1 CHAPTER ONE

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CHAPTER ONE: INTRODUCTION

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1.1 Background of the Study
Compensation management is one of the most fundamental human resource practice and a
major subject of importance in the general field of management. This comes as no surprise
considering the fact that organizations play a vital role in the economic development of a
country therefore, maintaining the employees who run the operations and activities of
organizations is of utmost importance. Employees are generally motivated to exert more efforts
in their jobs when they feel that their job provides them with the things that they value.
Organizational commitment of employees on the other hand, is also an important factor that
organizations must consistently strive to achieve and maintain as it tends to influence whether
an employee remains a member of the organization or leaves to pursue another job. This often
results in turnover for the organizations in question. Employees who are committed to their
jobs often exhibit loyalty to their organization, do not engage in withdrawal behavior, are eager
to learn more on the job, and, are willing to put in their best to ensure that the organization
achieves its desired goals and objectives. One way to secure the organizational commitment of
employees is to build and maintain an effective and efficient compensation management
system that gives the organization some form of leverage to retain the employees.

Because one of the main aims of an organization is to maximize profit, organizations are
constantly seeking to ensure that employees are satisfied with their jobs to enable them put in
their best effort for the organization. Very often, organizations use compensation management
systems to attract, motivate, satisfy and retain employees and also to ensure that the employees
give their best and increase productivity. However, organizations cannot rely on high salaries
alone to retain their employees. Therefore, there is a need for organizations to develop
appropriate compensation plans that reflect the real and perceived needs of employees some of
which can include stock option plans, suitable tax incentives, assistance in achieving personal
goals etc. The process of developing an appropriate compensation management system allows
organizations to provide tangible and intangible value to employees for the work they do or
services they render.

Several studies have been conducted by many management scholars over the years on the
concept of compensation management such as Frye (2004), Osibanjo et al. (2014), Riaz (2014),

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which focused on the relationship between compensation management and organizational
performance and commitment at the workplace. Most of such studies confirmed that there is a
positive relationship between compensation management and organizational performance and
commitment. “Researchers have further argued that compensation management system can
create and sustain a competitive advantage for organizations” (Milkovich et al., 2011). “Over
the years, more and more organizations have embraced and implemented not just monetary
rewards but also non-monetary rewards into their compensation management plans and
packages” (Widmier, 2002). These monetary rewards often include basic salary, wages,
bonuses, commissions etc. and, the non-monetary rewards can take on several different forms
ranging from protection programs, pay for time not worked, services and perquisites, praise
from superiors and co-workers, promises of future promotions and opportunities, feelings of
self-esteem that comes from verbal acknowledgements, recognitions, recommendations, to
future monetary rewards related to performance and so much more.

“Compensation represents both intrinsic and extrinsic rewards that employees receive for
performing their jobs” (Dessler, 2011). Intrinsic and extrinsic compensation describes an
organization’s total compensation management system. Intrinsic compensation is based on
intangible rewards. It reflects employees’ psychological mindsets that result from performing
their jobs. It is internal to the person in that it is something that you have to offer yourself and
is driven by personal interest or enjoyment in the work itself. Employees who are intrinsically
motivated tend to work at higher levels of productivity and strive to develop both personally
and professionally. Intrinsic compensation is usually non-financial in nature such as personal
achievement, professional growth, sense of pleasure and accomplishment, job satisfaction,
recognition, verbal acknowledgements, freedom, responsibility etc. Such rewards impacts a
deeper and long lasting impression because it enables the employees to improve on the quality
of the work they do. Extrinsic compensation on the other hand, is based on tangible rewards. It
is external to the individual and is typically offered by a supervisor or manager who holds all
the power in relation to what extrinsic rewards are offered and in what amount. Extrinsic
compensation is usually financial in nature such as a raise in salary, a bonus for reaching some
quota, paid time off, commissions and so on. Imagine how demotivating it would be for
employees who are underpaid, overworked, and unappreciated, and one can quickly see how
important extrinsic compensation is to organizational commitment, effectiveness, and success.
An extrinsically motivated employee will work on a given task that they do not particularly

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care for simply because of the anticipated satisfaction that will come from the extrinsic
compensation.

Compensation management refers to the overseeing of rewards usually in the form of pay for
a job. Rowman (2006), described compensation management as “all the employers’ available
tools that may be used to attract, retain, motivate, and satisfy employees”. This tends to include
every single investment that an organization makes in its people and everything its employees
value in the employment relationship. When an organization is ready to hire employees, it must
develop a process to reward those employees. This process is referred to as the compensation
management process. Some of the objectives of compensation management includes; to attract
and retain employees, to increase and maintain morale, to reward job performance, to attract
manpower in a competitive market, to achieve internal and external equity, to reduce turnover,
to encourage company loyalty, to modify practices of unions through negotiations, to control
wages, salaries and labor costs by determining rate change and frequency of increment, to
maintain satisfaction of employees by exhibiting a fair, adequate and equitable remuneration,
and many more. “The importance of an effective compensation management system in an
organization cannot be over-emphasized and should in fact be consistently recapitulated
because, employees generally value the rewards they receive at their workplace as it motivates
them to improve their performance” (Milkovich et al., 2011). When organizations develop and
maintain a well-designed and structured compensation management system, such organizations
tend to attract and retain employees who are willing to work because it gives them a positive
feeling and impression about their job, satisfied with their jobs and motivated to work harder
to achieve objectives and, thus, desire to remain with the organization they work for.

Colquitt et al. (2009), described organizational commitment as a “phenomenon that influences
whether an employee stays a member of an organization (is retained) or leaves to pursue
another job (turns over)”. Wiener (1982), defined organizational commitment as “the aggregate
internalized demands to perform in a manner which meets organizational goals and objectives”.
Porter et al. (1974), on the other hand defined organizational commitment as “an attachment to
the organization, characterized by an intention to remain in it, identifying with the values and
goals of the organization, and a willingness to exert extra effort on its behalf”. Miller (2003),
also defined organizational commitment as “a state in which an employee identifies with a
particular organization and its goals, and wishes to maintain membership in the organization”.

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Employees who are not committed to their organizations often engage in withdrawal behavior,
which can be defined as a set of actions that employees perform to avoid the work situation.
Withdrawal behaviors are known as behaviors that may eventually culminate in quitting the
organization. Organizational commitment and withdrawal behaviors are negatively related to
each other because the more committed employees are, the less likely they are to engage in
withdrawal behaviors. Organizational commitment can therefore be referred to as the degree
in which an employee is willing to maintain membership with the organization due to interest
and association with the organization’s goals, values and objectives.

There are three main dimensions of organizational commitment namely; “affective
commitment (AC), continuance commitment (CC), and normative commitment (NC)” (Allen
& Meyer, 1991). Affective commitment occurs when employees want to stay and is influenced
by the emotional bonds between employees. Continuance commitment occurs when employees
need to stay and is influenced by salary and benefits and the degree to which they are embedded
in the community. And finally, normative commitment occurs when employees feel that they
ought to stay and is influenced by an organization investing in its employees or engaging in
charitable efforts. According to DeCenzo & Robbins (2006), “employee benefits as a whole
have no direct effect on employee performance, however, inadequate benefits contributes to
low job satisfaction and increase in employee absenteeism and turnover”. This implies that
when employees are not compensated appropriately for the effort they put in to work,
dissatisfaction emanates on the job therefore, organizations seeking to achieve improved
performance, effectiveness, and productivity must design well-structured compensation
management systems that considers and satisfies not just the physical needs of the employees
but also their emotional desires as well. Thus, not only motivating but at the same time
satisfying their employees adequately enough to work at their absolute best (Allen & Meyer,
1991).

Some issues to consider are; Is it possible for an organization to design a compensation
management system that would adequately have a positive impact on employee performance
and their commitment? How often should the compensation management system be reviewed?
Would a fixed compensation management system bring out the required and/or desired
performance from the employees? Does the compensation management system reward the right
set of employees? Does the compensation packages given to employees solve their problems

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enough to boost their performance and commitment in the workplace? Can the compensation
management system stand out amongst that of fellow competitors and also stand the test of
time? With these questions in mind, there is a need for the human resources management of
our organizations to design and implement appropriate compensation management systems in
line with actual organizational performance, commitment, and the level of work, input, and
productivity that employees exhibit. The problem of trying to figure out these questions with
an intent of proffering possible solutions forms the basis for this study.

1.2 Statement of the Problem
In these modern times, there is a lot of interest in the field of compensation management and
organizational commitment. Why because, employees are the most significant and valuable
resource in any organization therefore, ensuring that they are satisfied with their job and give
the organization their best is one of an organization’s main objective. There are several ways
to motivate the performance of employees, one of such ways is to build an effective
compensation management system. This study is aimed at exploring the gap between the
compensation management system and organizational commitment at the Nigerian Bank of
Industry Limited. In every organization, employees typically receive different kinds of benefits
in the form of wages, salaries, bonuses, commissions etc. Most of these employees who possess
good and solid educational backgrounds tend to be unmotivated to perform their best with the
job when their compensation packages does not measure up to their educational experience and
standard thus leading to dissatisfaction, withdrawal behaviors, and turnover. Osibanjo et al.
(2014), suggested that “organizations with more appropriate and adequate compensation
packages typically record a positive effect on employee performance which leads to an overall
decrease in turnover and employees’ willingness to remain with such organizations”. This
could imply that proper compensation packages would motivate employees to commit to the
organizations they work for and remain loyal to it.

The ability to identify the plausible reasons as to how and why compensating employees
adequately can lead to organizational commitment on the part of employees pushes us a step
further and closer to understanding the importance of compensation management and how it
greatly influences organizational commitment in the workplace.

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1.3 Objectives of the Study
The study examines the relationship between compensation management and organizational
commitment with the following objectives:
a) To determine the forms of compensation management that affect organizational
commitment.
b) To identify the factors that influence organizational commitment.
c) To examine the relationship between compensation management and organizational
commitment.

1.4 Research Questions
The purpose of the study is to obtain practical answers to the following research questions:
a) What are the forms of compensation management that affect organizational
commitment?
b) What are the factors that influence organizational commitment?
c) What is the nature of the relationship between compensation management and
organizational commitment?

1.5 Research Hypothesis
The following null hypotheses will be tested in this study:
a) H1: There is no form of compensation management that affect organizational
commitment.
b) H2: There is no factor that influence organizational commitment.
c) H3: There is no significant relationship between compensation management and
organizational commitment.

1.6 Significance of the Study
1) The information from this study will add to the already existing pool of knowledge and
theories on the subject matter of compensation management. The main question of
concern is how well the use of compensation management systems relates positively to
organizational commitment.
2) The outcome of this study could prove significant and useful in several ways such that
it would serve as a challenge for future researchers or students who may be interested
in carrying out more research in this area and also serve as reference materials for other

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students examining or investigating the field of compensation management and/or
organizational commitment.
3) The study could provide evident information on compensation management processes
and practices.
4) The study would also give an insight on the impact of compensation management
systems that could assist in maintaining organizational commitment of employees.
5) The study may also provide insights to managers on ways to enhance the organizational
commitment of employees.
6) Finally, the study would help to reiterate the importance of appropriate compensation
management systems in organizations and how it affects overall organizational
commitment in the workplace.

1.7 Scope of the Study
The scope of the study is confined to the employees of Nigerian Bank of Industry Limited,
focusing on the period from 2001 to 2017 as it represents the period from which the bank fully
commenced its start of service to date. The study was conducted on employees of various levels
from different departments at Nigerian Bank of Industry Limited. Employees expected to
participate in the study includes; supporting workers, executive officers, technical executives,
managers and operational staff. The study was restricted to employees of Nigerian Bank of
Industry (BOI) Limited in order to determine several ways of integrating the employees to
achieve higher and more efficient success through organizational commitment.

