1
COMPENSATION MANAGEMENT AS A TOOL FOR ACHIEVING
ORGANIZATIONAL OBJECTIVES IN AMERICAN INTERNATIONAL
INSURANCE COMPANY PLC.
BY
OPARA S.K
MPA/2002/DL/0043
BEING A RESEARCH PAPER SUBMITTED IN PARTIAL FULFILMENT OF
THE REQUIREMENTS FOR THE AWARD
OF MASTER
OF PUBLIC
ADMINISTRATION (MPA) OF THE UNIVERSITY OF NIGERIA, NSUKKA.
JULY, 2009.
2
TITLE PAGE
COMPENSATION MANAGEMENT AS ATOOL FOR ACHIEVING
ORGANIZATIONAL OBJECIVES IN AMERICAN INTERNATIONAL
INSURANCE COMPANY PLC.
3
DECLARATION PAGE
Stanley opera hereby declared that is study is original and was written by me.
That the work has never been published before in part or a whole.
----------------------
--------------------------
Signed
Date
4
APPROVAL PAGE
This thesis has been approved on behalf of the department of public
administration and Local Government by the following:
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---------------------------
Dr. Mrs. M.A.O. Obi
Head of Department of
Public Administration and
Local Govt.
-------------------------------
------------------------------
Date
Date
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--------------------------------
External Examiner
Dean of Post Graduate Studies
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--------------------------------
Date
Date
---------------------Dean of Faculty
---------------------Date
5
DEDICATION
This thesis has been dedicated to my wife, Victoria Opara and my children for their
love, patience and care and to my parents Hon. & Mrs. Ernest U. Oparaugo. Also
to God Almighty.
6
ACKNOWLEDGEMENT
I wish to extend my most sincere appreciation to all those who contributed in
many unquantifiable ways that led to successful completion of this work.
My deepest appreciation goes to my project supervisors, Dr. Mrs. M.A.O. Obi
for her guidance, patience, understanding and immense contributions academically
which led to the successful completion of this work.
I also thank my elder brothers and wives; Mr. & Mrs. Christian Opara and
Mr. & Mrs. Ernest Opara towards making this work a reality.
I sincerely thank my wife, Mrs. Victoria Ijeoma Opara for her patience, love
and support throughout my study. I equally thank my children for their patience
even when I was not always there as I should in the course of this study.
Last but not the least I thank God Almighty for his mercies and protection.
Mr. Stanley Opara.
7
LIST OF TABLE
Table 2.1 A complete Factor Plan with Weighted Scores
Table 2.2 A Total Job Evaluation Score
Table 3.1 Detailed Information on Date Collection and Distribution
Table 4.1 Number and Mean Number of the Age Range Groups of the
Respondents.
Table 4.2 Sexes of the Respondents
Table 4.3 Job Experiences Of the Respondents
Table 4.4 Educational Background of the Respondent
Table 4.5 Distribution of Respondents Responses on their perception of
compensation Management in AIICO
Table 4.6 Distribution of the Opinions of the respondents on the Necessity for
Designing a Good Compensation Scheme for AIICO Employees.
Table 4.7 Number and Mean Number of Respondents‟ Opinions as to whether
Good Compensation Structure/Package could have a positive Impact on the
Employees of AIICO.
4.8 Respondents of the respondents who responded positively to question No7
and their Reasons for stating that Good compensation scheme/structure could
have an impact on the employees‟
8
Table 4.9
Responses of the respondents on the basic principles considered in
designing AIICO‟S compensation scheme/pay structure in order of importance.
Table 4.10 Distribution of the opinions of the respondents on whether AIICO‟S
management considered all the vital factors influencing compensation scheme.
Table 4.11 opinions of the respondents who responded on the affirmative („yes‟) to
question 10 on the critical factors influencing decisions about compensation
scheme/pay structure.
Table 4.12 Distribution of Respondents‟ opinions as toe whether adequate
compensation scheme could stimulate AIICO‟S Employees Performance Level.
Table 4.13 Respondents Opinions as to whether AIICO‟S compensation
scheme/package is adequate.
Table 4.14 The rating of compensation scheme of AIICO based on the
respondents‟ responses to question No 13.
Table 4.14 Distribution of Respondents opinion on management ratings as
employees performance at AIICO.
Table 4.15 Distribution of the opinions of the respondents on their suggestions for
future improvements of the organization studied.
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LIST OF FIGURE
Fig 1 Reward management strategies and processes
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ABSTRACT
The main objective of this study is to ascertain if compensation management is
perceived by (AIICO) management and the employees as a veritable tool for
achieving organizational objectives/goals. The study employed secondary and
primary methods of data election. Postulated and investigated four hypothesis.
The major instrument for data collection includes the questionnaire oral interview
and observation. The data generated from the survey were analyzed using
frequency distribution, percentage, rank order and the mean. The major findings
include that (i) prior to the Central Bank Reforms, Insurance institutions was a
common phenomenon in Nigeria which was unable to attain the level of
sophistication and advancement as those in the developed nations but with rapid
development in the sector based on advancement in technology the industry has
taken a dramatic turn (ii) A well established and properly managed employee
compensation scheme could lead to higher performance therefore, the first
hypothesis was upheld. The second hypothesis of the study was rejected based on
the fact that out of the eleven principles listed seven of them scored more than
50% respectively.
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TABLE OF CONTENTS
Title page
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i
Declaration -
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ii
Approval page
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iii
Dedication
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iv
Acknowledgement -
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v
List of tables
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vii
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ix
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x
List of figures
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Abstract
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CHAPTER ONE
Introduction
1
Statement of the problem
3
Objective of the study
7
Significance of the study
8
Scope and delimitations of the study
10
Limitations of the study
10
CHAPTER TWO
Literature Review
12
Compensation management
16
12
Compensation management strategies
27
Factors influencing reward policies
31
Components of employees‟ compensation scheme
33
Performance incentives
36
Bonuses
37
Job evaluation
38
The significance of jobs, roles and people
39
Job evaluation methods
39
Job ranking
41
Job classification
42
Pay structure
53
The basis of pay structures
54
Hypothesis
57
Definition of terms
58
Theoretical framework
CHAPTER THREE
RESEARCH METHODOLOGY
Location of the study
60
Population of the study
60
Target population of the study
60
13
Procedure and instrument for data collection
61
Method of data distribution and collection
62
Sampling technique
62
Method of data analysis
63
CHAPTER FOUR
Analysis and presentation of data
64
Background information
65
CHAPTER FIVE
Summary, Conclusion and Recommendation
Bibliography
Appendixes
14
95
CHAPTER ONE
1.1
INTRODUCTION
Over time, Nigerian economic system has undergo major restructuring, out
of which quite a few industries that are not actually playing key roles in economic
development of the nation have been made to become more responsive to the
needs of its clientele and the nation‟s economic development. One of such sectors
is the insurance sector.
Insurance firms are financial institutions which are service and profit
oriented. New technologies have made the sector very competitive; that highly
motivated efficient and dedicated personnel have become the trade mark of many
enduring insurance companies. These indices give such insurance companies an
edge over their competitors.
Observations reveal that in Nigeria, prior to the intervention of the
immediate past Governor of the central Bank of Nigeria Prof. Chukwuma Soludo;
that insurance institutions, though a common phenomenon, were unable to attain
the level of sophistication and advancement as those in the developed nations.
Nevertheless, rapid growth and development in the insurance industry, higher and
better education have motivated employees to question their entitlement/wage
which they now realize as very meager when compared to the amount of work
they do. They have realized that are not adequately compensated and motivated.
These and other factors have brought home to the American international
15
insurance company (AIICO) the need to identify what should serve as adequate
compensation package or structure for its employees, in order to make them
happy to achieve the organizational goals and objectives.
Until recently in AIICO, people were regarded as a cost factor while
buildings and machinery are regarded as assets. We now have a reverse trend,
estimated by the pace of technological changes whereby, machines and other
material resources are presently regarded as expensive items or cost factor while
people are as assets. This situation has become so worrisome to the employees in
the insurance sector, of which AIICO is one. The employees presently query the
size of their remuneration package and the various components that determine
the compensation package/in AIICO. This singular action of the employees has
impacted negatively on the productivity level of the organization and calls for an
in-dept study to ascertain if the organization really perceives compensation as a
tool for achieving its goals and objectives.
1.2
STATEMENT OF THE PROBLEM
All organizations are concerned with what should be done to achieve or sustain
high level of performance through people. This involves paying close attention to
how individuals working in organization can be best compensated and motivated,
in form of incentives remuneration, the provision of conducive work environment,
16
etc. These in the long run will promote employees localities and maximum
performance.
Obi (2004) observed that often time‟s compensation and motivation are
underpinned by simplistic assumptions about how the concepts work, rather than ,
how they can be adequately planned and effectively applied in organizations. The
process of formulating compensation policies is actually more complex that many
managers and management envisage. Such managers often ignore the
technicalities involved in compensation and management. Moreso, compensation
and incentives are most likely to function effectively if they are based on proper
understanding what the concepts is all about in addition to their applicability.
Maslow (1954) Herzberg (1957) and Noe (2004) noted that compensation in
form of financial rewards help in enhancing employee performance. According to
Ifedi (1988), Nigerian workers generally see wages/salaries as the most important
yard stick for measuring the value of their contributions to the organizations but
suffice if it to state that, even though money is a major motivating factor and a
source of satisfaction other factors such as; the nature of work organizational
environment style of management relationship with other employees company
performance and its outlook for the future can be described as important factors
which can boost employees morale and stimulate high performance.
The essence of all compensation and motivation efforts is to increase
employee‟s performance/productivity. An unmotivated employee is a threat to any
17
organization because he/she may become antagonistic to management and
customers in addition to sabotaging the realization of the goals of the
organization.
Adequate compensation scheme/structure has been proven by Maslow
(1954) and Herzberg (1957) to be an important factor determining the success or
failure of organizations. In view of this management team of AIICO even though
they realized the importance of a highly compensated and motivated workforce in
the light of stiff competition in the insurance industry, they have not really done
much to boost their employees morale enable them give off their best. Designing a
good compensation system and maintaining highly motivated employees are the
most important and difficult functions of personnel management AIICO is
presently facing the employees to adequate compensate the employees to other
organizations while productivity has remained on the low ebb. Sequel to this,
when the immediate past Governor of the Central Bank Prof Chukwuma Soludo
made it mandatory that all insurance companies in Nigeria should have not less
than one billion naira, in their respective bank accounts in order to protect the
customers; it proved very difficult for many of the insurance companies including
AIICO to meet up with the central banks demand. This led to some insurance
companies merging with others while, many retrenched their employees including
AIICO.
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Many AIICO employees knowing that their salaries could no longer sustain
them engaged in other part time paying activities in addition to their jobs to make
ends meet. There are others whose employment statuses are very unstable while
the few employees with stability of tenure are not adequately motivated and
compensated.
Having created the above scenario, there is need to find out how the
management of AIICO perceive compensation and how to find solution these
problems.
This study therefore intends to investigate if the management of AIICO
actually perceives compensation as a tool for achieving the objectives of AIICO
PLC. In order to have an in depth insight into the problem of this study, the
following research questions are posed.
RESEARCH QUESTIONS:
1. What type of compensation packages exist in AIICO?
2. What kinds of decision were taken before establishing the existing
compensation packages?
3. Are there some factors that were considered in packaging the compensation
package in AIICO?
4. How do the employees evaluate or rate their compensation package?
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5. Does the organization reconsider employees contribution by compensating
them adequately?
6. How can the organization improve on its compensation scheme/pay
structure in order to boost employees moral and attain high performance in
AIICO? It is hoped that the answers to these questions will help to clarify
the problem of this study.
1.3
OBJECTIVE OF THE STUDY
The general objective of this study is to ascertain if compensation is perceived as a
tool for achieving organizational goal by the management of AIICO PLC, while the
specific objectives of this study are:
1. To ascertain the type of compensation scheme/pay structure in AIICO.
2. To find out how the employees evaluate or rate AIICO‟S compensation
scheme/pay structure.
