ABSTRACT
This study sets out to examine the impact of contingent pay on
employee performance in the banking industry. Probabilistic sampling
technique has been used for the study. Four research questions and
three hypotheses were formulated to guide the study. To achieve this,
data were collected through a well-structured questionnaire from five
banks in Onitsha Metropolis. The data were presented in frequency
tables and analyzed using chi-square test statistics. The result of the
analysis showed that, there is a significant relationship between
contingent pay and employee performance, that contingent pay has
impact on the employee performance. Employee performance has
greatly improved since the introduction of performance-based pay. The
main recommendation of the study is that organizations should
introduce performance-based pay in order to reduce their staff cost
instead of mass retrenchment. They should also seek the input of the
employee in setting performance standards.
ACKNOWLEDGEMENT
I wish to express my profound gratitude to God for the grace shown to
me during the period of this research work.
Special thanks to my Supervisor, Dr. H.E. Osisioma for her patience
while reading this work and for injecting in me the spirit of hard work
and self-confidence.
I am not forgetting people like Sir Nnamdi Udemadu, Mrs. Tessy
Obiakonwe and all the lecturers in Business Administration Department,
Nnamdi Azikiwe University, Awka.
Finally I thank Uche Onyeakazi for typing this work.
TABLE OF CONTENTS
Pages
Title Page – – – – – – – – – – i
Approval Page – – – – – – – – – ii
Certification Page – – – – – – – – iii
Dedication – – – – – – – – – – iv
Abstract – – – – – – – – – – v
Acknowledgement – – – – – – – – vi
Table of Contents – – – – – – – – vii-viii
List of Figure – – – – – – – – – ix
List of Tables – – – – – – – – – x
CHAPTER ONE
1.0. INTRODUCTION
1.1. Background of the Study – – – – – – 1
1.2. Theoretical Framework – – – – – – – 3
1.3. Statement of the Problem – – – – – – 4
1.4. Objective of the Study – – – – – – – 5
1.5. Research Question – – – – – – – 5
1.6. Hypotheses- – – – – – – – – 6
1.7. Significance of the Study – – – – – – 6
1.8. Delimitation and Limitation of the Study – – – – 7
1.9. Definition of terms and concepts – – – – – 7
CHAPTER TWO
2.0. Literature Review – – – – – – – – 9
2.1. Introduction – – – – – – – – 9
2.2. Contingent Pay – – – – – – – – 10
2.3. Types of Contingent Pay – – – – – – 15
CHAPTER THREE
3.0. Research Design and Methodology – – – – – 57
3.1. Research Design – – – – – – – – 57
3.2. Area of Study – – – – – – – – 57
3.3. Population of they Study – – – – – – 57
3.4. Sample and Sampling Techniques – – – – – 58
3.5. Source of Data – – – – – – – – 58
3.6. Instrument for Data Collection – – – – – 58
3.7. Validity and Reliability of the Instrument – – – – 59
CHAPTER FOUR
4.0. Data presentation, Analysis and Discussion of Results – 60
4.1. Introduction – – – – – – – – – 60
4.2. Descriptive Analysis of the organization – – – – 60
4.3. Data Analysis – – – – – – – – 72
CHAPTER FIVE
5.0. Summary of findings, conclusion and Recommendation – 83
5.1. Introduction – – – – – – – – 83
5.2. Summary – – – – – – – – – 83
5.3. Summary of Findings – – – – – – – 85
5.4. General Conclusion – – – – – – – 86
5.5. Recommendations – – – – – – – 86
Appendices – – – – – – – – – 88
Sample of Questionnaires – – – – – – 91
Bibliography – – – – – – – – 92
LIST OF FIGURES
Figure 2.5.1 Line of sight model 14
Figure 2.6.1 Contribution pay Matrix 22
Figure 2.6.2 Contribution thresholds in a pay range 24
LIST OF TABLES
Tables
2.6.1 Pay for performance Compared with
pay for contribution – – – 24
2.6.2. Feature advantage and disadvantage of
Different bonus schemes – – 31
2.6.3 Key performance bonus schemes – 55
4.2. Percentage Frequency distribution(sex) 72
4.2.1. Frequency distribution of Respondents
According to Age – – – 72
4.2.2. Percentage frequency distribution of
Respondents according to year of
experience – – – – – 73
4.2.3. Analysis on Questionnaire 4 – – 74
