diverse, and have a sense of empowerment. They noted that Gen-Y employees grew up in a collective society, causing them to be more committed to a work-life balance. Gen-Y’s time is not only committed to work, but also to friends and family. Queiri & Madbouly (2017) went on to say that Gen-Y needs to cope with rapid inflation and a high cost of living, and are therefore likely to have high preference towards extrinsic values due to increased financial commitments. Guillot-Soulez & Soulez (2014) pointed out that Gen-Y are fast learners at work, with expectations for clear task descriptions from their managers and colleagues. They like challenging tasks and value jobs that provide training and a long term career (Twenge, 2010). They also seek a supportive and positive work environment and tend to be more sociable. Gen-Y employees are optimistic, cheerful and rational (Hassan et al, 2020). Their turnover rate has even influenced the overall turnover rate in the private sector when we compare them with the previous generations, to the extent that in some cases their characteristics are counted as unfavorable for some organizations. Gen-Y employees are interested in contributing to all different departments and all different organizational levels of their companies (Story et al., 2016). Gen-Y employees are, therefore, by their inherent nature prone to job switching or increased job mobility. Naim & Lenkla (2016) wrote that for this generation of employees, job security and life-time employment are being replaced by multitasking, flexibility, and employability skills – in what is described as the changing nature of the psychological contract. Queiri & Wan Yusof (2014) argued that Gen-Y will trigger an intention to quit if their preferred work values are unmet, or the experience is less organization-fit. This observation is aligned to the finding of Kim et al. (2009), who concluded that loyalty is not a Gen-Y characteristic. Therefore, it is clear that their retention needs to be a concern for HR managers all around the world. As usual, measuring the costs of their turnover is not an easy task for organizations (Aboobaker & Edward, 2017; Ashton, 2018; Tanwar & Prasad, 2016; Kour & Sudan, 2018). 2.2 Intention to Stay Reasons why employees choose to display loyalty in their job are typically related to career advancement opportunities, a competitive salary and reward system, compensation and benefits, and the work culture (Rai et. al, 2019, Ghosh et. al, 2013). Employee turnover happens when the employee becomes unsatisfied with their current job because of the environment at the workplace (Al Battat & Mad Som, 2013). Agarwal et al. (2012) found that employees have the tendency for positive emotions when they are engaged with work, and are therefore less likely to quit. A superior providing adequate guidance and support allows employees to display dedication, whereby the intention to leave never crosses their minds (Tse, Huang & Lam, 2013). Slavich et al. (2014) concluded that many employees have an intention to stay driven by the work environment, especially in terms of team spirit. It also helps that there is no hierarchy when it comes to treatment of the employees. In other words, all employees are treated equally. Rai et al. (2018) cited past research concluding that actual turnover is strongly predicted by turnover intentions. The evidence is clear from an increased research trend to Yoong Nian Ng and Yashar Salamzadeh 19 examine employees’ intentions to quit or stay in an organization instead of the actual employee turnover. Intention to stay can therefore be said to be a robust predictor of employee retention. 2.3 Ethical Leadership The theory of ethical leadership, which has been a subject of academic studies from the likes of Brown et al. (2005), Trevino et al. (2000), and Kalshoven et al. (2011), has seen increased attention in the last decade. Brown et al. (2005, p.120) conceptualized ethical leadership as “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decisionmaking”. There are two parts to ethical leadership according to Brown and Trevino (2006) – the first relates to the “moral person” facet, which defines the leader’s personality in terms of moral characteristics and traits such as fairness and honesty, and second, the “moral manager”, who enables leaders to influence subordinates and guide ethical behaviors by communicating and setting standards, making principled decisions, and acting as a role model. The moral manager facet is considered unique to the ethical leadership construct (Mayer et al., 2012). Most researchers consider ethical leadership to be a separate leadership style rather than an element of other established leadership styles like transformational, authentic, and servant leadership. Palanski (2014) identified integrity as an important driver to ethical leadership, and it is defined generally as adherence to moral principles. Ethical leaders embrace the value perspectives of integrity, trustworthiness, honesty, fairness, and caring. Ethical leaders are also considerate of their employees’ needs. Brown et al. (2005) concluded that ethical leadership influences the increase of employee motivation and positive work attitudes. Ethical leaders have the power to reward and discipline employees, while employees will perform to the outcome desired based on their observations of the ethical leaders’ behaviors (Mayer et al., 2012). In the context of Malaysia, Ponnu and Tennakoon (2009) concluded that there is a significant relationship between ethical leadership behavior and the employee’s organizational commitment. This finding mirrors that of Trevino et al. (2000) and is consistent with Brown et al. (2005). The study also found that ethical leadership behavior is positively associated with the employee’s trust in the leader. 2.4 Employee Rewards Gulyani & Sharma (2018) summarized employee rewards as the return that employees recognize as fair exchange for the efforts and time spent at work. Organizations offer rewards as an appreciation in the form of financial and non-financial incentives after the accomplishment of assigned tasks. There is common agreement amongst researchers that there are extrinsic and intrinsic elements involved in employee rewards. Hoole & Hotz (2016) wrote that organizations have shifted their focus to total reward packages as a means of motivating employees and raising engagement levels, as it has become evident that traditional reward systems are no longer sufficient. Individuals want to be rewarded for the value they add to the organization instead of for their work alone. Milkovich & Newman (2005) put forward the idea that total rewards can be divided into two categories – the first category includes direct and indirect pay incentives, and the second category includes recognition, challenging work, job security and learning and growth opportunities. De Gieter et al. (2006) group total rewards into three major categories – financial rewards (monetary payments), material rewards (benefits, training and growth opportunities), and psychological rewards (recognition). This categorization is also consistent with that of Hulkko-Nyman et al. (2012). Total rewards are described as the components of base pay, contingency pay, quality working environment, integration between work and home, and management of performance and career benefits according to Nienaber’s (2010) Rewards Preference Model. WorldatWork (2006), which is recognized as the pioneer of this concept, proposed a model that includes remuneration, benefits, career and development opportunities, performance and recognition, and work life balance to positively change employee behavior, individual performance and overall organizational results. 2.5 Hypothesis Development The relationship between ethical leadership and Gen-Y employees’ intention to stay There may not be any disagreement with the notion that employees are more likely to stay at their job if they are working for leaders who are ethical. The leading studies on this topic by Brown & Mitchell (2010) and Brown & Trevino (2006) suggested that leaders’ ethical values (e.g. achievement of common goals, unselfish acts, and the interests of the broader society) and characteristics (e.g. fairness and trustworthiness) lead to lower turnover intentions of their subordinates. Loi et al. (2015) Int. Journal of Business Science and Applied Management / Business-and-Management.org 20 concluded that employees’ intentions to stay are likely to increase as a result of encouragement by leaders to commit themselves to workplaces with strong ethical cultures and climates. In contrast, employees may choose to increase job search and trigger intentions to quit when they perceive their leaders to be unethical, immoral, or acting illegally (Palanski et al., 2014; Brown & Mitchell, 2010). Neubert et al. (2013) argued that the promotion of positive conduct to subordinates through decisionmaking reinforcement, stressing the importance of ethics, and communicating in an open manner by ethical leaders, actually lead to lower employee turnover intention. Employees appreciate leaders that listen. Ahmad et al. (2018) suggested that the negative association of ethical leadership with intention to leave is implied. They continue to speculate that ethical leaders’ support, consideration and helpfulness is strongly related to employee intentions to stay, rather than leave. In fact, employees’ perception of their leaders’ behavior shapes their attitude towards their workplace (De Carlo et al., 2016; Bonner et