Effect Of Compensation Management In Improving Employees Performance In An Organization

Project and Seminar material for Public Administration

Project and Seminar material for Public Administration


Compensation management is one of the most important aspects of personnel management. It covers economic rewards in form of wages and salaries as well as in various forms of non-wage economic payment known as fringe benefits, indirect compensation or supplementary pay. Therefore, this research work has been carried out to look at the impact of organizational compensation management system on the performance of employees in the public sector.

The research found out that compensation management has a great impact on the performance of employees in the organization and that there are other factors which re not monetary inclined that contributed greatly to the performance of employees. Factors such as; motivation, leadership, communication, control, sense of belonging and decision making. It is therefore hoped that this project will help in understanding the impact of compensation management on employees’ performance. The project is intended to create awareness for organization members, society and government. Also the general reader will find it educating and informative. The need for this study arises from the variation in performance of employees in the organization that has been noticed and this research work hoped to improve the standard and in order to achieve this, project has gone into so many past works of authors and related literatures in order to profound solutions.

This study is divided into five chapters covering the wide scope of compensation management. Chapter one deals with the general focus of the study. Chapter two tries to review various concepts and theoretical strands that are relevant to this study. In chapter three, attempt was made to look into the methodology of the study. Chapter four endeavour to present, analyze and summarize the data collected in the course of the study. The conclusion of the study is in chapter five where general discussions, conclusion and recommendations were made. These were considered relevant to improve the impact of compensation management on employees’ performance. In the analysis of the research work it was concluded that compensation management system has a great impact on employees’ performance.

Chapter One


1.1 Background To The Study

One of 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. 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”. (ASH, 1993). 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).

Furthermore, researchers have argued that compensation management system can create and sustain a competitive advantage for organizations (Milkovich and newsman, 2002). 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 into 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. These reward can take many different forms including praise from suspensor and co-workers, implicit promise of future promotion opportunities, feelings of self esteem that comes from superiors achievement and recognition and current and future cash rewards related to performance.

Koln (2003), argues that failure of compensation system is due to inadequate assumption about human motivation, reason for this can be attributes rather 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 drivers and identify cause and effect relationship when linking rewards to measure such as employees satisfaction and loyalty. Thus, Dalton McFarland (2008), asserted that among the various devices for eliciting the loyalty, cooperation and effort of individuals are the various forms of economic rewards’

According to Ojo (2007) there are three components of employees compensation in an organization which are (i) the basic pay (ii) the fringe benefits and (iii) performance incentives or bonus. The basic pay is the basic wage in form of salary, fringe benefits are supplementary compensation awarded to employers over and above the basic wage or salary. Since the coming of the term “Fringe Benefits” during world war ii, the scope of employees benefits has widened markedly in both developed and developing countries. Such benefit covers a wide range of rewards which provides security, deferred remuneration and various services for employees.

The significance of the subject matter, Compensation emanates mainly from the fact that it provides income to workers and constitutes an important cost item to the employers, the largest single cost item for many organizations. For the workers, wage provides the means of satisfying their wants and needs.

1.2 Statement Of Problem

The relationship between organizational compensation system and employees performance is indispensable, though some surrounding factors may determine the satisfaction one derives from the other. The high inflation rate which has led to high cost of living, low income and purchasing power can be a reason for poor performance. In order to achieve the needed output level, the Nigerian managers faces an uphill task in trying to fashion out a reward system which does not have to necessarily be totally monetary inclined to motivate and bring out the best in employees to whom morale would have been affected by the bad state of socio-political and economic sphere of the country.

The question now is, can there be a reward system that could adequately have an effect on workers performance? How often is this system reviewed? Would a fixed organizational compensation system bring out the required performance? Does the system reward the right set of employees? Would the outlined reward solve the immediate problems of workers in order to boost performance? Can the reward system stand out the test of time?

Most times, only good behavior is rewarded while performance based reward is ignored. Also, some organizations confuse activity with action and reward those who seem busy, yet the quiet employees may have been doing the bulk of the work. From this, there is need for management to build its reward system along the line of actual performance and actual level of work, input and productivity. Therefore, the problem of trying to figure out these loopholes with intent of correcting them forms the basic for this research.

1.3 Objectives Of The Study

Specifically, the purpose of the study are as follows;

  1. To find out the different compensation packages that exists in the public sector most especially the Nigerian Port Authority.
  2. To find out the effect or impact of these compensation packages on employees performance.
  3. To identify the particular compensation packages that motivates employees to the highest degree of performance.
  4. The study seeks to find out the perceptions of employees concerning the compensation packages.
  5. To offer suggestions on how the public sector can provide an effective compensation packages.

1.4 Research Questions

The research questions were directed specifically to address the following issues;

  1. How is compensation management at the Nigeria Ports Authority administered?
  2. Does the compensation system have effect on employee’s performance?
  3. How often is the compensation system at the Nigeria Port Authority being reviewed?
  4. Are there any other factors by which employee’s performance can be improved upon through compensation packages?
  5. What are the factors being considered in carrying out compensation policy exercise at the Nigeria port Authority (NPA)?

1.5 Hypothesis Testing

The following hypotheses will be tested in this study. Ho; Compensation management practice has no impact on employee’s performance.

HA; Compensation management practices has impact on employee’s performance.

1.6 Scope And Limitation Of The Study

The study shall be carried out within the Nigeria public sector, specifically the Nigeria Ports Authority (NPA)

The project is intended to cover the compensation management system and how it relates to the individual employee in the organization and also to the organization.

1.7 Significance Of Study

The information from this research will add to the study of the knowledge and theories on the subject matter of compensation.

This study was brought about by the persistent quest for higher employees performance by several organizations especially Nigeria ports Authority at Apapa. The basic question to date is how well the use of compensation packages relates positively to employees performance. Finally, the outcome of this study will pose a challenge for future researchers or students who may be interested in carrying out more research in this area and it will also serve as reference materials for students.

1.8 Definition Of Terms


This refers to direct and indirect rewards given to employees on the basis of the value of the job, their personal contributions and their performances.


The extent to which an employee or group of employees have gone in achieving the set goals or standards.


Person who work for compensation weather direct or indirect for another in return for stipulated series.


A group of people who form a business in order to achieve a particular aim.

Public Sector:

The area of the nation’s affairs under governmental rather than private control.


A course of action adopted and pursued by an organization, government, ruler, political party etc.


A result arrived at a goal or objectives aim at something.


The measure of the output of goods and series relative to resources available.

1.9 Organisation Of The Study

This research work shall be organized into five chapters which are summarized as follows:

Chapter One:

This is the introductory chapter that includes the background to the study, research questions, hypothesis that will be tested, statement of problems, significance and scope of the research work.

Chapter Two:

This chapter focus on different write up of scholars which will be looked into, literature reviews and various theories in the field of compensation management will be sited.

Chapter Three:

In this chapter, the research methodology will be analyzed. Methods used in carrying out the research and the population size are also inclusive.

Chapter Four:

This is the chapter where data collected from questionnaire will be analyzed and it will involve the use of some mathematical calculations and statistical tools.

Chapter Five:

This is the last chapter of the research work and it includes discussion of result, conclusions and recommendation for future purpose.

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