3. To investigate the factors considered by AIICO before packaging their
compensation scheme.
To find out if adequate compensation scheme/pay can motivate employees to
higher performance.
4. To ascertain the nature of decisions that were taken before establishing
AIICO‟S compensation scheme/pay structure.
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5. To investigate if the organizations management recognized employees
contributions with adequate pay.
6. To find out how to improve AIICO‟S compensation scheme/pay structure in
order to boost employees‟ morale and attain high performance in AIICO.
1.4
SIGNIFICANCE OF THE STUDY
This study is of high significance in that its findings and recommendations will
motivate AIICO and other insurance companies to realize the need for them to set
clear and achievable objectives and goals for themselves and the employees.
Another significance of this study is that it will compel AIICO management
to set goals and objectives that are rewarding to the employees and the
organization. This is in view of the fact that, employees may not be interested in
pursuing goals and objectives that are not rewarding to them.
This study is also significant because, its findings and recommendations will
help AIICO and other insurance companies to develop effective and appropriate
instruments for measuring performance linked to the organizational goals and fair
compensation package.
The study is highly significant because its contributions will permit AIICO
and other insurance companies interested in improving productivity in their
organization to realize the dialectical relationship between good compensation
packages and high performance. In other words, it will help them to see
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compensation as a veritable tool for achieving organizational goal and objectives in
addition it will make the management of AIICO and other insurance companies not
to equate machines and other material resources to human beings or employees
which had been their enormous notions before this study. The findings and
recommendations of this study will equally permit insurance companies such as
AIICO to always consider all plausible factors that can affect their compensation
scheme negatively.
Another contribution of this study that is highly significant is the fact that
the findings and recommendations will help both the employees and management
to constantly evaluate their compensation package in relation to the employees
work in the organization as well as the dynamic society.
Apart from the above policy makers and researchers, will find the
contributions of this study very useful. Last but not the least this study will add to
the existing body of literature in the social sciences.
1.5
SCOPE AND DELIMITATIONS OF THE STUDY
This study was carried in the American international insurance company Plc.
Lagos. The study investigated whether the organization perceive compensation
management as a veritable tool for achieving organizational objectives in AIICO.
The study covered AIICO‟S public known as the customers and the employees.
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1.6
LIMITATIONS OF THE STUDY
This study was embarked upon at a time when the economic meltdown did not
encourage people to invest in life insurance or take a comprehensive insurance.
For this reason many of the preferred AIICO‟s customers could not be reached.
More importantly Lagos is a very large and expensive city in terms of
transportation to carry out this survey. Nevertheless, the research was able to
cope with this financial difficulty. In addition to this some of the respondents at
the management level were not very sincere with heir responses. The researcher
had to go out of this way to get the right information for this study. Limitations
imposed by constraints of time and money could not permit the researcher to
embark on participant observation which could have enhanced first hand
knowledge and accuracy of information generated from the employees and
management of AIICO. However it can be stated with high degree of confidence
that the study in spite of all the constraints accomplished its objectives.
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CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
This chapter will review literatures relating to the topic in question. The chapter
will commence with a review of literatures on:
1. The historical background of the American International Insurance Company
Plc Lagos.
2. Literature review on compensation management
3. Compensation management strategies
4. Factors influencing the formulation of reward/compensation policies
5. Components of employees compensation scheme/rating
2.1
HISTORICAL
BACKGROUND
OF
AMERICAN
INTERNATIONAL
INSURANCE COMPANY PLC LAGOS.
American International Insurance Company was established in 1963 as a collection
center and incorporated in 1970. It was converted to a public liability company in
1989, and was listed on the Nigeria stock exchange with effect from 3rd December,
1990. Till date American internal insurance company has become the largest life
insurer in Nigeria and a major player in general insurance business. The
company‟s success has been the result of its ability to evaluate its potentials, set
realistic goals and take necessary actions on achieving them. For instance
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strategies may change objectives and organizational structures of the company
can be reviewed from time to time and the end result is to ensure optimum
performance.
Having the privilege of tapping the experience and expertise of seasoned
professionals from multinational insurance companies‟ worldwide, American
international insurance companies‟ worldwide, American international insurance
company has repositioned its business. In this regard there has been an entry into
the general insurance business instead of emphasizing life insurance as had been
the company‟s tradition.
American international insurance company has also added a shift from
concentrating on retrial insurance to become a provider of wholesales insurance. It
strength lies in its ability to attract corporate clients an attribute that has been
facilitated by its investment in blue ship companies, debenture stocks and the
under writing of high net worth issues. As a result of American international
insurance company‟s reposition, its improved investment income and divesting of
assets, there has been a significant growth in the company‟s revenue with assets
in excess of N3 billion (AIICO‟s corporate literature). This is reflective of the trend
by insurance Coxters and blue chip companies to favour financially strong and well
managed insurance companies.
According to the corporate literature the success story of American
international insurance company plc lies in the loyalty of its customers, the
25
supports of share holders and the ability of the management to face today‟s
challenges in competitive world insurance. Undoubtedly American international
insurance plc has grown to become a sound and prosperous financial institution.
As reflected in its past operating results, American international insurance
company is well positioned to achieve future growth in veritable assets and income
in the coming years. With the recent computerizations of the department,
American international insurance company plc has posed to achieve a larger turn
out on investments.
In addition to its varied services, American international insurance company
plc offer its clients corporate assistance, specialist advice and prompt claims
settlement. American international insurance company plc services are planned
and executed within three major divisions:
 General Insurance
 Life
 Financial services
The company has its vision to contribute to the leading provider of quality
insurance and related financial services in Nigeria, thus ensuring the highest
possible return to shareholders and maximum protection to policy holders to
maintain the best welfare for employees and to contribute towards improving the
social and economic development of the country.‟‟
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The corporate philosophy of this insurance company is one that emphasizes
„‟commitment to quality service and customer satisfaction‟‟. In this regard the bank
is perceived as a growth of the company and prospect of the company within
future. American international insurance company and prospect of the company
within future. American international insurance company plc. Currently has a staff
strength totaling three hundred and ninety five staff spread across its branches?
2.2 COMPENSATION MANAGEMENT
Compensation management is about the design implementation, maintenance,
communication and evolution of reward processes, which help organization to
improve performance and achieve their objectives compensation according to
Flippo (1994:32) is the adequate and equitable remuneration of personnel of their
contribution to organizational objectives‟‟.
He goes further to explain that employee compensation policies or programmes
are designed to meet three things:
i. To attract capable employee to the organization
ii. To motivate them towards superior performance and thus enhance
organizational productivity and
iii. To retain their services over an extended period of Bedeian and Gloeck
(1983:12) state that to retain a well trained and highly motivated
employee an organization must not only reward its employees with
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praise but also with proper pay and benefit. This is why a firm may
follow one of three basic pay level strategies pay above market pay at
market and pay below market. According to Foulkes and Livenesh
(1981:73) compensation is the payment of wages and salaries, including
incentives bonus payments and benefits to employee in exchange of
work.
Compensation is total reward system involving incentives and non-cash benefits
performance appraisal, job evaluation to manpower development, basic wages
and salaries. For compensation to be effective the following was also suggested
as pattern. It has to be adequate, equitable, balances, secure, cost effective,
acceptable and understandable to employees.
Stanley soloikis contribution (1975:52) is about the way an employee would
perceive his compensation. He feels it is not right for employee to perceive his
compensation consist solely as the amount paid him, it should be seen as part
to total remunerations aimed at maintaining and motivating his productivity.
Frederick Taylor (1911:105) seems to be the first who sought to provide a
wage incentive to workers to provide motivation. He tends to believe that pay
rates were the most important factors in developing employee relations. He
therefore, criticized the profit-sharing system and advocated payment by result.
However, reward management is not about money. It is also concern with nonfinancial rewards, which provide intrinsic or extrinsic motivation. Intrinsic
28
motivation (motivation from the work itself) is achieved by satisfying individual
needs for achievement, responsibility, variety of challenges, influence in
decision making and membership of a supportive team. Extrinsic non-financial
motivation (motivation though means other than monetary incentive provided
directly by the organization is achieved by recognition, skill development and
learning and career opportunities. Michael peer (1984:125) expressed this point
as well when he wrote:
Organization must reward employees because, in return they are looking for
certain kind of behavior: they need competent individual who agree to work
with a high level of performance and loyalty. Individual employees in return for
their commitment, expect certain extrinsic rewards in the form of promotion,
salary, fringe benefit, pre-requisites bonuses or stock options individual also
seek intrinsic rewards such as feelings of competence, achievement,
responsibility
significance,
influence,
personal
growth
and
meaningful
contribution. Employees will judge the adequacy of their exchange with the
organization by assessing both sets of reward.
Ogunsuyi (1989) stated emphatically that only people with low achievement drive
quite often take money as a major motivator, Elton Mayo(1945) also aroused
management interest to the non-financial incentive
they could
be
of different kinds and how
used to improve morale and productivity. He sees intelligent
29
workers as people motivated mainly by a need for togetherness for individual‟s
recognition within a small group whose standard they accepted.
Human behavior is certainly the most difficult to explain or predict among other
experiences in the world of work and one of the most important and complex
issues in human resources
management
is undoubtedly
compensation
management. Taylor in the 1920s focused on harnessing the workers economics
needs by devising wage incentive
system, but failed to understand that workers
are also social beings with psychological needs. The adverse effects of such
policies are still with us till today. Starting about 1940, the classics theories of
motivation of the behavioral science management school started to focus on
needs
as the
primary motivators of behaviors. It is not easy to motivate an
individual for the success of any motivational effort depends on the extents to
which the motivator meets the needs of the individual.
Well-motivated people are those with clearly defined goals who make effective
contributions at work because of strongly development feelings of behavioral
commitment. They acknowledge that their efforts are required to further both the
needs of the organization and their own interests.
The process of motivation is broadly
on a numbers of motivation
proliferated over the year like the instrumentality theory, which
the
beliefs of some
managers
about motivation
instrumentality theory has its roots in the scientific
30
theories
still underpins
and pay systems. The
management methods of
Taylors (1911), which in its crudest form states that people
only work for
money. It emphasized the needs to the rationalize work and on economics
outcomes. It assumes that a person will be motivated to work if rewards and
penalties are tied directly to his or her
performance; thus the rewards are
contingent upon effective performance. This approach is still widely adopted but
based exclusively on the system of external controls which fails to recognizes
a number of other human needs. Immensely popular and influential motivation
theories, which were enunciated by Maslow (1954), and Herzberg 1957, have
been severely criticized, though they are still regarded by many people as the best
motivation theories.
Maslow (1954) developed the concept of a hierarchy of needs which he believed
were fundamental to the personality. These needs which classified into a
hierarchical order are physiological, safety, Social, esteem and self-actualization
needs. One of the managerial implications of this theory is that managers may
have to provide
different things
to motivate different people. Herzberg et al
(1957), in their two factors models to satisfiers or motivates which
he believed
are effectives in motivating the individual to superior performance and efforts. The
other factor is the dissatisfies or hygienic factors which essentially describes
the environment and seen primarily to prevent job dissatisfaction while having
little effect on positive job attitudes. Herzberg et al (1957), also casts doubt on
31
the effectiveness of money because they claimed, that the lack of it could lead
to dissatisfaction, where as its provision does not result in lasting satisfaction.
Other theories of compensation include the equity theory of pay which
suggests
that
workers should
be paid
wages
equal
to the value of the
contribution . Job evaluation remains the only radical way of ensuring this. Equity
theory seeks to relate employee‟ behavior to their perceptions of equity or
Inequity in their compensation. These models suggest that behavior reflects the
degree to which people perceive capacities and established norms of equitable
payment. This
theory
also
recognize
the dynamics
of their working
environment as well as charges in the capacities of potential contributions of
the worker. The model assumes a persistent tendency toward equilibrium, in
which workers seek to balance their perceptions of contribution and equitable
payments. Effectiveness is less than maximum when perceived as either under.