al., 2016). Working in an ethical context and under ethical leadership makes employees more proud of their activities, which in turn ends in lower intention to leave the organization (Pettijohn et al., 2008). Researchers from different sectors, such as for-profit and not-for profit sectors, have shown that ethical leadership affects the intention to stay among employees (ie. Bang, 2011; Schneider and George, 2011; Benevene et al., 2018). In the context of Gen-Y, as described by many studies, this generation appreciates working for an organization that promotes fair treatment, and honors its promises (Luscombe et al., 2012), compared to older generations, who sought lifetime employment and show a high degree of loyalty (Lee & Tay, 2012). At the same time, Cennamo & Gardner (2008) proposed that Gen-Y will trigger an intention to quit if their preferred work values are unmet. This generation is unlike previous generations, which are viewed as loyal, respectful towards the higher hierarchy, and willing to wait in line for career advancement (Chi et al., 2013). In the bigger perspective, it is still believed that the literatures suggesting a positive relationship between ethical leadership and employees’ intention to stay holds true in the context of Gen-Y in this country. Hence, it is proposed that: H1. Perceived ethical leadership increases Gen-Y employees’ intention to stay. The relationship between ethical leadership and employee rewards Ethical leadership behaviors projected high moral standards to employees, allowing an open culture to inputs and fair treatment, according to Walumbwa & Schaubroeck (2009). Cheng et al. (2014) proposed that ethical leaders emphasize altruistic orientation to support the personal growth and career development of their employees. As noted earlier, career growth is considered a type of employee reward. Employees perceive ethical leadership as serving their needs in the context of career growth. They go on to say that employees with a promotion focus will be motivated by ethical leadership and be more willing to engage in their work. Ethical leaders are perceived to be fair in the distribution of rewards, thus increasing employee-leader trust (Engelbrecht et al., 2017; Buckley, 2011). While discussing Employee rewards, considering both intrinsic and extrinsic rewards guides us to use the three main dimensions of pay, promotion (more extrinsic) and recognition (more intrinsic). There are many studies which have put rewards and recognition together to show a more comprehensive perspective about rewards (Hassan et al., 2020; Hansen et al., 2002; Murari, 2011; Maslach and Leiter, 2008; Ruiz-Palomino et al., 2013) and we have used the same approach in our research. Therefore the hypotheses below have been formulated: H2a. Perceived ethical leadership positively impacts employee rewards in terms of pay. H2b. Perceived ethical leadership positively impacts employee rewards in terms of promotion. H2c. Perceived ethical leadership positively impacts employee rewards in terms of recognition. The relationship between employee rewards and Gen-Y employees’ intention to stay Rai et al. (2019) in their literature review pointed out that the exact relation between total rewards and employees’ intention to stay is yet to be explored extensively, although some researchers have concluded that there is a positive association between them. They wrote that total rewards are important in attracting, motivating and retaining technology workers, while affective commitment, job satisfaction and innovative behavior at the workplace are also positively affected as a result of a total rewards strategy that includes base pay, positive work environment and training and development opportunities. Job satisfaction is also predicted due to both intrinsic and extrinsic rewards being established. The remuneration package is considered to be a vital factor which influences employees' plan to continue working with their current employer, as argued by Bachkirov (2018). WorldatWork Yoong Nian Ng and Yashar Salamzadeh 21 (2010), in a survey of professional accounting students, also concluded that there is a positive correlation between total rewards and retention, while Prouska et al. (2016, p. 1263) argued that a total rewards system offers “a value proposition which embraces people’s values regarding employment relationships.” Wan Yusoff et al. (2013) concluded that Gen-Y consider extrinsic values as a major factor in their intention to stay. Walker (2001) identified seven factors as an encouragement to job retention, two of which are compensation and work appreciation, and recognition of capabilities and performance contributions. On the other hand, Guillot-Soulez & Soulez (2014) stated that Gen-Y seeks a work life balance and