1.8 Limitations of the Study
1) The major limitation of the study is that it covers only the compensation management
system at the Nigerian Bank of Industry (BOI) Limited, thus, grounding the available
and necessary resources, data and information to a specific office only.
2) The study excluded several variables of compensation management and organizational
commitment due to shortage of time and funds.
3) Budgetary constraints also played a constraining part in the conduction of the study
because data was gathered from only one sector of the many Development Finance
Institutes available in Nigeria and thus, the results cannot be deemed as fully expedient
for the rest of the sectors.

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4) The time period that was specified and available to perform the necessary requirements,
project errands, meetings and data and information collection was not readily available,
carefully managed and efficiently utilized.

1.9 Definition of Terms
Reward: a reward is anything given in recognition of service, effort or achievement. It is a
consequence that happens to a person as a result of worthy or unworthy behavior. The total of
all rewards provided to employees in return for their input is called compensation.

Compensation: Compensation is a reward in exchange for services. It is known as any form
of extrinsic benefit, monetary or non-monetary, provided to employees in exchange for their
contributions and service to the organization.

Compensation management: compensation management which is also known as wage and
salary administration or remuneration management or reward management is concerned with
designing and implementing total compensation packages.

Organizational commitment: organizational commitment is a spontaneous process, which
develops through the orientation of individuals to the organization. It can be defined as the
desire on the part of an employee to remain a member of an organization.

1.10 Profile of the Organization Under Study
The Nigerian Bank of Industry (BOI) Limited is the oldest, largest and the most
successful Development Finance Institute (DFI) currently operating in Nigeria. It has a strong
branch network with 24 branches across the country, a headquarters in Lagos State, and a
corporate office in Abuja, Nigeria. Nigerian Bank of Industry Limited is owned by the Ministry
of Finance Incorporated (MOFI) Nigeria (94.80%), the Central Bank of Nigeria
(CBN) (5.19%), and private shareholders (0.01%). The bank has 11 members on its board
chaired by Aliyu Abdulrahman Dikko. Nigerian Bank of Industry Limited began its operations
in 1959 as the Investment Corporation of Nigeria (ICON) Limited. In 1964, ICON Limited was
reconstituted to become the Nigerian Industrial Development Bank (NIDB) Limited under the
guidance of the World Bank. Initially, International Finance Corporation (IFC) held 75%

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equity in NIDB however, the equity structure was then diluted in 1976 as a result of the
indigenization decree.

In 2001, the Nigerian Bank of Industry Limited was reconstructed out of the merger of the
Nigerian Industrial Development Bank (NIDB), Nigerian Bank for Commerce and Industry
(NBCI), and the National Economic Reconstruction Fund (NERFUND). Although the bank’s
share capital was initially set at ?50 billion in the wake of NIDB’s reconstruction, it was
increased to ?250 billion in 2007. The purpose of the increase was to better position the bank
in addressing Nigeria’s rising economic profile in line with its mandate to provide financial
assistance for the establishments of new enterprises, the expansion, diversification, and
modernization of existing enterprises and the rehabilitation of ailing industries.

Following a successful institutional, operational and financial restructuring program embarked
upon in 2002, the bank has transformed into an efficient, focused and profitable institution that
is well-placed to effectively carry out its primary mandate of providing long-term financing to
the industrial sector of the Nigerian economy. Over the years, the bank has undergone several
transformations and re-engineered its processes to improve service delivery. In 2014, the bank
commenced the use of Business Development Service Providers (BDSPs) to improve the
quality of entrepreneurs and loan applications. The BDSPs are expected to assist MSMEs with
structuring their business plans and business models and provide relevant capacity building
and training programs. Nigerian Bank of Industry Limited in collaboration with the Small and
Medium Enterprises Development Agency of Nigeria (SMEDAN) and Department for
International Development (DFID) created an institute to accredit BDSPs in Nigeria.

The Nigerian Bank of Industry (BOI) Limited was set up to encourage industrial production
and value creation by manufacturing and processing activities of businesses. The objective of
the bank is to provide the industrial sector of the Nigerian economy with finance as well as
business support services. The bank’s market focus targets mainly; small, medium and large
enterprises excluding cottage industries, new or existing companies seeking expansion,
modernization or diversification, credit worthy promoters who will be required to prove their
commitment to the project by contributing at least 25% of the project cost excluding land,
borrowers whose management capability, financial situation (including availability of
collateral and guarantee), character and reputation are incontrovertible, clients with

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demonstrable ability to meet loan repayments and finally, borrowers with no record of unpaid
loans to earlier development, finance institutions and other banks. The Nigerian Bank of
Industry (BOI) Limited is built on the following operating principles;
• Professionalism, excellence and integrity in the conduct of our business.
• Long term partnership with clients, based on shared responsibilities for the success of
enterprises.
• Equitable commitment to the prosperity of all stakeholders.
• Assurance of BOI’s viability, survival and capabilities.
• Lending decisions based both on project’s expected viability and probability of loan
repayment.
• Interest charges to cover cost of borrowing, risk and operating expenses.
• Support of enterprises with potential to be profitable, competitive and sustainable and
have substantial developmental impact.

The development orientation at the Nigerian Bank of Industry (BOI) Limited emphasizes on
prudent project selection and management. The bank, accordingly, supports quality projects
with potential development impact. Because the bank is committed to having its impact felt in
all parts of the country, it operates an office in each of Nigeria’s geo-political zones and FCT
Abuja, Nigeria. Nigerian Bank of Industry Limited assists projects to generate considerable
multiplier effects such as job creation and poverty alleviation, both of which invariably enhance
the social and economic condition of Nigerians. In view of the high priority the bank places on
the developmental impact of its operations, BOI is eminently positioned to manage foreign
grants and aids that are given to facilitate attainment of the nation’s developmental aspirations,
the implementation of the National Economic Empowerment and Development Strategy
(NEEDS), the realization of the Federal Government is sustainable pro-employment of 10%
economic growth rate per annum and the Millennium Development Goals.

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CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction
The literature review contains the review of related literature as carried out by several scholars,
authors, researchers and experts whose perspectives, discussions, opinions, conclusions and
recommendations will guide the course of this study.

2.2 Conceptual Framework on Compensation Management
In layman’s terms, the concept of compensation management can be explained as; “there is
more to rewarding people than simply throwing money at them”. The concept of compensation
management encourages employees to work harder while also helping to build a competitive
atmosphere in the organization. Compensation management is the process of establishing and
maintaining an equitable wage and salary structure, an equitable cost structure. It involves job
evaluation, wage and salary survey, profit sharing and control of pay costs. According to Mulis
; Watson (2001), “the monetary value in an organization’s compensation plan is very key
however, other non-monetary factors come into play and should also be considered when
preparing adequate compensation plans in any organization”. Thus, compensation management
simply implies having an appropriate compensation plan where employees can be rewarded for
the work they do.

Armstrong ; Brown (2006), postulated that “compensation management is an integral part of
human resource management as it seeks to address the long term issues relating to how people
should be valued for what they desire to achieve”. Ezeh (2014), on the other hand described
compensation management as a “segment of organizational management which is centered
upon the planning, organizing, and controlling of all the direct and indirect payments
employees are to receive for the work they do or service rendered”. Some objectives of
compensation management includes; effective and efficient maintenance of a highly skilled
and productive workforce, equitable pay, attracting efficient manpower in a competitive
market, control of wages, salaries and labor costs by determining rate change and frequency of
increment, maintaining satisfaction of employees by exhibiting fair, adequate and equitable
remuneration, and, compliance with federal, state, and local laws and regulations.

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The conceptual framework of this study was adopted based on the key concepts of the literature
reviewed in line with the dependent variable, compensation management and the independent
variable, organizational commitment.

Figure 1: A Conceptual Framework for the Relationship between Compensation
Management and Organizational Commitment

2.3 Forms of Compensation
When an organization’s compensation plan is effectively managed, it increases organizational
performance, productivity and commitment of employees. Compensation does not include
salary alone, it includes the sum total of all rewards and allowances provided to employees in
return for their services. “Compensation often provided to employees can either be direct
(monetary benefits) or indirect (non-monetary benefits)” (NaukriHub, 2009). According to
Supriyatin (2013), compensation refers to “the provision of fringe benefits provided by an
organization to its employees, where the compensation is directly or indirectly received by the
employees”. There are two main forms of compensation provided to employees which are;
direct compensation and indirect compensation (Dessler, 2011).

2.3.1 Direct Compensation
Direct compensation can be described as the monetary benefits offered to employees by an
organization in return for the work they do or service they render. Dessler (2011), suggested
that “direct compensation is usually limited to the direct cash benefits that employees receive
on hourly, daily, weekly, quarterly or monthly basis for the services they render as employees
of a particular organization”. Direct compensation typically includes base pay (salaries), merit
pay (wages), incentive pay (bonuses, commissions, stock options, piece rate, profit sharing and
shift differentials), and deferred pay (annuity, savings plan and stock purchase).
CO MPEN S ATIO N MAN AGEMEN T Direct Compensation Indirect Compensation In d ep en d en t Variab le Dependent Variable ORGANIZATIONAL CO MMITMEN T

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2.3.2 Indirect Compensation
Indirect compensation can be described as the non-monetary benefits offered to employees by
the organizations they serve. “Organizations tend to use indirect compensation to facilitate its
recruitment and selection practices, influence the potential of employees coming to work for
an organization, influence their stay and create a desire for employees to commit to the
organization” (Chhabra, 2001). Indirect compensation is not paid directly to the employee but
calculated as an additional component to the base salary figure. According to Dessler (2011),
indirect compensation refers to “non-monetary benefits that employees receive for the work
they do”. Indirect compensation typically includes protection programs (pension, social
security, disability income, life insurance and medical insurance), pay for time not worked
(holidays, vacations, jury duty and sick leave), and services and perquisites (car, financial
planning, recreational facilities and low-cost or free meals).

2.4 Conceptual Framework on Organizational Commitment
Organizational commitment can be defined as the affiliation of employees to the organization
and their willingness to be a part of an organization. Porter et al. (1974), defined organizational
commitment as “believing and accepting the goals and values of an organization and,
possessing and showing the desire to be part of the organization”. Employees who are
committed to an organization often display strong intentions to serve their organizations and
are low at intentions to leave. Buchanan (1974), emphasized that the “emotional attachment to
the objectives and values of an organization is what can be referred to as organizational
commitment in the workplace”. On the other hand, Wiener (1982), suggested organizational
commitment to be the “aggregate internalized normative demands to perform in a manner
which meets organizational objectives and interests”. In view of the literature available one can
say that for employees, organizational commitment can be considered as their belief in and
acceptance of the organization’s goals and values, their desire to remain part of the
organization, and act in ways that is beneficial for the organization.

Initially, according to Allen ; Meyer (1984), organizational commitment was originally a two-
dimensional concept namely; “affective commitment and continuance commitment”. Affective
commitment can be described as the “positive feelings of identification with, attachment to,
and involvement in the organization”. When an employee feels a desire to remain a member of
an organization due to an emotional attachment to, and involvement with, that organization or

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simply put, the employee stays because he/she wants to then, that employee has an affective
commitment for the organization. Continuance commitment on the other hand, can be
described as the “extent to which employees feel committed to their organization by virtue of
the costs that they feel are associated with leaving”. When an employee desires to remain a
member of an organization due to the awareness of the costs associated with leaving for
example salary, benefits, and promotions or simply put, the employee stays because he/she
needs to then, that employee has a continuance commitment to the organization (Allen ;
Meyer, 1984).

However, further research by Allen ; Meyer (1991), added a third dimension to organizational
commitment which is normative commitment. Normative commitment can be described as the
“employee’s feelings of obligation to remain with the organization”. When an employee desires
to remain a member of an organization due to a feeling of obligation for example feeling a
sense of debt owed to a colleague, a boss, or even a larger company or simply put, the employee
stays because he/she ought to then, that employee has a normative commitment to the
organization. “These dimensions of organizational commitment displayed by employees at
their place of work generally depends on how they feel about their jobs” (Allen ; Meyer,
1991).

