Effect of Compensation Strategy on Corporate Performance: Evidence from Nigerian Firms

Abstract

Compensation Strategy is seen as one of the most important strategies in the human resource management function as it influences the productivity and growth of an organization. Recently, numerous special journal issues have emerged on compensation, often focusing on organization differences. Examples include: the "New Economics of Personnel" (Journal of Labor Economics, October 1997), "The Economics of Human Resource Management", (Industrial Relations, Spring 1998) and "Do Compensation Policies Matter? An Industrial and Labor Relations Review, February 1990). The Brookings Institution (Blinder, 1990) has also published series of papers by scholars in the management field that reviewed the effectiveness of pay programs such as profit sharing, employee ownership, and so forth. Despite these research efforts, there is little debate about whether employees’ pay has any significant linkage with performance. (see also Gerhart and Milkovich ,1990). Thus, in the present study, we tried to link compensation with performance using selected firms in Nigeria as a case study. We specifically covered three conglomerates in Nigeria. The choice of this case study was not unconnected with the fact that these companies are among the largest employers of labour in the manufacturing industry in Nigeria. Using the cross-sectional data analysis, we found that compensation strategy has the potential beneficial effects of enhancing workers’ productivity and by extension improving the overall organizational performance. Therefore, the significance of compensation cannot be overemphasized in an organization and is in fact a veritable option for attracting, retaining, and motivating employees for improved organizational productivity. This finding further enriches the literature supporting that a higher pay guarantees a higher productivity and vice-versa.

Key Words: Compensation; Job Evaluation; Workers’ Productivity; Competitive Advantage; Organizational Performance.