BABCOCK UNIVERSITY
ILISHAN,
OGUN STATE.
COMPENSATION THEORY AND ADMINISTRATION
BSAD 891
SUBMITTED BY
EYIOWUAWI OMOBOLANLE OLAYIDE
PG/16/0032
TOPIC:
EFFECT OF COMPENSATION ON EMPLOYEE PERFORMANCE
(CASE STUDY OF ACCESS BANK PLC)
SUBMITTED TO
DR (MRS) NANLE MAGAJI
1. Introduction.
Employees are valuable resource of any organization. It is customarily accepted that employees discover valuable source of competitive edge for firms. Retaining employees in their jobs is crucial for any organisational productivity and competitiveness. There is current discussion on how human resource management policies impact the performance of employees. The impact of Human Resource planning on performance of employees in banking sector. This study tries to find this gap by investigating the effect of reward and compensation strategies on performance of employees in banks in Nigeria. Employees will demonstrate pleasurable positive attitudes when they are satisfied with their job. Thus, high job satisfaction will increase the productivity of an organization, in turn increasing the overall organizational performance. Compensation plays an important role in determining an employee's level of job satisfaction.
Our very first variable is compensation. Employee receives different kinds of benefits in the form of wages, salaries and pay. Mostly individuals with good education are not satisfied with their job and salary packages and it results in their turnover so organizations make compensation plans for them to stop the turnover and to motivate them. Which means you can say that compensation motivates employee for better performance.
The next variable going to be discussed is salary. According to a study if employees are paid well and earn more than their colleagues they feel happier at their work places. A good salary motivates an employee for better performance. The purpose of this paper is to determine the effect of compensation system on employee’s performance in an organization. Ibrahim and Boerhaneoddin suggested that generous rewards retain employees and ultimately lead to job satisfaction, commitment and loyalty. Evidence from previous study seems to suggest that there is positive relationship between compensation and job satisfaction.
Under the moderating effect of compensation and benefits on job satisfaction, Shoaib et al revealed that attractive and competitive remuneration packages is still ranked as one of the very important factors that affect job satisfaction because it fulfils the financial and material desires. Salary, retirement benefits and job security have been shown to be important personal issues that affect the satisfaction of the staff of organizations in Nigeria.
2. Objectives of the Study
The main objective of this study is to determine the effect of compensation on employee performance
The specific objectives are stated below:
1 To determine the extent at which salary affect employee’s performance
2 To explore relationship between rewards and employee performance.
3 To explore the relationship between indirect compensation and employee performance.
3. Research Hypotheses
Hypothesis 1
HO = There is no significant relationship between salary and employees performance
H1 = There is a significant relationship between salary and employees performance
Hypothesis 2
HO = There is no significant relationship between rewards and employee performance
HI= There is no significant relationship between rewards and employee performance.
Hypothesis 3
HO= There is no significant relationship between indirect compensation and employee performance
HI= There is a significant relationship between indirect compensation and employee performance
4. Literature review.
Compensation is the pay provided by an employer to its employees for services rendered (i.e., time, effort and skill). This includes both fixed and variable pay tied to performance levels. Swanepoel et al. stated compensation as the financial and non-financial extrinsic rewards provided by an employer for the time, skills and efforts made available by the employee in fulfilling job requirements aimed at achieving organisational objectives. Absar et al. reported that employee compensation is one of the major functions of human resource management. Compensation is important for both employers and employees regarding attracting, retaining and motivating employees. Ray and Ray regarded compensation as important for employees since it is one of the main reasons people work.
Monetary rewards play major role in determining job satisfaction. Pay is one of the fundamental components of job satisfaction, since it has a powerful effect in determining job satisfaction, the growing needs of people with high living costs force workers to seek higher income that can guarantee their future and life satisfaction. Moreover, if individuals believe they are not compensated well therefore a state of emotional dissatisfaction will be developed and these emotional discrepancies will grow and accumulate over time thus make employees unhappy and unsatisfied working for the organisation.
