Employees are organizations’ key resources and the success or failure of organizations center on the ability of the employers to attract, retain, and compensation appropriately talented and competent employees (Armstrong, 2003). Most times, when organizations make enormous efforts to attract handfuls of employees and sustain them in the organization, compensation plays a significant role in attracting and retaining good employees especially those who give outstanding performance or unique skill which is indispensable to the organization (Lawler, 1990). Compensation is therefore considered as the most important factor for attracting and retaining the talent employees (Willis, 2000). In past studies, Allen, Shore and Griffeth (2003) reported that employers have to differentiate themselves from others through their compensation strategy in order to attract and retain quality employees. An organization’s ability to attract and retain staff is the two essential components of talent sustainability even though it has become increasingly more difficult for organizations to hire and retain qualified talent (Cotton & Tuttle, 1986).

In both developed and most developing countries, there have been several job satisfaction studies of which very few of them have been focused on the job satisfaction and retention of the university teachers in relation to their compensation packages. Organizations that have goals to achieve would require satisfied and happy staff in her workforce [4]. Importantly is the fact that for any university to take off and achieve its strategic goals would strongly depend on her capacity to attract, retain and maintain competent and satisfied staff into its employment. The university being an institution of higher learning that provides manpower needs to advance national development through both the public and private sector must itself be capable of ensuring adequate manpower planning and development she could therefore not afford to neglect need and essentials of workforce satisfaction especially their compensation packages [5]. The Nigerian universities could be classified according to their years of establishment thus: first, second, third and fourth generation universities. The first generation universities are the universities established in the country before the 1970’s. The second-generation universities are those universities established in the 1970’s. The third generation universities are those universities established either by the federal or state governments in the 1980’s and 1990’s, while the fourth generation universities are those universities established in the late 1990’s and 2000’s mainly by private individuals or organizations [6]. Universities whether private or public are training grounds for students doing the comprehensive courses in order to translate theory into practice. They conduct training in all kinds of programmes or disciplines. Both government and private sectors fund public and private universities respectively. Against this background, University lecturers are currently facing many challenges in form of inadequate infrastructure, lack of enabling research environment, disparity in salary and allowances; inconsistent policy implementation between Federal and State governments may well affect their levels of job satisfaction [7]. In addition to the above, the researcher also observed that unhappiness results from academics’ job structure and compensation ranging from lack of feedback regarding personnel evaluation reports, management emphasis on particular administrative style, workload, and lack of support from superior in terms of mentoring to salary package which further increased job dissatisfaction among employees. The above raises concern regarding the attitudes of educators towards their work and their levels of job satisfaction or dissatisfaction [8].

Compensation not only consists of financial but also non-financial compensations (Milkovich, Newman, & Gerhart, 2010). Compensation packages entail some basic features that tend to make employees satisfy on their job amongst which includes salaries, bonuses, incentives, allowances, promotion, recognition [9, 10]. All these have significant impact on employees’ performance [11]. However, to avoid wrong perception and controversy by the employees, compensation system must be clearly communicated to employees with job measurement which will drive the much needed performance in the employees [12]. The above raises concern regarding the attitudes of educators towards their work and their levels of job satisfaction or dissatisfaction [8]. Employees’ retention as independent variables can be influenced by other variables such as allowances, salary, incentives, fringe benefits, bonus etc. [12, 13]. On this basis, the study will analyse compensation as a retention strategy for firms (A case study of Lagos State Civil Service Commission)

1.2 Problem Statement

Referring to Amos and Weathington (2008) point of view, one of the biggest challenges for any organization is its ability to hire and retain staff. Both private and public sector organizations are experiencing this problem. Identifying factors that influence staff attraction and retention and then developing strategies to attract quality talent and to increase employee retention is essential. According to the researchers’ point of view, compensation is the main factor. However, Ling (2010) revealed that most of the researches that were conducted focused on financial compensation as wages, salary, bonuses, allowances, commissions which are used to keep, retain, and attract employees in a company and the impact of non-financial compensation was not given due consideration. From the literature, it has been found that only few organizations are aware about the aspects of non-financial compensation. There are only few researches conducted on nonfinancial compensation (Adeoti, & Isiaka, 2006; Bari, Arif & Shoaib, 2013; Nyaga, 2015; Tan, 2009). For this reason, some organizations are not able to apply the compensation system which includes non-financial compensations as they do not have the awareness and knowledge of non-financial compensation and the impact it has on the company (Yousaf, Latif, Aslam, & Saddiqui, 2014) in general and on employee attraction and retention in particular (Researchers’ assumption). This clearly explains the need for researchers to conduct this study on the influence of not only financial compensation but also non-financial compensation on retention as a way of filling this research gap and come up with providing a solution to such earlier cited organizations challenges.

1.3 Objectives of the Study

The main objective of this study was to identify the influence of compensation system on employee attraction and retention. Specifically, the study seeks to:

1. Evaluate the perception of employees on financial compensation.

2. Evaluate the perception of employees on non- financial compensation.

3. Examine the perception of employees on employee retention.

4. Examine the relationship between compensation system and retention.

5. Evaluate the impact of Salary and bonus on employees’ retention

1.4 Research Questions

The research questions include;

1. What are the perceptions of employees on financial compensation?

2. What are the perceptions of employees on non- financial compensation?

3. What are the perceptions of employees on employee retention?

4. What is the relationship between compensation system and retention?

5. What are the impacts of Salary and bonus on employees’ retention?


1.5 Research Hypotheses

While conducting this research, the null hypothesis to be tested was as follows:

HO: There is no relationship between compensation system and retention.

1.6 Significance of the study

It is vital for HR and management to address significant concern of the organization and build strategies around the issues. HR of the organization under research needs to redefine its retention strategies to achieve organizational goals and enhance organizational performance.

1.7 Justification of the Study

The reason for conducting this study was to determine if compensation system plays significant role in influencing retention in an organization. The study further identified that financial and non- financial compensation have influence on employee attraction and retention. Therefore, strategic interventions can be put in place by managers and leaders to ensure that skilled and talent employees are hired, and retained through adequate strategic compensation system.

1.8 Scope of the study

The study centers on compensation as a retention strategy for firms (A case study of Lagos State Civil Service Commission). Therefore, the respondents to be covered will be civil servants in Lagos.

1.9 Limitations of the study

This study entailed investigation into Compensation as a retention strategy for firms (A case study of Lagos State Civil Service Commission); a lot of constraint were encountered in form of data collection, lack of adequate information from the respondents. The main limitation of this survey was the typical reluctant attitude on the part of some respondents to fill the questionnaire or grant interview. In some cases, some respondents expect to be paid for the use of their time and knowledge; if otherwise, they were very reluctant in giving the required information. Some hoard information in keeping with the oath of secrecy. In spite of repeated assurance of confidentiality most of them fear the loss of their job and some were too busy to grant interview and fill the questionnaires correctly.