emphasizes personal enjoyment, and they added that Gen-Y may consider salary les and take into consideration other attributes in determining their intention to stay with a job. However, it was also noted that while some researchers found that Gen-Y consider the salary less and take other attributes into account, some concluded that this generation take extrinsic value as one of the big factors in staying in an organization (Zulbahari & Alias, 2014). With that we propose to study the effect of employee rewards in its three critical dimensions as reviewed in the literature earlier and propose the following: H3a: Employee rewards in terms of pay increase Gen-Y employees’ intentions to stay. H3b: Employee rewards in terms of promotion increase Gen-Y employees’ intentions to stay. H3c: Employee rewards in terms of recognition increase Gen-Y employees’ intentions to stay. Raad & Tarik (2018) reported that studies on this topic from different geographical areas may see a correlation between ethical leadership and intention to stay. However, there may be different mediating factors. For example, one study in the United States found that ethical leadership directly and negatively relates to turnover intentions, mediated by organizational identification. Another study from Turkey also indicated that ethical leadership negatively relates to turnover intentions, but adds that work stress partially mediates the relationships. Demirtas & Akdogan (2015) reported that ethical leadership impacts turnover intentions but only through the mediation of an ethical climate. That leads to our final hypotheses on the mediation role of employee rewards in the relationship of ethical leadership to employee intention to stay: H4a. Employees’ pay positively mediates the relationship between ethical leadership and Gen-Y employees’ intention to stay. H4b. Employees’ promotion positively mediates the relationship between ethical leadership and Gen-Y employees’ intention to stay. H4c. Employees’ recognition positively mediates the relationship between ethical leadership and Gen-Y employees’ intention to stay. All our hypotheses are summarized in figure 1 as below. Figure 1. Theoretical framework 3. RESEARCH METHOD 3.1 Procedure and sample This study employed a quantitative research method using both descriptive data analysis and hypothesis testing based on survey results. Questionnaires help researchers standardize the questions asked as well as the information received from respondents. Rowley (2014) wrote that a questionnaire Int. Journal of Business Science and Applied Management / Business-and-Management.org 22 has the big advantage that it is easier to get responses from a large number of people, and that data gathered is able to generate findings that are more generalizable. The survey is designed to be anonymous in order to encourage a high response rate. Questionnaires were administered using online survey forms that are randomly distributed. Convenience sampling, a type of non-probability sampling relying on data collected from the population of participants who are conveniently available, is used due to limitations of time and budget. We also encouraged respondents to introduce others to participate in this survey, a method referred to as snowball sampling. Participants are Gen-Y employees born from 1980 to 2000 currently employed by MNCs in Penang, Malaysia. The context of the study of MNCs in Penang is chosen considering this type of organization typically has strong ethics programs. As suggested by Godiwalla (2012), prominent and large firms generally have a greater social responsibility focus than smaller firms do. Ethical conduct and socially responsible MNCs' performance are good business practices in the long run, as they improve the MNC image and public reputation. The focus on Penang aligns to the fact the fact that the state has been consistently ranked among the top investment destinations in the country over the last five decades. From 1980 to 2018, total investments worth RM129.1 billion were approved, of which 70 percent is foreign investment, creating over 516,600 job opportunities (MIDA, 2019). Tan et al. (2018) claimed that Penang is one of the states in Malaysia where most Gen-Y are attracted to start their careers since most established MNCs are located there. The sample size of 138 was calculated based on a 90% confidence level, 7% margin of error, with a population size of 400,000 Gen-Y workforce, which is an estimated ~50% of the total 822,300 professional workforce in Penang (MIDA, 2019). The minimum sample size sufficient to test the model is 129, calculated using G*Power. The data collection period was set to 1 week and we started the snowball sampling with 25 available samples. 