The essence of all motivation efforts is to increase employee productivity.
productivity on the other hand has been defined in many different ways as the
measure
of hoe well resources s are brought together
in
organization
and
utilized for accomplishing set of results and the highest level of performance
with the least expenditure of resources.
Other relevant theories of motivation include that of Opashi and Dinette
(1996:47) which address the role of financial reward and gave five keys roles
32
that money can play in affecting
the job behaviors of employees
in an
organization as follows
 Money acts as a generalized conditioned reinforce because it is usually
associated with such primary reinforce as food, clothing and so on. This
implies that money is more potent when its attainment is paired with needs.
 Money may act as a conditional incentive, which is perceived
by an
individual as being capable of satisfying various needs.
 Money is an anxiety reducer. This means one may become more anxious in
the presence of a variety of things signifying the absence of money.
 Money serves to ease
hygienic
factor.
feeling of dissatisfaction. Here, money acts as a
Salary increase may remove impediment of jobs
satisfaction but do not actually generate job satisfaction.
 Money is an instrument for gaining desired outcomes. We can confidently
state that compensation scheme
improve productivity
of
work force
while administration of compensation scheme could be exemplified by
the Japanese style of management and administration of compensation
scheme/programme and job satisfaction among employees.
Lawler and Port‟s (1907) expectancy theory of pay model suggests that
performance leads to rewards and if these rewards are equitable from the
point of new of the employee, than, satisfaction is the result.
33
Christensen, Andrew and Bowen (1978:67) listed out determinants of job
satisfaction. They emphasized the important role played by monetary
incentives as a measure for increasing productivity. They claim that even in
situation where all desired standard of living are attained, money is still an
incentive. However, we contend that money is necessary but not sufficient
as determinant of job satiation.
This is because by nature, human being are affected by pride in
accomplishment, they seek for an atmosphere which is free and fair for
them to express their view and achieve job satisfaction.
According to Fajana (1997:25-27) in Nigeria, the apparent complexity in
managing employee compensation arises from the fact that:

Workers have become increasingly sensitive to that the employee make at
the end of the year relative to what is paid out the employees. This has
continuously posed complex managerial problems, and given the fact that
most employee/management
problems
question of pay, there is a need
for
and disputes
the
formulation
relate to the
of good
compensation policies and programmes.
 Pay is a potential cost factor in determining the economics success for a
company gives the fact that the pay budget takes as high as ¾ of the total
monthly or yearly costs of running the company. From the employer‟s
viewpoint, it is also perceived that the sized of pay and the supervision of
34
company pay policies are climatic factors in achieving a productive work
environment. Effective pay administration is important because s employee
compensation is the most expensive items of cost. Hence the need to ensure
its efficient management, e.g. to ensure that rewards are paid for services
actually rendered.
 Importantly
money is a major
factor for attracting, retaining
and
compensating good performance of staff given the foregoing roles and
importance of money to both employees and management, it is important
that management devises an effective compensation package, which both
meets the expectation and aspiration of the employees as well as satisfies
the organization profitability and growth objectives. In the same vein, the
role played by motivation cannot be overemphasized.
An important aspect of compensation is job evaluation which is the
comparison of jobs by the use of formal and systematic procedures to
their relative worth within the organization thereby
determine
enabling differential wages
to be paid for job of different worth. Amount of work they produce. This rate is
usually paid in addition to employees‟ base pay.
This process relies on job analysis, which is a systematic investigation of job
in order to identify its essential characteristics and translate these into
writing
in the form of a job description. Although Job analysis is also used for
development of specification and clarification of duties in the administration of
35
wages and salaries, it also provides the essentials data for job evaluation this in
essence means developing effective principle of incentive pay plan as enunciate
by Noe et al; (2004) include; piece work rate whereby.
Employees are rewarded based on the performance appraisal process is a
competent of compensation process, though not discussed in this study. The
appraisal process is a component of compensation process, through not
discussed in this study. The appraisal process is important because it provides
information of great assistance in making and enforcing decisions about pay
increase, promotion; lay promotion lay offs and transfers.
2.3 COMPENSATION MANAGEMENT STRATEGIES
Compensation
management
is
about
the
design
implementation,
maintenance, communication and evolution of reward process which helps
organization to improve performance and achieve their objectives. This involves a
process which incorporates processes and procedure for tracking market rates,
measuring pay structures, designing and maintaining pay structure, paying for
performance, skill and competence and providing employee benefits.
A holistic view of compensation management can be taken which regards it
as a process which is integrated with all aspects of personnel management and
which provides a number of important levels for improving performance and
commitment. This is the total compensation process, which containing all the
36
elements illustrated in figure 1. Below. The diagram illustrates that compensation
management strategies and policies are driven by corporate and human resource
management strategies and consequently provides guidance on the processes
required in four main areas:
i. Non-Financial Rewards: Which satisfy individual needs for challenge,
responsibility, and influence in decision-making, variety, recognition and
career opportunities.
ii. Employee Benefits: Which satisfy employees‟ needs for personal security
and provide remuneration in forms other than pay, to meet other needs
and become tax efficient.
iii. Pay Structures: Which by combining the results of market surveys and job
evaluation, define equitable and competitive levels of paying, pay
relativeness (differentials) and pay progression limits.
37
Figure 1: Reward Management Strategies and Process
The Basis of Reward Manage
Non-Financial
Employee Benefits
Total
Remuneration
Market
Survey
Coorporate
and
Human
resources
Reward
Management
strategies
Pay
Levels
And
Differentials
Pay
Structure
Improved
Performance
Performance
Job
Evaluation
Performance
Management
Development
and training
Source: Adapted from Noe et al 2004
iv. The Measurements and Management of Performance:
This measures performance in relation to outputs (contribution and the
achievement of objectives and standard of performance) and inputs like
application of skills, competencies, the behaviours affecting performances
38
and which is leads to the design and operation of pay for performance
schemes as well as continuous development of training programmes.
Compensation management can have a profound effect on all aspects of the
operation of an organization and the ways in which it manages its human
resources. Hence the task of sound compensation administration is therefore, to
develop policies and procedures that will attain maximum returns on the resources
spent in terms of attracting, satisfying, retaining and motivating employees
towards the achievement of desired organizational goals and objectives.
Compensation/reward strategies should be founded on the proposition that
the ultimate source of value is people. This means that the compensation
processes must respond creatively to their needs as well as those of the
organization.
Compensation policies provide guidelines for the implementation of reward
strategies and the design and management.
2.4 FACTORS INFLUENCING REWARDS
The factors with which compensation reward policies need to be concerned
include:
i. The level of rewards: This is determined by pay average rates of the
organization and it average pay policy which is sometimes referred to as
the pay posture of an organization. This may depend on factors such as
39
the extent to which the organization demands for high levels of
performance from its employees the degree competition for quality
people within the environment the traditional posture of the company the
organization culture and the buoyancy level of the organization which
determines whether the organization can pay high wages or not.
ii. Market rates of Equity: Which states aims such as externally competitive
and internally equitable but there is always a problem between the need
to march market rates and the desire to maintain an internally equitable
pay structure. However any organization which has to recruit and keep
people who are much in demand and where market rates are therefore
high may have to sacrifice its ideals of equity to the realism of the
market place.
iii. Differential compensation: Which determines whether or not the
organization wants to pay for performance skill or competence and if so,
how much and under what circumstances. It also indicates the approach
to be used in relating pay to individual, team or organizational
performance.
iv. Flexibility: This takes into account the extent to which the compensation
system should operate flexibility in response to fast changing condition
the adoption of a less rigid organization and approach to management
40
and changes or variation in the needs of the organization or its
employees.
v. Communicating and involvement of employees:
Whereby the
compensation policies and practices are more likely to be accepted
understood and therefore more effective if employees are involved in the
design and management of the compensation system. This applies to
procedures of measuring the value of jobs, (Job evaluation and market
surveys) the methods of measuring methods of measuring and assessing
performance relating rewards to performance appraisal and paying for
performance systems. The compensation system however should not be
left to speak for itself. It is very important to explain and communicate
the basis of any performance related to pay system and to convey to the
employees how their total remuneration packaged or pay structure and
other benefits are made up.
2.5 COMPONENT OF EMPLOYEES’ COMPENSATION SCHEME
Employee compensation consists of three components:
i) The Basic pay
The determination of basic pay in most organizations is usually influenced
by some factors that include the company‟s ability to pay labour market
situation, cost of living index labour legislation bargaining powers of the parties‟
41
productivity situation within the organization on-going wage rate in the industry
etc.
ii) Employee Benefits
These benefits are linked with payment received in addition to the basic salary
(e.g. Medical, housing, Transport, education, insurance etc.) they also include
items which are not strictly remuneration e.g. annual holidays. Formerly of a
marginal but they now account for as much as 40% if not more of total
compensation in Nigeria. Reason for its growth includes the imposition of wage
dealings in the late 1970s and early 1980s, which forces organizations to offer
more benefits in place of wage, increase. Other reasons include growing
industrialization which required better medical services, insurance etc.,
government influence in determination compensation. The rise of unionism and
tax related problems also accounts for the growth employee fringe benefits.
There are various types of employee benefit. These include pension
schemes extra payment of time worked (Holiday premiums, shift, weakened
and overtime allowances), payments for employees security (accident, life and
disability insurance) others are payment of time not worked (vacation call back,
lay-off, lunch period, pay, paid sick leave and religious holidays) personal
benefits (club membership personal liability insurance, accommodation or
housing, interest free loans, legal aid, free medical services, scholarships for
children of staff) etc.
42
iii) The objectives of the Employee Benefits Policies and Practices of
an Organization are to:

Provide an attractive and competitive total remuneration package
which both attracts and retains high-quality employees.

Provide for the personal needs of employees

Increase the commitment of employees to the organization and
stimulate high performance.

Provide for some people a tax efficient method of remuneration
Note: That these objectives do not include to motivate employees. This is
because the normal benefits provides by business seldom make a direct and
immediate impact on performance.
They can however create more favorable attitudes towards the business
which can improve commitment and organizational performance in the longer term
The fundamental goal of compensation is the realization of the objectives
and strategies of an organization. As such the compensation scheme should be
built on well established explicit and adequately communicated company goals and
objective. The compensation scheme should place corporate goals at the apex and
the workers should all be motivated towards such goals, which should have been
clearly explained them. A considerable variety of different types of benefits are
found which, if reduced to monetary terms form an important form of total
43
compensation the cost of employees‟ benefit is a large item in the banks
expenditure accounts.
2.6 PERFORMANCE INCENTIVES
This is sometimes referred to as direct or supplemental compensation.
Performance incentives are payments made to an individual or groups people
based on the amount of time worked or output achieved. This type of
compensation assumes that performance can be measured and thus increased pay
can be tied to increased performance.
The main objectives of the performance incentive reward are to stimulate
contribution standards promote achievement and risk taking, assisting in
developing a productive work environment and rewarding individual differences.
The different types of performance incentive schemes include production bonus
plan, suggestion plan short-term-sharing program e.g. scanian plan, piece, work,
cost reduction etc.
2.7 BONUSES
These are essentially rewards for success and are paid out as a lump sum.
This happens when the individuals, team or organization has achieved something
outstanding or in the case of enterprise-wide schemes such as gain sharing and
profit sharing when organizational performance has exceeded its target. The
typical individual of team, bonus tends to be discretionary. The amount paid out
44
depends on the recommendations decisions of the employees boss the chief
executive or the board and is constrained only by budgetary limits. Such bonus
schemes are therefore often less structured than incentive schemes, many
companies are now using achievement bonuses as the major form of reward
above basic pay on the grounds that as long as the basic rate is competitive he
best and most controllable form of reward is one, which is only in recognition of a
specific easily recognized and notable achievement.
Based on the business performance in the course of the year American
international insurance company pay a balance sheet bonus or profit sharing which
is a common feature of the institutions of insurance, although the amount varies
from institution to institution.
2.8 JOB EVALUATION
Financial reward systems have to provide for the management to pay
relatives and this process has to be based on methods either of measuring and
comparing the value of size of jobs or of assessing the relative markets worth of
people and the value of their contribution as indicated by the levels of skills or
competences they need to carry out their roles effectively.
