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Sacha Journal of Policy and Strategic Studies Volume 1 Number 1 (2011), pp.

109-120

COMPENSATION MANAGEMENT AS TOOL FOR IMPROVING ORGANIZATIONAL PERFORMANCE IN THE PUBLIC SECTORS: A STUDY OF THE CIVIL SERVICE OF ANAMBRA STATE OF NIGERIA IDEMOBI Ellis I.1 ONYEIZUGBE Chinedu U.1 AKPUNONU Evans O.1 Faculty of Management Sciences Anambra State University, Igbariam, Nigeria ABSTRACT This study examines the extent to which compensation management can be used as a tool for improving organizational performance in a typical public sector organization like the Anambra State of Nigeria Civil Service. Guided by the Vrooms expectancy theory of motivation, this study seeks to ascertain if financial compensations have a significant relationship with employee performance in the public service using Anambra State Civil Service as a reference. It also aimed at finding out if efforts of the employees are commensurate with financial compensations and ascertain the extent to which reform programmes of the State Government have affected compensation policies and practices. In pursuance of the objectives of the study, the descriptive survey design was adopted. Pearsons Product Moment Correlation was used for data analysis and Z-test was also used to test the significance of the coefficient of correlation at 5% level of significance. It was found that financial compensation for staff members in the public service do not have a significant effect on their performance and that financial compensation received are not commensurate with staff efforts. The study further found that reform programmes of the Government do not have a significant effect on the financial compensation policies and practices in the public sector due to poor compensation management. Based on these findings, it is recommended that for any public service organization such as the Anambra State of Nigeria Civil Service Commission to improve the performance of employees, they should offer financial compensation that will be specifically designed to link it with performance. Keywords: Public sectors, Strategic management, Civil service, Organizational Performance
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1. INTRODUCTION The turbulent management-labour crisis over continuous agitation for increased pay in the public services all over the world is challenging public sector organizations to utilize their employees more effectively to improve organizational performance. In Nigerian Civil Services, pay has become the driving force for seeking employment in the industry. It therefore becomes imperative that organizations establish and adopt a compensation system that can motivate employees to work while at the same time not eating too deep into the organizations resources. Compensation processes are based on Compensation Philosophies and strategies and contain arrangement in the shape of Policies and strategies, guiding principles, structures and procedures which are devised and managed to provide and maintain appropriate types and levels of pay, benefits and other forms of compensation (Bob, 2011). This constitutes measuring job values, designing and maintaining pay structures, paying for performance, competence and skill, and
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providing employee benefits. However, compensation management is not just about money. It is also concerned with that non-financial compensation which provides intrinsic or extrinsic motivation (Bob, 2011). This work however is limited to financial compensation in Anambra State Civil Service as a recent study by Anyebe (2003) has shown that pay is the driving force for seeking employment in the Civil Service. Stretching this further, Armstrong (2005) stated that compensation management is an integral part of human resources management approach to productivity improvement in the organization. It deals with the design, implementation and maintenance of compensation system that are geared to the improvement of organizational, team and individual performance. Compensation implies having a compensation structure in which the employees who perform better are paid more than the average performing employees (Pearce, 2010). Compensation Management is concerned with the formulation and implementation of strategies and Policies that aim to compensate people fairly, equitably and consistently in accordance with their value to the organization (Armstrong, 2005). The task in compensation administration is to develop policies and procedures that will attain maximum return on Naira spent in the terms of attracting, satisfying, retaining and perhaps motivating employees (Anyebe, 2003). Anambra State Civil Service which the researchers examined originated from the Eastern Nigeria Government and the old Anambra State. The creation of this state in 1991 led to the set up of the Anambra State Civil Service. Employing the tenets of traditional public administration, the state civil service was an instrument of the government authorities as well as an impartial interpreter and implementer of the policies and programmes of the State Government. Robert and Angelo (2001) opined that the success or failure of organizations hinges on the ability to attract, develop, retain, empower and reward a diverse array of appropriately skilled people and is the key to improved performance hence the enthronement of democratic governance in 1999 brought some civil service reforms and Anambra State Civil Service Commission got vested with horizontal powers by law to manage the workforce of the civil service for greater efficiency. Successive constitutional reviews and Civil Service reforms have catalysed the evolution of the civil service as an institution for spearheading the rapid transformation of the state and ensuring continuity of administration (Nweke, 2010). Compensation management is one of the central pillars of human resources management (HRM). It is concerned with the formulation and implementation of strategies and policies that aim to compensate people fairly, equitably and consistently in accordance with their value to the organization (Armstrong, 2005). Compensation Management