3.2 Demographic Profile of Respondents A total of 138 responses were received within the period of one week with respondents’ age group well distributed across the Gen-Y spectrum. The 26-30 year old age group makes up 39.9%, followed by 28.3%, 23.2%, and 8.7% from 31-35, 36-39, and under 25 years old groups respectively. Female and male response are closely balanced at 51.4% and 48.6% each. In terms of ethnicity, Chinese respondents contributed 50.0% followed by Malays and Indians at 31.2% and 17.4%. These figures align to the race distribution of Penang, especially in the island where most MNCs’ operations are located. 55.1% respondents are married while 42.0% are still single. In terms of academic qualifications, the majority at 65.9% are bachelor’s degree holders, while participants with the lowest qualification of SPM certificate stand at 8.7%. This indicates that respondents possess an adequate knowledge and level of understanding to be able to provide quality survey responses. On the aspects of employment, almost all (93.5%) are permanent employees, with close to half of the population (47.8%) in under 5 years of current employment. 37.7% and 31.2% of them hold senior executive and junior executive positions respectively, while 13.8% are in senior management and 17.4% in junior management positions. From the job industry perspective, we obtained the largest response rates from manufacturing & engineering (42.8%), and banking & finance (37.0%). This is in line with both industries being the major sectors for MNC players in Penang. The remaining respondents state sales & marketing, transportation & logistics, and education among others as their job industry. Finally, the home country of the respondents’ company saw 47.1% are from Malaysia, largely driven by the banking and finance sector, followed by United States (33.3%), Asia (11.6%), and Europe (8.0%). The demographic profile of respondents obtained is observed to be a good representation of the unit of analysis, with no distinct skew in demographic variables that may affect the goodness of the data obtained. 3.3 Measures All constructs were measured on a five-point Likert-type scale anchored with 1 (strongly disagree) and 5 (strongly agree) and were adopted from established sources. The references of the questionnaire items are summarized in Table 1. The questionnaires were distributed in English, as all our respondents are familiar with this language. Ethical leadership was measured using a ten-item scale developed by Brown et al. (2005). There are other measures developed for ethical leadership but the ethical leadership scale (ELS) developed by Brown et al. (2005) remains one of the most widely used measures (Bedi et al., 2016). According to Brown et al. (2005), the survey items are applicable to both formal and informal leaders, and are designed to tap the full domain of ethical leadership. The sample items include “My manager makes fair and balanced decisions” and “My manager sets example of how to do things the right way in term of ethics”. Yoong Nian Ng and Yashar Salamzadeh 23 Employee’s intention to stay with the organization consisted of four items adopted from Veloutsou & Panigyrakis (2004). The items are “I am not thinking of moving to another company”, “I would like to work for this company for at least five years”, “I would like to stay in the same job for at least five years”, and “I intend to remain with this company to advance my career”. Employee rewards items were adopted from the Satisfaction and Motivation Questionnaire developed by De Beer (1987), where the author outlines nine dimensions as having a significant impact on an employee’s job satisfaction and motivation. The dimensions adopted are payment, promotion, and recognition. Among the items are “my salary is satisfactory in relation to what I do”, “everyone has an equal chance to be promoted”, and “I am praised regularly for my work”. Table 1. Measurement of variable instruments Variable Questionnaires Adopted from Previous Authors 5 Points Likert Scale Ethical leadership Brown et al. (2005). 1 (Strong Disagree) 5 (Strongly Agree) Intention to stay Veloutsou & Panigyrakis (2004). 1 (Strongly Disagree) 5 (Strongly Agree) Employee rewards De Beer (1987) 1 (Strongly Disagree) 5 (Strongly Agree) Questionnaire items are attached as appendix A to the article. 