2.5 Factors Affecting Organizational Commitment
Organizational commitment in the workplace is dependent on a variety of factors. According
to Colquitt et al. (2009), some of the “factors that affect organizational commitment includes;
diversity of the workforce, the changing organizational culture, good working relationships
within the organization, the management style of employers, job-related influences, personal
characteristics of employees, organizational structure, better employment opportunities and the
working environment”.

2.5.1 Diversity of the Workforce
According to Colquitt et al. (2009), “one of the most visible trends affecting the workplace is
the increase in diversity of the work force”. As work groups become more diverse with respect
to age, race, gender and national origin, there is a danger that minorities or older employees
will find themselves on the fringe of such networks which potentially reduces their affective
organizational commitment. At the same time, foreign-born employees are likely to feel less

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embedded in their jobs, may perceive fewer links to their working environment and less fit
with their geographic area. This feeling may reduce their sense of continuance organizational
commitment.

2.5.2 Changing Organizational Culture
The changes in an organization’s culture occurs often as a result of changes in leadership,
mergers and acquisitions, or, downsizing in organizations which makes it more challenging to
retain valued employees (Colquitt et al., 2009). The most obvious challenge that comes with
such changes is maintaining an affective organizational commitment because certain negative
emotions can be stimulated by these changes which in turn reduces an employee’s emotional
attachment to the organization. Another challenge with a changing organizational culture is
maintaining normative organizational commitment because the sense that people should stay
with their employer erodes when an organization is downsized.

2.5.3 Good Working Relationships within the Organization
An organization can be described as a workplace environment which consists of individuals
who work together by utilizing the available resources to achieve organizational goals and
objectives. These individuals, the employers and employees, often develop certain working
relationships as they work together. Some of such relationships are supervisory relationships,
groups, teams and many more. When the individuals of an organization experience a positive
working relationship amongst one another, a sense of mutual respect which allows them to
commit themselves to the organization they serve will be formed.

2.5.4 The Management Style of Employers
The style of leadership that the management of an organization adopts to coordinate the
activities of its employees greatly affects the commitment of employees to the organization. A
suitable management style encourages employee involvement in organizational activities
which helps to satisfy their desire for advancement, responsibility, achievement, recognition,
empowerment and demand for commitment to organizational goals, aspirations and objectives.
Zeffane (1994), suggested that, “to develop employee commitment, morale, loyalty, and
attachment to an organization, managers exhibit certain leadership qualities that will motivate
and encourage the employees to work harder”.

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2.5.5 Job-related Influences
Several job-related influences such as job effort, promotional opportunities, absenteeism, level
of responsibility, accountability, withdrawal behaviors, turnover, performance, job role etc.
tend to adequately affect organizational commitment. According to Curry et al. (1986), “an
ambiguous job role may lead to a lack of commitment and promotional opportunities can
enhance or diminish organizational commitment”. Baron ; Greenberg (1990), also stated that
“the higher the level of responsibility of a given job, the less monotonous and more exciting it
becomes, and, the higher the level of commitment expressed by the employee performing the
job”. Therefore, it is necessary that employees are held responsible and accountable for the
work they do and level of productivity they deliver to allow them some semblance of
motivation, desire and willingness to commit to the organization they serve.

2.5.6 Personal Characteristics of Employees
Organizational commitment can be affected by employees’ personal characteristics such as
age, sex, race, education, and experience (Allen & Meyer, 1991). According to Baron &
Greenberg (1990), “more experienced and older employees who are satisfied with their
personal levels of work performance tend to exhibit higher levels of organizational
commitment than employees with less experience and low satisfaction in performance”. This
implies that older people tend to be more committed to an organization than younger
employees.

2.5.7 Organizational Structure
The structure of an organization also plays an important role in organizational commitment for
instance, bureaucratic organizations tend to have a negative effect on organizational
commitment. According to Zeffane (1994), “the removal of bureaucratic barriers and the
creation of more flexible structures within an organization is more likely to contribute to the
enhancement of organizational commitment in terms of employee loyalty and attachment to
the organization”.

2.5.8 Better Employment Opportunities
According to Curry et al. (1986), “the existence of employment opportunities can affect
organizational commitment in the workplace”. “Employees who believe that they stand a
chance of finding a better job become less committed to the organization they serve. But, when

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there is lack of other employment opportunities, the level of organizational commitment is
high” (Vandenberghe et al., 2002). “More often, membership in organizations is usually based
on continuance commitment, where employees are continuously calculating the risks of staying
and leaving” (Allen & Meyer, 1991).

2.5.9 The Working Environment
The working environment is also another factor that affects organizational commitment. Some
factors that can affect the working environment of organizations are organizational ownership
and human resource practices (recruitment and selection). “When employers and employees
are stockholders within the organization, it gives them a sense of belonging and importance”
(Klein, 1987). According to Subramaniam & Mia (2001), “managers who participate in the
decision-making process of an organization tend to have a high level of organizational
commitment than managers who do not have the chance to participate”.

2.6 Relating Compensation Management to Organizational Commitment
According to Bhattacharya & Sengupta (2014), “compensation is the remuneration received by
an employee in return for his/her contribution to the organization. It is an important aspect of
human resource management that enables organizations to motivate their employees and
enhance overall organizational effectiveness, performance, and commitment. Adequate
compensation packages also serves the need for attracting and retaining the best employees”.
Tessema & Soeters (2006), described compensation as a “critical component of the
employment relationship which includes direct payments and indirect payments in the form of
employee benefits and incentives used to motivate employees to strive for higher levels of
productivity”. An adequate compensation package often motivates and satisfies employees
thus, organizations always strive to ensure that employees are well-paid.

Compensation management is one of the main essence of human resource management
practices and it typically includes salary, wages, incentives, bonuses, perquisites, fringe
benefits, commissions etc. It can be described as a systematic approach to providing monetary
value to employees in exchange for work done or service rendered. It requires integrating
employees’ processes and information with organizational processes, activities and strategies
to achieve organizational goals and objectives. Ash (1993), described compensation
management as an “essential tool needed to integrate employees’ efforts with strategic business

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objectives by encouraging the employees to do the right things thereby improving overall
efficiency at the workplace”. According to Wiley (2007), “the easiest way to boost and increase
the morale, productivity, and work quality of employees in an organization is to effectively
reward the employees”.

It is therefore very important to remember that developing and implementing a meaningful and
cost-effective compensation policy is one of the crucial challenges faced by organizations.
“Employees generally prefer jobs that reward them on the basis of what they perceive as
economically justifiable” (Robbins, 2005). “Adequate compensation management plans sends
a clear message to the employees of an organization informing them about expected attitudes
and behaviors and how those attitudes and behaviors will be rewarded” (Schell ; Solomon,
1997). This means that, effective compensation management is one of the surest ways
organizations can motivate their employees to do better and influence their performance.
Appropriate compensation management tends to motivate employees to remain loyal to the
organization and in turn, the organizational performance increases. “Higher compensation
packages tend to retain employees because such employees are more satisfied, committed and
loyal” (Chiu et al., 2002). This means that when employees feel they are not being rewarded
as expected, it will decrease their job satisfaction and their motivation may suffer, leading to
low morale, low quality performance and low organizational commitment.

A good, consistent and reliable compensation management system benefits an organization and
its employees in several ways such as increased job satisfaction – employees tend to be satisfied
with their work and strive to do more when the organization rewards their efforts fairly and
adequately, improved motivation to work – when an organization’s compensation plan satisfies
the needs, wants, and desires of its employees, the employees are more likely to act in a positive
way and increase their productivity, reduced absenteeism – adequately managed compensation
policies encourages employees with the zeal, drive and enthusiasm to work harder and be more
productive on the job, decrease in turnover – when employees are adequately compensated for
the work they do, they become willing to remain with the organization they work for and
exhibit loyalty to the organization.

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2.7 Theoretical Review
Understanding the relationship between compensation management and organizational
commitment would require an analysis of some motivational theories. The theoretical review
will look into theories formulated with respect to the field of compensation management and
how it can affect organizational commitment. The main theories discussed for the purpose of
this study are the equity theory, expectancy theory and the need theory.

2.7.1 Equity Theory
The equity theory postulated by John Adams in 1963 says that an employee who perceives
inequity in his/her rewards seeks to restore equity. The theory states that people will be better
motivated if they are treated equitably and demotivated if they are treated inequitably. Equity
theory is concerned with people’s perceptions of how they are being treated in relation to
others. To be dealt with equitably is to be treated fairly in comparison with another group of
people (a reference group) or a relevant other person. Equity involves feelings and perceptions,
and it is always a comparative process. It is not synonymous with equality, which means
treating everyone alike. That would be inequitable if they deserved to be treated differently.
Equity theory is linked with the “felt-fair” principle as defined by Jaques (1961), which states
in effect that pay systems will be fair if they are felt to be fair. The theory emphasizes equity
in the pay structure of employees’ remuneration and provides the view that the behavior of
employee is largely influenced by the extent to which the employee interprets fairness in
compensation or rewards for his/her input.

Employees’ perceptions of how they are being treated by their organizations are of utmost
importance to them. The dictum “a fair day work for a fair day pay” is a sense of equity felt
by employees. When employees perceive inequity, it can result in lower productivity, higher
absenteeism, or increase in turnover. According to the equity theory, employees tend to reflect
on the ratio of their inputs and outputs to that of other employees. When there is a perceived
imbalance, it often leads to conflicts and dissatisfaction in the workplace such employees may
feel inclined to take actions such as decreasing their inputs, negotiating higher pay, or
ultimately leaving the organization (Adams, 1963). Equity theory acknowledges that
motivation does not just depend on one’s own beliefs and circumstances but also on what
happens to other people. More specifically, equity theory suggests that employees create a

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“mental ledger” of the outcomes (or rewards) they get from their job duties and the inputs (or
contributions and investments) they put into their job duties (Colquitt et al., 2009).

2.7.2 Expectancy Theory
The expectancy theory which was first proposed by Victor Vroom in 1964 focuses on the link
between rewards and behavior. It predicts that an individual will act in a certain way based on
the expectation that the act will be followed by a given outcome and on the attractiveness of
that outcome to the individual. The expectancy theory describes the cognitive process that
employees go through to make choices among different voluntary responses (Vroom, 1964). It
states that the actions of an individual are driven by expected consequences and motivation is
the product of expectancy, instrumentality, and valence. The Vroom’s expectancy theory can
be expressed with the equation: Motivation = (Expectancy) × (Instrumentality) × (Valence)

Expectancy refers to the belief that an employees’ increase in effort will lead to an increase in
productivity. It is usually affected by available resources e.g. raw materials, time, money, skills,
support (supervisor support or correct information on the job) and so on. Expectancy (E?P)
represents the belief that exerting a high level of effort will result in the successful performance
of some task (Colquitt et al., 2009). More technically, it is a subjective probability, ranging
from 0 (no chance) to 1 (mortal lock) that a specific amount of effort will result in a specific
level of performance.

Instrumentality refers to the belief that if an employee performs well, a valued outcome will be
received. It is usually affected by a clear understanding of the relationship between
performance and outcomes, mutual trust in the employers who will take the decisions on who
gets what outcome, and fairness and transparency of the process that decides who gets what
outcome. Instrumentality (P?O) represents the belief that successful performance will result
in some outcome(s) (Colquitt et al., 2009). More technically, it is a set of subjective
probabilities, each ranging from 0 (no chance) to 1 (mortal lock) that a successful performance
will bring a set of outcomes. The term instrumentality makes sense because when you consider
the meaning of the adjective “instrumental”. We say something is instrumental when it helps
attain something else.

