The impact of effective salary administration on nigerian economy

Nuhu Bamalli Polytechnic Multidisciplinary Journal 2: (2) 109-121 Garba, (2017)
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THE IMPACT OF EFFECTIVE SALARY ADMINISTRATION ON NIGERIAN
ECONOMY
Garba HarunaWase
Department of Public Administration
School of Management Studies
Nuhu Bamalli Polytechnic Zaria.
Email: g_haruna@yahoo.com
ABSTRACT
In Nigeria the issue of salary administration has largely remain controversial. Salary and wage
review commissions were set up by government to improve better conditions of service but the image
of the public service over the years has not keep pace with economic realities of the situations.
These situations have resulted in the menace of strike and corruption leading to loss of glory of the
public service. The paper examines strategies in salary administration in the public sector. The
data are largely secondary based on reports from wages and salary commissions respectively. The
paper concludes that for the public service to be efficient and effective, government should as
a matter of concern revisit the issue of salary increase that will enable to address the current
economic realities of the situation which will generally make the average Nigerian worker to leave
comfortably within the minimum living wage.
Keyword: Salary Administration, Nigerian economy, Wages and Salary, Public sector

110
INTRODUCTION
Salary administration is a broad and complex topic in personnel administration. In fact, the
management of employee compensation generally and in particular, wages and salaries, present
complex problem to a lot of organizations, particularly the public sector organisations which are
highly complex in nature. Flippo (1980) explains further that one of the most difficult functions
of personnel management is that of determining rates of monetary compensation. Not only is it
one of its most complex duties, but also one of the most significant to both organization and the
employee.
The management of this very important monetary aspect of employee’s compensation is what is
referred to as wages and salary administration. Wages and salaries constitute the money paid to
employees as part of the compensation for their labour. The payment of wage and salaries is a
reflection of a transaction between the employee and the employers involved in the employment
contract. The payment is very important to both the employees and employers. For the worker,
pay has economic, psychological, social and political values. Economically, pay serve as a means of
obtaining both basic necessities and luxuries of life. Psychologically, it induces desired behaviour,
motivates and acts as an anxiety reducer. Socially, it serves as a determinant for social ranking.
While politically, it confers the use of power and influence on the worker. Salary/wages is
therefore, the most tangible thing an employee takes away from his organisation on a regular basis.
Where the pay refuses to come, the employee becomes frustrated and the consequence is agitation,
leading to union activities that may climax in strike actions or lock-out amongst other things.
To the employer (management), wages/salary is important because it often constitutes the greatest
single cost of doing a business. Thus, a systematic means for compensation is very necessary in
every organization be it public or private. The need to administer, manage and control
wages/salaries is very fundamental and inevitable. This is to ensure equity, both within and
outside the organization. Sound and improved salary administration methods in either public
or private sector can result in a more equitable compensation, encouraging and satisfying the
ambitions of employees; in the acceptable valuation of specialized services and the reduction of
wage exploitation (Ngu, 2005).

111
Statement of the Problem
Within the past three decades, there has been more than ten wages and salary commissions at
various point in time charged with the responsibility of wage determination in the public sector.
Despite all these, the agitation for higher pay from the employees has continued to be on the
increase. The problem is further compounded by the employee’s desire for adequate and equitable
compensation. This entails comparison and competition both internally and externally. The
question is how management in both public and private sector can harmonize salary so as to
correspond to relative significance of jobs? This means that there is the need to introduce a
systematic way to establish and maintain pay on the basis of the relative worth of jobs. Another
major problem is that of wage structure which should be base in such way that it will be
attractive enough to retain capable and efficient workers. However, the reverse is mostly the case
as many organizations pay peanuts to their workers thereby encouraging lay-offs and transfers.
Aim and Objectives
The General aim of this paper is to examine the trends of salary administration/compensation in
the Nigerian public sector. Following this, the paper has the following specific objectives to:
 review relevant literature on salary administration with a view to examining the factors
involved in determining wages and salaries and other benefits,
 appraise the aims and objectives of salary administration in Nigeria public sector,
 identify the problems related to salary administration in Nigeria with a view to offering
recommendations towards solving some of the identified problems, and
 appraise the impact of salary administration on the Nigerian economy.
CONCEPTUAL CLARIFICATION, LITERATURE REVIEW AND THEORETICAL
FRAME WORK
Conceptual Clarification
Wages and salary administration is one of the most important aspects of personnel administration.
It covers economic reward in form of wages and salaries and as well as in various forms of non-
economic wages payment known as fringe benefits. Wages and Salaries are often used
interchangeably even though the terms are slightly different in Common usage. The term wages