Gunter and Furnham (1996) state that job satisfaction can directly cause work outcomes that are positive. job satisfaction is relevant to the physical and mental well being of employees, i.e. job satisfaction has relevance for human health (Oshagbemi, 1999).
4.1 Salary
There are many factors of pay (Millvier and newman; 2005) research perform that may be form of individually and may be form of multiple performance pay plan different qualities can consider the efficient of degree to perform merit pay to performance, bonus long incentives first of all merit pay is form of reward and individual function of their individuals performance and rating (Henenman&warner,2005)the pay plan is most common by employee performance appraisal (Chani 1998)meant by pay has been frequently use in the organization. (Pak,1984;alson,1990)number of recent survey 80 to 90 percent organizations use merit pay (Heneman &wamer2005) . Bounces pay is monetary reward gives to employee in addition to their fix compensation (Millovian & newman 2005) This pay plan in base on individual performance but bonuses does pay and their not performance (Suman&shout,2000).There are reward like the long term growth as well as employee relation (Rousse and hou,2000) mostly form of cash in and stock (Rasch&lesson,1984)The length and performance pay plan mostly are
their (elling,1982)long term incentive also generate some problem of their liquidity long term incentive cantonal get immediately value because requirements on reward convicted in to cash.
Performance related pay directly impact the workers performance creating the output through pay and workers has more able to give pay structure according to the performance (Lazear,1986)sheer (2004)some results for their expected tree sampling allocated to price fixed rate. The role of employee performance linking to bounces to improve the productivity Bandied re et al (2007).The relation of pay and performance is dirtily linking(1999)worker has a fixed pay in a period of time and give incentive for their good performance give the pay for shorter term incentive give the power job shorter oriented.
4.2 Incentives and Rewards:
Reward can generate as important role for employee performance. A good employee feel that value of the company is working for the also enhance the batter work they are well being. Taken seriousness by their employee and their career self assessment also taking care by their commonalty employee are the big part of organization like engine of the organization which else and fund the reward knows organization scan attain any objective with its employee (Akerale,1991)also blame the productivity of the workers on several factors provide adequate failure compensation for hard work (Mark and ford 2001) Mention the real success of organization from employee from employee willingness to use their creativity and among how the employee increases the positive employee inputs and rewards practices in place.. Reward is the most important element to eliminate employee for paying their best efforts to generate the innovation and the new ideas in cress the company performance financial and noon financial Dewhurst et al(2010)
4.3 Indirect compensation:
Milkovich and Newman(1999)refer that financial return and employee receive as a employment relationship all cash incentives and other mating employee received which countries of total compunction .Global business and economics(2010) compunction is a big range of financial benefits and Nan financial benefits, It is played in the form of wages and salaries and also insurance level free traveling is also including chhabra(2001).It also included that the salary is generally paid for monthly and year. The time spent in the organizations salary is played time
spent on the job. Some type of indirect composition offered by today organization (byars and rul 2008)
• Social security: this is managing insurance system by the rules of employee must pay into system and contain per chance of pay up to maintain limit. And also average monthly wages give the security of the employee.
• Workers compensation: it also says that employee from loss of salary associated extra job related illness. The laws generally provide the medical expenses.
• Retirement plan: it gives that a sources of income who have retail money paid for a previous services .Give the time of employment one from of plan is contribution plan also known as beneficial annual plain.
• Paid holiday: The new year day, independent day which is called holiday plain of employee to employee
• Paid for vacation generally depend on employee services. Most of the companies unit less than one year.
• Other benefits: It also involves the additional benefits food services may be wide range purchases discount example for the especially attractive for the retail stores.
4.4. Employee Performance:
Employees who are the most efficient are likely to be motivated to perform. this relationship s that rewards and employee performance is expecting theory which means that employee are most to be motivated Employees are extremely motivated to monthly rewards. The Goal is to satisfy the social exchange process they contribute. Kanfell (1990). Employee are the important part of any organization increasing the performance they can be motivated through financial and non financial benefits they can designing that you can says that composition is reward which is receiving by the employee to show their performance.