4.2.4. Analysis on Questionnaire 5 – – 75
4.2.5 Analysis on Questionnaire 6 – – 76
4.2.6. Analysis on Questionnaire 7 – – 78
4.2.7. Ch-Square test on Questionnaire 7 – 79
4.2.8. Analysis on Questionnaire 8 – – 80
4.2.9. Chi-Square test on Questionnaire 8 – 81
4.2.10. Analysis on Questionnaire 9 – – 82
4.2.11. Chi-Square test on Questionnaire 9 – 82
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CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND OF THE STUDY
In the 80s, there were great similarities between banking job
and civil service. Bankers were not given targets and can stay in
the office, drink coffee and attain to their customers. Staff rarely
go out prospecting except few occasions they are mandated to
recover bad loan. Customer on their own accord went to bank to
open accounts. Grades were determined by the year of experience
and qualifications. Salary was based on grade and everybody in
the same grade received the same salary irrespective of one’s
competence, skill, knowledge, and contribution. Nepotism was the
order of the day. The banking environment was not really
challenging. Once the people have confidence in the bank, the
bank would have all business. Competition was not fierce as it is
now and the cost of doing business was not so high. There was no
need to invest huge funds in software and other security gadgets.
The sophisticated crimes and fraud witnessed today in banking
industry were not so then. The challenging investment
opportunities were not there. But a lot have change in 21st
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century. The business environment has become turbulent and
complex. For managing in turbulent environment, there is a
requisite variety imperative, which states that the complexity and
subtlety of the firm’s response must match the complexity and
subtlety of the environment (Roy Ashby, 1956). The requisite
variety theory can be seen as a contingent theory
(Onwuchekwa, 2000)
In order to survive in such unpredictable, turbulent and
complex business environment, banks have adopted measure for
survival. Hence the introduction of contingent pay packages. Every
business organization is in business to either maximize profit or
minimize cost. It is a fact that all employees do not have the same
education, experience, strength, skills, competence, motivation,
passion or attitude. Some organization could no longer bear the
wage bill but still understand the importance of having a satisfied
/motivated workforce.
Banks and some other organizations in a strategic move for
survival, have embarked on a search for motivational tools that
have the capacity to sustain high performance, reward performers,
punish non-performers and reduce staff cost. Hence this has
informed the choice of the title of this study.
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1.2. THEORETICAL FRAMEWORK:
The equity theory of motivation forms the theoretical framework
for this study. This theory was propounded by Adam Stacy J
1963 It states that a major input into job performances and
satisfaction is the degree of equity (or inequity) that people
perceive in their work situation. It is based on the assumption that
a major factor in job motivation is the individual’s evaluation of the
equity or fairness of the reward received. Equity can be defined as
a ratio between the individual’s job inputs such as effort or skill
and job reward such as pay or promotion (Stoner, Freeman and
Gilbert, 2005). Most discussions and research on equity theory
focus on money as the most significant reward in the work place.
People compare what they are being paid for their efforts with
what others in similar situations receive for theirs. When they feel
inequity exist, a state of tension develops within them which they
try to resolve by appropriately adjusting their behaviour (Robins,
2000).
This research is based on this theory since every staff in the
bank is rewarded based on their skill, knowledge, effort,
education, experience competence and performance.