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usually refers to an hourly rate or pay which is usually calculated according to the number of hours
worked. On the other hand salary which is usually calculated on a weekly, monthly or annual
basis is used to designate pay to white collar employees. Banjoko (1996) is of the view that wages
and salaries constitute money paid to employees as part of the compensation for their
labour. The payment of Salaries and wages is a reflection of a transaction between the
employees and the employers involved. Flippo (1980) explains further that one of the most
difficult functions of personnel management is that of determining rates of monetary
compensation. Not only is it one of the most complex duties, but it is also one of the most
significant to both organization and the employee. The need to administer, manage and
control wages/salaries as a means for compensation is to ensure equity. Equitable compensation
according to Ngu (2005) entails comparison and competition both internally and externally.
Accordingly, Robert (1976) opines that a sound dispensation plan should be orderly, systematic,
rational and equitable. A sound dispensation plan must be established as thus:
a. In a systematic way
b. With proper attention to the prevailing levels of the pay.
c. In the community with proper regard to the relative work of the various kinds of positions.
d. On the basis of accurate and current information as to the kinds and level of work
performed by each employee.
e. In a manner that provides consistent and fair treatment of all employees, free of
favoritism, partiality or discrimination for improper reasons.
From the foregoing presentation, it could be seen that the subject matter of salary/wages
administration is not only to ensure equity but should be able to increase the morale of employee.
Thus, a sound wage structure should be able to reduce inequalities among employee earnings so
as to motivate people to work and to enable management to have a centralized control over the
largest item of cost i.e. wages and salaries.
As Nwachukwu (2000) and Atchison (2003) observe, wages and salaries constitute a significant
part of the overall cost of operations, and in some organisations wages and salaries constitute over
50 percent of the operating costs.
Breach (1980), observes that personnel management has recommended the following general
principles to be followed by management for a sound wage and salary scheme:

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i. Differences in wage should be based on differences in job requirements and job
conditions.
ii. The general level of wages and salaries should more or less correspond to that
prevailing in the labour market.
iii. Jobs should be clearly distinguished and attach a wage rate and a person assign toboth
the job and the rate.
iv. Equal job - equal pay should be the guiding principle.
v. There should be an equitable means of recognizing and remunerating individual
differences in ability and contribution.
vi. Procedures for hearing and acting on complaints about wages should be clearly
established.
vii. The employees and the unions should adequately be informed about procedures to
establish individual wages. In other word, secrecy should have no place in such an
exercise and that each employee should know where he stands in the pay structure.
The basic principles outlined above are the ones usually adopted, refined or expanded to
suit particular instances when dealing with salary/wage administration. The history of wages
and salary administration in Nigeria can be traced to the numerous agitations by Nigerian
employees/workers against discrimination in unlimited wage reviews either through
committees or commissions. These commissions/panels could not however be fully discussed rather
they are itemized as follows:
1. The Hunt Committee 1934
2. The Bridges Committee 1941
3. Tudor Davis Commission 1945
4. The Harragin Commission'1946
5. The Miller Committee 1946-47
6. The Gorsuch Commission 1954 – 55
7. The Mbanefo Commission 1959
8. The Morgan Commission 1960
9. The Morgan Commission 1964
10.The Adebo Commission 1970 – 71
11.The Udoji Commission 1974

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12.The Cookey Commission 1981
13.The Onosde Commission 1981
14.TheAdamolekun Panel 1983
15. The Abdulsalam’s administration 1999
16. Obasanjo’s administration 2002 & 2003
The mandate of most of these committees above was to harmonize the proliferation of salary
structure in the public sector, which had varying degrees of minimum and maximum entry
points and wide disparities in allowances and fringe benefits among various establishments.
Some of these committees recommended the harmonization of public service salaries in order
to promote industrial harmony and specifically recommend harmonized remuneration of
federal public office holders for the executives, the legislative and the judicial arms of the
public service. Also the committee noted the need to establish a realistic minimum wage
which would adequately address the cost of living as well as the basic needs to the least
paid worker in the public service, bearing in mind the need to enhance workers'
productivity and availability of resources.
In line with the foregoing recommendations the (then) head of state, General
Abdulsalam Abubakar increased the salaries and allowances of civil servants in early 1999,
although the allowances were later reduced due to its fiscal implications. The Obasanjo’s
administration had also effected substantial increase in the salaries and allowances of
workers in the public service. The first increase was in 2002 and the latest is the
monetization package whose implementation started in 2003 and ongoing across the public
service. In spite of the increases, however, morale and productivity levels in the public
service are still very low.
Theoretical Framework
The marginal productivity theory which is also known as the classical or traditional free market
competitive model of wage determination was used in the course of writing this paper so as to
explain the phenomenal trend of salary administration in the Nigerian public-sector.
The marginal productivity theory postulates that wages are market determined through the inter-play