3.4 Analysis This study mainly uses the structural equation modeling (SEM) based SmartPLS as the statistical tool for results analysis, which, compared to first generation techniques, is capable of assessing and correcting measurement errors, and can use both unobserved (latent) and observed variables. In addition, it has an advantage over IBM SPSS in term of steps simplification in analyzing the structural model to obtain the same results. Urbach & Ahleman (2010) pointed out that, among others, the reasons for choosing partial least square (PLS) as the statistical means for testing structural equation models are the fact that it requires a low sample size with non-normally distributed data and that it can be applied to complex structural equation models. It is especially useful for prediction and theory development. Two parts of data analysis were performed. The first is the analysis of participants’ demographics, and the second the construct variables. Frequency analysis and descriptive statistics for respondents’ demographic profiling is performed using IBM SPSS, before data collected on the construct variables is subjected to a series of reliability and validity testing procedures using SmartPLS. Among standard measurements required are collinearity statistics, outer loadings, construct reliability and validity, and discriminant validity. Factor loading (outer loading) shows the variance explained by the variable of the particular factor. PLS-SEM introduces new metrics and takes into account the different outer loadings of the composite reliability on the variables indicated. In a way similar to Cronbach’s alpha, a composite reliability (CR) value of ≥0.7 is considered adequate and acceptable (Hair et al., 2017). However, there are many reputable studies which concluded that values ≥0.4 (Hulland, 1999); ≥0.5 (Byrne, 2016); and ≥0.6 (Chin et al., 2008) are equally acceptable. Sekaran (2000) meanwhile argued that CR <0.6 is considered bad, agreeing that 0.7 is an acceptable value while ≥0.8 is considered good in ensuring reliability and internal consistency of the questionnaire. A similar conclusion applies for outer loading assessment. Hulland (1999) stated that reflective indicators should be eliminated from measurement models if their loadings within the PLS model are <0.4. Average variance extracted (AVE) should exceed 0.5 to suggest adequate convergent validity (Fornell & Larcker, 1981; Bagozzi & Yi, 1988). Assuming AVE calculated is still <0.5, proceed to remove items with outer loading less than or around the 0.4 range and recalculate. The Heterotrait-Monotrait ratio of correlations (HTMT) is used to suggest discriminant validity between constructs with a desired value <0.85. Result >0.85 tells us that the two constructs overlap greatly and they are probably measuring the same thing. Next, a nonparametric bootstrapping procedure is performed to test the significance of path coefficients, Cronbach’s alpha, HTMT, and R² values (Efron & Tibshirani, 1994; Davison & Hinkley, 1997). Hair et al. (2017) explained the process of bootstrapping as randomly drawn subsamples from the original set of data (with replacement), which is then used to estimate the PLS path model. This process is repeated until a large number of random subsamples has been created (in the case of this study, 2000 subsamples). Standard errors for the PLS-SEM results are derived from estimations of the bootstrap Int. Journal of Business Science and Applied Management / Business-and-Management.org 30 Future investigations on employee outcomes should ideally draw from more diverse sectors and geographical locations. As regards the sampling strategy, the convenience sampling and snowball sampling technique, both non-probability methods, are said to be potentially not representative due to the haphazard manner by which the respondents are chosen or because of self-selection bias. However, based on the objectivity of this study, we agree these are the best and most convenient methods to use. There are of course more accurate techniques, such as stratified sampling, but this would have been too complex and strenuous with the available resources. Self-administered questionnaires potentially create discrepancies in that they are subject to respondents’ interpretation. For example, questions asking for an assessment on the employees’ current employment may be misinterpreted as asking for an assessment of any of the previous jobs. Linblom et al. (2015) suggested keeping in mind that respondents may tend to be over optimistic in their scoring in this type of survey. It is therefore critical to carefully design the questionnaires and leverage one from past research with a high reliability score. In the context of ethical leadership, Ponnu & Tennakoon (2009) proposed that the 10-item ELS scale can be split into two components, the “demonstration of ethical conduct” comprising 6 items, and the “promotion of ethical conduct to followers” with 4 items. This will allow more refined research findings, delving deeper into the sub-dimensions of ethical leadership itself. Meanwhile, the relatively limited literature on the relationships between constructs proposed in this study would allow future researchers to explore more variables, as