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Finally, valence refers to the importance that an employee places upon an expected outcome.
For valence to be positive, the employee must prefer attaining the outcome to not attaining it.
It reflects the anticipated value of the outcomes associated with performance. Valences can be
positive, negative or zero. Salary increases, bonuses and more informal rewards are typical
examples of “positively valenced” outcomes, whereas disciplinary actions, demotions, and
terminations are typical examples of “negatively valenced” outcomes (Colquitt et al., 2009).
This way, employees are more motivated when successful performance helps them attain
attractive outcomes, such as bonuses, while helping them avoid unattractive outcomes, such as
disciplinary actions.

2.7.3 Need Theory
The basis of the need theory as postulated by Abraham Maslow in 1954 is the belief that an
unsatisfied need creates tension and disequilibrium. To restore the balance a goal is identified
that will satisfy the need, and a behaviour pathway is selected that will lead to the achievement
of the goal. All behaviors are therefore motivated by unsatisfied needs. Not all needs are
equally important to a person at any one time (Maslow, 1954). Some may constitute a more
powerful drive towards a goal than others, depending on the individual’s background and
situation. Complexity is increased because there is no simple relationship between needs and
goals. The same need could be satisfied by a number of different goals. The stronger the need
and the longer its duration, the broader the range of possible goals.

At the same time, one goal may satisfy a number of needs. A new car provides transport as
well as an opportunity to impress the neighbours. The best-known contributor to needs theory
is Abraham Maslow who formulated the concept of a hierarchy of needs, which starts from the
fundamental physiological needs and leads through safety, social and esteem needs to the need
for self-fulfilment, the highest need of all. In the words of Maslow, “man is a wanting animal
and only an unsatisfied need can motivate behavior”, and the dominant need is the prime
motivator of behavior. This is the best-known theory of needs, but it has never been verified
by empirical research.

2.7.4 Selected Theory for the Study
The theory selected for the purpose of this research is the equity theory. The equity approach
recognizes that individuals are concerned not only with the absolute amount of money they are

22

paid for their efforts but also with the relationship of this amount to what others are paid. They
make judgement as to the relationship between their inputs and outputs with the inputs and
outputs of others. “Based on one’s inputs such as effort, education and competence, one
compares their outputs such as salary levels, raises and other factors with the outputs of others
and when an imbalance in their input output ratio relative to others is perceived, tension is
created” (Hills et al., 1994). Such comparison may result in lower productivity, withdrawal
behaviors, low commitment, increased absenteeism etc. This tension provides the basis for
motivation, as one strives for what he perceives as equity and fairness. “To get relief, the
employee may decrease his inputs while holding his output constant, or increase his outputs
while holding inputs constant, possibly resulting in fighting the system, increased absenteeism,
or other undesirable behaviors” (Colquitt et al., 2009). This is in line with the work of Adams
(1963), who stated that “if an organization’s first goal of attracting capable employees into the
organization is to be achieved, the personnel must perceive that the compensation offered is
fair and equitable”.

Equity is concerned with felt justice according to natural law or right. Homan’s exchange
theory predicts greater feelings of equity between people whose exchanges are in equilibrium.
According to Adams (1963), “when an employee receives compensation from the employer,
perceptions of equity are affected by two elements namely; the ratio of compensation to one’s
inputs of fort, education, training, endurance of adverse working conditions, and so on, and,
the comparison of this ratio with the perceived ratios of significant other people with whom
direct contact is made”. Equity usually exists when a person perceives that the ratio of outcomes
to inputs is in equilibrium both internally with respect to self and in relation to others.
Employees’ contributions exceed their outcomes of money resulting dissatisfaction often leads
to efforts to re-establish equilibrium, such as “borrowing” from the supply room to increase
rewards, trying to adversely affect the effort and pay of others, convincing self that pay is not
out of line, quitting or frequently absenting oneself from the organization, promoting labor
organization, and so on. “The equity theory has been used to motivate employees based on the
level of needs the employee is looking to fulfil” (Samad, 2007).

It is a general practice the world over that employees make comparisons between themselves
and their co-workers. They perceive what they get from a job situation (outputs) in relation to
what they must put into it (inputs). They also compare their output-input ratio with the output-

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input ratio of their fellow-workers. “If a person’s ratio and that of others are perceived to be
equal a state of equity is said to exist. If they are unequal, inequity exists i.e., the individual
considers himself as under rewarded or over rewarded” (Adams, 1963). According to Mathis
& Jackson (2011), “when an employee perceives a form of inequity in his/her pay, such an
employee may; leave the job, engage in withdrawal behaviors, choose a different comparison
referent, or even distort either his own or others’ inputs or outputs. This forms the basis of
which the equity theory was chosen as the selected theory to guide this study.

2.8 Empirical Review
There have been so many studies by different scholars, authors, researchers and experts
exploring the relationship between the concept of compensation management and its impact on
job satisfaction, employee performance, organizational performance and organizational
commitment. Even though the conclusions of the literature review are slightly different, the
positive relationship between compensation and organizational commitment is still being
pointed out. Some of such studies and their conclusions includes Frye (2004), Nazir et al.
(2013), Osibanjo et al. (2014), Riaz et al. (2016), Idemobi et al. (2011), and so many more.

Nazir et al. (2013), investigated the relationship between compensation organizational
commitment in the UK higher education sectors. The study focused on the academic staff at
two universities of technology and a quantitative research approach was employed with a semi-
structured questionnaire comprising a 5-point likert scale to determine the influence of
compensation on organizational commitment. Questionnaires were administered to 279 sample
respondents of academic staff. Data was obtained from the 225 respondents and yielded a
response rate of 78%. The data collected from the responses were analysed with the Statistical
Package for the Social Sciences (SPSS) and AMOS, version 24.0 for windows. Three main
data analysis techniques were employed for the analysis of the study namely; descriptive
statistics, confirmatory factor analysis and structural equation modelling (SEM). The scholars
concluded that employees are social agents needed to run educational institutions and the UK
higher education system provides financial and non-financial rewards to employees which
motivates and encourages them to put in their best effort in their jobs.

Idemobi et al. (2011), explored the extent to which compensation management can be used as
a tool for improving organizational performance in a typical public sector organization

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specifically focusing on the Anambra State Nigerian Civil Service. The study also aimed to
determine if efforts of the employees were commensurated with financial compensations. A
Pearson’s product moment correlation coefficient of 0.995 was found during the data analysis
and a Z-test score of 1.28 was found which revealed the significance of the coefficient of
correlation at a 5% level of significance. The scholars revealed that financial compensation for
staff members in the public service do not have a significant effect on their performance and
that financial compensation received were not commensurated with staff efforts. The study
further found that reform programmes of the government do not have a significant effect on
the financial compensation policies and practices in the public sector due to poor compensation
management. Based on the findings, it was recommended that for any public service
organization such as the Anambra State of Nigeria Civil Service Commission to improve the
performance of employees, they should offer financial compensation that will be specifically
designed to link it with performance.

Osibanjo et al. (2014), analyzed the impact of compensation on the job performance and
retention of employees at a private university in Ogun State. The aim of the study was to
examine the effect of compensation packages on employees’ job performance and retention in
a private university in Ogun State, Nigeria. A model was developed and tested using 111
questionnaires which were completed by academic and non-academic staff of the university.
The collected data were carefully analyzed using simple percentage supported by structural
equation modelling to test the hypotheses and relationships that existed among the dependent
and independent variables. The results revealed a strong relationship between compensation
packages and employees’ performance and retention. The summary of the findings indicated a
strong correlation between the tested dependent and independent variables (salary, bonus,
incentives, allowances, and fringe benefits). The scholars recommended that, management and
decision makers should endeavour to review compensation packages at various levels in order
to earn employees’ satisfaction and prevention of high labour turnover among the members of
staff.

Frye (2004), examined the concept of equity-based compensation and its effect on
organizational performance. Using two samples, the researcher discovered that firms have
come to rely more heavily on equity-based compensation than in the past. A significant,
positive relation between Tobin’s q and the percentage of employee compensation that is

25

equity-based was discovered within the sample of the study. Frye concluded the research based
on the data collected and analyzed that there is a positive relationship between the two variables
and equity-based compensation motivates employers to increase organizational value. Frye
further argued that, for human capital intensive organizations, compensation plays a crucial
role in attracting and retaining highly skilled employees.

Opkara (2004), conducted a research on the impact of compensation and leadership on job
satisfaction. A sample of 360 IT managers were selected from business organizations in Nigeria
were used for the research. The results from the findings of the study suggested that IT
managers were satisfied with their job, co-workers and supervision, whereas they were
dissatisfied with their pay and the promotion system. The results of the regression analyses
utilized during the data analysis also showed that personal characteristics, compensation and
leadership were significant predictors of job satisfaction. Okpara concluded that if employees
are satisfied with their work environment, compensation and leadership, they will improve their
productivity and be more committed to their organization.

Riaz et al. (2016), studied the impact of job stress on employee loyalty. The study was
conducted at the nursing sector of DHQ Hospital of Okara, Pakistan. Using the simple random
sampling technique, questionnaires were distributed to a sample size consists of 100 nurses and
the responses were analyzed he using the SPSS software. The Cronbach’s alpha, Pearson
correlation coefficient and regression analysis were used to interpret the data collected. Results
from the findings of the study revealed that job stress positively impact on employee loyalty.
The researchers also concluded that compensation in the form of salaries and incentives
effectively enhances motivation of employees and attracts and maintain the employees
efficiently.

Callahan ; Rutledge (1995), studied the impact of compensation policy on organizational
performance. Both scholars reported and concluded that compensation is most significantly
related to firm size and short-term profit divided by sales or performance. They further
interpreted their data and results as an indication that compensation is not directed toward long-
term maximization of shareholder wealth. Aslam et al. (2015), examined the effect of reward
and compensation system on the performance of employees in Pakistan’s banking sector. The
researchers analyzed the study and data collected using the ANOVA and linear regression

26

analysis and concluded that rewards, benefits, incentives, salary and compensation shows a
great effect on the performance of employees by boosting the efficiency of employees.

These studies and many more indicates that the concept of compensation and compensation
management, is closely related to the formation of job satisfaction, organizational performance
and organizational commitment in the workplace. Appropriate and adequate remuneration
often motivates employees to work harder to satisfy their needs and in turn not only commit to
the organization they serve but also achieve organizational goals and objectives.

2.9 Gap to be filled in the Literature
Every employee joins an organization with certain motives and expectations like security, good
working conditions, psychological needs, better prospects and so on. Financial institutions play
a vital role in the economy and industrial sector of a country such as encouraging industrial
production and creating value by manufacturing and processing the country’s businesses
activities as well as providing business support services to entrepreneurs.

“Adequately compensating employees who serve such organizations is of utmost importance
as it tends to motivate them to put in their best and achieve success” (Noble ; Mokwa, 1999).
Organizational commitment on the other hand, is of real importance for organizations in the
corporate world. Researchers and theorists differentiate organizational commitment from job
commitment, which refers to the involvement of a person into his profession, whereas
organizational commitment refers to the intentions of employees to remain the part of an
organization as a whole. Organizational commitment leads to retaining employees and
attaining better levels of their performance. These two concepts, compensation management
and organizational commitment, are of utmost importance to most managers.

It is evident that appropriate and adequate compensation management has a significant
relationship on organizational performance and commitment. However, the various literature
reviewed is low on development financial institutions in Nigeria like the Nigerian Bank of
Industry Limited. Therefore, this study aims to fill that gap. Commitment in organizations like
the Nigerian Bank of Industry (BOI) Limited is an important concept that is necessary for
management to investigate in order to ensure the wellbeing and welfare of its employees.

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CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction
This study is aimed at examining the impact of compensation management on organizational
commitment in a Nigerian public sector, using the Nigerian Bank of Industry Limited as a case
study. This chapter focuses on the methods employed in the study for the collection of data,
describing the choice and description of instruments used for data collection, the population
under study, and, the sample size and sampling procedure.

