Effect of Compensations on Employee Performance at State Insurance Company, Ghana

GHANA INSTITUTE OF MANAGEMENT AND PUBLIC ADMINISTRATION

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EFFECT OF COMPENSATIONS ON EMPLOYEE PERFORMANCE AT STATE INSURANCE COMPANY, GHANA

BY

ERNEST FREDERICK BURKE (215029364)

RICHARD OBENG ADU (215030648)

JENNIFER AMORKOR MENSAH (215029496)

PRISCILAA WILLIAMS ASAMOAH (216010055)

SALOMEY WHYTE (215023900)

2017

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

There is a broad consensus in scholarly view that one of the most complex and dynamic issues in the field of human resource management is compensation management. Effective management of compensations by human resource managers is vital for the achievement of organizational goals. Indeed, the achievement of stated objectives of any organization is largely dependent on effective implementation of compensation and benefits systems (Ibojo & Asabi, 2014).

Due to its critical and functional role, compensation management is perceived to the heart beat of human resource management. It is equally important for both employers.  It is generally argued that employees normally depend on wages and salaries, and these must match with the work done. One observation however is that from the perspectives of employers, compensation decisions influence the cost of doing business and thus, their ability to sell at a competitive price in the product market (Barry et al, 1995). Yet, it is quite clear   that effective implementation of favorable compensation will lead to such desired organizational outcomes as reduced company stability and retention of key employees. Generally, employees ‘compensation covers all forms of financial returns and tangible benefits that employees receive as part of an employment relationship. It can be referred to as the totality of the financial and non-financial rewards an employee receives in return for his/her labor or services. The Oxford Dictionary defines “Compensation” as something given to compensate for loss, suffering or injury. Something that makes up for an undesirable situation. According to Wikipedia, compensation is a sub-discipline of human resource focused on employee compensation policy-making. Various names are given to compensations depending on the country one considers. For example, in the UK, it s referred to as total reward and in Australlia and New Zealand.

In recent times, Human Resource Management (HRM) has been seen as very significant as compared to the past era.  To attract, retain and motivate brains to achieve corporate objectives, companies find effective compensation management not as a choice but a necessity.  The fact that humans are regarded as one of most important company’s assets of a company even further highlights the role of compensation management in enhancing employees’ performance.  Against this background, this study examines the effect of compensation on employee performance drawing on the case study of State Insurance Company (SIC).  

1.2 Statement of the Problem

The importance of benefits and compensation in organizations is widely acknowledged in the literature. According to Dessler (2005) Compensation as it were is a complex topic that has significant impact on organizational success. Tella. Ayeni, and Popoola( 2007) also assert  that  for any organization to succeed, it must not look up to capital investment but to its employees as the fundamental source of improvement with the understanding that the human element and the organization are synonymous.

 Yet there is no one size-fit-all plan of benefits and compensation systems. Lindner (1998) provides a contention which is consistent with the general lack of consensus for benefits and compensation systems in organizations. According to Lindner, managers need to understand what motivates employees within the context of the roles they perform. Spector (2003) provides a logical extension of Lindner’s position on motivation by asserting that a variety of factors motivate people at work; some are motivated with tangible such as money and others are motivated with intangible such as a sense of achievement and recognition.

The expectancy theory as stressed by Cascio (1989) is premised on the assumption that satisfaction can motivate people by strengthening their beliefs about consequences of performance. In other words, the more people are satisfied in their jobs based on the rewards they expect and receive from managers or the organization in which they work, the higher they will perform since they believe that their efforts will not be in vain.

It is quite obvious from the preceding assertions that it is important to have a comprehensive knowledge about what forms of  compensations are employed by State Insurance Company  , the other forms compensations employees expect, the evaluation of the compensatory systems from the perspectives of employees and the relationship between compensations and job performance.  

Unfortunately however, our review of existing studies show that no study has been conducted using  the employees of State Insurance Company The proposed study will therefore seek to address these gaps in the literature by examining these aspects of  compensations within the organizational setting of  State Insurance Company.

1.3 Objectives of the Study

The general objective of the proposed study will be to examine the relationship between compensation and job performance at State Insurance Company.  

Specific objectives to be pursued are:

a. To identify the forms of compensations provided to employees at State Insurance Company.

b. To identify the other forms of compensation that employees expect at State Insurance Company.  

c. To ascertain the perceptions of employees about the parity of compensation system at State Insurance Company.  

d. To establish the relationship between compensation and employee performance at State Insurance Company.  

1.4 Research Questions

Based on the stated objectives of the study, the following research questions will be formulated to guide the study.

a. What are the forms of compensations provided to employees at State Insurance Company?

b. What other forms of compensation do employees expect at State Insurance Company?  

c. What are the perceptions of employees about the equity of compensation system at State Insurance Company?

d. What is the relationship between compensation and employee performance at State Insurance Company.  

1.5 Significance of the Study

The study is significant for several reasons.

First, the study will provide useful insights to Human Resource Directorate of State Insurance Company about the effect of compensations systems in the organization. Such a knowledge base will lead to increased organizational performance through the adoption of best compensation management practices. Obviously, the outcome of the study and consequent recommendations will lead to the achievement of organizational goals, improve organizational performance, retain employees and preserve competitive advantage. In addition, the study contributes to the extant literature on the issue of the effects of benefits and compensation in organizations. Consequently, researchers intending to undertake related studies in the foreseeable future will find the outcome of the study useful. Again, since the phenomenon of benefits and compensation is pervasive in all organizations, the outcome of the study will be beneficial to all corporate organizations. Finally, the outcome of the study can serve as foundation upon which further research studies may be conducted due to the iterative character of research. In particular, findings of this study may incentivize other researchers to approach the research problem from different perspectives.

1.6 Scope of the study

To define the scope of the variable in the study and make it precise, the focus will be on the impact of compensation on employee performance in an organization. Other factors that impact on employee performance are not incorporated in the study. In the same way, the population of the study is huge as the sampling unit of the study, i.e., SIC  has a lot of branches nationwide but is limited to cover only the employees of SIC in the  Accra Metropolis.

1.7 Limitations of the Study

The study ascertains the impact of compensation on job performance at SIC.  The study is limited to only the branches of the company in the Accra Metropolis instead of the whole geographic region of Ghana. Consequently, the use of the sample limits the ability to generalize the findings of the study as the views expressed by respondents may not entirely represent the views of others not sampled. In addition, the busy work schedules of respondents will consequently delay responses to the questionnaire administered for the study.  

1.8 Organisation of the Study

The research work is presented in five chapters as follows. Chapter One deals with the general background and introduction to the study, the problem statement, the objectives of the study and related research questions, significance of the study as well as the scope and limitations of the study. Chapter Two presents the literature review of key relevance to the study. Both theoretical and empirical frameworks will be considered. Chapter Three explains the methodology employed in the study. This will involve the account of research design, population and sampling technique, the research instrument, sources of data and mode of data collection. The tools of data analysis will also be outlined. Chapter Four presents the analysis and discussion of results in accordance with the objectives of the study. The analysis and discussions will be done descriptively and inferentially. The last chapter, chapter Five presents a summary of the study, conclusion and recommendations as well as the implications of the study for areas of further research.