Job evaluation is the process of assessing the relative value or six of jobs
within an organization.
Job value or size is measure by comparing the incidence of various factors in a job
such as knowledge and skills required level of responsibility; level of decision
45
making and impact on end results with the incidence of the same factors in other
jobs.
Job evaluation itself does not directly determine rates of pay. The financial
dimensions of that structure will be influenced by what the business believes it has
to pay to attract, retain and motivate people and this in turn will be influenced by
market rates and increases in the cost of living.
2.9 THE SIGNIFICANCE OF JOBS, ROLES AND PEOPLE
One of the dogmas of job evaluation is that it is concerned with evaluating the job
not the person. This means that evaluators are there to look at the content and
context of the job people do rather than how well they do them. Job evaluation
and performance assessment are separable activities.
There are, however, two caveats, which should be made about. This proposition
first, although evaluation and assessment are separate processes, they both spring
form the same
root and understanding from job analysis of the purpose and
content of the jobs and what the job holders are expected to achieve (sometimes
referred to as their principal accountabilities). Secondly, and more importantly, it is
impossible to separate completely the person from the job.
2.10 JOB EVALUATIUON METHODS
Before w can discuss the job evaluation methods, there is a need to look at
three concepts which are important in job evaluation.
46
These concepts are:
i
The concept of compensable factors:
These are factor, which the organization is paying for; they often reflect job-
related contribution. For instance where hourly-related employees are involved.
Skills, efforts, responsibility and job conditions might be selected job factors of
monetary responsibility, contacts, working conditions and the extent of
supervision. The weights attached to each of these factors for different plants
vary.
ii
The concept of benchmark jobs: this refers to job within the hierarchy of
jobs in an organization which is stable by way of the description and condition of
the job. It must be easily identifiable within a cluster of homogeneous jobs, less
controversial and acceptable by other jobholders as the reference point to other
jobs. For the purpose of comparing similar jobs with similar conditions.
iii
The concept of the market rate: The concept of market rate, even in the
local labour market is An imprecise one. There is no such thing as the market rate,
unless this is represented by a universally applied national pay scale, and such
cases are now rare.
There is always a range of rates paid by different employers, even for identical
jobs, because of different pay policies on how they want their rates to compare
with the market rates. There is particularly so in managerial jobs and other
47
occupations where duties can vary considerably, even if the job title is the same,
and where actual pay is likely to be strongly in influenced by the quality and to the
business of individual. It is therefore possible to use pay surveys only to provide a
broad indication of market rates. Judgment has to be used in interpreting the
results of special enquires or the data from published surveys.
The main types of traditional job centered evaluation are described below.
These comprise job ranking, job classification and point factor rating.
2.11 JOB RANKING
Job ranking is a non-analytical approach, which compares whole jobs
and does not attempt to asses separately different aspects of the jobs. It
determines the position of jobs in a hierarchy by placing them in rank according to
perceptions of their relative size. Ranking is the simplest and quickest form of job
evaluation. It may be claimed that the process of assessing the value of the job as
whole to the organization is, in practice, what people don even when they go
through the motions of assessing the different facets of a job in an analytical
scheme. Ultimately, it can be argued, people will feel that their whole jobs is
placed in relation to others.
The disadvantage of ranking, however, is that there is no rational to defend the
rank order-no defined standards for judging relating size. It is simply a matter of
48
opinion, although it can be argued that analytical methods do not more than
channel opinions into specified areas.
2.12 JOB CLASSIFICATION
Job classification is also a non-analytical me4thod which compares whole job
to a scale, in this case a grade definition. It is based on an initial decision on the
number and characteristics of the grades into which the jobs will be placed. The
grade definitions attempt to take into account discernible differences in skill,
competence or responsibility and may refer to specific critical such as level of
decision, knowledge, equipment used and education and training required to do
the work. Jobs are allotted to grades by comparing the whole job description with
the grade definition. Job classification is a simple, quick and easily implemented
major of slotting jobs into an established structure. It attempts to provide some
standard for judgment in the form of grade definition. Its lacks of complexity and
the ease with which it can be earned and used means that it is suitable for large
populations and for decentralized operations in which more complex system might
be difficult to operate consistently. But it cannot cope with complex jobs with
features, which will not fit neatly into one grade. Like other non-analytical systems
it is not being accepted for use in equal value cases and there is a danger of the
descriptions becoming so generalized that they provide little help in evaluating
borderline cases, especially to higher levels. Job classification also tends to be
inflexible in that it is not sensitive to changes in the nature and content of job.
49
I POINT –FACTOR RATING
Point factor rating is an analytical method of evaluation using job- scale
comparisons.
The method is based on the breaking down of jobs into factors or key elements. It
is assumed that each of the factors will contribute to job size and are a part of all
the jobs to evaluate by different degrees. Using numerical scales, points are
allocated to a job under each factor heading according to the degree to which it is
present in the job. The separate factor scores are then added together to give a
total score, which represents job size.
The point factor method is built on a factor plan, which consists of:
II CHOICE FACTOR
A factor is characteristic, which occurs to a different degree in the jobs to be
evaluated, and can be as a basis for assessing the relative value of the jobs.
When we evaluate a job, even if there is no formal evaluation scheme, we always
have some criterion in mind. It may be some generalized concept of responsibility
of may be more specifically related to the size of resources controlled or the
contribution to end results.
Point factor schemes may have any number of factors, but to reduce complexity, it
has broadly grouped under the three headings of: imputes-The knowledge and
50
skills and any other personal characteristics required to do the job. These may
include such aspects as technical or professional skills and team-leading skills. The
education, training and experience required to develop the knowledge and skills
may also be regarded as a factor, as might the academic, technical or professional
qualifications, which indicate the level of knowledge acquired.
Process the characteristics of the work, which determine the demands made
by the job on, job holders. These include such aspects as mental effort, problem
solving, complexity, originality, creativity, judgment and initiative, team working,
dealing with people and physical factors such as physical effort, working conditions
and dangers or hazards associated with work.
Outputs-The contribution of impact the job holder can make on end-results
taking into account such aspects of jobs as responsibility for outputs, quality,
sales, profit etc, responsibility for resources such as people assets and money
decision-making authority, and the effect of errors.
The choice of factors and the weighting given to them will get influenced by
the values of the organization what considered to be important when valuing the
contribution of people in their roles.
III FACTOR RATING SCALES
Factor rating scales consist of definitions of the level at which the factor can
be present in of the jobs to evaluated. Jobs are analyzed in terms of these factors
51
and the result of this analysis is compared with factor level definitions to establish
the factor level.
When defining factor levels, the aim is to produce a graduated series of
definitions, which reduce cleaver guidance on how the quality levels in terms of
outputs or the size of resources controlled. Successive levels can also be defined
be reference to the use of specified skills or the need for particular qualification,
training or experience. In practice, level definitions become more meaningful to
evaluators when they can relate them to benchmark job. What happens in effect is
that the somewhat abstract level definition is brought to life by an example and
the comparison is made from job to job as well as from job to scale.
IV FACTOR WEIGHTING
A factor plan involves making decisions on the relative importance of the
various factors-that is, their weighting for scoring purposes. It could be decided
that all factors should be equally weighted but the great majority of points facto
schemes do weight their factors differently.
Table 2.1: A Complete Factor Plan with Weighted Scores
Knowledge and skills
1
2
3
4
5
20
40
60
80
100 120
52
6
Responsibility
20
40
60
80
100 120
Decisions
15
30
45
60
75
90
Complexity
10
20
30
40
50
60
Contracts
10
20
30
40
50
60
Sources: Phippo E. 1980
V.
USING THE FACTOR PLAN
The points factor job evaluation process involves analyzing a job in terms of the
factors, comparing that analysis with the factor and level definition, allocating a
level and score for each factor, and adding up like factor scores to produce a total
job evaluation score for the job as shown in
Table 2.2. A Total Job Evaluation Score
Factor
Evaluated Level
Score
Knowledge and skills
3
60
Responsibility
4
80
Decisions
4
60
Complexity
5
50
Contacts
3
30
Total Score
280
Source: Flippo E. 1980
53
This can be compared with the scores other jobs which produces a ranked order of
jobs according to their score. If there is a graded pay structure, decisions are then
made on how these jobs should be grouped into grades (this is often a matter of
judgment). A separate decision is made on the pay ranges to be attached to the
job grades which will be influenced by market rate considerations and what is
considered to be an appropriate range of pay in a grade and the size of the pay
differentials between grades.
VI ADVANTAGES OF POINT FACTOR SCHEMES
The advantages of point-factor scheme that:
 Evaluations forced to consider a range of factors, which as long as they are
present in all the jobs and affect them in different ways, will avoid the oversimplified judgments made when using non analytical schemes.
 Point‟s schemes provide evaluations with defined yardsticks which should
help them to achieve some degree of objectivity and consistency in making
tier judgments.
 They at least appear to be objective, even if are not, and this quality makes
people feel that they are fair.
 They provide a rationale, which helps in the design of graded pay
structures.
 They are acceptable in equal value cases.
54
 They adapt well to computerization.
VII. DISADVANTAGES OF POINT-FACTOR SCHEMES
Point-factor schemes have these disadvantages:
 They are complex to develop, install and maintain
 They give a somewhat spurious impression of scientific accuracy.
 It is still necessary to use judgment in selecting factors, defining levels
within factors, deciding on weightings, no interpreting information about the
jobs in relation to the definitions of factors and factors levels.
 They assume that it is possible to qualify different aspects of jobs on the
same scale of values and then ass them together. But skills But skills cannot
necessarily be added together in this way.
 They are based on the assumption that he factor weightings in the scheme
apply equally to all jobs. But is possible to argue that each job will have its
own pattern of factor weights. In other words, not only will the levels at
which factors are present in jobs vary, but within a job the relative weight
.to be attached to that factor will be different from its weight in other jobs.
Apart from the complexity issue, however, this list of disadvantages simply
confirms what we already know about any form of job valuation. It is not a
scientific process. It cannot guarantee total objectivity or absolute accuracy in
sizing jobs. It can do no more than providing ma broad indication of internal
relativities where jobs should be placed in a pay structure. But the analytical
55
nature of point‟s factor rating will at least give a more accurate indication than
non-analytical methods. If the process of using this method is carefully managed
the results are more likely to be acceptable (to be felt fair), and a sound basis for
dealing with equal value issues will have been established. Additionally and
importantly, point-factor evaluation provides a good basis for designing a grade
day structure.
However, a powerful attack has been made by Lawler (1986) on point facto
evaluation for pother reasons. He suggest that job evolution was originally
developed to support traditional bureaucratic management and the essential
nature of point facto schemes hams not changed once they were first evolved in
the early 2900s, He believes that job
evaluation depersonalizes people buy
equating them with a set .of duties rather than concentrating on what they are
and what they can do. Job evaluation schemes strongly reinforce the concept of a
management hierarchy and do not take account of organizations in which the
emphasis is on knowledge and high technology work and where flexibility and
multi-skilling is important. The proposes that the emphasis should be on people
rather than jobs and the key criteria for establishing the values of people to an
organization should be the levels of skill and competence they need to make an
effective contributed in their roles.
56
VII MARKETING PRICING
Many organizations reject the ideal of formal job evaluation and base their
decisions on job values on market pricing which involves relating internal rates of
pay to market rates on the assumption that job is worth what the market says it is
worth, and that therefore market rate relatives should dictate internal relatives.
The problem with approach is that the concept of a market rate is much less
precise than most people think. Market rates are also volatile and unpredictable.
Relying on market rate comparisons alone will not necessarily result in the
provision of a sufficiently reliable or stable basis for an equitable pay structure,
although market rates will of course, influence rates of pay within the structure.
