Unraveling the Impact of Differentiated Pay Systems on Employee Performance: A Comparative Analysis of Performance-Based and Skill-Based Compensation Strategies

Abstract

The study delves into the realm of compensation management in Nigerian organizations, focusing on the impact of performance-based and skill-based pay systems on employee performance. It addresses the challenges faced in effective compensation management and the need to bridge the gap between compensation strategies and their effects on employee performance in the Nigerian context. Employing a survey research design, the study gathered data through structured questionnaires distributed among employees in selected private-sector organizations in Cross River State, Nigeria. The survey involved demographic information collection and respondents' perceptions regarding performance-based and skill-based pay systems. The findings revealed a positive reception of both performance-based and skill-based pay systems among Nigerian employees. The majority held favorable views, indicating that performance-based pay effectively motivates employees and links compensation to productivity. Similarly, skill-based pay was perceived as recognizing and fostering skill development among the workforce. Statistical analyses revealed strong correlations between these pay systems and employees' commitment (performance-based) and creativity (skill-based). The study highlights the significance of tailored compensation systems in Nigerian organizations to enhance employee motivation, productivity, and skill development. It recommends the adoption of innovative and context-specific compensation structures to better align with local workforce dynamics, emphasizing the need for strategies that motivate, reward, and promote skill acquisition.