3.2 Research Design
A research design can be described as the specification of the method for collecting and
analyzing data needed for a research study. “A research design assists in generating primary
and secondary data needed for the analysis, discussions, conclusions and recommendations of
a research study” (Burns ; Bush, 2006). The research design also helps to ascertain the
relationship between the independent variable and the dependent variable. “A research design
is a set of advanced decisions that makes up the master plan specifying the methods and
procedures for collecting and analyzing the needed information. Knowledge of the needed
research design allows the researcher to plan in advance so that the study may be conducted in
less time and save costs” (Burns ; Bush, 2006).

For the purpose of this study, the researcher used the exploratory research design. This type of
research design refers to a systematic method of data collection that explores the relationship
between the independent and dependent variables. According to Burns ; Bush (2006), “an
exploratory research design involves gathering information in an informal and unstructured
manner”. This research design was chosen because it is an effective, cheap, easy-to-conduct
approach that is often used in data collection. The exploratory research design obtains
information by gathering data from a sample population under study with the use of
questionnaires and, secondary data is relied on for background information.

3.3 Population of the Study
“A population refers to the entire group under study as specified by the research objectives of
a research study” (Burns ; Bush, 2006). The population of this study consists of the entire
staff at Nigerian Bank of Industry Limited. The total number of employees at the Nigerian

28

Bank of Industry (BOI) Limited retrieved from the Human Resource Department records as at
December 2017 is four hundred and sixty eight (468).

3.4 Sample and Sampling Procedure
“A sample refers to the subset of the population that suitably represents the entire group under
study” (Burns ; Bush, 2006). Since the study is focused on the impact of compensation
management towards organizational commitment at the Nigerian Bank of Industry Limited,
it is important to select a sample size that forms a significant representative of the total staff at
Nigerian Bank of Industry Limited.

The sampling procedure used to collect data for this study is the simple random sampling
procedure. This procedure was chosen because it provides each employee in the sample
population an equal and independent chance of being selected and it is often appropriate when
responses are expected to vary across the sample population. The employees sampled from the
total population comprised of assistant banking officers, banking officers, senior banking
officers, assistant managers, deputy managers, managers, senior managers, principal managers,
assistant general managers, deputy general managers and general managers at the organization.

Slovin’s 1960 formula, which shows the relationship between the total population and the
sample size, was used to determine the actual sample size selected from the population under
study. The Slovin’s formula is expressed as thus:

Where; 1 is a constant value, n is the sample size, N is the population size and e is the error
tolerance or margin of error to be decided by the researcher. Using the total population of 468
employees at Bank of Industry and an error tolerance of 5%, the sample size was therefore
calculated as follows:
N = 468, e = 5% = 0.05

n = 215.6
n ? 216

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This describes how the actual sample size of 216 was selected as a representative of the total
population to be sampled for the study. Thus, questionnaires were randomly distributed to 216
employees at Nigerian Bank of Industry (BOI) Limited.

3.5 Data Collection Method
The data used for the purpose of this study was collected from primary and secondary sources.
“Primary data refers to information that is developed or gathered by the researcher specifically
for the research under study. Secondary data refers to data that have been previously gathered
by someone other than the researcher and/or for some other purpose than the research under
study” (Burns ; Bush, 2006). For the secondary source of data, the researcher made use of
secondary information from textbooks, journals, published sources and online documents. For
the primary source of data, a drop-off survey was conducted by the researcher. A drop-off
survey, sometimes called drop and collect, is a self-administered survey in which the researcher
approaches a prospective participant, introduces the general purpose of the survey, and leaves
it with the participant to fill out on his or her own. “Drop-off surveys must be self-explanatory
because they are left with the participants to fill without assistance” (Burns ; Bush, 2006).

To appreciate the impact of compensation management on the organizational commitment
among employees at the Nigerian Bank of Industry Limited, questionnaires were used to collect
primary data. The questionnaires were distributed personally by the researcher to the sample
population with a cover letter attached to the questionnaire explaining the aim of the study,
instructions for completing the questionnaire and reassurance of the respondents’
confidentiality of any personal information disclosed. The reason questionnaires was chosen
as a method of data collection is because it allowed the researcher to collect back the completed
questionnaires in a short period of time while saving cost. Questionnaires are an efficient and
effective way to obtain data from a large number of respondents (Sekaran & Bougie, 2010).
The questionnaire was self-explanatory and respondents completed it individually and
anonymously with little/no supervision.

The questionnaire was structured into four sections;
1. Section A aimed to obtain information about respondents’ general information which
included gender, marital status, designation, and years of work experience.

30

2. Sections B, C and D was structured in line with the research objectives, questions,
hypothesis of the study in order to determine the respondents’ perspective on the forms
of BOI’s compensation policy, the extent of compensation management at BOI and
finally, the extent of organizational commitment at BOI.

A five-point likert-type scale was used to rate respondents’ responses. The ratings used were
defined as follows: 1 = Strongly Disagree, 2 = Disagree, 3 = Neutral, 4 = Agree and 5 =
Strongly Agree. Respondents were required to select the rating that was best suited to answer
each question.

3.6 Data Analysis Method
One of the most common data analysis tool used by most researchers is the Statistical Package
of the Social Sciences (SPSS). With this study, the researcher used the SPSS software, version
25.0, to analyze all of the data gathered and collected.

Descriptive and analytical techniques were used for the analysis of the collected data. The
descriptive techniques used were frequencies, percentages, mean and standard deviation which
displays the variation and dispersion of all the data collected and analyzed while the analytical
techniques used to analyze the data were Pearson correlation coefficient and linear regression
analysis. The Pearson correlation coefficients measures the degree of linear association and
direction between two variables into a number ranging from – 1.0 to + 1.0. According to Burns
& Bush (2006), “a positive correlation coefficient signals an increasing linear relationship
whereas, a negative correlation coefficient signals a decreasing relationship between the two
variables”. Linear regression analysis on the other hand, is a predictive analysis technique in
which one or more variables are used to predict the level of another variable with the use of a
straight line formula. “Linear regression analysis is directly related to correlation by the
underlying straight line relationship whereby the independent variable is used to predict the
dependent variable” (Burns & Bush, 2006).

To test the understated hypotheses of the study, the researcher used the one-sample t-test on
the SPSS software. The one-sample t-test is a statistical procedure used to determine whether
a sample comes from a population with a specific mean. With all hypothesis tests, the sample
is the only source of current information about the population therefore, the sample results are

31

used to determine if the hypothesis about the population is accepted or rejected (Burns & Bush,
2006). Specifically, “the one-sample t-test compares a sample mean (computed from a set of
observed values) to a hypothesized mean and determines the likelihood that the observed
difference between the sample and hypothesized mean occurs by chance. The chance is
reported as p-value” (Burns & Bush, 2006).

3.7 Limitations of the Methodology
1) As expected, employees tend to be reluctant to disclose information about their jobs for
fear of being discovered in the future, especially when it borders on the job and
organization they serve. Thus, convincing the respondents about the study been strictly
for research purpose posed a challenge.
2) The study was limited to the Nigerian Bank of Industry(BOI) Limited, to determine the
impact of compensation management on organizational commitment with a total
sample size of only 155 employees of the bank, so the findings cannot be over
generalized.
3) All elements of the study were computed on the basis of the perceptions of employees
regarding their compensation and organizational commitment. This study is limited to
use of the employees’ perceptional measures. It is possible that the exposure and
working environment at BOI contributed significantly to their perceptions of the
influence of compensation policy on organizational commitment.
4) Budgetary constraints also played a constraining part in the conduction of the study
because data was gathered from only one sector of the many Development Finance
Institutes available in Nigeria and thus, the results cannot be deemed as fully useful for
the rest of the sectors.
5) The procedure used for the data collection in this study is very common. The data
collection was done by questionnaire method. Other data collection methods could have
been considered for the research purpose some of which includes; group discussions,
observations, situational analysis etc.
6) The study was conducted in the perspective of compensation management and its
impact on organizational commitment. There are a number of other dimensions that
could have been considered in this study such as employee turnover intentions,
employee productivity, job satisfaction, training and development, and many other
human resource practices.

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CHAPTER FOUR: ANALYSIS AND DISCUSSION OF RESULTS

4.1 Introduction
This chapter is focused on the analysis of all the data collected from the drop-off survey using
the questionnaires. It includes the frequency distribution tables, the linear regression analysis
as well as the interpretations made from the analysis of all the collected data.

4.2 Overview of Data Collection
A total of 216 questionnaires were distributed randomly to the selected staff of the sample
population. However, only a total 155 questionnaires were fully completed and returned in due
time by the respondents to the researcher. 48 out of the 216 questionnaires were disregarded
and considered as ineligible for use for the study due to incomplete responses from the
respondents and, 13 questionnaires were not returned by some respondents due to their tight
work schedules, refusal to participate or their inability to complete the questionnaire.

4.3 Response Rate
155 questionnaires out of the 216 distributed were used in the analysis of the study. The
response rate was calculated as thus:
× 100
= 0.717%
? 72%
This means that the study achieved a response rate of approximately 72% indicating a reliable
response rate.

4.4 Analysis of Data
The analysis of data was conducted with the data developed from the primary and secondary
data collection sources. The analysis was conducted to examine the impact of compensation
management on organizational commitment at BOI. Descriptive and analytical techniques on
the SPSS software were applied to determine the mean, standard deviation, frequency,
percentages, correlation coefficients and linear regression analysis of the variables. These
statistics were used to evaluate the nature, variation, dispersion, strength and direction of the

33

relationship of the study variables. Finally, the one-sample t-test on the SPSS software was
applied to test the understated hypotheses of the study.

4.4.1 General Information of Respondents
Section A of the questionnaire required the respondents to provide information about their sex,
age, marital status, designation, educational qualification and number of working years at BOI.
The table below represents the distribution of the respondents’ general information.

Table 1: General Information of Respondents
VARIABLE FREQUENCY PERCENTAGE (%)
GENDER Male 73 47.1
Female 82 52.9
Total 155 100
MARITAL STATUS Single 39 25.2
Married 76 49.0
Divorced 30 19.4
Widowed 10 6.5
Total 155 100
DESIGNATION Junior level 83 53.5
Middle level 58 37.4
Senior level 14 9.0
Total 155 100
WORK EXPERIENCE Less than 1 yr 42 27.1
1 to 5 yrs 67 43.2
5 to 10 yrs 39 25.2
More than 10 yrs 7 4.5
Total 155 100
Source: Field Survey, SPSS (April, 2018).

From the results in Table 1; the gender distribution indicated that out of the 155 respondents,
73 were males representing 47.1% and 82 were females representing 52.9% of the sample
population. The marital status data indicated that 39 of the respondents were single representing
25.2%, 76 out of the respondents were married representing 49.0%, 30 of the respondents were
divorced representing 19.4% and finally, 10 of the respondents were widowed representing
6.5% of the sample population. The designation distribution indicated that 83 of the
respondents were junior level staff representing 53.5%, 58 were middle level staff representing

34

37.4%, and only 14 were senior level staff representing 9.0% of the sample population. Finally,
the data from the work experience of employees indicated that 42 of the respondents have
served with BOI for less than a year representing 27.1%, 67 respondents have served with BOI
for a period of 1 to 5 yrs representing 43.2%, 39of the respondents have served with BOI for a
period of 5 to 10 years representing 25.2%, and only 7 of the respondents have served with
BOI for more than 10 years.

4.4.2 Forms of Compensation at BOI
Section B of the questionnaire was structured to determine the respondents’ view on the direct
and indirect compensation policy at BOI. The results of the respondents’ view on the direct
compensation policy at BOI are represented in Table 2a.