5 Theoretical Framework
5.1 Independent Variables
• Salary
• Rewards and Incentives
• Indirect Compensation
5.2 Dependent variable
• Employee Performance
5.3 Schematic Diagram
6. Methodology
The study was conducted to check the impact and relationship of the factors like salary, Rewards and indirect compensation on employee performance. A questionnaire was designed to collect the data from banking sector.
6.1 Participants
The data was collected from employees of Access Bank plc. 200 Questionnaires were distributed among the full time working employees of bank and they were selected randomly.
6.2 Measurement Scale
All the questions were extracted from already developed questionnaires which were published in different journals and articles. All the questions were designed in linkert scale (1=Strongly Disagree, 2=Disagree, 3=Neutral, 4=Agree, 5=Strongly Agree).
All the questions regarding to each variables are given below.
6.2.1 Salary
To measure the impact of salary,10 questions were extracted from “Employees’ Perception towards Compensation and Benefit Policy: The case study of some selected Government Higher Education Institutions in Addis Ababa” by “Ahmed Kelil” and were further modified.
6.2.2 Rewards
The questions related to Rewards were extracted from “effects of rewards systems on employees performance (a case study of Ghana commercial bank EJISU branch)” by “Danso Doreen,and Umeh Donald,”.
6.2.3 Indirect Compensation
The questions regarding to Indirect Compensation were extracted from “the impact of indirect compensation on employee productivity: a case of central university college” by “ MENSAH RUBY” and were further modified.
6.2.4 Employee Performance
The questions related to Employee performance were also extracted from “Hong Lu_, Alison E. While, and K. Louise Barriball (2006)”.
6.3 Response Rate:
As the questionnaires were distributed personally, therefore the response rate was 100 %.
6.4 Population Size
The actual population of this study is the entire staff of Access bank.
6.5 Sample Size
The sample size was consists of 200 respondents who were selected randomly.
6.6 Sources of Data
Primary and secondary sources were used. The use of questionnaire was employed to gather necessary and relevant data from the respondents. These methods were used in order to minimize the problems associated with data collection and to ensure that the results are visible and bias free as expected. The questions were designed to sample the views of the respondents on the effect of compensation management on employees’ performance.
7. Results and Discussion
7.1 Correlation analysis
Correlations
Salary Rewards Indirect Compensation Performance
Salary Pearson Correlation
Sig. (2-tailed)
N .499** .271** .072
.000 .000 .314
200 200 200
Rewards Pearson Correlation
Sig. (2-tailed)
N .269** -.048
.000 .500
200 200
Indirect
Compensation Pearson Correlation
Sig. (2-tailed)
N .095
.180
200
**. Correlation is significant at the 0.01 level (2-tailed).
This table shows the correlation analysis of the variables salary, rewards, indirect compensation and employee performance. The relationship among these variable is given below.
Salary-Rewards
The table shows the moderate positive relationship among salary and rewards. It means that if there is an increase in salary then rewards will also increase moderately. So there is a direct relationship among these variables.
Salary-Indirect Compensation
The table shows the weak positive relationship among salary and indirect compensation. It means that if there is an increase in salary then indirect compensation will also increase weakly. So there is a direct relationship among these variables.
Salary-performance
The table shows the weak positive relationship among salary and performance. It means that if there is an increase in salary then the Performance will also increase but increase will be minor. So there is a direct relationship among these variables.
Rewards-Indirect Compensation
The table shows the weak positive relationship among rewards and indirect compensation. It means that if there is an increase in rewards then the indirect compensation will also increase but increase will be minor. So there is a direct relationship among these variables.
Rewards-Performance
The table shows the negative relationship among Rewards and performance. It means that if there is an increase in rewards then the performance will be decreased. So there is an inverse relationship among these variables.
Indirect Compensation-Performance
The table shows the weak positive relationship among indirect compensation and performance. It means that if there is an increase in indirect compensation then performance will also increase but increase will be minor. So there is a direct relationship among these variables.