A further problem with market pricing is that I may only possible to get
market rate data of some of the jobs in the organizations. It can be difficult to
obtain information for unique or highly specialized jobs. It could be equally hard to
determine accurately the market worth of individual contributors whose value to
the organizational depends more on their personal/skill and competence that on
the level of responsibility in a job hierarchy. Organizations, which rely on market
pricing, still tom make decisions on how these jobs by slotting them into some
form of rank order and placed them in grads. Even if they don not have a graded
structure or and spine. They will still need to determine internal relatives. The
arguments in favour of some form of systematic or analytical job evaluation
process as described in this study is that this does at least produce a rationale for
57
such decisions which provides for some degree of equity and consistency and
importantly, can be used to explain why decisions on jobs grades or values have
been made.
2.13 PAY STRUCTURE
In a typical graded pay structure, jobs will be allocated to job grades
according to their relative size, which in a formal system will have been
determined, by some type of job evaluation. There will be a pay range for each
grade, which defines the minimum and maximum rates of pay for all the jobs in
the grade. This pay range will take account of market rates for the jobs in the
grade. The main purpose of a pay structure is to provide a fair and consistent
basis for motivating, compensating and rewarding employees. The aim is to
further the objectives of the organization by having a logically designed framework
within which internally equitable and externally competitive compensation policies
can be implemented, although the difficulty of reconciling often conflicting
requirements for equity and competitiveness has to be recognized. The pay
structure should also help the organization to control the implementation of pay
2.14 THE BASIS OF PAY STRUCTURES
Pay structures are based on decisions about internal relativities and external
comparisons but they must also take account of pay progression policy.
58
i.
Internal Relatives
Internal relativity decisions are usually are usually formed through a process
of job evaluation. This normally excludes personal factors, and the relative size of
jobs is measured on the basis of what has to be done to achieve a standard and
acceptable level of job performance. In an individual job range structure this
provides the reference point for the rate within the range, which should be paid to
a fully competent person. In a conventional graded structure the same assumption
is made for all jobs grouped into the grade although in practice their relative size
may differ.
ii.
External Comparisons
External comparisons are made through market rate surveys, and decisions
on external relatives follow the organizations policy on how its pay levels should
relate to market rates its market or pay stance.
Market stance policy depends on the organization views as to whether it
should pay above the market, match the market or payless than the market.
These will be influenced by such factors as the level of people the organization
wants to attract and retain, the degree to which it is though that pay above is a
major factor affecting attraction and retention rates and of course what is can
afford to pay.
59
Some, organizations are market driven in the sense that they pay a lot of
attention to market rates when designing and maintaining their pay structures.
Others take the view that they are not going
to allow another company‟s
business and reward strategies to drive their own structure. They pay people in
accordance with their beliefs on what are worth to them. They will not, because
they cannot, ignore the market place and the need to be competitive but they do
not all own these needs to dominate their thinking.
It is possible to design pay structures entirely on the basis of external
relatives and allow these to determine interval differentials, ignoring internal
equity considerations. But this extreme approach is rare except in small or rapidly
growing organizations or within sectors such as some parts of the finance sector
where it is accepted as the norm. It is more usual to start by assessing the relative
size of jobs by job evaluation and then price those jobs on the basis of external
comparisons.
Thus the reference point in a pay range may be aligned at the average
market rate for jobs in the grade or above or below that rate. This may result in
tension between the need for both internal equity and external competitiveness.
60
iii. Pay Reviews
Pay reviews are a major means of implementing the organization‟s reward policies
for improving performance and ensuring the continued motivation and retention of
employees.
It is important that the way in which review are conducted and the outcome for
employee reflects these policies and the organization‟s culture, so far as
employees are concerned, the review should, within reason, meet the expectations
the organization has created among them as to how they will be rewarded in
relation to their performance and contribution. However, the extent to which this
can be achieved in practice may be limited by budgetary constraints on the
amount of money available for pay increases, which will ultimately be derived from
the business performance of the organization.
2.15 HYPOTHESES
Hypothesis 1
A well established and properly compensation pay structure/scheme for
AIICO employees could lead to high performance/productivity in the organization
studied.
61
Hypothesis 2:
“AIICO‟S compensation pay structure/scheme does not carter for all the
necessary compensation.
Hypothesis 3:
The ability of AIICO employees to rate their compensation scheme/pay
structure as fair depends highly on whether the management of the organization
recognizes the employees contributions in organization.
Hypothesis 4
The economic forces influencing decision about compensation pay
structure/scheme were not considered by the management of AIICO before
establishing theirs.
2.16 DEFINITION OF TERMS
AIICO – American International Insurance Company
Compensation Management – A total reward system involving incentives and noncash benefits, performance appraisal, job evaluation to manpower development,
basic wages and salaries. It is about the design, implementation, maintenance,
communication and evolution of reward process which helps organization to
improve performance and their achieve their objectives.
62
Organization – A system of cooperation between two or more individuals in an
attempt to achieve organizational set goals and objectives.
Pay Reviews - Major means of implementing the organization‟s reward policies
for improving performances and ensuring continued motivation and retention of
employees.
Pay Structure – A graded pay structure in which rewards are given to employees
according to their performance.
63
CHAPTER THREE
METHODOLOGY
This chapter deals with the design and procedures for carrying out this study. It
also identifies the area of the study, population of the study sapling techniques,
instrument used for collecting the relevant data, method of the administration of
the questionnaire, as well as methods of data analysis.
3.1 LOCATION OF THE STUDY
The study was carried out at American International Insurance Company Lagos.
Nigeria.
3.2 POPULATION OF THE STUDY
The population of the study comprises all the staff of ALLCO, Lagos and their
selected customers.
3.3 THE TARGET POPULATION OF THE STUDY
The target population of this study is made up of two hundred respondents
selected from the various units of the organization. In addition to the selected
customers. The respondents from ALLCO were selected using the simple random
technique. This came from the seminar, intermediate and junior cadres. Only fifty
64
respondents were selected from each of the above mentioned categories
of
employees.
3.4 PROCEDURE AND INSTRUMENT FOR DATA COLLECTION
Documentary and non documentary method of data collection were adopted to
generate Data for this research. Documentary methods includes the review of
relevant literatures under the topic under investigation magazines, cooperate
documents, newspaper and Archival materials. Non documentary methods include
the survey research using all the vital survey research methods. The primary
instrument for data collection for this study include the questionnaire unstructured
interview and observation. The oral interview was adopted when clarification of
certain issues in the questionnaire was required it was also used when probing
the key respondent. For instance those in the management cadre especially, on
issues relating to AIICO compensation polices for employees.
Observation was another instrument which was combined with the questionnaire
and the oral interview to generate data for the study. Observation permitted us to
get a first hand knowledge on how compensation is permitted us to get a first
hand knowledge on how compensation is
Insurance Company.
65
managed in American International
3.5 METHOD OF DATA DISTRIBUTION AND COLLECTION
The distribution for the questionnaire for the study were done by the researcher
alone. Two hundred copies of the questionnaire were distributed by the
researcher. The details are summarized thus:
Table 3.1: Detailed information on data collection and distribution
Categories
of No of questionnaire
respondents
Distributed
collected
Senior
50
50
Intermediate
50
50
junior
50
50
External public
50
50
Total
200
200
Percentage of the total
100
100
66
3.6 SAMPLING TECNIQUE
A proportionate sampling techniques were used in the selecting the respondent
includes for sampling I this survey. A total of two hundred respondent were
interviewed and administered the questionnaire by the researcher
3.7
METHOD OF DATA ANALYSIS
The responses from the questionnaire were collated, classified and cross classified
according to the leading questions for analysis is discussion on focused interview
on management with some experts on compensation management.
The mean is used to compute the interval and ratio data in order to determine the
average.
Rank orders:
Ranking was used to classify data in order of importance from the highest to the
least score.
67
CHAPTER FOUR
ANALYSIS AND PRESENTATION OF DATA
This chapter focuses on presentation and discussion of quantitative data
generated through the questionnaire of the survey. The respondent‟s interviews
were classified according to their sex and age range groups. The classification
helped to throw more light into the numerical classification of data and the
assessment of the opinions expressed in the research.
A multi mentioned approach to data collection was employed. Similarly statistical
techniques such as mean, percentage and rank order were employed to detect the
frequencies of the opinions expressed by the various respondents involved in the
study. We are therefore going to present and analyze the data the data generated
as a joint exposition and make inferences where necessary; bearing in mind the
subject matter under discussion. The first part of this chapter focuses on,
background information of the respondents. The second part present and analyses
the main data relating to the topic under study in addition to the test of the
hypotheses of the study.
4.1 BACKGROUND INFORMATION
The age range groups of the respondents studied are presented below;
68
Table 4.1 Number and means number of the age range groups ofn the
respondents
Categories of
Age arrange groups
respondent
20-30 31-40 4252
Total
53 and above
70-30 senior staff
50
31-41 intermediate staff
14
17
11
8
50
Junior staff
16
10
18
6
50
Customers
10
11
19
10
200
Total
30
275
27
15.5
100
Source: Survey 2009
Am analysis of the results of Table 4.1 indicate that 20 members of senior staff
who responded to the questionnaire of the study came from age range group (2030) while 17 came from age range group (34-41). 6 came form age range group
(42-52) where as 7 respondents came from age range group (53 and above). As
for the intermediate staff, 14 respondents who responded to the questionnaire of
the study belong to the age range (20-30). 17 respondents came from age range
groups (42-52), and (53 and above). The junior staff member‟s age range groups
are 16, (20-30),
10, (31-41) 18 (42-52) and 6, (53 and above). As for the customers their age
range groups are (20-30) 10 respondents, (31-41), 11 respondents (42-52) 19
69
respondents while (53 and above) has only 10 respondents. All totaling two
hundred respondents (200) see Table 4.1.
Table 4:2: Sexes of the Respondents
Sex
Response rate
Percentage
Mean
M
80
60
30
F
80
40
20
Total
200
100
50
Source: Survey 2009
Table 4.2 on the other hand, reveals that a total of one hundred and twenty
respondents who responded to the survey questionnaire where males while only
eighty of respondents were females.
Table 4:3 job Experiences of the Respondents in Years
1-5
6-11
12-17 18-23 24-29
30-35 36-41` Total
%
Senior
5
10
6
8
7
3
50
50
25
Intermediate
10
8
7
10
15
5
0
50
25
Junior
12
15
18
3
2
0
0
50
25
Customers
5
10
12
16
4
2
1
50
25
Total
32
43
43
37
28
10
1
200
25
Mean
8
10.75
10.75
9.22
28.7
2.5
022
50
100
Source: Survey 2009
70
With respect to job experience, 5 senior staff members who responded to the
survey questionnaire have served between (1-5) years in AIICO, followed by 10
respondents (senior staff) who have served (6-11) years only 6 senior staff have
served (12-17) years whereas, 8.7 and 3 respondents have served (18-24) (25-29)
and (30-35) respectively.
None of the respondents has served up to 36 years and above. Only 10
intermediate staff of AIICO who responded to the survey questionnaire have
served between (1-5) and (12-17 years of experience respectively on their jobs.
10, 15 and 5 respondents have served (18-23) (24-29) and (30-35) years in AIICO
in that order. No respondent fall within the categories (30 and above) 12 members
of the junior staff who responded to the questionnaire have served between (1-5)
years followed by 15 and 18 members of staff who have served between (6-11)
and (12-17) years. This is immediately followed by only 2 respondents who have
served between (24-29 years) none of the junior staff who responded to the
survey questionnaire served between (30-35) and (36 and above). As for the
external public or customers of AIICO, only 5 and 10 respondents have served
between (1-5years) and (6-11) years in their jobs, whereas 12 and 16 respondents
in this category have served between (12-17) and (18-23) years in their respective
jobs (4,2) and (36 years and above).