Table 2a: Direct Compensation at BOI
VARIABLE SD D N A SA Mean Sd
Financial rewards are reflective of
individual skills and efforts
0
(0%)
11
(7.1%)
5
(3.2%)
38
(24.5%)
101
(65.2%) 4.477 0.862
Financial rewards compares favorably
to that provided in similar firms
17
(11.0%)
18
(11.6%)
3
(1.9%)
41
(26.5%)
76
(49.0%) 3.909 1.402
Financial rewards includes allowances
for extra duties and responsibilities
2
(1.3%)
2
1.3%)
1
(0.6%)
62
(4.0%)
88
(56.8%) 4.496 0.705
Financial rewards are reviewed to
accommodate market changes
5
(3.2%)
2
(1.3%)
0
(0%)
63
(40.6%)
85
(54.8%) 4.425 0.844
BOI takes care of taxes before
employees’ base pay is provided
1
(0.6%)
3
(1.9%)
1
(0.6%)
63
(40.6%)
87
(56.1%) 4.496 0.677
Profit sharing is done in the bank at
the end of each year
6
(3.9%)
5
(3.2%)
0
(0%)
65
(41.9%)
79
(51.0%) 4.329 0.940
I am satisfied with the financial
rewards I receive at BOI
23
(14.8%)
12
(7.7%)
1
(0.6%)
54
(34.8%)
65
(41.9%) 3.812 1.431
SD = Strongly Disagree, D = Disagree, N = Neutral, A = Agree, SA = Strongly Agree, Sd = Standard Deviation
Source: Field Survey, SPSS (April, 2018).

From the results in Table 2a, about 89.7% of the respondents indicated that the financial
rewards provided at BOI are reflective of their individual skills and efforts (4.477); some of
the respondents also answered in the affirmative that the financial rewards they receive at BOI
compares favourably to that provided in similar organizations (3.909); more than half of the
respondents also indicated that BOI includes allowances for extra duties and responsibilities

35

(4.496); some of the respondents also indicated that the financial rewards of the firm are
reviewed to accommodate market changes (4.425). Finally, most of the respondents also noted
that; BOI takes care of employees’ taxes (4.496); profit sharing is done at the bank (4.329);
and 76.7% of the respondents indicated that they are satisfied with the financial rewards they
are being offered at BOI (3.812).

The results of the respondents’ view on the indirect compensation policy at BOI are represented
in Table 2b.

Table 2b: Indirect Compensation at BOI
VARIABLE SD D N A SA Mean Sd
Non-financial rewards are adequate
enough to satisfy my needs
7
(4.5%)
7
(4.5%)
0
(0%)
47
(30.3%)
94
(60.6%) 4.380 1.027
Non-financial rewards compares
favorably to that of similar firms
10
(6.5%)
6
(3.9%)
0
(0%)
57
(36.8%)
82
(52.9%) 4.258 1.098
Non-financial rewards includes
protection programs
6
(3.9%)
7
(4.5%)
0
(0%)
61
(39.4%)
81
(52.3%) 4.316 0.978
Non-financial rewards at BOI
provides pay for time not worked
7
(4.5%)
5
(3.2%)
0
(0%)
66
(42.6%)
77
(49.7%) 4.296 0.974
Non-financial rewards includes
services and perquisites
15
(9.7%)
18
(11.6%)
1
(0.6%)
55
(35.5%)
66
(42.6%) 3.896 1.329
I am satisfied with the non-financial
rewards I receive at BOI
0
(0%)
1
(0.6%)
7
(4.5%)
67
(43.2%)
80
(51.6%) 4.458 0.616
SD = Strongly Disagree, D = Disagree, N = Neutral, A = Agree, SA = Strongly Agree, Sd = Standard Deviation
Source: Field Survey, SPSS (April, 2018).

From the results in Table 2b, 90.9% of the respondents indicated that the non-financial rewards
provided at BOI are adequate enough to satisfy their needs (4.380); 89.7% of the respondents
also indicated that the non-financial rewards they receive compares favourably to that provided
in similar organizations (4.258); about 91.7% of the respondents answered to the affirmative
that the non-financial rewards at BOI includes protection programs such as pensions, insurance
etc. (4.316); 92.3% of the respondents indicated that BOI non-financial rewards provides pay
for time not worked e.g. sick leaves, holidays etc. (4.296); and about 78.1% of the respondents
indicated that BOI’s non-financial rewards includes services and perquisites e.g. the use f the
company car, low-cost meals etc. (3.896). Finally, 94.8% of the respondents expressed their
satisfaction with the non-financial rewards they receive at BOI (4.458).

36

4.4.3 Compensation Management at BOI
Section C of the questionnaire required the respondents to provide their insight on the overall
compensation management at BOI. The results of the respondents’ view on the compensation
management at BOI are represented in Table 3.

Table 3: Compensation Management at BOI
VARIABLE SD D N A SA Mean Sd
BOI has a well-organized
compensation system
6
(3.9%)
5
(3.2%)
1
(0.6%)
65
(41.9%)
78
(50.3%) 4.316 0.944
The existing compensation system
is applicable to all the employees
69
(44.5%)
44
(28.4%)
11
(7.1%)
20
(12.9%)
11
(7.1%) 2.096 1.293
BOI communicates its
compensation policy to employees
16
(10.3%)
12
(7.7%)
0
(0%)
41
(26.5%)
86
(55.5%) 4.090 1.340
BOI’s compensation recognizes
skill, effort and commitment
28
(18.1%)
19
(12.3%)
8
(5.2%)
27
(17.4%)
73
(47.1%) 3.632 1.587
Job designation is essential in
BOI’s compensation management
1
(0.6%)
1
(0.6%)
0
(0%)
68
(43.9%)
85
(54.8%) 4.516 0.606
I am satisfied with BOI’s
compensation management system
0
(0%)
0
(0%)
0
(0%)
33
(21.3%)
122
(78.7%) 4.787 0.410
SD = Strongly Disagree, D = Disagree, N = Neutral, A = Agree, SA = Strongly Agree, Sd = Standard Deviation
Source: Field Survey, SPSS (April, 2018).

From the results in Table 3, about 92.2% of the respondents confirmed that BOI has a well-
organized compensation system (4.316); most of the respondents indicated that the existing
compensation system at BOI is applicable to all the employees (2.096); about 82% of the
respondents indicated that BOI communicates its compensation policy to every employee
(4.090); some of the respondents also expressed that BOI’s compensation policy recognizes
skill, effort and commitment (3.632); almost all of the respondents, a total of 98.7%, answered
to the affirmative that job designation is essential in BOI’s compensation management (4.516).
Finally, all of the respondents expressed their satisfaction with the compensation management
system at BOI (4.787).

4.4.4 Organizational Commitment at BOI
Section D of the questionnaire required the respondents to provide their insight on the overall
organizational commitment at BOI. The results of the respondents’ view on the organizational
commitment at BOI are represented in Table 4.

37

Table 4: Organizational Commitment at BOI
SD D N A SA Mean Sd
The rewards I receive inspires me to
offer more services to BOI
0
(0%)
0
(0%)
0
(0%)
71
(45.8%)
84
(54.2%) 4.541 0.499
I wish to keep working in BOI in
the next ten years
2
(1.3%)
1
(0.6%)
0
(0%)
68
(43.9%)
84
(54.2%) 4.490 0.668
I am happy and proud to work and
serve at BOI
6
(3.9%)
11
(7.1%)
29
(18.7%)
50
(32.3%)
59
(38.1%) 3.935 1.097
I am comfortable participating in
BOI’s activities even without pay
34
(21.9%)
30
(19.4%)
16
(10.3%)
21
(13.5%)
54
(34.8%) 3.200 1.605
My career advancement would
suffer if I leave BOI
38
(24.5%)
33
(21.3%)
0
(0%)
22
(14.2%)
62
(40.0%) 3.238 1.702
Equity in BOI’s compensation
mgmt. inspires me to commit
22
(14.2%)
27
(17.4%)
12
(7.7%)
39
(25.2%)
55
(35.5%) 3.503 1.474
Good work relationships influences
my willingness to remain at BOI
7
(4.5%)
11
(7.1%)
1
(0.6%)
52
(33.5%)
84
(54.2%) 4.258 1.086
I have enjoyed several benefits from
BOI that inspires me to work harder
1
(0.6%)
3
(1.9%)
2
(1.3%)
65
(41.9%)
84
(54.2%) 4.471 0.686
I am satisfied with the mgmt. of
compensation, I wish to remain
5
(3.2%)
9
(5.8%)
3
(1.9%)
57
(36.8%)
81
(52.3%) 4.290 0.993
SD = Strongly Disagree, D = Disagree, N = Neutral, A = Agree, SA = Strongly Agree, Sd = Standard Deviation
Source: Field Survey, SPSS (April, 2018).

From the results in Table 4, all of the respondents answered to the affirmative that the rewards
they receive at BOI inspires them to offer more services to the organization (4.541); about
98.1% of the respondents indicated that they wish to be in BOI in the next ten years (4.490);
some of the respondents indicated that they are happy and proud to work and serve at BOI
(3.935); about 48.3% of the respondents also indicated that they are comfortable working at
BOI even without pay (3.200); about 54.2% of the respondents indicated that their career
advancement would suffer if they leave the organization (3.238); some of the respondents also
expressed that the equity in BOI’s compensation management inspires them to commit to the
organization (3.503); about 87.7% of the respondents answered to the affirmative that good
working relationships at BOI influences their willingness to commit to the organization
(4.258); most of the respondents also indicated that the benefits they receive inspires them to
work harder (4.471); and finally, 89.1% of the respondents indicated that they have experienced
consistent career advancement hence, wish to remain at BOI.

38

4.4.5 Pearson Correlation Analysis
Pearson correlation coefficient was undertaken to measure the degree of linear association and
direction between the independent variable, compensation management and the dependent
variable, organizational commitment. The results obtained are represented in Table 5.

Table 5: Pearson Correlation Coefficients
CM OC
CM Pearson Correlation 1 .822**
Sig. (2-tailed) .000
N 155 155
OC Pearson Correlation .822** 1
Sig. (2-tailed) .000
N 155 155
**. Correlation is significant at the 0.01 level (2-tailed).
CM = Compensation Management, OC = Organizational Commitment
Source: Field Survey, SPSS (April, 2018).

From the results in Table 5, the coefficient indicates that there is a strong positive relationship
between compensation management and organizational commitment (r = 0.822, p = 0.000).
This shows that if BOI maintains and improves on its compensation management system, the
overall organizational commitment will experience a likely increase as well.

4.4.6 Linear Regression Analysis
To validate the statistical results from the Pearson correlation coefficient analysis, the linear
regression analysis was used to show that compensation management is significantly
associated with organizational commitment. The linear regression analysis is a predictive
model used to predict the value of one dependent variable from the values of two or more
independent variables by the use of a straight line formula. The formula for the straight line
relationship is given as:
y = a + bx
Where, y is the dependent or predicted variable, x is the independent variable, a is the intercept
or point where the line cuts the y axis when x = 0 and, b is the slope or change in y for any 1
unit change in x.

39

The linear regression model was used to assess the extent of the relationship between the
independent variable and the dependent variable. The results obtained are represented in Tables
6a, 6b and 6c.

Table 6a: Linear Regression Analysis
Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .822a .676 .674 .34643
a. Predictors: (Constant), Compensation Management
Source: Field Survey, SPSS (April 2018).

From the results in Table 6a, R is known as the coefficient of correlation. The value of R
indicates that there is a positive correlation between the independent and dependent variables
of the study. This means that there is a positive relationship between BOI’s compensation
management and organizational commitment. This means that, employees are likely to produce
better results when they are compensated effectively. From the results of the analysis, R (0.822)
signifies that there is an 82.2% correlation between compensation management and
organizational commitment at BOI.

