Beyond Compliance: The Mediating Role of Employee Engagement in Linking Servant Leadership and Corporate Performance in Indonesian Islamic Banks
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Abstract
Indonesian Islamic banks face a critical challenge in moving beyond sharia compliance to achieve sustainable competitive advantage through effective human capital management. Prior research has confirmed that servant leadership positively influences organisational outcomes across various sectors, yet limited evidence exists on the mediating role of employee engagement within Islamic banking. Addressing this gap, this study examines employee engagement as a mediator between servant leadership and corporate performance. Data were collected from 325 employees working in Islamic commercial banks across Indonesia using validated instruments. Partial Least Squares Structural Equation Modelling (PLS-SEM) with SmartPLS was applied to test the hypothesised mediation model. The findings show that servant leadership has a significant positive direct effect on both employee engagement and corporate performance. Additionally, employee engagement partially mediates this relationship, indicating that servant leaders enhance organisational outcomes by first fostering a highly engaged workforce, with the model explaining substantial variance in both constructs. By integrating contemporary management theory with Islamic leadership principles from the Quran and Hadith, this study provides a culturally grounded understanding of organisational effectiveness in Indonesia, the world's largest Muslim-majority nation, and offers actionable insights for bank managers and policymakers.
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