as the name suggests, implies having a compensation structure in which the employees who perform better are paid more than the average performing employees (Hewitt, 2009). This encourages top-performers to work harder and helps to build a competitive atmosphere in the organization. Armstrong and Brown (2005) postulate that compensation management is an integral part of HRM approach to managing people and as such it supports the achievement of business objectives and it is strategic in the sense that it addresses longer term issues relating to how people should be valued for what they want to achieve; It is therefore integrated with other HRM functions, especially those concerned with human resources development. Armstrong (2005) in his own analysis says compensation management is all about developing a positive employment relationship and psychological contract that adopts a total compensation approach which recognizes that there are a number of ways in which people can be compensated. Other writers (Bob 2001; Brown 2003; Anyebe 2003) see compensation management as being based on a well articulated philosophy- a set of beliefs and guiding principles that are consistent with the values of the organization which recognizes the fact that if HRM is about investing in human capital from which a reasonable return is required, then it is proper to
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compensate people differently according to their contribution. This emphasizes the development of the skills and competencies of employees in order to increase the resource-based capability of the organization. Harrison and Liska (2008) in their study posit that reward is the centre piece of the employment contract-after all it is the main reason why people work. This includes all types of rewards, both intrinsic and extrinsic, that are received as a result of employment by the organization. In another study, Brown (2003) sees compensation as a return in exchange between their employees and themselves as an entitlement for being an employee of the organization, or as a reward for a job well done. Employees pay does not depend solely on the jobs they hold. Instead organizations vary the amount paid according to differences in performance of the individual, group, or whole organization as well as differences in employee qualities such as seniority, educational levels and skills (Gehart and Milkovich, 1992). Remuneration does not simply compensate employees for their efforts- it also has an impact on the recruitment and retention of talented people according to Milkovich and Newman (2001).World at work (2000) argues that compensation philosophies and objectives must reflect the overall culture, philosophies and strategic plans of the organization. He posits that there are two basic compensation philosophies, which should be seen as opposite ends of a continuum. At one end of the continuum is the entitlement philosophy, at the other end, the performance-oriented philosophy. Employees and managers who subscribe to the entitlement philosophy believe that individuals who have worked another year are entitled to a rise in base pay and that all incentives and benefit programs should continue unchanged regardless of changing industry or economic conditions. On the other hand, in case of performance-oriented approach, no one is guaranteed compensation just for adding another year to organizational service instead pay and incentives are based on performance differences among employees. Employees and those who do not perform satisfactorily receive little or no increase in compensation. It is therefore critical that organizations align their compensation practice with performance to enhance the achievement of organizational goals and enhance competitive advantage. Fein (2010) postulates that firms with formal bonus plans had an average pre-tax return on investment of 15.8 percent, compared to 11.7 percent for firms without a formal plan; the after-tax profits were 8.6 percent versus 5 percent. Redling (2008) carried out a research where performance was measured by a 5-year performance ranking that combined earnings growth and return on shareholders equity. Using a randomly selected sample of 25 companies, he correlated each organizations ranked performance with its base salary growth with its salary-plus bonus growth over 5 years. He found a correlation of .16 between base salary increase and firm performance and a correlation of .09 between salary plus-bonus increase and performance, from which he concluded that there was little indication of the existence of performance-contingent pay plans in current top executive compensation. Nweke (2010) identifies the on-going civil service reforms in Anambra State as follows: The Salaries and allowances of Civil servants have been increased four times since 2001. The State governments also increased the rent allowance from 30% to 40% to bring it at par with other sister states. The state government also commenced the restructuring through a pilot phase involving some ministries and offices. His key operations in the restructuring exercises involve among others; mission and vision articulation, mandate review, personnel and payroll audit process review, structure re-alignment information system applications, re- tooling and re-skilling.
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Civil Service Capacity Building; the reform involves training and retraining staff through attendance of work process review and measure of promoting e-government. There is a manifest change in governments budgeting and financial management philosophy and operation , which is now characterized by firm policies , economic growth and management orientation, time discipline and predictability in resource allocation and funding releases. Pension Reforms The government has increased substantially the subventions to some Ministries, Departments, Agencies, Corporations to enable them implement all increases in salaries already implemented in the Service. Group Personal Accident Insurance Scheme; the policy provides cover for death, partial, /permanent disablement of an officer in an accident occurring within the period of cover.

