RELATIONSHIP BETWEEN COMPENSATION AND EMPLOYEE PRODUCTIVITY

CHAPTER ONE

INTRODUCTION

• Background of the study

An effective employer is one of the biggest obstacles for most entrepreneurs. According to them, keeping employees motivated and loyal can be particularly difficult during the early stages of a startup. Argued that those employees who feel that they are cared for by their organization and managers not only have higher levels of commitment, but that they are more conscious about their responsibilities, have greater involvement in the organization, and are more innovative and productive. They suggested that managers and organizations must reward and support their employees for the work that they do because this perceived support allows for more trust and job satisfaction in the organization. These observations brings to the fore the relevance of employee motivation in ensuring productivity. It is an undeniable fact that productivity of an organization depends upon the satisfaction level of its workforce and even more, on the compensation of employees. As a result there has been a great interest in the assessment of compensation variables of employee as they impacts on productivity. According to the study, the concept of compensation has attracted considerable attention over recent years and has become a central objective of human resource management. He indicated that Human Resource Management policies are now being designed to maximize organizational integration, employee commitment, flexibility and quality of work. It is observed that compensation and employee satisfaction drive productivity, indirectly creating profit for an organization. To them, these are also prerequisites for staff retention. They also observed that organizations with higher staff retention rates are naturally better at retaining knowledge, which can lead to better performance and profit for the business. Accordingly, compensation variables improve employee satisfaction, reduce the cost of staff turnover, build brand loyalty with staff and position the company as an employer of choice that attracts talented people to the organization. It is common knowledge that most employees agitate for better conditions of service, while employers complain of low productivity. Employees are always on the lookout for advertisements on what they describe as better jobs. These employees are ready to leave their jobs for other jobs. Others use their present jobs to develop the necessary skills and experience, a requirement for most jobs. Employers also put in several enticing conditions of service and try to create healthy working conditions in an effort to gain the commitment of employees. To remain competitive in today’s market place an organization must retain its employees in order to increase productivity. Retaining employees means offering competitive compensation (both direct and indirect) which will encourage its employees to work well and increase productivity on the market. Age, education, job experience, job fulfillment, marital status and family size are all considerations that determine the attractiveness of fringe benefits. Different benefits appeal to different people. It is important for organizations to remember that the needs of employees differ. For example, a younger employee might be motivated by having the use of a company car whereas an older person may want more status like a title or a professional association membership. To achieve maximum value, organizations have to tailor the benefits to suit both the employee and the job as well as to the business requirements and financial capability. The question that one may want to ask is whether there is any relationship between compensation and productivity.