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1.3. STATEMENT OF PROBLEM
Banks are not charitable organizations and every staff must add
value and must earn his/her pay. They must justify their
continuous stay with the bank. Employees’ experience, education,
skill and competence are not the same and they should not be
rewarded equally. The cost of doing banking business in Nigeria is
so high and banks have observed that greater percentage of their
cost is staff cost. The bank cannot afford to spend their hard
earned profits on who are contributing little or nothing to their
profit. In recent times, a bank in Nigeria announced that most of
its business offices are making loss and can no longer bear their
current wage bill. As a result, a lot of staff were retrenched. Right
sizing could demoralize other staff; expose bank’s technology and
security software to competition and fraudsters. It could affect the
bank’s image. Most banks have resorted to a system of
contingent pay. A payment structure that is based on
performance, contribution and competence. Work is not inherently
distasteful. People who contribute meaningfully to the
accomplishment of the bank objectives should be fairly rewarded.
Staff who are lazy, who avoid responsibilities and lack passion,
ambition or creativity should be made to rewrite their scripts.
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1.4. OBJECTIVE OF THE STUDY
The major objective of this study is to find out what an
organization stands to gain or lose when the issue of contingent
pay is not properly addressed. To do this, we hope to address the
following:
a. To identify various performances based rewards used in banks
b. To investigate the impact of contingent pay on employee
performance
c. To find out how contingent pay acts as motivational tool
1.5. RESEARCH QUESTIONS
The following research questions are formulated for this
study:
1. Is your annual pay package tied to your performance on the job?
2. Do you have an opportunity to buy the bank’s share with a lowinterest loan for staff?
3. Is the bank’s pay scheme fair and devoid of bias?
4. Has performance improved since the introduction of performancebased pay?
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1.6. HYPOTHESES OF THE STUDY:
H0: Employee’s performance is not directly proportional to
employees’ reward.
H1: Employees performance is directly proportional to employee
reward
H0: Contingent pay does not motivate staff to greater
performance
H1: Contingent pay motivates staff to greater performance
H0: Contingent pay does not improve employee’s performance
H1: Contingent pay improves employee’s performance
1.7. SIGNIFICANCE OF THE STUDY
The significance of this study is to reveal the relationship between
contingent pay and performance and to expose the managers to
most effective contingent pay that can be used in their
organizations. The findings of this research will be useful to
managers in various organizations, students of tertiary institutions,
lecturers in tertiary institutions, practitioners of other fields
requiring good working knowledge of the topic.
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1.8. DELIMITATIONS AND LIMITATIONS OF THE STUDY
To treat this problem as a whole will be too much for the
requirement of this work. Therefore, we will study United Bank for
Africa (UBA) Plc, First Bank of Nigeria Plc, Zenith Bank Plc and
Union Bank of Nigeria considering the time available and cost
implication for this research. This work will be restricted to
performance related pay contribution related pay profit sharing
recognition schemes and Employee and executive share schemes.
We will also limit the scope to the period between 2000 to 2009.
In a research work of this sort, there are many constraints;
the bank are staff a re reluctant to air their views pointing out that
they are constrained by the oath of secrecy which they took before
their appointment. A lot of funds are needed for typing,
transportation, and meeting other demands of this work. Also the
time available for this work is short and it is not easy combining
the research and the demanding task of being a banker.
1.9. DEFINITION OF TERMS AND CONCEPTS
i. Contingent pay is the payment of cash to individuals in the form of
performance pay or bonus on the basis of their own performance
or that of their team or organization.
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ii. Performance Related Pay (PRP) schemes relate to a proportion of
pay to indicators of performance such as quality, flexibility,
contribution to team work and ability to achieve target.
iii. Contribution related pay is a process for making pay decisions that
are based on assessments of both the outcomes of the work
carried out by individuals and the level of competence and
competency that has influenced these outcomes.
iv. Bonus is a cash reward for past performance
v. Team is defined as two or more people who interact and influence
each other towards a common purpose.
vi. Motivation is the factor that causes, channels, and sustains an
individual’s behaviour.
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