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PROJECT TOPIC: ASSESSMENT OF THE IMPACT OF COMPETENCY BASED PAY SYSTEM ON RETENTION OF EMPLOYEES IN NIGERIAN BANKS

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CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY        

The concept of Reward has been defined as all tangible benefits given to the employee as a part of employment relationship (Milkovich and Newman, 2004). Bratton and Gold (2003) posit that it comprises of cash, non-cash and even psychological payment received by the employee as a result of their contribution to the organisation. Malhotra et al. (2007) also states that it is a determinant of job satisfaction and commitment. Although, all these definitions focus on rewards from different perspectives, the emphasis on ‘employee’ and ‘payment for employee effort’ is apparent. Employees are the most important assets of any organisation and it is assumed that their loyalty, commitment and maximum performance may be assured with a good reward structure (Schuster and Zingheim, 1992). According to Perkins and white (2011), Service Based Pay (SBP) focuses on rewarding employees as a result of length of service. The rationale is based on the assumption that experience translates into effectiveness and therefore employees become more valuable to the organisation hence the need for them to be rewarded accordingly. This reward system has been mostly abandoned by the private sector but is still being used in Public sectors around the world (Heery 1996, Lee et al. 2011.) however; this system has encouraged complacency amongst employees in the public sector and assumed to be the cause of underperformance in this sector. It does not recognise some employees contribute more than others, and therefore rewards poor performance equally (Fischer 2008, Lee et al. 2011). These make it necessary to review the system.

Reward system is an important tool that management can use to channel employee motivation in desired ways. In other words, reward systems seek to attract people to join the organization, to keep them coming to work, and motivate them to perform to high levels (Beer, 1984). The reward system consists of all organization components including people processes rules and decision making activities involved in the allocation of compensation and benefits to employees in exchange for their contribution to the organization. In order for an organization to meet its obligations to shareholders, employees and society, its top management must develop a relationship between the organization and employees that will fulfill the continually changing needs of both panics (Spector and Lawrence. 1984). At a minimum the organization expects employees to perform reliably the tasks assigned to them and at the standards set for them, and to follow the rules that have been established to govern the workplace. Management often expects more: that employees lake initiative, supervise themselves, continue to learn new skills, and be responsive to business needs (Mills and Walton. 1984). At a minimum, employees expect their organization to provide fair pay, safe working conditions, and fair treatment. Like management, employees often expect more, depending on the strength of their needs for security, status, involvement, challenge, power, and responsibility. Just how ambitious the expectations of each party are, vary from organization to organization. For organizations to address these expectations an understanding of employee motivation is required (Beer. 1984).

To retain employees requires motivation, the factors that motivate employees to stay in their jobs are therefore vital, as they affect performance of the organization. This is because skilled employees enable organizations to gain competitive advantage. Although, views varied among bankers as to what motivates employees to remain stable on their jobs, Monetary motivation such as end of year bonus and housing allowances given to staff in bulk were common in Nigeria’s banking industry. Money therefore led to the attraction and retention of employees in Nigeria’s banking industry. This resulted to the relative stability of workforce in Nigeria’s banking Industry. However, in the recent years, despite the monetary motivation, stability in banking operations became a mirage, as instability in workforce is looming in Nigeria’s banking sub-sector (Ngutor, 2011), which in turn affects banks’ performance, leading to persistent banks’ failure. For instance, Nigeria’s banking sub- sector experienced inadequate skilled manpower due to lose of staff to other sectors, as a consequence of inability to retain staff (Adeyemi, 2011, Gunu and Olabisi, 2012). Proper motivation that leads to workforce retention is therefore one of the major issues confronting many organizations, especially the banking sub-sector.

In an examination of reward strategy employed by Premier bank in Nigeria, Maycock and Salawudeen (2014) lamented that the reward strategies employed by the bank were unfair which influenced the level of staff commitment and job satisfaction. This suggests that reward strategies are not only essential in motivating employees but also important in mitigating attrition as a result of dissatisfaction and perceived subjective reward systems. The above underlines the importance of reward strategy being premised on the principles of fairness, equitability and transparency (Perkings & White, 2008).


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