Loomis (2008) plotted 2007 compensation (salaries, bonuses, profit-sharing, stock purchase contribution) against return on share holders equity found a less than perfect correspondence, and moreover, highlighted extreme cases of executives receiving relatively large increases in compensation during a period of deteriorating profitability for their firms. Loomis argued that executive compensation in these prominent publicly-held firms should be more directly tied to firm performance. Dyer and Schwab (1982) noted that there is research evidence that incentive pay plans for non-management employees produce higher productivity. 2. THEORETICAL FRAMEWORK This study has a base on the Vrooms expectancy theory of motivation which states that performance can be thought of a multiplicative function of motivation and ability, example P = (M X A). Motivation in turn varies with the valence (V) or attractiveness of outcomes upon the performance for that task, and the instrumentality (1) of performance for attaining the outcome. Vroom is simply saying in precise mathematical language that motivation depends not just on the outcome desired by the worker, but also on the instrumentality of effort, that is the relationship perceived by the worker between his and others previous efforts and the desired outcome. According to Idemobi (2010), the Expectancy Theory is a process theory developed which basically concentrates on the outcomes. What Vroom explained in his theory is that fact that in order to motivate employees or people the effort put in by the employees, the performance generated and motivation must be linked to one another. According to Vroom employee expectations can affect an individuals motivation. Therefore, the amount of effort employees exerts on a specific task depends on their expectations of the outcome. Vroom contends that employees ask three basic questions committing maximum effort to a task: (1) Can I accomplish the task? (2) If I do accomplish it, whats my reward? (3) Is the reward worth the effort? Building on the Vroom model, Ejiofor (1987) identifies four critical variables in worker motivation. They are; the ability of the worker (A), attractiveness of the rewards of working (Valence), causal relationship between effort and rewards (instrumentality) and the existence of infrastructural support (Tools). Regarding the effects of these variables on motivation, each of them has a direct relationship with motivation (Ejiofor, 1987). He argued that when holding workers ability, attractiveness of the reward and infrastructural support constant, only an incentive system based strictly on perfect instrumentality can keep worker motivation at optimum. He submits that perfect instrumentality is a missing link in Nigerian organizations. This study agrees with the
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research carried out by Ejiofor (1987) that instrumentality is the missing link in the motivational strategies and policies of most Nigerian organizations. It is only compensation or reward system based strictly on perfect instrumentality can keep worker motivation at optimum. In other words Vroom basically proposed three variables which in turn were vital to motivate employees. They are basically expectancy, instrumentality and valence. By any chance if employees happen to believe that any one of the three is not available, then Vroom states that the employees are unlikely to be motivated. In other words, as Vroom sees it, it is right to say that in order to motivate the employees all of above three have to be achieved by the organization. Expectancy theory does note that expectation varies from individual to individual. Employees therefore establish their own views in terms of task difficulty and the value of the reward. This study aims to examine the extent to which an effective compensation management can be used as a tool for improving organizational performance in a public sector organization using the Anambra State of Nigeria Civil Service as reference case. The specific objectives are: To ascertain if financial compensation has a significant relationship with employee performance in the Anambra State Civil Service. To find out if efforts of the employees are commensurate with financial compensation. To ascertain the extent to which reform programmes of the State Government have affected compensation policies and practices. 3. METHODS AND MATERIALS The study is limited to six (6) and of thirty two (32) organizations selected from the Anambra State Civil Service. The selected organizations include Anambra Ministry of Education, Anambra State Ministry of Health, Board of Internal Revenue, Anambra State Local Government Service Commission, Anambra Broadcasting Service and Anambra State Environmental Protection Agency. 3.1 The Problem

