The Effectiveness Of Compensation Package On Workers Performance In An Organization

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The Effectiveness Of Compensation Package On Workers Performance In An Organization


This study was carried out to know through empirical examination the relationship between the following variables among junior and senior officers of the Nigeria Police Force.

Perceived compensation cum incentives, which is regarded as an indicator of the degree of felt disjunction between approved ends and available means.

Employee voice and representation, which reflects an individual feeling of powerlessness, formlessness, and isolation (anomie) and,Job satisfaction which is taken as an outcome or result of feeling alienated by the management policies in a work situation.

The study was carried out on the junior and senior officers of the Nigeria Police Force. Self-made questionnaire (validated and tested for reliability) was administered on them based on the research hypothesis of the study.
The primary data were collected using a self-administered questionnaire and the data was analyzed using the Pearson product correlation. Data were presented using a simple percentage table. Overall, the study found that payment for performance was a popular compensation. It was also discovered that the compensation policy affects employee participation due to the relationship between the variables. This resulted in higher performance, confidence in the administration and a strong relationship in the organization.

In addition, cash rewards reflected individual skills and efforts that included consideration of additional responsibilities and responsibilities. Employee compensation included pension plans; personal safety through the protection of health, health or accident insurance; Work safety, financial support for loans, purchase of organizational products and working life.

Chapter One


1.1 Background to the Study

Employees(Officers)ofNigeria Police Force are of different category and department, ranging from manufacturing, quality control and assurance, research and development, sales and marketing, administration and consulting. The collective efforts of all and different employees in their respective capacities tends to determine the performance of the organization at large. This is to say that the commitment of employees as a factor in determining the level of performance in any organization cannot be over emphasized. Therefore it is of almost importance to strategically device means of getting employees in an organization to be fully committed to their work, one of the ways of achieving this is by designing an effective compensation policy that is capable of driving the employees into the perception of being part of the organization. Compensation is defined as the different types of financial incomes and benefits that employees receive based on the employment relationship (Bernadin, 2007). Direct compensation includes the basic pay that the employee is entitled for his or her job. It includes all forms of salary, wages, overtime pay, and bonuses. Indirect compensation includes protection programs, insurance plans, insurance plans, educational assistance and pay for time not worked, feeling of advancement, achievement opportunity, opportunities for recognition and other forms of benefits (Adeniji and Osibanjo, 2012). Compensation policies are the collection of rules that govern the calculation of the net pay for all individuals employed in an organization. It goes a long way in determining the perception of employees in the organization as regards the way their welfare is covered and thus contribute to how committed they are to the objectives of the organization.

The concept of organizational commitment has received attention particularly in the field of industrial and organizational psychology (Cohen, 2003). It is a feeling of identification with organization’s values, contribution in the interest of the organization, and loyalty, expressed by employees (Steers, 1977). Organizational commitment is regarded as a dynamic construct comprising affective, continuance and normative commitment (Malik, Wahab and Naheem, 2010). Commitment is also described as the psychological connection that binds employees to their employing organization.

It must also be noted that a good and successful compensation and incentive package is hinged on a number of factors which one may call indicators. The compensation package should be tied to the vision strategy, culture, business models and goals of the organization. A good communication system must exist to ensure there is a clear understanding of the organisation’s future. Employees must understand the roles they place in achieving the objectives of the company and they must feel secure in performing those roles.

As alluded to above, compensation plans must be well defined at various levels of the organization and must be review periodically to keep the motivational levels of employees at desired heights. Also promises made concerning compensation by both employees and management must be honored to ensure a fair relationship between the two parties. It can be guaranteed that to indicators of a good compensation system as discussed above if given proper attention by the management of companies has the tendency of impacting on the attitudes and behaviours of employees positively hence sustaining their motivational levels to achieve corporate organizational goals.

1.2 Statement of the Problem

Human capital as an intangible asset gets increasingly important in modern economies. More and more companies operate in employee-intensive businesses where human capital is regarded as a critical asset and not purely a cost factor (Lev (2001)). As personnel costs often represent the largest part of total costs in companies, the design of compensation packages is of strategic importance and therefore directly influences corporate performance. Additionally, the structure of the pay mix is highly important for the motivation, commitment, and behavior of employees inside the company as well as for activities along the HR value chain like e.g. recruiting, developing and retaining employees. And, most important, performance-related pay helps to align the goals of managers and employees with those of the company respectively the shareholders. Hence, the design of competitive compensation policy is one of the major challenges companies have to face with in recent times. More so, with the rapid development of economy, the market competition is increasingly fierce and enterprises are faced with more severe policy and economic environment. In order to survive and develop, enterprises need to strengthen internal management effectively and attach great importance to the outside-in feedback management, that is to say, enterprises should establish an effective management control system. As an essential part of management control system, compensation policy design is undoubtedly of great importance. Compensation policy is one of the important tools for enterprises to carry out enterprise management and pursue business success.

1.3 objective of the Study.

