Compensation Management And Employees’ Performance

CHAPTER ONE

1.0                                                          INTRODUCTION

• Background information to the Study

Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness. The impact of compensation and benefits on employee performance and organizational effectiveness depends on the existing compensation and performance management programs at an individual company. Typically, most employees respond to increases in pay and benefits with a positive and more productive attitude. However, the opposite is true as well. Sometimes, employees only notice rewards of a salary increase the day the increase is communicated to them, and the day they receive the first paycheck that includes the salary increase (Reddy, 2020).

According to Sothy (2019) compensation management deal with the formulation and implementation of human resource strategies, and policies to compensate employee fairly, equitably and consistently inconsistent with their values to the organization. Sothy (2019) added that compensation can be used to strengthen organizational structure; to attract and retain good talents; to make competitive advantages; to motivate employees; to achieve high-performance; to compensate employees based on legal requirements; to help the organization in their strategic goals. Thus, compensation management reflects the effort to guarantee fair and equitable conditions of intrinsic and extrinsic both internally and externally in order to retain and improve the employee performance and productivity to achieve goals (Sothy, 2019). Onuorah, Okeke and Ikechukwu, (2019) 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 (Onuorah, et al., 2019). 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. 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 (Onuorah, et al., 2019).

Onuorah, et al. (2019) identified the systems of compensation management which are: Performance-Based-Compensation, this is demonstrated as the single strongest predictor for job performance; Competency-Based-Compensation, this is a pay structure that rewards employees based on how well they perform in the workplace, rather than the hierarchy of their position or years of experience; and lastly, Equity Based-Compensation, this is to offer employees a share of the company’s future profits in exchange for lower (or sometimes zero) salaries up front. As opined by Falola, Ibidunni and Olokundun (2019), an effective compensation system is not static but constantly fine-tuned and its effectiveness often evaluated to ensure it constantly captures employee motivation. It must constantly increase the desire to attain high standards, increase employee satisfaction and give a feeling of competence and freedom (Enyioko & Ikoro, 2018). Employers get more of the behavior that they reward, not actually what they assume they will naturally get from employees. Thus when employees surpass their target or exceed their standard they expect to be rewarded immediately as a way of motivating them. By doing this, employees directly connect reward with work behavior and the higher performance they have attained (Ezeanyim, Ufoaroh & Ajakpo, 2019).

Employee performance in the workplace is an important aspect of every organization. It is a metric that is calculated based on the amount of output on a project versus the amount of time it takes. It can also be measured against a standard or base of performance for a group of employees doing similar work (Manuela, 2020). Performance may be evaluated in terms of the output of an employee in a specific period of time. Typically, the performance of a given employee will be assessed relative to an average for employees doing similar work. Because much of the success of any organization relies upon the performance of its employees. Uzochukwu, Nwankwo and Okafor (2023) posited that the performance of every employee is a major concern to the human resource department. In spite of the qualification and longevity of service of an employee, workers are sometimes reluctant to put in their best at their job site. Many work only within the confines of their job specification and are not interested in putting in any additional effort in driving the organizational goals. This takes away creativity from the work place, limits invention and improvement and places such a firm at a competitive disadvantage in the adverse business world that is constantly shifting to meet consumer needs and expectations. It takes only motivation to transform these employees into a self-driven and work oriented labour force (Eze & Anikeze, 2018).