AN APPRAISAL OF THE IMPACT OF COMPENSATION MANAGEMENT ON EMPLOYEE PERFORMANCE
Abstract
This study examine the effect of compensation management and employee performance in Nigeria
organization. The study aim at investigating the influence of performance based compensation,
competency-based-compensation and equity based-compensation on employee performance.
Relevant conceptual, theoretical and empirical literatures were reviewed. The study was anchored on
Human Capital Theory and Expectancy Theory. The study adopt descriptive survey research design.
The study was carried out in Anambra State. The population of the study comprises 257 public
secondary schools in Anambra State. The sample size for the study consists of 257employees drawn
from the population of the study. The sample consists of entire population. The instrument for data
collection is a structured questionnaire. The face content validity of the instrument was employee.
The instrument was trial-tested on a representative sample of 20 employee randomly selected of
Anambra State. In analyzing the data for the null hypotheses, Z-test was be used to test the
hypotheses at 0.05 level of significance. Equity based compensation has no negative significance
effect on employee performance in Nigeria organization. Competency based compensation has no
negative significance effect on employee performance in Nigeria organization. Performance based
compensation has no negative significance effect on employee performance in Nigeria organization.
Therefore the study conclude that compensation management has significance effect on employee
CHAPTER 1 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In the age of global competition, it is very essential to identify and retain the efficient, competent and
knowledgeable employees in organization by developing and maintaining an effective compensation
program for getting the best job performance from the employee (Akter and Moazzam
2016).Employees are the organization’s key resource and the success or failure of organizations
center on the ability of the employers to attract, retain, and reward appropriately talented and
competent employees. Employees’ willingness to stay on the job largely depends on compensation
packages of the organization (Armstrong, 2003). In an attempt to ensure employees optimal
performance and retention, organizations need to consider a variety of appropriate ways to reward
the employees to get the desired results (Falola, Ibidunni and Olokundun 2014). It has been argued
that the degree to which employees are satisfied with their job and their readiness to remain in an
organization is a function of compensation packages and reward system of the Organisation
(Fadugba, 2012).
Adeniyi (2013) posit that the fundamental tasks in human resources management is compensation
management. It is a complex task that occurs periodically, demand accuracy and must not be delayed.
Compensation management requires integrating employees’ processes and information with
business process and strategies to achieve optimal organizational goals and objectives (Adeniyi 2013).
This can be attributed to the fact that compensation management is an essential tool to “integrate
individual efforts with strategic business objectives by encouraging employees to do the right things
with ever improving efficiency. (Adeniyi, 2013). In other words, compensation management is’ a
powerful means of focusing attention within an organization. They send clear .messages to all
employees of the, organization informing them about expected attitudes and behaviors (Schell and
Solomon, 2007).
Milkovich and Newsman, (2002) argued that compensation management system can create and
sustain a competitive advantage for organizations. In recent years, the inclusion of non-financial
measures has gained some popularity in compensation management, while some schools
demonstrate positive effects of incorporating non- financial measures in to the compensation
management system empirically (Widmier, 2002). He further states that, human resources model of
compensation generally assume that higher performance requires greater effort or that is in some
other ways associated with disutility on the part of workers. In other to provide incentives, these
models predict the existence of reward systems that structure compensation so that a worker
expected utility increase with’ observed productivity.
International Journal of Academic Research in Business and Social Sciences
Vol. 9 , No. 2, Feb, 2019, E-ISSN: 2 22 2 -6990 © 2019 HRMARS
387
Compensation packages entail some basic features that tend to make employees satisfy on their job
amongst which includes salaries, bonuses, incentives, allowances, promotion, recognition (Werner
2001) All these have significant impact on employees’ performance (Martineau Lehman Matwa
Kathyola and Storey 2006). However, to avoid wrong perception and controversy by the employees,
compensation system must be clearly communicated to employees with job measurement which will
drive the much needed performance in the employees (Yamoah2013). Hsin-His, (2011) posit that
compensation is a significant tool in human resources. An effective compensation system design
significantly influences organizational development by revealing external competitiveness, internal
equity and individual equity. External competitiveness attracts talent, and internal equity helps
companies to retain talent by ensuring that employees and colleagues making the same contributions
obtain the same compensation. Individual equity allows employees to feel that their potential is fully
rewarded; thus, they are encouraged (Hsin-His2011).Although compensation means something
different to individuals, organizations and society, it is important to all. For individuals, compensation
is not only the return of benefits, but it also reflects on individuals’ capabilities or achievements (Ali,
2009). For organizations, compensation is a cost or expenditure, as well as an important tool to obtain
competitive advantages. Within society, compensation not only influences wealth distribution, but
also symbolizes social equity and justice (Hsin-His, 2011).
Statement of the Problem
The compensation practices includes not only salary, but also the direct and indirect rewards and
benefits the employee is provided with in return for their contribution to the organization. Some of
the benefits of employee’s performance include health insurance, disability income protection,
retirement benefits, daycare, tuition reimbursement, sick leave, vacation (paid and no-paid), funding
of education as well as flexible and alternative work arrangements. Compensation is usually
narrowed to cash and as a result, employers only have a tunneled vision when it comes to the issues
of compensation for their employees. Other aspects of compensation which makes up the total
compensation package for the employee are not given much attention. Employees themselves fail to
recognize the fact that their compensation is a package and not only related to cash. The byproduct
of the above understanding of compensation is that it is poorly managed and most of the time
performance is affected adversely. Therefore the problem the researcher intends to investigate the
effect of performance based compensation plans, merit-based-compensation, competency-basedcompensation and equity based-compensation on employees performance and understand what
contributes to total compensation and how it can be better managed and linked to employee
performance
Objective of the Study
The general objective of this study was to examine the influence of compensation management and
employee performance in Nigeria organization. Specific objectives are to:
- Examine the relationship between performance based compensation on employee performance
in Nigeria organization. - Determine the relationship between equity based compensation and employee performance in
Nigeria organization.
International Journal of Academic Research in Business and Social Sciences
Vol. 9 , No. 2, Feb, 2019, E-ISSN: 2 22 2 -6990 © 2019 HRMARS
388 - Investigate the relationship between competency based compensation and employee
performance in Nigeria organization.
Research Question - What are the extent of relationship between performances based compensation and employee
performance in Nigeria organization. - What are the extent relationship between equity based compensation and employee
performance in Nigeria organization. - To what does competency based compensation relate with employee performance in Nigeria
organization
Hypotheses
Ho1: Performance based compensation has no significance relationship with employee performance
in Nigeria organization.
Ho2: Equity based compensation has no significance relationship with employee performance in
Nigeria organization.
Ho3: Competency based compensation has no significance relationship with employee performance
in Nigeria organization.
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