See table 4.3 for details
71
Table 4.4: Educational Background of the Respondents
Categories
of OND
respondents
HND
University
Degree
Post
graduate Others Please Total
diploma
specify
Senior
2
13
27
8
0
50
Intermediate
8
12
15
5
0
50
Junior
12
10
20
6
125A2
50
Customers
7
12
21
6
125A4
50
Total
29
47
83
25
6
50
Percentage
14.5%
23.50 41.20
12.5
3
100
Means
7.23
11.74 20.77
6.22
2.5
50
Source: Survey 2009
Table 4.4. Shows that educational qualifications of those who responded to the
survey vary, this is because those with O.N.D could be summarized as follows;
senior staff 2, intermediate staff B junior staff 12 while the customers who posses
OND are only 7. The respondent with H.N.D are as follows: senior staff 13,
intermediate staff 12, Junior staff 10, while customers are 12; those who posses
university degree are senior staff of AIICO, 27 intermediate staff 15 and 20 junior
who posses university degree are waiting for proper placement. The customers
with university degree are 21, a total of 25 respondent‟s posses‟ postgraduate
diploma of various kinds as follows; senior staff 8, intermediate staff 5, junior 6
customers of AIICO 6. Under other please specify 2 respondents from AIICO.
72
Table 4.5 Distribution of Respondents Response on their Perception of
Compensation Management in AIICO
Reception
compensation
management
of Senior
staff
Intermediate
staff
Junior
Customers
Total
Percentage
Mean
Compensation
involves 0
now
management
determines
the
pay
structure of the various
levels of employees based
on their jobs
0
0
0
0
0
0
The ability of management 0
to weight the various
factors that can affect
their decisions to arrive at
an
adequate
compensation, for the
employees
and
organization
0
0
0
0
0
0
It is the management‟s 0
ability to provide adequate
compensation,
pay
structure comparable to
those established in their
organization.
0
0
0
0
0
0
It
is
designing 0
implementation,
maintenance,
communication and the
evolution
of
reward
process which can improve
organizational
performance
0
0
0
0
0
0
None of the above
0
0
0
0
0
0
0
All of the above
50
50
50
50
200
100
50
Other‟s please specify
0
0
0
0
0
0
0
73
Total
50
50
50
50
Source: Survey 2009
From the data of table 4.5 all the respondents totaling two hundred were of
the opinion that compensation involves management and
determination of pay structure of the various levels of employees based on the
contents of their jobs, this ability of management to weight the various factors
that can affect their decisions to arrive at an adequate compensation pay structure
comparable
to
those
established
in
other
organization,
and
designing,
implementation, maintenance, communication and evaluation of reward process
which can improve organizational performance. For details see Table 4.5
Table 4.56. The Distribution of the Opinions of the Respondents on the
Necessity for Designing a Good Compensation for AIICO Employees.
S/No Response
Options
Senior
Staff
Interment
staff
Customers Total
or external
public
Percentage
Runic
order
Mean
A
To
attract 0
capable
employees
0
0
0
0
3rd
0
B
To
evaluate 0
Jobs
0
0
0
0
3rd
0
C
To retain the 0
services
of
employees to
0
0
0
0
3rd
0
74
an extended
period
D
The cope with 0
fast growing
industry
0
0
0
0
3rd
0
E
To
motivate 0
employees
toward
superior
performance
0
0
0
0
3rd
0
F
ABCEF
50
40
190
95
1st
23.6
G
ALL of
above
the 0
0
10
10
5
2nd
2
H
None of the 0
above
0
0
0
0
3rd
0
50
Source: Survey 2009
The date of Table 4.6 reveals that the preponderance of the respondents believe
that the major reasons why designing a good compensation structure for AIICO
employees is very necessary are as follows: to attract capable employees, to
evaluate the jobs in the period; and to motivate employees toward superior
performance. This could be seen from data of table 4.6 where prepondence of the
respondents totaling 190 (95%) with mean number (23) responded to the option
which states ABCF. This is immediately followed 10 respondents who stated “All of
the above” (5%) with mean number (2) All the other options were not responded
to. For more details see table 4.6.
75
Staff categories
S/No Response
options
Senior Intermediate Junior Customers Total Percentage Position Mean
Yes
45
50
50
40
175
87.5
1st
43.6
No
3
3
0
0
6
09
2nd
2.5
Undecided 2
2
0
0
4
006
3rd
1.5
Question No 7 was designed to find out if good compensation structure
could have a positive impact on the employees of AIICO. The responses are as
follows: „Yes‟ came first with a total of 175 respondents with mean No 25, followed
by „No‟ with a total of 9 respondents (2.5) and undecided totaling 6 with mean
number 1.5. Their percentages are 87.5% 4.5% only 2 responded to undecided
while 4 customers responded to undecided. With respect to „No‟ only 3 senior staff
and 4 customers of AIICO responded to that option see Table 4.7
Table 4.7 Distribution of Number and Mean Number of Respondents Options as to
Whether Good Compensation Structure/Package could Have a Positive Impact on
Employees of AIICO
Source: Survey 2009
Question No 8, sought to find out from those who responded positively to question
no. 7. Their reasons for stating that good compensation structure could have an
impact on the employees performances. The various options were provided for the
respondents to choose from. From the responses on Table 4.8 all respondents
76
responded to “all of the above, (F) which implies that good employees
compensation scheme could have great impact on the employees of AIICO. This is
based on the fact that the employees consider pay as a sign of status/success, pay
decisions permit the employees to evaluate their relationship with other employees
in the organization as well as in other alliled organization. Another reason why
good compensation is could have great impact on employees is because it affects
their earnings. Option „D‟ which states that compensation structure affects
management/organization hence employees support management and none of the
above except „C‟ had zero (O) scores since no respondents responded to that
S/No
Responses Options
Senior
staff
Interment
staff
Customers or
external
public
Total
Percentage
Position
Mean
A
Employees consider pay as a sign
of status/success
0
0
0
0
0
3rd
0
B
They attach great importance to
pay decisions when they evaluate
their relationship with their
employees in Auka and other
allied organization.
0
0
0
0
0
3rd
0
C
Employees care about their
compensation policies because it
affects their earnings.
0
0
0
0
0
2nd
0
D
Compensation package, structure
affects management/organization
hence, employees support the
management
0
0
0
0
3rd
0
77
E
None of the above
0
0
0
0
0
3rd
0
F
All of the above
50
50
50
50
100
1st
2
G
None of the above except c
0
0
10
10
option. For details see table 4.8.
Number and, the mean number of those who responded „yes‟ to question No 7 i.e
whether good compensation could have a positive impact on employees and their
reasons for their choices.
Table 4.8. Distribution of Responses of the Respondents who Responded Positively
to Question No7 and their Reasons for Stating that Good compensation
Scheme/Structure could have and Employees
Source: Survey 2009
S/No Response
Options
Senior Interment Junior Customers Total Position Percentage Mean
staff
staff
staff
or
external
public
Merit pay
50
50
50
45
195
1st
97.5
48.6
Standard
hours plan
50
50
50
40
190
2ND
95
40.6
work 30
40
45
35
145
3rd
72.5
23.6
Piece
78
rate
40
30
45
35
140
4th
70
35
Performance 30
bonus
30
35
31
126
5th
63
31.4
Stock
ownership
20
50
35
20
125
6th
62
34.2
Justice and 30
equity
20
10
30
80
8th
40
20
Balance
card
0
0
8
8
10th
04
02
Profit
30
sharing
based
on
no. 9 shares
40
20
30
120
7th
60
30
Incentive
0
pay
for
executive
0
0
10
10
9th
05
2.22
All of
above
0
0
0
0
11th
0
0
Sales
commission
0
the 0
Table 4.9 Respondents Reponses on the Basic Principles Considered in designing
AIICO‟S Compensation Scheme/Pay Structure in Order of Importance.
Source: Survey 2009
Question No 9 was designed to find out from the respondents the basic principles
they
think
that
the
management
considered
before
designing
AIICO
Scheme/structure pay package. They were instructed to tick the appropriate
79
answers in order of importance. From the responses of the respondents (option A)
merit pay which is (rating employees pay increase based on their performance
rating came first, with a total of 195 (97.5%) respondents. Fifty (50) respondents
from the senior, junior and intermediate staff and 45 customers responded to the
same option (A). The “standard hour plans” which is an incentive plan that pays
workers extra for work done in less than a pre-set standard time. Came second
totaling 190 respondents,
“piece work rate” came third with a total of 145
respondents 30 from senior, 40 from the intermediate to “sales commission” and
came 4th totaling 140 as follows: 40, 30, 35, 35, for senior, intermediate junior
staff and customers respectively in the order performance bonus came 5 th with a
total of 126 respondents and is classified as follows 30, 30, 35 and 31 for senior,
intermediate junior staff, and customer coming 1st , 2nd , 3rd and 4th respectively in
that order. „Stockownership‟ came 6th with a total of 125 respondents responding
to that option thus: Senior staff 20, intermediate 50, junior staff 35 and 20 for
customers. Justice and equity came 7th with a total of 80 respondents classified as
follows: 30,20,10 and 30 for the senior, intermediate, junior and the customers in
that order. Balanced card, profit sharing based on the number of shares the
employees have and incentive pay for the executive in addition to “all of the
above” came 8th 7th 10th and 11th with a total of 8, 120, 10 and 0 respondents
responding to the options respectively in that order for details see Table 4.9.
80
Table 4.10: Distribution of the Opinions of the Respondents on whether AIICO
management Consider all the Vital factors influencing Compensation before
Establishing their Compensation Scheme.
S/No Response
options
Senior
Intermediate Junior
Customers Total
Percentage Mean
Yes
50
50
50
50
200
100
50
No
0
0
0
0
0
0
0
Undecided 0
0
0
0
0
0
0
Total
50
50
50
200
0
50
50
Source: Survey 2009
From the response of the respondents contained on table 4.10. All the
respondents totaling 200 (100%) responded to the “yes option”. This implies that
there are certain vital factors that organizations considered while designing their
compensation scheme. For detailed information, see Table 4.10.
Table 4.11. Options of the Respondents Whether who responded on the
Affirmative (“yes”) to Question No 10 on the Critical Factors Influencing Decisions
about Compensation Scheme/Structure were considered By AIICO‟s management
before establishing.
S/N
o
Response
Options
Senior
staff
Interment
staff
Junior
staff
Customers
Total
i
Government
regulations
50
50
50
50
200
81
Position
Percentage
Mean
100
50
over wages
45
35
30
30
140
2nd
70
35
and 35
for
30
28
32
125
3rd
62.5
31.22
45
25
26
24
120
4th
60
30
v
Labour umons‟ 20
demands for
fair payments
31
30
25
105
5th
52.5
26.22
vi
Cost of living 30
index/state of
the economy
29
28
26
93
6th
46.5
23.22
vii
General
30
productivity
performance
as
by
measured
certain
productivity
index
26
23
13
92
7th
46
23
viii
Pay
levels 26
within
other
labour
organizations
15
20
20
71
8th
35.5
17.5
Ix
Overtime
payments
workers
20
10
20
54
9th
27
13.5
ii
Job structure
iii
Supply
demand
labour
iv
The
organization‟s
ability to pay
24
to
A cursory glance at the data of table 4.11 shows that a host of factors influence
the designing and management of compensation scheme/structure in Nigerian
82
organizations including AIICO. The questionnaire related to the data of Table 4.11
sought to find out from the respondents those critical factors that influence the
designing of compensation structure/scheme especially, from respondents who
responded „yes‟ to question No 10; From the data of table 4.11, the first factor
that according to the result of the survey could influenced the designing of
compensation scheme/structure is government regulations on minimum wage or
the lowest amount that employees may receive under the federal or state laws in
addition to amount of pay per hour. This has a total of 200 respondents with
mean No (50) which corresponds to the number of respondents who responded to
the „yes‟ option on table 4.10.
This is immediately flowed by the job structure of the organization‟
with a total of 140 (70%) respondents with mean number 35. Supply and demand
for labour came third totaling. 125 (62.5%) with means 31.22. The organization‟s
ability to pay came fourth and totaled 120 (60) with mean number 30. labour
union‟s demand for fair payment came 5th totaling 105 (52.5) with mean number
26.25, followed by cost of living index/state of the economy‟ came sixth with a
total of 93 respondent (46.5) and mean number 23.25. This is followed by general
productivity performance as measured by certain productivity index level of pay
within other organizations‟ and „over time payments to workers‟ coming seventh,
eight and ninth totaling 92, 71 and 54 respectively. Their percentages are 46&
35.5% and 27% with mean numbers. 23, 17.75, 13.5 in that order respectively.