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of supply and demand. It is also based on the assumptions of consumer sovereignty, individual
utility and profit maximization, perfect competition and economic efficiency among other things.
The theory is further based on two major propositions/assumptions.
1. Employers will continue to hire labour as long as they can profit from doing so up to a point
where the cost per unit of labour equals or exceeds the next contribution of that labour to
the firm's revenue. Put differently, the employer will stop employing more workers where
the value of the contribution of the most recently employed worker is equal to his wages.
2. Competition among employees seeking to maximize their profits assumes that they will bid
wages up to the value of the marginal contribution of that class of worker to the firm's
output. The process is depicted diagrammatically as shown below:
Figure. 1: Marginal Productivity Theory of Wage Determination
The demand curve for labour sloped negatively, implying that more labour will be employed at a
lower wage rates; The supply curve sloped positively, which means higher wages rates will be
required to induce additional workers to become employed. At point "E' where the supply and
demand curves intersect, is regarded as the “equilibrium rate of the competitive wage". At this
point the wage rate is we; quantity labour supplied equals the quantity that employers demand. At
point W1which is below the equilibrium, the quantity of labour demanded exceeds the quantity

116
supplied. The competition among producers will drive up the wage rate until it rises to equilibrium
level at We. At W2, which is higher than the equilibrium wage rate the supply of labour exceeds
the demand. The quantity of labour "ab" depicts the extent of "involuntary unemployment"
(where more workers are willing to work at the going wages rate than employers are willing to
engage). Hence, competitive pressure among worker will force the wage rate down to We. At
We which corresponds with Qe represents equilibrium, wage rate indicating full
employment. At this point all those willing to work will be able to secure full employment so
that there is no involuntary unemployment.
The marginal productivity of wages is however limited for so many reasons. Firstly, the theory
is more applicable to western economies and therefore has little relevant to developing
economies where institutional frictions often impede the operation of market forces.
Secondly, collective bargaining adds to the limitations of marginal productivity theory as an
explanation for wage determination and wage differentials. At this point it is important to note
that no single theory or theories can exclusively explain wage determination in a particular
society, community or industry. Therefore the theory help to explain some factors that affect
wage levels, wage differentials or employee compensation scheme. It is also equally important
to note that these theories are influence by several other variables and factors either identified
in which we term as determinants of wages and salaries in a particular organisation,
environment or community.
Objectives of Salary Administration
In the same vein compensation programmes or salary administration tend to aim at achieving
certain objectives. These objectives are as follows:
1. Wages/salary administration is aimed primarily at attracting, motivating and retaining
employees. An organization’s level of pay is a major attracting factor to potential
employees. Thus, pay serves the labour market function of allocating people among
organisations according to perceived attractiveness of jobs as expressed by compensation
packages.
2. With carefully packages compensation scheme done through job evaluation, management
can control salary scales, employee classification procedures, thus controlling labour costs.

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3. The goal of salary administration is to build employee loyalty and commitment
to the employers and consequently increase job satisfaction and reduce labour turnover,
absenteeism and other grievances which could arise if the pay level is not competitive.
4. The first objective assumed that, wages and salaries improve the morale of employees
which in turn improve productivity; in other words pay, some scholars argued that it is
a motivator. Thus, financial reward is a major factor in attracting individuals in an
organization, persuading them to remain, and inducing them to contribute positively
towards the achievement of corporate goals. Thus, to achieve these objectives
organizations should follow three basic principles in wage and salary administration as
follows:
a) Achieve equity in the pay for similar jobs and consistency in the differentials that
exists between different levels of jobs in accordance with their relative value.
b) Provide not only for fairness in .the operation of the salary system but also for
staff/employee to be convinced that the system is fair.
c) To ensure that the salary policies are consistent with the requirements of the
government and with the public interest.
According to Ngu (2005) the major essence of capitalist economy is to accumulate huge
profits at a lower cost per unit i.e. by beating down the cost of the production as lower as
possible. This according, to him implies that the capitalist's economies price labour. This
therefore calls for machinery for the labour capital relation which can be described as salary
administration.
The Impact of Salary Administration on Nigerian Economy
Since Nigeria is a developing country, the challenges of economic growth will always
affect government policies and programmes. On the order hand however, workers
agitation for improved condition of service including effective all- embracing salary
regime, must not be disregarded. Consequently, among the numerous priorities of
government, public sector workers salary and its administration should be a matter of
great concern to the government.
Real wages have continued to maintain a declining trend, in spite of the various efforts