well as the mediation-moderation relationships especially in relation to ethical leadership in Malaysia. Variables suggested for future research are team dynamics, employee performance, work-values fit, and organizational climate, among others. Another suggestion for future researchers is to investigate the theories more, since they are more suitable for studying intention to stay and ethical leadership: concepts such as ethical leadership theory, social exchange theory or causal spiritual leadership theory. In this way, more expansion on the theoretical aspect could happen. We also suggest future researchers consider the issue of socially desirable responding and other types of biases that are widespread in organizational contexts. Finally, it would be interesting to expand this study to companies of smaller proportions like small medium enterprises (SME) and local businesses. Madanchian et al. (2018) suggested that SMEs are gaining importance in the economic growth of Malaysia and concluded that ethical leadership is an important element for SMEs with positive and significant effects on leadership effectiveness. A key question then is – how well is it influencing Gen-Y employees’ intention to stay? Would we expect similar outcomes to the MNC context observed in this study? 6. CONCLUSION This research on ethical leadership, stay or turnover intention, and the employee rewards system bridges the gap in related work by studying the relationship of the three components put together. This study found that the effect of ethical leadership alone may not be significant in MNC firms in Penang to entice its Gen-Y employees to stay. We therefore confirm that the outcome can be totally different and opposite to many available studies. Employee rewards act as intermediary mechanisms that mediate the relationship between ethical leadership and intention to stay. The attractiveness of pay and monetary rewards, as well as the level of work appreciation and recognition shown by organization leaders, are likely to stimulate this generation of employees to better identify with their job, leading to intention to stay. Ethical leaders can increase employees’ intention to stay by leading them to fair monetary rewards and continuously fulfilling their higher-level psychological needs through intrinsic recognition. This finding contributes to the literature by suggesting exploratory answers, especially in the context of Malaysia, to further develop HR strategies to effectively retain Gen-Y employees. 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Strongly Disagree Disagree Neutral Agree Strongly Agree EL1 My manager/s listens to what employees have to say. 1 2 3 4 5 EL2 My manager/s has the best interest of employees in mind. 1 2 3 4 5 EL3 My manager/s makes fair and balanced decisions. 1 2 3 4 5 EL4 My manager/s can be trusted. 1 2 3 4 5 EL5 My manager/s discusses business ethics or values with employees. 1 2 3 4 5 EL6 My manager/s sets an example of how to do things the right way in terms of ethics. 1 2 3 4 5 EL7 My manager/s disciplines employees who violate ethical standards. 1 2 3 4 5 EL8 My manager/s conducts his/her personal life in an ethical manner. 1 2 3 4 5 EL9 My manager/s defines success not just by results but also the way that they are obtained. 1 2 3 4 5 EL10 My manager/s when making decisions, asks, “What is the right thing to do? 1 2 3 4 5 EMPLOYEE REWARDS The purpose of the following questions is to assess the impact of rewards/recognition practice in your organization to your job satisfaction. Strongly Disagree Disagree Neutral Agree Strongly Agree ER1 My salary is satisfactory in relation to what I do. 1 2 3 4 5 ER2 I earn the same as or more that other people in a similar job. 1 2 3 4 5 ER3 The basis of payment, for example overtime payment, is reasonable. 1 2 3 4 5 ER4 Salary increases are decided in a fair manner. 1 2 3 4 5 ER5 I will be promoted within the next two years. 1 2 3 4 5 ER6 Everyone has an equal chance to be promoted. 1 2 3 4 5 ER7 Staff are promoted in a fair and honest way. 1 2 3 4 5 ER8 I am praised regularly for my work. 1 2 3 4 5 ER9 I receive constructive criticism about my work. 1 2 3 4 5 ER10 I get credit for what I do. 1 2 3 4 5 ER11 I am told that I am making progress. 1 2 3 4 5 INTENTION TO STAY The purpose of the following questions is to assess your intention to stay at your current job/company. Strongly Disagree Disagree Neutral Agree Strongly Agree IS1 I am not thinking of moving to another organization/ company. 1 2 3 4 5 IS2 I would like to work for this organization/company for at least another 5 years. 1 2 3 4 5 IS3 I would like to stay in the same job for at least another 5 years. 1 2 3 4 5 IS4 I intend to remain in this organization/company to advance my career. 1 2 3 4 5