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PROJECT TOPIC: THE IMPACT OF PERFORMANCE BASED PAY ON SUSTAINABLE COMPETITIVE ADVANTAGE OF COMMERCIAL BANKS

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY 1

Linking pay to performance and the need to achieve a sustainable competitive advantage is something an organisation seeks to achieve. It is a common practise to associate the introduction of performance-based pay with aim of improving incentives and increasing motivation among employee in an organisation (Brown and Heywood, 2002).

In Nigeria, employees have been awarded financially or the basis of the qualification requirement for a particular task or job as well the perceived value of what the job evaluation and analysis provide (Mensah Francis, 2011:270) .workers are rewarded based on the level of education or qualification or education obtained rather than the level of performance attained.

In recent years, however there has been a discern(awareness) trend toward linking pay to employee performance particularly in the private sectors and schools in an attempt to achieve the organisational objective (Mullio 2005) .This trend had pave way for using performance as a basis for remunerating employees. Performance refers to the result of a task. It means the actual outcome that employee are able to achieve based on the effort that they exerted on a task been assigned to them.

Hannay and Shelton (2008:318-319) were of the opinion that any organisation who have a philosophy of paying their organisation employee for performance must evaluate and measured the performance of its employee accurately. Pay policy based on performance have been discover to attract workers of high quality into the organisation and induce them toward providing greater effort.

The term “Pay for Performance (pfp)” or “Performance Based Pay System (pbps)” refers to a form of accountability for result or outcome achieved by employees (Prasad, 2007:209-214). Although, the performance based pay system (PBPS) and payment for result are synonymous concept. Margaret and Caroline (2008:321) however draw a thin line between the two concept; in that performance based pay apply to both quantity of product produced and where there is no end product to measure e.g. service rendered by bank staff.

Nevertheless, the concept of PBPS had been bewildered with some inadequacies and these have reduced the impact of this type of pay policy on organisational goal, performance, profitability and competitive advantage. Some of the shortcoming and criticism against performance based pay system are that; it suffers from measurement problem i.e. how to determine the performance achieve by the employee, it create unfair and unhealthy rivalry or competition among employees within the organisation culminating into a negative effect on employee motivation and unintended consequence (Lavy, 2007). It is also argue that performance based pay can contribute into ineffectiveness if workers or staff refused or disagree with the employer on the performance standard and if teamwork is the organisational goal (Kathryn, 2012). In addition to above criticism of performance based pay system as opined by aforementioned Scholars i.e. Lavy, (2007) and Kathryn (2012). Organisation may lack the financial resources to fund the performance based pay system adequately, during a time of economic recession and this will affect its ability to compete effectively in terms of human resources capability available to it, which may hinder its ability to achieve competitive advantage that is sustainable.


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