Abstract:

The classical concern of understanding the relationship between compensation and labour productivity in a political economy has been on for quite an age. The current study examines the effect of compensation on labour productivity within the Nigeria context using time series data from 1990 to 2016. The research work is premised on the theoretical underpinning of Vroom’s expectancy theory of motivation which opines a direct relationship between labour productivity and motivation. Adopting the bounds testing for co integration approach and error correction model within the autoregressive distributed lag (ARDL) framework, the outcome of the study reveals that not only does employees’ compensation have a positive effect on labour productivity but that its effect is also significant. Further evidence shows the existence of a wide gap between the variables indicating inequality between compensation and labour productivity with the latter outpacing the former. Findings also indicate the existence of a long run relationship between labour productivity and the adopted explanatory variables in the study model. Error correction results show full restoration of long run equilibrium for any short run disturbances. On the basis of the emanating outcomes, the study suggests the pursuance of policies that will enhance compensation growth in tandem with that of productivity in order to increase living standards, and also to encourage employees’ further commitment to work.