The main objective of this study is to investigate the impact of compensation management on the performance o. the specific objectives of the research:

  1. To determine the relationship between compensation policy planning and employees commitment
  2. To identify the compensation packages available
  3. To investigate the problems and challenges associated with compensation management
  4. To identify other forms of compensation and recommendation ways of addressing challenges in compensation management

1.4 Research Question

Based on the research objectives the following research questions are posed.

  1. What is the relationship between compensation policy planning and employees commitment?
  2. What is the compensation packages available ?
  3. What are the problems and challenges associated with compensation management?

1.5 Research Hypothesis

Based on the theoretical framework, the following hypothesis has been based on developed.

  • Ho: There is no relationship between compensation policy planning and employees commitment.
  • Hi: There is a positive relationship between compensation policy planning and employees commitment.

1.6 Significance of the Study

The study will be of significance to the various human resource management stakeholders, policy developers, academicians and researchers.

The study will add new body of knowledge to existing contributions by providing more information through its contextual framework. HR practitioners will find the study to be of value when developing appropriate compensation policies which are intended to increase employee commitment.

Consultants will use the study when drawing comparatives of employee commitment and compensation policies across their clients in different organizations. The research findings will be replicated in other organizations in similar environment as pharmaceuticals .HR policies geared toward increase of commitment will be developed by the practitioners with an objective increasing commitment levels in the organization. Such policies include employee involvement, empowerment, participation and leadership. Scholars and researchers on the other hand will use the study as basis of further research.

1.7 Scope of the Study

The study of the relationship between compensation management and organizational performance was conducted on Nigeria Police Force. The design, planning and implementation of compensation policies in these company and how it motivates employees to be fully committed to their works formed the basis of the study.

1.8 Limitations of the Study

This research is limited to the activities of the Nigeria Police Force.

This is consequent to the time constraint on the duration of this research, so that the researcher can fully investigate the problem area.

Therefore, the researcher have focused solely on NPF limited for the research.

1.9 Definition of Terms


Compensation is the total cash and non-cash payments that you give to an employee in exchange for the work they do for your business. It is typically one of the biggest expenses for businesses with employees. Compensation is more than an employee’s regular paid wages. It also includes many other types of wages and benefits.

Compensation Management:

Compensation management is the act of providing monetary value to an employee for the work they do by means of a company process or policy. Some types of compensation include salary, bonuses, and benefit packages. Companies use compensation management in order to find, keep, and motivate employees to do quality work

Organizational Performance:

Organizational performance comprises the actual output or results of an organization as measured against its intended outputs (or goals and objectives)

Human Resources:

Human Resources is also the function in an organization that deals with the people and issues related to people such as compensation and benefits, recruiting and hiring employees, onboarding employees, performance management, training, and organization development and culture

Chapter Five

Summary of Findings, Conclusion and Recommendations

5.1 Summary of Findings

5.1.2 Inefficient or no communication on compensation issues

The study revealed that issues concerning employee compensation were not communicated effectively through the institution and employees also did not have a forum to be heard on the issues they have concerning their compensation packages and their management. Employees therefore were not involved in the formulation and implementation of policies concerning compensation in the hospital.

5.1.3 Lack of a system to measure employee performance

According to the study the company did not have an effective performance management system with which to manage, monitor and measure the performance of the employees. And since a good compensation system works hand in hand with a good performance management system its absence hampers the smooth administration of the compensation in the hospital.

5.1.4 Delays and human errors compensation management

The study found out that the managers of compensation do everything manually and therefore generate many errors and omissions. The entire compensation system is run manually which also delays the timely payment of such compensations hence its effectiveness.

5.1.6 Lack of proper categorization on compensation packages.

The study revealed that some of the employees had equity issues with the distribution of compensation packages which stemmed from the fact that their colleagues on the same scale and with the same qualification had more in relation to some compensation packages.

5.1.7 Lack of attention towards certain compensation packages

The research revealed that the management of the compensation packages had focus on certain aspects and had completely neglected some of the packages which employees found to be equally important. Some of which were the Retirement benefit package and Long service award package.

5.1 Conclusions

From the findings of this study, it can be concluded that effective compensation policy enhances employee commitment. When employees perceive that the policies in place encompasses their welfare, performance will be enhanced through commitment to work and intention to leave the organization will be drastically reduced. The subject of compensation poses a critical challenge for the Nigerian workforce. This poses a threat to the achievement of organization; objective as human capital is already the sure way of achieving them. A fairly designed compensation policy will have a positive impact on performance outcomes and enhance the commitment levels of employees.

5.2 Recommendations

The following recommendations are provided for high performance based on the finding of this study: This study found that compensation policy has a significant relationship with employees commitment which therefore improves organizational performance. It is therefore recommended that:

  1. Appropriate and equitable compensation policy should be designed to facilitate increased employees commitment.
  2. The policy should be assessable to all/potential employees
  3. The research recommends that a review of all compensation packages should be instituted and undertaken periodically to ensure all packages are given equal attention and developed to be abreast with current economic situation.
  4. It is recommended that management should develop a manual that clearly spells out the categorization of the compensation packages and their administrative procedure and copies of this manual should be made available to the entire employee population to allay their fears in that regard.

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