6.2 Regression Analysis
Coefficientsa
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) 3.659 .316 11.578 .000
Salary .096 .073 .109 1.317 .189
Rewards -.081 .052 -.129 -1.566 .119
Indirect
Compensation .085 .063 .100 1.351 .178
a. Dependent Variable: Performance
The table shows the impact of the independent variables (salary, rewards, indirect compensation) on dependent variable (employee performance).The value of chronbach’s alpha is 0.05.The impact of these variables is given below.
Salary
H1.There is a significant impact of salary on employee performance.
As table shows that value of significance for the variable job salary is 0.189 which is greater than alpha. But the value of B is minor which means that there may be other factors as well. However result is insignificant and hence the alternative hypotheses is rejected. So we can say that Employee performance has positive impact on performance of the employees.
Rewards
H2.Rewards has significant impact on employee performance.
The value of rewards is greater than alpha (0.119>.05) therefore the results are insignificant and alternative hypothesis is accepted. So from the regression results it can be concluded that rewards has negative and insignificant impact on employee performance.
Indirect Compensation
H3. There is a significant impact of indirect compensation on employee performance.
The regression results also show insignificant impact of indirect compensation on employee performance. So indirect compensation has negative impact on employee performance
Regression Equation
Employee Performance = 3.659+ 0.096 Salary – 0.081 Rewards + 0.085 Indirect Compensation
6.3 Descriptive Analysis
Descriptive Stat istics
N Mean Std. Deviation
Salary 200 4.0869 .37396
Rewards 200 4.0708 .52614
Indirect Compensation 200 4.0925 .38852
Performance 200 4.0703 .32987
Valid N (listwise) 200
According to the descriptive analysis the answer of salary, rewards, indirect compensation and employee performance show agreeableness. Hence it means that all the independent variables will increase the employee performance.
The Results of Standard deviation shows the variation in data. According to the results of standard deviation the data variation of salary is 3.71 – 4.46.As the mean results lie between this range so the respondents responds in agree which means that salary has positive impact on employee performance.
The variation in the variable rewards is 3.54 – 4.59.Its value also lies between this range. So the responses are in agreeableness. Therefore it is concluded that rewards has positive impact on employee performance.
It is also clear from standard deviation results that the values of indirect compensation lie between the range of strongly agree and agree which means that these variables have also positive impact on employee performance.
6.4 ANOVA Analysis
On the Basis of Education Salary
ANO VA
Salary
Sum of Squares df Mean Square F Sig.
Between Groups 1.010 3 .337 2.565 .057
Within Groups 20.481 156 .131
Total 21.491 159
The table shows the significant results as the value 0.0571 is greater than the value of alpha 0.05.It means that different educational groups has the different impact which means that salary has different positive impact on employee performance for all education groups.
Rewards
ANOV A
Rewards
Sum of Squares df Mean Square F Sig.
Between Groups 2.388 3 .796 2.720 .046
Within Groups 45.659 156 .293
Total 48.047 159
The table shows the insignificant results as the value 0.045 is less than the value of alpha 0.05.It means that different educational groups have not the same impact which means that rewards has not same positive impact on employee performance for all education groups.
Indirect Compensation
ANOVA
Indirect Compensation
Sum of Squares df Mean Square F Sig.
Between Groups .741 3 .247 1.553 .203
Within Groups 24.813 156 .159
Total 25.554 159
The table shows the insignificant results as the value 0.203 is greater than the value of alpha 0.05.Therefore different educational groups have not the same impact which means that Indirect Compensation has not same positive impact on employee performance for all education groups.
Findings: It is founded from different results that Compensation has positive impact on employee performance. It is proved from correlation analysis that all the independent variables have weak or moderate positive relationship to each other. Regression analysis shows that all the independent variables have insignificant and positive impact on employee performance. Descriptive analysis also reveals that all the independent variables have positive impact on employee performance. ANOVA results reveal that education have not same impact on employee performance.
Limitations/Implications of the Research
The major limitation of this research is that this study only covers the banking sector of Punjab. Another limitation is that it excludes many variables of compensation due to shortage of time.
Apart from these limitations this research may provide insights to the managers to enhance the
employee performance of their subordinates.
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