1.1 Background to the Study
It is the concern of organizations all over the world on effective human capital strategies to enhance their productivity. It is clear that employee’s productivity in the expanding organization is a key factor in organization performance. Employees, technically known as human resources in modern organizations, are rightly considered as the most important assets for banking industry success (Ong and Teh, 2012). In developed countries such as USA, JAPAN, UK and Germany organizations 2 recognize employees as the important asset that needs high consideration in promotion (Lawler and Worley, 2006).
The rationale behind the use of rewards to employees is that motivated employees become satisfied in terms of fulfilling their wants, both financial and non-financial. Failure to do so, employees will be tempted to leave the organization. (Azasu, 2009). On one hand, employees prefer receiving intrinsic rewards in terms of praise and recognition for certain work accomplishments, while other employees are happy with extrinsic reward in terms of salaries, bonus and incentive offered to employees (Lawler, 2008, Sajuyigbe, Bosede and Adeyemi, 2013). In developing countries such as China, India and Thailand also employees reward is one of highly demanded factors in commercial banking that thought for influencing organization performance. One of the most important factors in rewarding employees for organization performance is through recognition and appreciation (Ajila and Abiloa, 2004).
A considerable setup for reward and compensation structure can highly enhance the profitability and effectiveness of an organization. The productive level of a staff or work force group could always be influenced by compensation structure, organization that have a good performance management will have many advantages such as increased self-esteem, clear mind regarding their organizational goals, increased motivational and others (Allen and Kilmann, 2001:110). Managing employees’ reward appropriately is an important factor as a return for their contributions or performance to organization. According to Adam Equity Theory (1963), less reward may result to the decreasing of employees’ performance such as high number of absenteeism, as well as lack of interest in doing task that is not included in their job description. In other word calculative in whatever task given to them, not focus on their job which is also the decreasing resulted in job quality. The theory also propagate that the reduction in employees’ performance could happen whenever they felt that their contributions were not fairly rewarded. In other words, rewards can influence employees’ performance. Employer or organization should reward the positive performance. Reward will motivate the employees and 3 when the employee motivation increased, it’s also will increase the employee performance. In addition, employee performance also can be enhanced through a continuous and interactive process to help departments and teams achieve business goals and to help employees to improve their performance. Increased in employees performances will increase the organization performance. The compensation structure that is developed from a performance management model that is deeply dedicated to identifying and rewarding performance and subsequently at a reasonable level reprimand poor performance could trigger an organization culture that will encourage staff to put in their best as they see a clear relationship between performance and reward.
It is important to note that each compensation policy a firm decides to employ has related cost implication. Efficient consideration and management of cost implication of compensation policy is vital to the growth and survival of firms. One of the problems identified in the Nigerian banking industry is the staff compensation policy used by banks to pay their staff. Some banks have adopted a model that ensures that each staff adds financial value to the organization by assigning varying degrees of business targets to staff according to their ranks, irrespective of their department. But it was observed that most banks, have not attached necessary targets to their non-marketing staff and have in turn suffered high staff cost of retaining large number of unproductive staff, thereby resulting to persistent loss making by most branches.
1.2 Statement of the Problem
Despite government relentless efforts to make banks in Nigeria very sound and stable. Most banks still have Poor reward system. The salaries of executives and senior staff members of the banks are too large for the present income generated by banks to sustain and usually their salaries are not usually tied to direct performance target and in some banks no targets are assigned to such outrageous salaries. The aggregate of these salaries engulf most income made by the banks as the task of this group of staff do not add any form of financial value that commensurate to their pay. They are rated by group performances rather than by individual performance contribution. The present compensation model in use in banks is toxic to the health of the bank. There is a need for senior staff pay cut or assignment of business targets that will at least justify their monthly salaries, or even implemented the duo to revert the present status. Another problem is lack of effective performance Management Model. At this point in time in the banking industry where every kobo is important, it is apparent that banks need to operate a performance model that will energize the staff to work very hard to get businesses for the banks. But it is observed that most banks lack effective staff performance monitoring and measurement system-a performance measurement system which is unbiased i.e that gives more to where income is coming from. The systems in operation in various banks reveal that laggards take the lion share of income as salaries, the researcher observe all this problems and decided to make the aim of this research the impact of reward system on organizational performance in Nigeria banks, using First Bank (FBN) Otta, as a case study.