83
Table 4.12. Distribution of respondents‟ Opinions as to Whether Adequate
Compensation Scheme could Stimulate AIICO‟s Employees to improve their
performance Level.
S/No
Response
options
Senior
staff
Intermediate Junior
staff
staff
Customers Total
of AAICO
Mean
Percentage
Yes
50
50
50
50
200
50
100
No
0
0
0
0
0
0
0
Undecided 0
0
0
0
0
0
0
Source: survey 2009
Question No 12 in the questionnaire was designed to find out if adequate
compensation
scheme/pay structure could stimulate employees of AIICO to
improve their performance level. From the data of table 4.12, all the respondents
responded to option (A) which is „yes‟ totaling 200 respondents or is 100%. This is
an indication that
An adequate compensation scheme could stimulate the employees in
ALLCO to their performance level. See table 4. 12.
Table 4.13.
Response Opinion as to Whether ALLCO‟s Compensation Scheme is
Adequate
S/N
o
Response Senio
r
Intermediat
e
Junio
r
84
Customer Tota Percentag
s
l
e
Mea
n
Options
Yes
40
30
40
35
145
72.5
36.2
5
No
5
20
10
0.5
40
20
10
undecide
d
5
0
0
10
15
7.5
3.75
Source: survey 2009
The data of table 4.13 reveal that majority of the respondents are of the opinion
that ALLCO‟s compensation pay structure/scheme is adequate because total of 145
respondents (72.5%) answered „Yes‟ to the question posed. Only 40 respondents
representing 2220% answered „No‟ while only 15 respondents answered
undecided representing 7.5% their mean numbers are „Yes‟ 36.25 „No 10‟ and
undecided 3.75. Further probing revealed that even those whose answers were in
the affirmative believe that although some of the items on the table 4.11 may be
on paper, the organization (American International Insurance Company Lagos)
may not have considered many of them especially cost of living index, pay levels
within other organization, job structure and employees performance level within
the organization.
85
Table 4.14. The Ratings Of Compensation Scheme Of ALLCO
Based on the Respondents Responses to
S/No Response
Options
Question No 13.
Seni
or
Intermediate Junior Customers Total Percentage Mean
V. good
20
15
20
40
95
45.7
23.7
Good
20
20
15
10
65
32.5
16.25
Mode
10
0
20
0
30
15
7.5
Very
0
10
0
05
2.5
1.25
Fairly poor
0
0
0
05
2.5
1.25
Poor
0
0
0
0
5
Source: survey 2009
Question, No (14A) in the questionnaire was designed to find out from the
respondent their ratings of compensation scheme of ALLCO their responses are as
follows; very good came first with a total of 95, respondent representing, 47.5%
„good‟ came second with a total of with a total of 32.5% representing 16.25%,
fairly good came third with a total of 30 respondents representing 15% „very‟
poor and fairly poor tied and came 4th respectively totaling 5 respondent and
representing 2.5% respectively. ;poor‟ came last with ;O‟ respondents the mean
numbers for all the classifications are 23.75, 16.25, 7.5, 1.25, 1.25 and 0
respectively. For further information see Table 4.14(A)
86
Table 4.14B: Distribution of Respondents Opinion on the Management
Ratings of Employees Performances at ALLCO
Response
Options
Senior Intermediate Junior Customers Total Percentage Mean
Very high
25
40
50
30
145
77.5
36.22
High
15
5
0
12
32
16
8
Moderately 6
High
5
0
8
19
9.5
4.6
Very Low
4
0
0
08
04
2
1.00
Fairly Low
0
0
0
0
0
0
0
Low
0
0
0
0
0
0
0
Total
50
50
50
50
200
100
50
Source: Survey 2009
Question No (14B) experts the respondents to evaluate the performance of ALLCO
employees at present. The various options were provided to them to choose their
answers from. Their responses are as follows: very high came first with 145
respondents representing 72.5, with mean 36.23 high came second with a total of
32 respondents representing (16%) with mean number 8, moderately high came
third with a total of 19 respondents representing 9.5% with a mean number 4.6,
very low came fourth with a total of 19 respondents representing 2% with mean
number 1.00.
87
The implication of the result of table (4. 14b) is that all the respondents
believe that the employees of ALLCO‟s performance is very high while some of the
respondents especially, the senior staff and the customers believe that the
employees of ALLCO‟s performance is low.
`Table 4.15. Distribution of the Respondent On their Suggestion for Future
Improvement of the Organization Studied
Response
Options
Paying
the
employees as
high as their
counter parts
in
other
insurance
company
Paying
for
good
employees
relations
giving a little
amount in an
envelop fourth
nightly
to
encourage
them to work
harder
Providing
medical
services
for
the employees
of ALLCO and
their
family
members.
Senior
Staff
35
Interme
nt Staff
45
Junior
Staff
50
Custome
rs
40
Total percentag
e
160 80
mean
40
positio
n
4th
20
40
45
45
150
75
37.5
5th
40
50
50
50
190
92.5
47.5
2nd
88
Granting leave
annually
employees
and to other
types of the
leaves
the
employees
merit
with
adequate
leave
allowance
Exercising
discrimination,
tribalistic and
nepotic
sentiments in
dealing with
employees
Introducing A
CONSOLIDATI
ON OMINI bus
Budget
recouncilation
by
establishing
groups
Rate
insurance
coverage for
employees
Enhancing
communicatio
n
with
employees
while
designing and
reviewing
scheme/pay
structure.
Source:
45
50
50
50
195
93.7
48.75 1st
35
35
40
30
140
70
35
50
50
50
35
185
92.5
46.25 3rd
45
50
50
50
195
93.75
48.75 1st
Survey 2009
89
6th
Question No. 15 in the questionnaire was designed to solicit the
respondents‟ suggestions for future improvement. Their responses are presented
on Table 4.15. The data of Table 4.15. This indicate that granting annual leave to
employees with leave allowance and enhancing communication with employees
while designing and modifying their compensation scheme/pay structure came 1st
totaling 195 respondents respectively. Representing (03.75%) with mean number
48.75 respectively. „Providing medical services for the employees‟ came second
with a total of 190 respondents representing 92.5% with mean number 47.75.
ominibus budget reconciliation by establishing group rate insurance coverage for
employees came third with a total of 185 respondents representing 95.5% with
mean No. 46.25. Paying the employees as high a s their counterparts in other
insurance companies‟ came fourth with a total of 160 respondents representing
80% with mean number 40.
Paying for good employees relations by giving a little amount in an
envelop forth nightly to encourage them to work harder came 5th with a total of
150 respondents representing 75% with mean number 37.5 last but not the least
exorcising discrimination, tribalistic and nepotic sentiments in dealing with the
employees came 6th with a total of 140 respondents. Representing 70% with mean
number 35. For details see table 4.15.
90
TEST OF HYPOTHESES
Hypothesis I
A well established compensation pay structure/scheme for AIICO
employees could lead to higher performance/productivity in the organization
studied.
Question No 12 in the questionnaire of the study was designed to find out if a well
established compensation scheme/pay structure could stimulate the employees of
AIICO to improve their performance/productivity. Some response options were
provided for the respondents to choose from. The options are „Yes‟ „No‟ and
undecided. The results of the data of Table 4.12 reveal that all the respondents
responded to the „Yes‟ option with a total of 200 respondents representing 100%.
The mean number is 50. In view of the fact that a adequate/pay structure can
stimulate employees to improve their performance level. We therefore, accept
hypothesis one.
Hypothesis 2
AIICO‟S compensation pay structure/scheme does not carter for all the
necessary compensation principles.
The data of question No. 9 which was designed to find out if AIICO‟S
employees compensation scheme/pay structure are based on the appropriate
91
compensation principle are related to the above hypothesis. The various principles
of compensation scheme were provided to the respondents as options to choose
from. Their responses show that the first principle which AIICO‟S compensation
pay structure/scheme was based on is the principle of merit pay i.e. creating pay
structure based on performance. This represents 97.5% of the total respondents,
with mean number 48.6. The second principle in AIICO in the ranking is the
standard hours plan representing (95%) with mean number (40.6). This principle
stresses that worker compensation pay structure/scheme should be based on the
unit of work each employee produce on a daily, weekly, monthly or yearly bases.
Piece work rate is the third principles for designing compensation pay
structure/scheme by AIICO. This represents 72.5% of the total respondents, with
mean number 23.6. It may be necessary to explain that piece-work rate is a
principle which determines employees wages based on the amount of work
produced. This rate is often paid in addition to employee‟s basic pay. The amount
per unit is set at a level that rewards the employees if his production level exceeds
the average volume of production. The fourth principle in the rank order is the
sales commission”. This represents (70%) of the total targeted population of the
study; with mean number (35). We can say that „sale commission‟ is a variation of
piece rate of while bonuses are the payments. Commissions are incentive pay
calculated as a percentage of sales. Performance bonus came fifth with (63%) of
the total population with mean number (31.4). Performance bonuses are rewards
92
given to employees for good performance. They earn such reward while ordinary
bonuses are rolled into employee‟s basic pay.
Stock ownership came 6th with (62.5%) and mean number (34.2) „stock
ownership‟ allows employees in an organization to buy stocks and shares by
placing them on a trust. Unfortunately, any AIICO employees cannot afford to buy
stock. Profit sharing is based on number of shares. As for „executive incentive‟,
justice and equity balanced card, „incentive for all of the above Representing
(60%), (40%), (5%) and (0%) (4%) with mean numbers (30), (20), (2.22) and
(02) respectively. In AIICO, profit is just meant for investors. Employees do not
per take, in it only few executive staff enjoys incentive pay justice and equity‟ is a
general principle of administration practiced in virtually every organization
unfortunately, each organization interprets it differently. Out of the eleven
principles were rated comprising most the necessary compensation pay
structure/scheme. Moreover, the preponderance of the respondents rated AIICO
employees compensation pay structure/scheme as very good 95 (47.5%) out of
145 respondents who answers „yes‟ to question no 13 followed by good totaling
65(32%) „fairly good‟ 30 respondents (15%). Their mean numbers are (23.75),
16.25, and 7.5 respectively in that order. About 10 respondents were inconsistent
in their responses because they answered „yes‟ in question No 13 whereas there
response to the follow up question No 12 were negative. For details see table 4.13
and 4.12.
93
Hypothesis 3.
The ability of AIICO employees to rate their compensation package as
fair depends highly on whether the management of the organization recognizes
their contributions in the organization.
The data relating to the above hypothesis are presented on Table 4.14B.
is question No 14B was designed to investigate the opinion of the respondents on
how they will rate AIICO employees performance.
The results of the data of Table 4.14B indicate that many of the senior
staff members who think that the AIICO employees‟ performances are „very high‟
are 25 out of 50 respondents. 15 of them believe that their performances are just
high‟ while 6 think that the employees performances in the organization are
moderately high‟ where as. Only 4 of the senior staff thing that AIICO employees
performances are very low. The intermediate and junior employees believe that
their performances in their organization are very high with a total of 40 and 50
respondents from the two cadres respectively. On the other hand 30 customers
out of 50 who responded to the questionnaire were of the opinion that‟s the AIICO
employees performances are higher that those in other allied organization. This is
followed by 12 who think that their performances are just high and 8 who
responded to moderately high. On the whole, 145 respondents representing
77.5% responded to very high‟, 32 (16%) responded to high‟, 19 (9.5%)
94
responded to moderately high‟ only 4.2%) respondents responded very low out of
200 hundred respondents sampled. Their mean numbers are 36.22, 4.6 and 1.00
respectively in that order.
From the above analysis of data Table 4.14B, hypothesis 3 has been
upheld. Supporting the hypothesis are the data of Table 4.13 and 4.14A which
exposed the fact that AIICOs compensation pay structure/scheme is adequate and
their rating of the same compensation scheme as “very high” and on table 4.14 A.
These result are indications that the management of AIICO recognizes the
employees contributions hence, the organizations compensation scheme is rated
high on the average.
