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CHAPTER ONE

INTRODUCTION

Compensation can be defined as all of the rewards earned by employee in return for their labour. This includes; a) Direct financial compensation consisting of pay received in the form of wages, salaries, bonuses and commissions provided at regular and consistent intervals. b)Indirect financial compensation including all financial rewards that are not included in direct compensation and can be understood to form part of the social contract between employer and employee such as benefits, leave, retirements plan, education and employee services. c) Non-financial compensation; referring to as issues such as career development opportunities, opportunities for recognition as well as work environment and conditions in determining effective rewards, however, the uniqueness of each employee must also be considered.

People have different needs or reasons for working. The most appropriate compensation will meet these individual needs. To a large degree, adequate or fair compensation is in the mind of the employee. A good compensation strategy includes a balance between interval equity and external competitiveness. Compensation and benefits affects the productivity and happiness of employees as well as ability of your organization to effectively realize its objectives. It is to your advantage to ensure that your employees are creatively compensated and knowledgeable to their benefits. EQUITY:  Equity or fairness has been mentioned as a key component in creating a successful compensation policy. It can be defined in the following three ways; 1. Workplace equity refers to the perception that all employees in an organization are being treated fairly. 2. External pay equity exists when employees in an organization perceive that they are being rewarded fairly in relation to those who perform similar job in other organization  Internal pay equity exists when employees perceive that they are being rewarded fairly according to the relative value of their jobs within an organization. Perceived inequity or unfairness either external or internal, can result in low morale and loss of organizational effectiveness. For example, if employees feel they are being compensated unfairly, they may restrict their efforts in leave the organization, damaging the organization overall performance.  The research therefore intends to investigate compensation policy as means of attracting and retaining employees.

1.1   BACKGROUND TO THE STUDY        

The significance of maintaining a stable workforce in an organization cannot be over-emphasized. It enhances the organization reputation and brand and provides overall productivity, growth and profitability of the organization. High turnover of employees damages organizations operations professional human resources practice to enhance attraction and retention in the organization.One of such practice lies with compensation policy. Good compensation policy not only attracts new employees, it also enhances employee retention. Therefore, developing a good compensation policy is pivotal to the well being of the employee and the organization at large. There are member of components that need to be addressed when developing your compensation policy to ensure they align with your organizational strategy and objectives. One key to remember is that your compensation strategy must help to create the work culture you want. How your structure your systems and manage the internal and external equity issues will directly inform the culture of your organization. Developing a compensation policy is done by identifying, your goals and objectives, considering and retaining employee. Your emphasis on internal and external equity and whether performance is tied to increases, understanding what balance you want to achieve between direct salary and indirect benefit is critical to developing your overall total compensation approach. Therefore, this research seeks to investigate compensation policy as means of attracting and retaining employees.  

1.2   STATEMENT OF THE PROBLEM        

The problem confronting this research is to investigate compensation policy as means to attracting and retaining employees. Maintaining good compensation practice is fundamental to the well being of the employees and the organization as perceived in equality or unfairness, either external or internal can result in low morale and loss of organizational effectiveness.

1.3   RESEARCH QUESTION

1.  What are compensation and the nature of compensation plan?

2.  What constitute the nature of compensation policy of the organization?

3. What constitute the compensation policy required to attract and retain employees?

1.4  OBJECTIVES OF THE STUDY

1. The objective of the study is to provide a conceptual and analytical study in compensation policy.

2. To determine compensation policy required to attract and retain employees

3. To determine types of compensation plan and their effectiveness towards attracting and retaining employees

1.5   SIGNIFICANCE OF THE STUDY

1. The study shall provide a framework of effective compensation policy for attracting and retaining employees

2. it shall be of immense significance to managers, human resource personnel and entrepreneurs of business

3. it shall serve a reference source of information to various professional and students in personnel administration

1.6   STATEMENT OF HYPOTHESIS

1. H0 There is no relationship between compensation policy and employee and organizational effectiveness and efficiency

   H1 There is a relationship between compensation policy and employee and organizational effectiveness and efficiency

2. H0  The level of employees’ attraction and retention is low

    H1  The level of employees’ attraction and retention is high

3. H0 The impact of compensation policy in employee attraction and         retention is low

    H1  The impact of compensation policy in employee attraction and         retention is high.

1.7   SCOPE OF THE STUDY        

The study shall focus on compensation policy as means of attracting and retaining employees. It shall provide both a conceptual and analytical study of compensation and compensation plan and elucidate the structure of compensation policy towards attracting and retaining employees.  

1.8   DEFINITION OF TERMS        

DEFINITION OF COMPENSATION                

Compensation can be defined as all of the rewards earned by employee in return for their labour. This includes;

a) Direct financial compensation consisting of pay received in the form of wages, salaries, bonuses and commissions provided at regular and consistent intervals.

b)  Indirect financial compensation including all financial rewards that are not included in direct compensation and can be understood to form part of the social contract between employer and employee such as benefits, leave, retirements plan, education and employee services.

c) Non-financial compensation; referring to as issues such as career development opportunities, opportunities for recognition as well as work environment and conditions.

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