The turbulent management-labour crisis over continuous agitation for increased pay in the public services all over the world is challenging public sector organizations to utilize their employees more effectively to improve organizational performance. In Nigerian Civil Services, pay has become the driving force for seeking employment in the industry. In the Ananmbra State of Nigeria, available records show that since the state was created in 1991 only a few Government administrations have made efforts to compensation workers adequately (Nweke, 2010). This has greatly reduced performance of key personnel in the various Ministries, Departments, Agencies, Government Boards, Parastatals, Corporations and Commissions under the Anambra State Civil Service. Indeed due to poor compensation management in the service over the years, some of these organizations went moribund. As Nweke (2010) puts it, Anambra State Civil Service Commission seemed to have a myopic view of what should constitute appropriate or fair compensation. This explains why many past administrations in the state have engaged in various Civil Service reforms without seriously improving service delivery. It therefore becomes imperative that organizations establish and adopt a compensation system that can motivate employees to work while at the same time not eating too deep into the organizations resources. The problem of this study therefore is to examine the role of effective

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compensation management in ensuring better service delivery in public sector organizations using the Anambra State of Nigeria Public Service as a reference. 3.2 Statement of Hypotheses

The following hypotheses are formulated to guide this study: H0: 1 There is no significant relationship between financial compensations in the Anambra State Civil Service and employee performance. Ha: 1 There is a significant relationship between financial compensations in the Anambra State Civil Service and employee performance. Ho: 2 The efforts of the employees are not commensurate with financial compensations they receive in the Anambra State Civil Service. Ha: 2 The efforts of employees are commensurate with financial compensations they receive in the Anambra State Civil Service. Ho: 3 The reform programmes of Anambra State Government have not had a significant effect on financial compensation policies and practices in the Anambra Civil Service. Ha: 3 The reform programmes of Anambra State Government have had a significant effect on financial compensation policies and practices of the Anambra Civil Service. 3.3 Data collection and Analysis

A descriptive survey involving questionnaire was the research design adopted for this study. The population of the study was a finite one consisting of the entire staff of the selected organizations. The population of the study at the time of this study was One Thousand, Three hundred and Sixty Five (1,365). The random sampling method was adopted for the selection of organizations in Anambra State Civil Service. The Research employed the Spearman Rank- order Correlation Coefficient for the degree of relationship. The reliability test was conducted among a group of 300 employees to ascertain if the correlation between the compensation management and performance in Anambra State Civil Service. The Rank correlation is 0.995, signifying that there is reasonable agreement between the two sets administered. The hypotheses are analyzed using the Pearson Product Moments Coefficient of Correlation. Hypothesis 1 Ho: 1 Ha : 1 There is no significant relationship between the Financial compensations of Anambra State Civil Service and employee performance. There is a significant relationship between financial compensation of Anambra State Civil Service and employee performance. Making References to the Computation in Appendix A

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X = 66. 67, y = 66.67 b= x y = 15950.01 = 0.012 X2 a=ybx 1304171 = 66.67 66.67 (0.012) = 65.87

y = a + b x = 65.87 + 0.012 r=xy (x ) (y )


2 2

= 15950.01 (19950.01) (19950.01) = 0.31

From the computation above, there is a weak correlation between the financial compensation of Anambra State Civil Service and employee performance .To test the significant of the coefficient of correlation. Z=xNP = 300 309 = -1.2 NP(1-P) 309(1-0.83)