Hypothesis 4
The economic forces influencing decisions about compensation pay
structure/scheme were not considered by the management of AIICO before
establishing their”.
Table 4.10 and 4.11 embodies data relating to hypothesis 4 from the data of Table
4.10. “All the respondents answered “yes” indicating that there are certain
economic factors to be considered while designing compensation structure/scheme
in organizations.
Similarly in the data of Table 4.11 the entire respondents identified some
critical factor that can influence compensation pay structure/scheme decisions in
95
AIICO in order of importance‟s, the results presented on table 4.11 reveal that
„Government regulations over wages‟ came first with a total of 200 respondents
(100%) with a mean number 50, job structure‟ came second with a total of
140(70%) of the respondents the mean number is 35; supply and demand for
labour ranked third with a total of 125 respondents representing 63%, with a
mean of 31.22. The fourth in the ranking is the organizations ability to pay‟
totaling 120 respondents (60%) with a mean number 30. Labour unions demand
came fifth totaling 105 (52.5%) with mean number 26.22. Cost of living
index/state of the economy came sixth totaling 93 respondents representing
46.5% with mean number 23.22 „General productivity performance as measured
by certain productivity index came seventh with a total of 92 respondents
representing 46%. With mean number 23. Pay levels within other labour
organizations‟ came eight totaling 71 respondents representing 35.5% the man
number is 17.5. Last but not the least of factors influencing compensation
structure/scheme decisions is „over time payments to workers‟ with a total of 54
respondents out of 200 with mean number 17.5.
The implication of the analysis of data of Table 4.10 and 4.11 is that
there are a host of critical factors influencing compensation scheme/structure
decisions were considered in before establishing AIICO‟s compensation scheme in
view of this revelations, our fourth hypothesis has been rejected.
96
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
This section of the study will be discussed under the three main headings namely,
summary which will give major highlights of the issues raised in the study, the
conclusion which states the main opinion of the research while recommendations
will focus on prescribing what should be done for future improvement.
5.1
SUMMARY
The study on compensation management as a tool for achieving organizational
objectives in American international insurance company Lagos. Investigation
reveals that prior to the intervention of the central bank of Nigeria that insurance
sector were a common phenomenon which was unable to attain the level of
sophistication and advancement as those in the developed nations.
However, rapid growth and developments in the insurance industry was motivated
by the central bank reforms AIICO inclusive generally a careful review of the
literature reflects a consensus among writers as to the importance of proper
compensation management and motivation in achieving organizational goals.
Some philosophical and theoretical postulates were employed to buttress these
assertion and many approaches to
compensation management including
compensation strategies and policies were discussed. Job was evaluation reviewed
and identified as an important aspect of compensation management; job ranking,
97
job classification and point factor rating were also identified as the main traditional
job-centered evaluation methods. The method of market pricing was also reviewed
as a method of evaluating jobs and determining wages or compensation to be
applied to different jobs. All these methods have their advantages and
disadvantages which were highlighted. There is agreement among writers and
researchers alike that there is a relationship between compensation or reward
management motivation and performance. Indeed these assertions were analyzed.
A total of two hundred respondents from the AIICO and its customers were
selected using proportionate and simple random techniques. The written
questionnaire and focused interview on the senior junior and intermediate staff of
the organization in addition to her customers. Fifty respondents were selected
from each group. A total of one hundred and twenty male respondents responded
to the questionnaire of the study while eighty respondents who responded to the
questionnaire were females.
Test of hypothesis one show that a well established compensation. In achieving
the overriding objective of this study, four hypotheses were employed and
subjected to empirical test. These are:
1. A well-established and properly managed employees compensation scheme
could lead to higher performance/productivity.
2. AIICO‟S compensation scheme pay structure does not carter for all
necessary compensation principles.
98
3. The ability of AIICO employees to rate their compensation scheme/pay
structure fair depends highly on whether the management of the
organization recognizes the employees contribution in the organization.
4. The economic forces influencing decisions about compensation scheme pay
structure were not considered by the management of AIICO before
establishing their. Pay structure/ scheme for AIICO employees could
stimulate the employees to higher performance productivity as all the
respondents responded to the „‟yes‟‟ options. For this reason our first
hypothesis is upheld.
Our second hypothesis which states that AIICO compensation pay structure
scheme does not carter for all the necessary compensation principle was rejected
because out eleven principles listed as options seven scored more than 50%
respectively.
Hypothesis three which state the ability of AIICO employees to rate their
compensation scheme/pay structure as fair depends highly on whether the
management of the organization recognizes their contribution in the organization
was upheld because managements rating of employees was very high‟‟ with 145
respondents representing 77.5% with mean number 36.22; while high scores 16%
with mean number 8 etc. For details see table 4.14B and 4.14A where the
employees rated their compensation packages as very good 2.5% while „poor‟
scored 0%.
99
Our fourth hypothesis which states that the economic factors influencing
decisions about compensation scheme pay structure were not considered by
management of AIICO before establishing theirs. From the data of Table 4.10 all
the critical factors influencing compensation scheme pay structure were
considered in setting AIICO‟S compensation scheme/pay structure. Therefore our
fourth hypothesis has been rejected.
5.2
CONCLUSION
The insurance sector of the economy is of special importance because institution
which fall under this sector seal insurance service and not products which is visible
and easier to sell therefore success in proper compensation administration and
staff motivation can easily differentiate the efficient organization from the
inefficient ones thereby enhancing organizational performance productivity.
Similarly designing a good compensation and motivation programmes are
important both for the organization and its employees.
5.3 RECOMMENDATIONS
While compensation and motivation programmes of America international
insurance company plc have been described as generally conforming to the
theoretical framework, it was observed that there is still room for further
improvements. In this regard the following recommendations are made:
100
1. There is need to constantly revise personnel policies especially, in the areas
of compensation and motivation so as to ensure that these policies are up to
date and the prevailing environment.
2. The personnel policies should always ensure that it uphold the principles
relating to the maintenance of a high level standard of remunerations and
good working condition in order to attract motivate and retain qualified
personnel of a high order as this is crucial for the success of service oriented
organization.
3. There must be constant comparative surveys of compensation for a similar
job in other major organization to ensure that it does not lose its key
personnel in view of stiff competition.
4. Awards
and
recognition
should
always
be
given
for
exceptional
performance. An atmosphere that generates and rewards excellence must
be provided to motivate employees for higher performance.
5. AIICO employees should form a consolidation ominibus budget reconciliation
by permitting their employers to establish group rate insurance coverage
where their money can be fixed for about five years or for events such as
sudden death, ill-health of family members layoff, reduction in length of
hours of services etc. other forms of benefits plans can also be put in place
for the employees by the organization. Such plans include criteria benefit
plan whereby employees set alternatives for which they can choose the type
101
of plan and amount of benefits they wants. There is also the customized
benefit in which the organization considers the needs and interests of
employees and design a benefit plan based on these needs and interests of
the employees.
6. Appropriate instruments for measuring performance of employees in a very
fair manner should be used in measuring performance of each employees.
It is our candid opinion that the findings of this study and the follow up
recommendations will help to improve the content of compensation scheme
and its administration in the American international insurance company plc
including other insurance companies.
102
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Armstrong .M. (19) personnel management 5th Edition
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Drunker P.P (1975) The practice of management London William Hedeneman Ltd.
Edwin B. Flippo: personnel management New York McGraw-Hill Book.
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105
APPENDIX 1
Department of public Administration and
Local Government,
University of Nigeria, Nsukka
Dear Sir/Madam,
I am a postgraduate student in the Department of Public Administration, University
of Nigeria, Nsukka. In partial fulfillment of the requirements for the Award of
Master of research on compensation management as a tool for achieving
organizational objectives.
I hereby solicit your assistance to answer the following questions. Honestly and
correctly by ticking or filling in as appropriate. All information given will be treated
in strict confidence. I assure you that this study is purely for academic reasons and
any information you give will be treated with utmost confidentiality.
Thank you! Stanley Opara.
106
QUESTIONNAIRE
Instruction: please tic ( ) in the appropriate answer or box
1. Age range: (a) 20-30 ( ) (b) 31-41 ( ) (c) 42-52 ( )
(d) 53 and above.
2. Sex; (a) Male ( ) (b) Female ( )
3. Educational background: (a) GCE/WASC ( ) (b) Ordinary
Diploma ( ) (e) University Degree(s) (
) (f) post graduate
Diploma ( ) (g) Other please specify ( )
4 Job experience: (a) 1-5yrs ( ) (b) 6-11yrs ( )
© 12-17yrs ( ) (d) 18-23 ( ) (e) 24-29 ( )
(f) 30-35yrs (
) (g) 36 and above (
)
5. How would you briefly define compensation management for the options
provided below?
(a) Involves how management determines the pay structure of the various levels
of employees based on their jobs
(b) It is the ability of management to weigh the various factors that can effect
their decisions to arrive at an adequate compensation for the employees and the
organization.
(C) It is the management ability to provide adequate compensation package/pay
structure that is comparable or better than those established in other organization.
107
(d) It is designing implementation maintenance communication and the evaluation
of reward process which can improve organizational performance.
(e) None of the above
(f) All of the above
(g) Others please specific ( )
6. In your own opinion why is it necessary for an organization to design good
compensation programme? Choose your answers from the options below.
(a) To attract capable employees (b) To evaluate jobs (c ) To retain the services of
employees to an extended period (d) The industry is fast growing (e) To motivate
employees towards superior performance (f) ABC above (
) (g) none of the
above ( ) (h) All of the above ( )
7. Do you think good compensation package/structure could have a positive
impact on employees of AIICO?
(a) Yes (
) (b) NO (
) decided (
)
8. If your answer to question No7 is yes, why should it have impact on the
employees. Tick the appropriate answers from the options below:
(a) Employees consider pay as a sign of status/ success.
(b) They attack greats importance to pay decisions when they evaluate their
relationship with their employee(s)
(c) Employees care about their compensation policies because it affect. Their
earnings (d) compensation package effective management/organization hence
108
employee support the management (e) None of the above (f) All of the above (g)
ABC ( ).
9. What are the basic for designing AIICO‟S compensation scheme package tick
the appropriate answer(s) order to importance (a) profit sharing ( ) (b) stock
ownership (
) (c ) Balance card ( ) (d) incentive pay (
) (e) piece work rate (
) (f) standard hours plan (SHP) ( ) (g) Merit pay ( ) (h) performance bonus ( )
(j) sales commissions ( ) (h) none of the above (
10. Are there certain factors can
)
influence designating compensation structures
which must be considered by organizations before designing/establishing their
compensation scheme?
(a) Yes ( ) (b) No (c ) Undecided ( )
11. If your response to question No 10 is on the affirmative, what are those
factors tick as appropriate:
i. Supply and demand of labour (
)
ii. Job structure ( )
iii The organizations ability to pay (
)
iv Labour unions demand for fair pay ( )
v Policy of equal opportunity
vi General productivity/performance level of an organization as measured by
certain productivity index.
Vii Cost of living index/sate of the economy ( )
109
Viii Government regulation over wages
Ix Over time payments to workers
X Pay levels within other
12 In your own opinion do you think that adequate compensation package could
stimulate the AIICO employees to improve their performance level? (a) Yes ( )
(b) No ( ) (c ) Undecided ( )
8. Do you think that AIICOS compensation packages/schemes for the employees
are adequate? (a) Yes ( ) (b) No ( ) (c ) Undecided ( )
Based on answer to question No 13 is how AIICO employee compensation
structures contents would
(a) Very good ( ) (b) Good ( ) (c ) Fairly ( )
(d) Good ( ) (e) Very poor ( ) (c ) Fairly poor ( ) (g) Poor ( )
14. How would you rate the performance of AIICO employees presently (i) very
high
( ) (b) high (
) (c ) moderately high ( ) (d) very low (
) (e) fairly low (
) (f)
low ( ).
15. How could AIICOS employees compensation package be improves to motivate
employees to improve their performance level and to boost the organizations
productivity level. Write your answer in the spaces provided below.
110