118
made by the government to keep pace with economic realities. Though the reasons
for this are numerous, the drivers are the inflationary trends in the country and the
lack of a well-structured and effective pay review mechanism for adjusting pay in line
with certain factors such as the consumer price index. Hence, while salaries may be
sufficient at a point in time, due to government's non-responsiveness to the
environment, developments outpace the value of take home pay, leading to agitations or
dissatisfaction among workers. Also, the lack of performance management systems, poor
linkage between performance and pay and between pay increases and productivity is
another factor affecting pay inequality in the public sector (FGN, 1979).
Finally, the proliferation of different and numerous allowances paid out to staff have
resulted in a situation where governments are unable to ascertain its total wage bill. However,
to an effective salary administration, other factors like job design, job analysis, job description, and
job evaluation systems have to be put into consideration. The process of obtaining job-facts can be
obtained through job-analysis. The duties, responsibilities'; and job conditions can be found
through job- description, Job specification will state the qualities of human resources required to fill
the job. The assigning of a relative value or score to each job is done through job rating. In job
evaluation, the above information is used for assigning monetary values. To each job classifying all
employees under proper job title will require the use of the content of the work they actually
perform. The present minimum wage of N18, 000 was enacted in 2011. Recently, they organized
labour made up of the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC),
proposed N56, 000 as the new minimum wage. However, the Federal Government proposed
N45, 000 minimum wage with conditions. These conditions are: the reduction in the number of
Civil Servants and the merging of Ministries, Departments and Agencies.
One of the major motivating factors is the salary. Workers compensation includes salary
administration and the management of fringe benefits. Salary administration is both an auxiliary and
lubricant to manpower planning development and utilization. As workers get paid, they have the
economic power to buy goods and services. It is the multiplication of these economic activities that
grows any economy since money is in the hands of the majority of the people (Ubeku, 1975).
Consequently, this affect the living standard of the workers and business flourishes because
government is a major employer of labour. By so doing the country’s Gross Domestic Product

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(GDP) and per capita will be enhanced and poverty eventually reduced. That is why whenever
salaries of public sector workers are not paid economic activities will be adversely affected and as
soon as these workers get their salaries the effect is almost spontaneous in terms of buying and
selling of goods and services.
FINDINGS
The research found out that in spite of the review of salaries and wages over the years by
successive administrations, the civil servants are yet to appreciate the efforts made by the
government. This is born from the fact that the wages paid hardly meet the needs of the
workers. Eighteen thousand naira is the present minimum wage which was reviewed more
than five years ago cannot be said to be relevant in today’s economic situation. The value
of the naira has depreciated to almost N300 to $1 and the soul major revenue earner of the
Nation, oil sells for less than $40 since the beginning of January 2016.
Therefore, salary and wage administration in Nigeria has impacted greatly on the
economy, as peoples’ spending ability has dropped, market men and women cannot sell
their wares, could not even get their salaries regularly, as governments of about 27 states
can’t meet their salary and wage obligation to their workers. These have great
consequences to the economic indices of the Nation.
CONCLUSION AND RECOMMENDATIONS
Conclusion
The issue of salary administration in Nigeria has remained very controversial since independence.
This is seen clearly from the various salary and wages review commissions set up by the federal
government at various points in time. These commissions’ recommendations were either not
implemented or were partially implemented or totally ignored: thereby paving way for the setting
up of another review commission as the case has been. These resulted in labour unrest, strike,
and demonstration by workers in the public sector and have a negative impact on the economy.

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Recommendations
In view of the above the following suggestion are recommended;
1. As a matter of concern the government should revisit the issue of salary
administration with a view to addressing the issue so as to reach a relatively acceptable
position for both employees and employers in the public sector. This will go a long way in
addressing the proliferation of so many commissions or committees for the purpose of
review.
2. There is the need for government at all levels to ensure coordinated efforts towards a
better condition of service if the issue of workers agitations for higher pay is to be
minimized.
3. An efficient and futuristic salary and wages administration mechanism should be put
in place.
4. Salaries of public sector workers in the three tiers of government, i.e. local, state, and federal
be paid as at when due. This will greatly enhanced their productivity, encourage spending,
and eventually impact positively on the economy.
REFERENCES
Atchison, T. J., (2003). Wage and Salary Administration in Personnel Administrator.
BanjokoS. (1996): Human Resource Management. An Expository Approach.
Beach. D.S. (1980): Personnel: The Management of People at Work. Macmillan
PublishingCo. New York.
Flippo, E.B. (1980): Personnel Management. London McGraw Hill International
Company.
Federal Government of Nigeria (FGN) (1979) Fourth national development plan of Nigeria
(1980-85); Federal Government Printers, Lagos.
Ngu, S.M. (2005): Personnel Management in Nigeria; Principles and Practice.

121
Nwachukwu,C. C. (2000). Human Resources Management. University of Port Harcourt
Press, Port Harcourt.
Ubeku. A (1975): Personnel management in Nigeria; Ethiope publishing company, Benin City.

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