Z cal Z table

= =

- 1.2 1.28

The Computed result shows that Z calculated is less than Z table value at 10% level of significance. The Null hypothesis (Ho) is accepted and alternative hypothesis (Ha) is rejected. This reveals that there is no significant relationship between financial compensation of Anambra State Civil Service and employee performance. Hypothesis 2 Ho: 2 The efforts of the employees are not commensurate with financial compensation they receive in Anambra State Civil service. Ha: 2 The efforts of the employees are commensurate with financial compensation they receive In Anambra State Civil service. Making References to the computation in Appendix B X b = 66. 67, y = 66. 67 =xy= X2 a y r = 3500.01= 0.18 19950.01 y b x = 66.67 66.67 (0.18) = 54.7 = 54.7 + 0.18

=a+bx (x2) (y2)

= x y = 3500.10 (19950.01) (19950.01 = 0. 18

The computation shows a relationship though a weak one between efforts of the employees and financial compensation they receive in the State Civil Service.

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To test for significance Z= xNP= NP(1-P)

300 309 309(1-0.83)

= -1.2

Z cal Z table

= =

- 1.2 1.28

Z calculated is less than Z table value. The Null hypothesis is accepted and Alternative hypothesis is rejected. This shows that there is no significant relationship between efforts of the employees and financial compensation in Anambra State Civil Service. Hypothesis 3 Ho: 3 Ha: 3 The reform programmes of Anambra State Government have not had significant effect on financial Compensation policies and practices of the Civil Service. The reform programmes of Anambra State Government have had significant effort on financial Compensation policies and practices of the Civil service.

Making Reference to Computation in Appendix C X =66.67 b= xy X2 y = 66.67 = 1916.91 = 0.15

12466.31

a = y bx = 66.67-66.67 (0.15) =56.67 y = a + bx xy = ( x2) ( y2) = 56.67 +0.15 1916 .91 (12466.31) (13416.91) = 0. 15 This shows a correlation though a very weak one between reform programmes and financial compensation policies and practices of the civil service. Test for significance shows that Z = x NP N P (1- P) = 300 309 309(1-0.68)

Z cal = - 0. 9 Z table = 0.98 Zcal is less than Z table value at 10% level of significance. The Null hypothesis is accepted and alternative hypothesis is rejected. This implies that reform programmes had no significant effect on compensation policies and practices of the civil service.
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4. DISCUSSIONS AND RECOMMENDATIONS The finding of the test of the first hypothesis shows that there is no significant relationship between the financial compensations in the Anambra State Civil Service and employee performance. This finding explains why the Civil Service Commission should adopt the best form of financial compensation strategy that will improve the performance of its employees in line with the assertion of Robert and Angelo (2001) when they opined that the success or failure of organizations depend on how the employers retain, empower and reward a diverse array of appropriately skilled people and is the key to improved performance. The result of the second hypothesis indicates that there is no significant relationship between the efforts of the employees and financial compensations of the Anambra State Civil Service. This is in agreement with the assertion of Ejiofor (1987) who postulates that an able worker will not be motivated if he does not perceive that there is an intimate relationship between his effort and his reward. The outcome of hypothesis three reveals that the reform programmes of the Anambra State Government have not had a significant effect on financial compensation policies and practices of the civil service. Based on the result of findings, the following recommendations are made: The Anambra State Civil Service Commission should insist on doing the proper job analysis in the organizations along with wages and salaries, the Civil Service Commission should offer attractive incentive pay that will be specifically designed to link certain predetermined behaviour or outcome in order to meet the performance standards. The management should relate pay rise directly to performance The State Government should undertake further Civil Service Reforms that will reengineer and streamline government machinery, so that a significant increase in the quantity and cost- effectiveness of the civil service can be realized. If all these recommendations are put in place, the Anambra State Government will achieve the dream of having a Civil Service of the twenty first century that would be properly focused and result oriented. REFERENCES