R Square on the other hand is known as the coefficient of determination. The value of R Square
indicates that a change in the dependent variable can be accounted for by a change in the
independent variable. From the results of the analysis, R Square (0.676) signifies that a 67.6%
change in the dependent variable is accounted for by the independent variable. This means that,
compensation management has a 67.6% effect on organizational commitment at BOI and a
change in organizational commitment at BOI is caused by changes in BOI’s compensation
management. This reflects the role of the compensation management system on the
organizational commitment at BOI. The value of R Square is not up to 100% because there are
other variables such as working conditions, motivation, employee participation etc. which can
account for the changes in the organizational commitment at BOI.

40

Table 6b: Analysis of Variance
ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 38.348 1 38.348 10.797 .000b
Residual 18.362 153 .120
Total 56.710 154
Dependent Variable: Organizational Commitment
Predictors: (Constant), CM
CM = Compensation Management
Source: Field Survey, SPSS (April 2018).

Table 6b indicates the analysis of variance. The results indicate a positive and significant F
value of 107.797 (Sig. = 0.000). This shows that there is a positive and significant relationship
between compensation management and organizational commitment.

Table 6c: Regression Coefficients
Coefficientsa
Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta
1 (Constant) .906 .204 4.444 .000
CM .810 .045 .822 17.875 .000
a = Dependent Variable: Organizational Commitment, CM = Compensation Management
Source: Field Survey, SPSS (April 2018).

Table 6c indicates the regression coefficients. The intercept, 0.906, represents the estimated
average value of organizational commitment when compensation management is zero. The
slope of compensation management (CM), 0.810, means that a change in organizational
commitment would be 0.810 when compensation management increases by 1. Under the CM
row, a significant t value of 17.875 (Sig. = 0.000 was obtained). This shows that the coefficients
obtained for compensation management could reliably predict the organizational commitment
at BOI. Thus, the following straight line equation was derived:
OC = 0.906 + (0.810 * CM)
Where, OC = organizational commitment which is the dependent variable, 0.096 is the
intercept, 0.810 is the slope and, CM = compensation management which is the independent
variable.

41

4.4.7 Hypotheses Testing
To test the hypothesis of the study, the researcher applied the one-sample t-test to determine if
the hypotheses of the study would be accepted or rejected. The significance of the one-sample
t-test is determined through the p-value. “The lower the p-value, the more certain we can be
that there is a statistically significant difference between the observed and hypothesized mean”
(Burns & Bush, 2006). The decision rule for the one-sample t-test is given as thus:
• If p < 0.05, reject the null hypothesis.
• If p ? 0.05, accept the null hypothesis.

Table 7: One-Sample T-Test
Test Value = 3
N Mean Mean Difference Sd Std. Error Mean t df Sig. (2-tailed)
95% Confidence Interval of the Difference
Lower Upper
DC 155 4.7871 1.7871 .41069 .03299 54.176 154 .000 1.7219 1.8523
IC 155 4.3161 1.3161 .94494 .07590 17.340 154 .000 1.1662 1.4661
WR 155 4.4258 1.4258 .84476 .06785 21.013 154 .000 1.2918 1.5598
CM 155 4.4581 1.4581 .61622 .04950 29.458 154 .000 1.3603 1.5558
DC = Direct Compensation, IC = Indirect Compensation, WR = Work Relationships, CM = Compensation Management, N = Population, Sd = Standard Deviation, t = t statistic, df = Degrees of Freedom
Source: Field Survey, SPSS (April 2018).

Hypothesis 1: There is no form of compensation management that affects organizational
commitment. Questions 7 and 13 of the questionnaire filled by the sample population required
the respondents to indicate their level of satisfaction with the direct and indirect compensation
they receive at BOI. The responses collected were used to test for Hypothesis 1. From Table 7,
under the DC row, the mean score (4.79 ± 0.41) was higher than the normal score of 3.0, a
statistically significant difference of 1.79 (95% CI, 1.72 to 1.85), the p-value = 0.000, t (154)
= 54.176. Under the IC row, the mean score (4.32 ± 0.95) was higher than the normal score of
3.0, a statistically significant difference of 1.32 (95% CI, 1.17 to 1.47), the p-value = 0.000, t
(154) = 17.340. The results indicates that there is a statistically significant difference between
means (p < 0.05) and, therefore, we can reject the null hypothesis that there is no form of
compensation management that affects organizational commitment i.e. H1 is rejected. This
means that, indeed the forms of compensation, direct compensation and indirect compensation,
affects organizational commitment in the workplace.

42

Hypothesis 2: There is no factor that influences organizational commitment. Question 26 of
the questionnaire filled by the sample population required the respondents to indicate the extent
to which good working relationships (which is one of the factors that influence organizational
commitment, pg. 15) at BOI affects their willingness to commit to the organization. The
responses collected were used to test for Hypothesis 2. From Table 7, under the WR row, the
mean score (4.43 ± 0.84) was higher than the normal score of 3.0, a statistically significant
difference of 1.43 (95% CI, 1.29 to 1.56), the p-value = 0.000, t (154) = 21.013. The results
indicates that there is a statistically significant difference between means (p < 0.05) and,
therefore, we can reject the null hypothesis that there is no factor that influences organizational
commitment i.e. H2 is rejected. This means that, indeed factors such as a good working
relationship in a workplace can affect an employees’ willingness to commit to an organization.

Hypothesis 3: There is no significant relationship between compensation management and
organizational commitment. Question 28 of the questionnaire filled by the sample population
required the respondents to indicate the their level of satisfaction with the overall compensation
management at BOI and its effect on their organizational commitment. The responses collected
were used to test for Hypothesis 3. From Table 7, under the CM row, the mean score (4.46 ±
0.62) was higher than the normal score of 3.0, a statistically significant difference of 1.46 (95%
CI, 1.36 to 1.56), the p-value = 0.000, t (154) = 29.458. The results indicates that there is a
statistically significant difference between means (p ; 0.05) and, therefore, we can reject the
null hypothesis that there is no significant relationship between compensation management and
organizational commitment i.e. H3 is rejected. This means that, indeed compensation
management positively affects the organizational commitment of employees in a workplace.

Table 8: Summary of Hypothesis Decision
Hypothesis Statement Decision
1 There is no element of compensation management that affects
organizational commitment
Rejected
2 There is no factor that influences organizational commitment Rejected
3 There is no significant relationship between compensation
management and organizational commitment
Rejected
Source: Field Survey, SPSS (April 2018).

43

4.5 Discussion of Results
The discussion of results includes all of the responses and analysis and gathered from the
survey through the administration of questionnaires and other data collected during the course
of the study. The discussion consists of both the theoretical and empirical findings.

The first research question was centered on the relationship between the forms of compensation
and organization commitment from which the results indicated a positive and significant
relationship within the two variables. This is in line with a research study conducted by
Lambert et al. (2001), which concluded that compensation significantly influences
organizational commitment. The results were in alignment of the perception that employees
usually take employment where financial and non-financial compensation are generally are
utilized to measure their importance or the employee value. The second research question was
centered on the factors that influence organizational commitment. From the data analysis of
the study, it was observed that factors like good working relationships influence employees’
willingness to commit to the organization they serve. Finally, the third research question was
centered on the relationship between compensation management and organizational
commitment. From the data analysis of the study, it was observed that employees attached a
significant importance to the rewards they receive, how the organization manages and
administers their rewards and, the rewards affects on their willingness to commit to the
organization.

The findings of this study indicates that compensation management plays a significant and
positive role in the determination of organizational commitment which is consistent with those
of several studies reviewed such as Frye (2004), Nazir et al. (2013), Osibanjo et al. (2014),
Riaz et al. (2016), Idemobi et al. (2011) etc. Adequately managing an organization’s
compensation management system affects the level of commitment to the organization by the
employees. Based on the results of the data analysis, various details with respect to
compensation management and its impact on organizational commitment at Nigerian Bank of
Industry (BOI) Limited have emerged. According to Anvari et al. (2011), “an organization’s
compensation plan must be organized and well communicated to all of the employees working
at the organization”. The results from the data analysis also supports this statement because
more than half of the respondents who participated in the survey answered affirmatively to the
question that BOI’s compensation policy is well organized and is often communicated to the

44

employees. Most of the respondents were of the opinion that the well-organized compensation
management system at BOI is applicable to all the employees. The opinions of the respondents
varied in terms of the salary they receive and whether the salary meets their immediate needs.
The overall results from the analysis of data also indicated that the compensation management
system at BOI indeed has a positive effect on the organizational commitment of the firm.
Should there be an improvement in the compensation terms at BOI, an increase in
organizational commitment will be experienced and vice versa. This suggestion is consistent
with the expectancy theory by Vroom (1964), which states that the perception held by
employees’ motivation to work has a direct correlation with performance and, that high
performance will result to positive outcomes in the form of rewards or compensation.

As obtained from the literature reviewed, theories of motivation such as expectancy, equity and
need theories sees compensation as a predictor of behavior, in other words, compensation can
influence a repeat of behavior. From the analysis of the study, we can conclude that the
implication for compensation management is that high organizational commitment followed
by a monetary and/or non-monetary reward will make future high commitment more likely. By
the same token, high commitment not followed by a monetary and/or non-monetary reward
will make it less likely in the future. This statement is in line with the expectancy theory
(Vroom, 1964), which focuses on the link between rewards and behaviors. Baron ; Greenberg
(1990) examined how an organization communicated pay cuts to its employees and the effect
on perceived equity. In the course of the research, questions were tactically drawn, included in
the research questions and questionnaires were administered in order to satisfy the research
objectives and research hypotheses. The results obtained from the study validates that
respondents agree that an effective compensation management practice in an organization leads
to an improvement in employee productivity, organizational performance and employee
commitment towards the organization. The test of the hypothesis was also a further assurance
and belief in the fact that compensation management when handled effectively has a positive
impact or effect on the commitment of employees.

Compensation management is strategic to an organization’s goals and objectives and thus,
should be able to ensure employee and job satisfaction, employee retention, employee
development, better organizational performance and organizational commitment. From the
results of the study, the findings revealed that there are positive significant relationships among

45

salary, bonuses, commissions, pension plans, insurance etc. and organizational commitment at
the Nigerian Bank of Industry (BOI) Limited. Organizations that have better compensation
management systems in place set a very positive influence on their employees thereby
committing them to the organization and such will be less likely to leave it. Because of the
strong relationship between these forms of compensations management, performances and
commitment are affected positively. The task in compensation management is to develop
policies and strategies that will attract, satisfy, retain and motivate employees thereby leading
to employee satisfaction and organizational commitment. This encourages employees to work
harder and in turn helps the organization to build a competitive atmosphere in the organization
as it supports the achievement of business goals and objectives.

46

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Introduction
This chapter presents a summary of the key study findings, conclusions and recommendations
for further research. It provides a precise and concise framework into the compensation
management and organizational commitment at the Nigerian Bank of Industry Limited. It also
includes the conclusions drawn from the analysis of the results, and the recommendations made
for future policy decisions.

5.2 Major Summary of Findings
Compensation management has been observed by scholars and emphasized to be very
fundamental to an organization and in enhancing organizational commitment. For an
organization to stand the test of time and to enjoy competitive advantage in a competing
environment, effective compensation management systems must be set in place to attract,
satisfy, retain and develop skilful employees that will be dedicated and committed to the
achievement of the organization’s set goals. According to Noble ; Mokwa (1999), “employee
commitment towards an organization is the extent to which an employee identifies with and
works towards the organization’s goals and objectives. A reliable, appropriate and adequate
compensation management system must be adopted by managers of organizations to reduce
absenteeism, withdrawal behaviors and so on within an organization thus, improvement on
organizational performance and commitment is guaranteed”. However, for any organization to
enjoy sustainability and remain on top, adequate remuneration must be imbedded to the
philosophy of the organization that will be of great interest to not only the employees but the
organization as well. This can be achieved through a periodical review of the remuneration
package by the organization.

