Financial Incentives And Employees’ Performance

1.0                                                          INTRODUCTION

1.1       Background Information to the Study

Successful businesses depend on various assets, including financial resources, real estate, production equipment, and advanced technology. However, in the contemporary business landscape, employees are widely regarded as the most crucial asset of an organization (Ezekiel, 2022). Employees drive the business forward and play a key role in its success or failure; their performance shapes the perceptions of customers and partners alike. Consequently, it is essential for organizations to acknowledge the value that employees bring and treat them accordingly. Employee effectiveness and talent are vital in determining the organization’s growth and pace. Therefore, companies must appreciate their employees’ contributions and compensate them appropriately (Ezekiel, 2022).

In any organization, whether in the private or public sector, financial incentives are a critical concern for both management and employees, as they represent a significant portion of total operational costs (Nwachukwu, 2019). In some cases, financial incentives can account for over 50 percent of an organization’s operating expenses. For large organizations in the organized private sector, the ability to attract and retain talented employees largely hinges on their compensation packages. Inadequate wages often lead to persistent frustration, resulting in ongoing conflicts between labor and management, which in turn decreases productivity (Nwachukwu, 2019).

As stated by Ele, Makama, and Auquasama (2020), financial incentives refer to a series of activities involved in developing, implementing, and maintaining a compensation system. This ongoing process involves the administrative management of a financial incentive structure. Financial incentives encompass the cash components of an employee’s total compensation. According to Singh (2020), wages are the remuneration given to labor for work performed or services provided to employers. Wages are typically based on hourly pay rates, whereas salaries represent monthly compensation regardless of the number of hours worked. Danish and Usman (2021) explain that wages are monetary payments made to blue-collar workers on a daily, weekly, or monthly basis for jobs assessed based on time or productivity. In contrast, salaries are payments made to white-collar workers on a monthly basis for contributions that are not easily quantifiable. Sharma and Bajpai (2021) define a salary as a form of periodic payment to employees as outlined in their employment contracts.

According to these definitions, salary is not influenced by the number of hours worked or the amount of output produced, whereas wages fluctuate based on these factors. However, Hanson (2018) argued that there is no real distinction between financial incentives, as both represent payments for labor. Economically, the only difference lies in how these items are treated in costing: wages are considered variable costs that change with output, while salaries are categorized as overhead or, in the short run, as fixed costs. In this context, Danish and Usman (2021) noted that salary management refers to the systematic processes and techniques that organizations use to compensate or reward their employees. Nevertheless, employees cannot achieve financial job satisfaction unless the organization meets its stated objectives.

Agburu (2022) highlighted that financial incentive activities encompass all the processes, strategies, plans, and schemes that lead to the establishment of pay policies. These policies guide the overall approach to compensation within an organization. In a developing economy like Nigeria, salaries and wages are crucial for the sustenance of workers, making timely payment of financial incentives a potential motivator for them (Ele et al., 2020). Additionally, an organization’s ability to attract and retain employees often depends on how much they pay, when they pay, and the methods used for payment. Consequently, salaries and wages can significantly influence the level of job satisfaction employees experience and the quality of their performance (Christen, Iyler & Soberman, 2018).

Salaries are regular payments made to employees, typically on an annual, quarterly, monthly, or weekly basis, as compensation for their services. In contrast, wages refer to the payments given to workers who are paid hourly or those in casual employment (Ele et al., 2020). This distinction has sparked debate among researchers; for instance, Sharma and Bajpai (2021) contended that salaries and wages may not be the primary factors influencing employee performance. Additionally, Manafi, Gheshmi, and Hojabri (2022) noted that dissatisfaction with pay can diminish employees’ contributions to organizations, adversely affecting their performance over time. Consequently, to effectively attract and retain a skilled workforce, organizations must ensure that they adequately compensate their employees (Inyang & Akpama, 2022).

According to Hellriegel, Jackson, and Slocum (2019), employee performance refers to the degree of an individual’s work accomplishments following their exertion of effort. It can be seen as the capacity of a person to effectively complete the tasks assigned to them while adhering to the reasonable constraints of available resources (Dar, Akmal, Akram & Khan, 2011). Motowidlo, Borman, and Schmidt (2017) further described employee performance as the total expected value derived from employees’ behaviors over a specified period. Bullock (2023) emphasized that performance is a characteristic of behavior, essentially reflecting what individuals do in the workplace. Furthermore, an employee’s behavior contributes expected value to the organization; behaviors can either support or obstruct the organization’s objectives, yet the impact of these behaviors is seldom quantified, making their value largely anticipated.

Employees represent a crucial asset for any organization, and the overall success or failure of a business depends significantly on its ability to attract, retain, and adequately reward talented and competent individuals. Moreover, an employee’s commitment to their role is greatly influenced by the organization’s financial incentives structure (Osibanjo, Adeniji, Falola & Heirsmac, 2022). To achieve optimal employee performance, organizations must explore a range of effective financial incentive strategies to elicit the desired outcomes (Falola, Ibidunni & Olokundun, 2018). Ultimately, the level of job satisfaction among employees and their willingness to remain with the organization while enhancing their performance is largely determined by how financial incentives are managed within the organization (Osibanjo et al., 2022).

In this regard, it is crucial to develop and implement effective policies and practices concerning financial incentives, as well as related areas such as job evaluation, the establishment and maintenance of wage structures, conducting wage surveys, managing wage incentives, profit sharing, adjustments to wages, supplementary payments, and controlling compensation costs. These measures are essential for motivating employees and enhancing their performance (Ezekiel, 2022).