Anyebe, A. (2003). The Nigerian Civil Service; Issues in structure and operation, journal of professional administration, 5; 11-17. Armstrong, M (2005). A Handbook of Human Resources management practices. UK: Kogan page, 986 p. Armstrong, M. and Brown, D. (1998). Relating Competences to pay: The UK Experience, Compensation and Benefit Review, 18(2); 2905-310. Bob, N. (2001). Making employees suggestions Count, Journal of personnel management 17; 20 -41. Brown, D. (2003). Reward strategies, Journal of personnel management, 1; 17-29. Dyer, and Schwab, p. (1982) Developing Job Evaluation, Journal of management, 5, 10-14. Ejiofor, P. (1987). Management in Nigeria: Theories and issues. Onitsha: Africana- Feb publishers limited, 295. Fein, B. (2010). Compensation Management Strategies, Journal of personnel Administration, 18; 13-27.
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Gerhat, .C. and Milkovich, G. (1992). Performance pay as a competitive weapon New York: Wihy, 417p. Harrison, D.A and Liska, Z. (2008). Promoting Regular Exercise in Occupational Fitness Programme, Journal of Personal Psychology, 5(5); 27-45. Hewitt A.(2009). Managing performance with incentive pay, Journal of personnel Management, 7(1): 20-31 Milkovich, G. F and Newman, J.M.(2001). Compensation Approach. Boston: Irwin, 508p. Nweke, A.(2009). Three years of Visionary leadership in Anambra State, Journal of Anambra State, Civil Service, 8(1), 7-12. Pearce, L.(2010). Managerial compensation based on organization performance, Journal of industrial Relation, 52:3-28. Redling, O. (2008). Effects of merit pay on performance, Journal of Management, 31:12-19. Loomis, K. (2008).Reward Management, Journal of Industrial Relation, 21:5-12. Worldawork,A.(2000).Total Rewards: from strategy to implementation, Worldawork, Scottsdaley AZ.

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APPENDIX A Showing the computation of correlation coefficient of hypothesis one X Y - X- X -Y-Y XY X2 Y2 135 160 68.33 93.33 6377.24 4668.9 8710.49 90 90 23.33 23.33 544.29 544.29 544.29 45 30 -21.67 -36.67 794.64 469.59 1344.69 30 20 -36.67 -46.67 1711.35 1344.69 2178.09 30 20 -36.67 -46.67 -1711.39 1344.69 2178.09 20 30 -46.67 -36.67 -1711.39 1344.69 2178.09 50 45 -16.67 -21.67 -361.24 277.89 469.59 110 120 43.33 53.33 2310.79 1877.49 2844.09 90 85 23.33 18.33 427.67 335.99 335.99 600 600 1304171 19950.01 Source: Analysis of Empirical Data, 2011.

Computation of correlation coefficient of hypothesis two X Y X -X Y Y XY 90 160 23.33 93.33 2177.39 160 90 93.33 23.33 2177.39 30 30 -36.67 -36.67 1344.69 20 20 -46.67 -46.67 2178.09 120 120 53.33 -46.67 -2488.91 85 85 18.33 -36.67 -672.16 30 30 -36.67 -21.67 794.64 45 45 -21.67 53.33 -1155.66 20 600 20 600 -46.67 -18.33 -855.46

X2 544.29 8710.49 1344.69 2178.09 2844.09 335.99 1344.69 469.59 2178.09 3500.01

Y2 8710.49 544.29 1344.69 2178.09 2178.09 1344.69 468.59 2844.09 355.99 19950.01

Source: Analysis of Empirical Data, 2011

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APPENDIX C Showing the Computation of Correlation Coefficient of Hypothesis three

X 30 20 50 110 90 20 30 160 90 600

Y 120 85 30 45 20 30 20 160 90

X X-36.67 -46.67 -16.67 43.33 23.33 -46.67 -36.67 93.23 23.33

Y Y 53.33 18.33 -36.67 -21.67 -46.64 -36.36 46.67 93.23 23.33

XY -1955.61 -855.46 -611.29 938.96 1088.81 1711.39 1711.39 2177.39 544.29 1916.91

X2 1344.09 2178.89 277.89 1877.49 544.29 2178.09 1344.69 2177.39 544.39 12466.31

Y2 2844.09 335.99 1344.09 469.59 2178.09 1344.69 2178.09 2177.39 544.29 13416.91

600

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