Impact Of Effective Compensation Policy On Employees Performance

1.0   INTRODUCTION
1.1   Background of the Study
Employees are valuable and most important resources of any organization; therefore they should be professionally managed. One of the tools that any organization can use to entice, keep and encourage is effective compensation policy. Compensation is one of the physical needs that motivates employee which in turn affect employees performance, job performance is influenced by many factors externally and internally. Compensation is output and the benefit those employees receive in the form of pay, wages and rewards like monetary exchange for the employees to increase performance.

Nowadays compensation plays an important role in organizations, especially those that wish to reach their goals and objectives within a short period of time. If the firm did not manage this aspect properly, it might turn on a negative impact on their employees’ performance resulting to low productivity because they are not getting proper compensation and benefits to motivate them to work harder. It can be seen in some organizations that practices effective compensation policy, they are more productive than others they study and knew the secret key of motivation and put their employee in best performance. Maslow [1943, 1954] said that the measurement of how employees performance are positive and productive depends on how effective the organization is addressing their need for status, security and their survival needs as postulated in the organizations hierarchy of needs.

Furthermore, researchers have argued that effective compensation policy can create and sustain a competitive advantage for organizations (Milkovich and newsman, 2002, 4). In recent years, the inclusion of non-financial measures has gained some popularity in compensation, while some organizations demonstrate positive effects of incorporating non- financial measures in to the compensation system empirically (Widmier, 2002). 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. This reward can take many different forms including praise from supervisor and co-workers, implicit promise of future promotion opportunities, feelings of self-esteem that comes from superiors, achievement and recognition, current and future cash rewards related to performance .Koln (1993), argues that failure of compensation system is due to inadequate assumption about human motivation. Reason for this can be attributes to the measurement of employee satisfaction and employee loyalty to the organization. Hence, there is a strong need for the development of a holistic reward and performance measurement model enabling an organization to derive company specific success driver and identify cause and effect relationship when linking rewards to measure such as employees satisfaction and loyalty. Thus, Dalton McFarland (1998), asserted that among the various devices for eliciting the loyalty. Cooperation and effort of individuals are the various forms of economic rewards.

Compensation has a wider meaning, it is not just paying to the employee once he got injured or sick, but it is given to the employee to motivate and retain employee in the work place. As we can see in some organizations, the higher the compensation and benefits given to employee, the happier they are at work and this will lead to higher performance. Compensation contains direct and indirect incentives; it also entails some basic features that tend to make employees satisfy on their job. These incentives are; salary, bonuses, allowance, promotion, recognition, etc… all these have significant impact on employees performance. According to Ojo [1997] there are three components of compensation in an organization which are:

• The basic pays which are the basic wage inform of salary
• Fringe benefits: These are supplementary compensation awarded to employees over and above the basic wage or salary. It covers a wide range of awards which provides security, deferred remuneration and various services for employees.
• Performance incentive bonus: This is given to employees individually according to their performance to motivate them.

Effective compensation policy can improve the performance of employees, if organization can make it better off than worse off by contributing to employee satisfaction and development. Emphasis should be given to effective compensation policy so as to ensure good and positive employees performance.