Sometimes, certain employees may be satisfied with the little salary they earn and the direct
compensation they receive, whilst other employees will be dissatisfied with same salary but
satisfied with the job conditions e.g. the leader style, work atmosphere, job role, job
responsibility, recognition, and so on (Chhabra, 2001). This often leads to a positive influence
on employee motivation, job satisfaction, productivity, and the willingness to commit and
remain loyal to the organization. Hence, in designing, implementing, and managing
compensation plans for organizations, it must include direct and indirect benefits to adequately

47

motivate, encourage, and satisfy the employees so they strive harder to achieve organizational
goals and objectives. In spite of the multiple benefits and advantages of compensation
management and its impact on organizational commitment, it cannot still be concluded that
having a good compensation management system alone is a solution for the overall success in
appraising and managing employee's performance and commitment. It is therefore the duty of
all managers to ensure that the use of appropriate and adequate compensation management
systems meets employee's expectation in order to have good and effective performance and in
turn, a willingness to commit.

According to the findings from this study, a good number of direct and indirect compensation
packages were received by the employees of the bank. These include base pay, tax reliefs,
medical expenses, anticipated retirement package, free health insurance, housing allowance,
travel and meal allowance, vacation and leave allowances and bonuses, merit pay and profit
sharing. As a result, the findings concluded that employees of the bank were satisfied with
these compensation packages. The study further shows that employees’ satisfaction with these
compensation packages had a positive effect on their commitment. The management of the
Nigerian Bank of Industry (BOI) Limited adopts both the direct (salary, benefits, bonuses,
commissions) compensation and indirect (recognition of work done, services and perquisites,
pay for time not worked, protection programs) compensation to motivate employees, to raise
their moral, improve the strength of the organization, and to maintain and attract efficient
employees. Employees of the bank perceived the existing compensation system in the bank as
being adequate enough to influence the employee’s commitment as the bank motivates
employees with better remuneration and salary to cater for the needs of all employees within
the organization.

The study was aimed at examining the impact of compensation management on the
organizational commitment at the Nigerian Bank of Industry Limited. Questionnaires were
administered to selected staff of BOI. The entire population was estimated at 468 people
comprising of both the junior and senior staff and out of this population a sample population
of 216 respondents were randomly selected for the study and analyzed. The responses obtained
from the self-administered questionnaires and the test of hypothesis using the one-sample t-test
method forms the basis of the finding of this study.

48

In conclusion, the general summary of the findings revealed that:
1) The Nigerian Bank of Industry (BOI) Limited has a well-organized and efficient
compensation management system which is applicable to all the employees.
2) BOI’s compensation management system has a great impact on employees’ efficiency
and commitment of the employees at the organization.
3) There is a positive and significant relationship between compensation management and
organizational commitment and that effective compensation management will lead to a
positive impact on the organizational commitment at the Nigerian Bank of Industry
(BOI) Limited.
4) Organizational commitment can also be determined through the use of not only
monetary rewards but also non-monetary rewards as well some of which could include;
recognition, advancements, responsibilities, leadership roles, effective communication,
sense of belonging and involvement, decision making and so on in relation to the
concept of compensation management.

5.3 Conclusion
The first basic requirement for effective organizational commitment is to have a common
understanding of the standards of performance and commitment required from each employee,
and then, compensation management should be set in relation with the organizational goals and
objectives. One of the primary responsibilities of management is to make compensation
management a regular tool for optimizing the potentials of employees and human resources
managers or practitioners should be in the driving seat in ensuring that the system is run in line
with the principles of fairness and equity.

Based on the research findings and theoretical literature reviewed, it can be concluded that
compensation management positively influences organizational commitment. It can also be
said that compensation management leads to better performance, trust in management, strong
relationship in the organization and organizational commitment. In addition, Nigerian Bank of
Industry (BOI) Limited practices a compensation management system through communicating
and involving employees in the development. Furthermore, it can also be concluded that the
success of an organization’s compensation management system is in having open
communication with the employees, which enables them to be satisfied with the fairness and
equity in the management and administration of the firm’s compensation management system.

49

There is a strong direct relationship between compensation and organizational commitment at
BOI thus, as the overall working conditions of employees becomes better, the more their
commitment would improve to ensure the growth and development of the bank. The main goal
of fulfilling this study was to establish a link between compensation management and
organizational commitment of employees at the Nigerian Bank of Industry (BOI) Limited.

5.4 Recommendations
Employers are continually challenged to develop pay practices and procedures that will enable
them to attract, motivate, retain and satisfy their employees. The findings of this study can be
helpful tools which could be used to provide solutions to individual dissatisfaction to work
processes. It is very important to suggest that more research should be conducted on the issues
related to compensation management system using many private and public organizations as
case studies. It is significant for further studies to be carried out in order to do justice to all
issues concerning compensation management. Based on the research analysis, findings and
conclusions, this study will be incomplete without the following recommendations and
suggestions to the management of the Nigerian Bank of Industry (BOI) Limited and other
organizations that may find this research work useful.
1) Organizations that have established equitable compensation management systems with
well-communicated strategies will attract employees and also retain them more than
comparable organizations with ineffective compensation management practices. There
is need for top leadership in the organizations to establish an effective compensation
management system since this will influence the success of attaining the organization’s
goals, objectives and vision.
2) Managers can increase organizational commitment by communicating that they value
employees’ contribution and that they care about employees’ wellbeing. The findings
from this study will therefore assist senior managers to identify those employee-related
issues that can slow productivity, performance and commitment in the workplace.
When the employees understand that they are considered, their emotional, normative
and continuity attachment towards the organization will increase successively.
3) Employees with higher levels of organizational attachment will be more willing to work
for an organization and to stay as a member of the organization, which brings about
higher levels of productivity in the organization. Policy makers could use the findings
of this study to develop policies to guide the remuneration of employees in other

50

Development Financial Institutions to ensure uniformity in remuneration and increase
in the commitment of employees towards organizations.
4) Since employees’ efforts are directed towards the achievement of organizational goals
and objectives and these efforts goes hand in hand with employees’ abilities, then, the
employees’ abilities should be enhanced through training, development, capacity
building programs, orientation and re-orientation, counselling programs etc.
5) Organizations will do well to take employees’ motivation seriously, knowing fully well
that employees come to work with expectations and needs they want to satisfy via their
work efforts and the compensation they receive.
6) Managers must ensure to communicate to their employees the compensation attached
to each performance target so that each employee know what he/she can expect in
exchange for his/her efforts at every level of performance.
7) Managers must ensure that the compensation offered to the employees are matched to
employees' needs and preferences.
8) Managers must also ensure that rewards distributed to employees are dynamic and
constantly re-evaluated to ensure their transparency and fairness to all employees so as
to continue to have their dedication, commitment and loyalty, which is the major drive
for keeping contented and satisfied employees, thus, avoiding turnover but ensuring
retention of vibrant employees.
9) Organizations must develop and implement a culture of appreciating employees with
recognition awards. Employees thrive in a work environment when there is a frequent
feedback and praises from their employers or superiors they are generally motivated to
give out their best to help improve organizational performance.
10) Educational funding is also another way to motivate employees in the workplace.
Giving employees the tools and resources to develop themselves by achieving industrial
certification and degrees can help to elevate the quality of work produced, provide a
meaningful career and incentives that is recognized by all, and ultimately, motivate and
encourage the employees to exhibit loyalty and commitment towards the organization.
11) Organizations can utilize corporate wellness programs as a method of incentivization
to encourage employee commitment towards the organization. Studies like Bob (2001),
have proven that such programs can be used to boost compensation strategies.

51

5.5 Suggestions for Future Studies
The study focused on only one Development Financial Institution in Nigeria i.e. the Nigerian
Bank of Industry (BOI) Limited.
1) There is the need for a similar research to be carried out in other sectors of the Nigerian
economy such as the manufacturing and service sectors where a comparison of the
findings can be made.
2) The study focused on the impact of only one variable (compensation management) on
organizational commitment. Other variables, such as motivation, training, job stress,
role conflict, role ambiguity etc. which can be related to organizational commitment
can also be explored and included in future studies.
3) In the event of further studies, the sample size to be used should be larger so as to enable
the researcher get the required results from the respondents, the researcher should
obtain a more representative sample from more organizations and also from different
sectors if possible. Increasing the sample size would help to increase the external
validity of the results and give more strength in the overall internal and external validity
of the results.

52

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APPENDIX: QUESTIONNAIRE

Nile University Nigeria,
Faculty of Management and Social Sciences
Department of Business Administration
Abuja, Nigeria.

7th April, 2018.

A Questionnaire on the Impact of Compensation Management on Organizational
Commitment (A Case Study on Nigerian Bank of Industry Limited)

I, Ohunene Salima Ahmad, an MSc. Management student of Nile University Nigeria, Abuja,
under the supervision of Dr. Daniel Cross, humbly writes to invite you to participate in my
research study via a written interview.

My topic “The Impact of Compensation Management on Organizational Commitment” is
aimed at examining the importance of an effective compensation management system and to
explore how compensation motivates/demotivates and encourages/discourages the employees
to remain loyal to the organization. This study also seeks to determine how compensation
management at Nigerian Bank of Industry Limited influences the organizational commitment
of the employees.

Please spare a few minutes of your time to answer the following questions. All personal
information provided by the respondents during the course of the interview will be treated as
confidential.

Many thanks,
Ohunene Ahmad.

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SECTION A
Employees’ General Information
Please tick as appropriate

a) Sex: Male Female

b) Marital Status: Single Married Divorced Widowed

c) Designation: Junior Middle Senior

d) How long have you worked at BOI?
Less than 1 yr 1 – 5 yrs 5 – 10 yrs More than 10 yrs

SECTION B
Forms of Compensation at BOI
FORMS OF COMPENSATION Strongly
Disagree
Disagree Neutral Agree Strongly
Agree
Direct Compensation
1. Financial rewards are reflective of
individual skills and efforts

2. Financial rewards compares favorably
to that provided in similar firms

3. Financial rewards includes allowances
for extra duties and responsibilities

4. Financial rewards are reviewed to
accommodate market changes

5. BOI takes care of taxes before
employees’ base pay is provided

6. Profit sharing is done in the bank at the
end of each year

7. I am satisfied with the financial
rewards I receive at BOI

Indirect Compensation
8. Non-financial rewards are adequate
enough to satisfy my needs

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9. Non-financial rewards compares
favorably to that provided in similar
organizations

10. Non-financial rewards includes
protection programs such as pensions
and medical insurance

11. Non-financial rewards at BOI provides
pay for time not worked e.g. sick leave,
holidays etc.

12. Non-financial rewards includes
services and perquisites e.g. company
car, low-cost meals etc.

13. I am satisfied with the non-financial
rewards I receive at BOI

SECTION C
Compensation Management at BOI
COMPENSATION MANAGEMENT Strongly
Disagree
Disagree Neutral Agree Strongly
Agree
14. BOI has a well-organized compensation
system

15. The existing compensation system is
applicable to all the employees

16. BOI communicates its compensation policy
to employees

17. BOI’s compensation recognizes skill, effort
and commitment

18. Job designation is essential in BOI’s
compensation management

19. I am satisfied with BOI’s compensation
management system

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SECTION D
Organizational Commitment at BOI
ORGANIZATIONAL COMMITMENT Strongly
Disagree
Disagree Neutral Agree Strongly
Agree
20. The rewards I receive inspires me to offer
more services to BOI

21. I wish to keep working in BOI in the next ten
years

22. I am happy and proud to work and serve at
BOI

23. I am comfortable participating in BOI’s
activities even without pay

24. My career advancement would suffer if I
leave BOI due to lack of training and devpt.

25. Equity in BOI’s compensation mgmt.
inspires me to commit

26. Good working relationships influences my
willingness to remain at BOI

27. I have enjoyed several benefits from BOI
that inspires me to work harder

28. I am satisfied with the overall management
of compensation at BOI hence, I want to
remain at BOI

Thanks for your participation.