CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Human resource (HR) practices are the guidelines, rules and procedures an organisation uses to manage its workforce, from recruitment and training to compensation, performance evaluation and career development (Mebom, 2022, as cited in Maduabuchi & Udeh, 2024). When these practices are well designed, they help align employee behaviour with organisational goals and encourage commitment to the firm. Retention is the practical test of that alignment: it describes an organisation's ability to keep valued employees over time, and its opposite, employee turnover, describes the rate at which staff leave and must be replaced. Turnover is usually expressed as a percentage of the workforce and covers both voluntary exits, such as resignations, and involuntary ones, such as dismissals (Maduabuchi & Udeh, 2024). In its simplest form it can be calculated as:

Turnover rate (%) = (number of separations in the period ÷ average number of employees in the period) × 100

The literature points to a consistent set of reasons why high turnover is costly. Reviewing recent studies, Maduabuchi and Udeh (2024) note that departures disrupt workflow and continuity, lower the morale of remaining staff, and create direct expenses for recruiting, onboarding and training replacements. They also create less visible losses, including lost knowledge, strained working relationships and weakened employer branding (Diana et al., 2019, as cited in Maduabuchi & Udeh, 2024). Counting the full cost of an exit is therefore a useful way of judging how much an organisation should be willing to invest in keeping its people.

Why employees leave is equally well documented. Limited opportunities for growth, ineffective promotion practices, inadequate welfare provision and poor work-life balance have all been linked to higher turnover (Awolusi & Jayakody, 2021, as cited in Maduabuchi & Udeh, 2024). Pay is a recurring factor. Studies from several settings report that satisfactory compensation lowers employees' intention to leave: examples include Nigerian banks (Nwakanma & Ikeije, 2021, as cited in Maduabuchi & Udeh, 2024), commercial banks in Jordan (Aburumman et al., 2020, as cited in Maduabuchi & Udeh, 2024) and banks in Bangladesh (Khatun et al., 2023, as cited in Maduabuchi & Udeh, 2024). The evidence is not uniform, however. Some studies find that compensation has a strong positive effect on retention (Hassan, 2022, as cited in Maduabuchi & Udeh, 2024), while another, based on corporate records at IBM, reports a negative effect (Okbagaber, 2019, as cited in Maduabuchi & Udeh, 2024). These mixed results suggest that the link between pay and retention depends on context and deserves local testing.

The banking sector in Nigeria is a suitable setting for that test. Recent work on Nigerian banks consistently finds that remuneration matters for retention. Obaze and Samikon (2022) report that compensation has a positive and significant effect on the retention of entry-level employees in Nigerian commercial banks. Jaja (2023) finds that deferred benefits, such as pension and long-term incentives, are significantly related to retention in tier-one deposit money banks in the South-South region. Ejike et al. (2021, as cited in Maduabuchi & Udeh, 2024) similarly report that the total pay package significantly affects retention in a deposit money bank in Anambra State. Even so, Maduabuchi and Udeh (2024) observe that studies focused specifically on the Nigerian banking sector remain fewer than those in other industries and countries.

This study examines employee retention in the Nigerian banking industry, using First Bank of Nigeria as the principal case, and concentrates on how compensation, measured through salary, relates to employee satisfaction as an indicator of retention.

1.2 Statement of the Problem

Keeping talented and high-performing employees is a major challenge for organisations, and the HR department has good reason to monitor turnover closely because it generates both direct and indirect costs. In banks, where service quality depends heavily on experienced staff, persistent turnover can undermine productivity, increase recruitment and training spending and weaken long-term performance (Maduabuchi & Udeh, 2024).

Annual report data for 2012 to 2014 show that 70 employees left First Bank to join other institutions, which the researcher computes as a turnover rate of about 12.5% per year [add exact citation to the First Bank annual reports]. [Add a verifiable source for the benchmark against which this rate is judged.] Skilled and unskilled staff have moved frequently between banks, a pattern commonly described as "brain drain", and it raises the cost of recruiting and training replacements while reducing short-run productivity.

Recent evidence suggests that the problem has not disappeared. In a survey of employees of five tier-one Nigerian banks, including First Bank, most respondents disagreed that their pay was competitive or reflected their contribution, and a statistically significant negative relationship was found between compensation policy and turnover (r = −.493, p < .001) (Maduabuchi & Udeh, 2024). Findings like these raise several questions that this study seeks to answer. Does First Bank apply fair HR practices to retain key employees? Is employee turnover high there? Does the bank make motivational efforts to keep its talent, and is there evidence of poaching by competitors? Are employees satisfied with their current jobs, and has the bank adopted effective retention strategies?

To keep the study manageable, the focus is placed on the influence of compensation management on employee retention in the banking industry. Nigerian banks can be grouped by asset size into large, medium and small institutions. First Bank, Fidelity Bank and Sterling Bank were selected to represent these three categories respectively. First Bank was Nigeria's largest financial institution by total assets and gross earnings at the time of the study. Fidelity Bank began as a merchant bank in 1988 and became a commercial bank in 1999. Sterling Bank was formed through the 2006 consolidation of NAL Bank with four other banks during the industry-wide recapitalisation [add citations to the banks' annual reports or official profiles and update figures where possible].

1.3 Objectives of the Study

The general objective is to investigate how employee retention is measured and managed in selected banks in Nigeria, with First Bank as the main case.

The specific objectives are:

1. To examine the relationship between salary and employee satisfaction.
2. To identify the factors that lead to employee turnover in the selected banks.
3. To assess the retention strategies used by the banks and judge how effective they are.

In this study, compensation management is represented by salary, and employee retention is represented by employee satisfaction.

1.4 Research Questions

Competition in the banking industry means institutions must keep their skilled staff if they are to hold their position. The study is therefore guided by the following questions:

1. To what extent does salary influence employee satisfaction?
2. What factors lead to employee turnover in the selected banks?
3. Are employees satisfied with their work, and if not, what are the reasons?
4. Have the banks adopted retention strategies, and if so, how effective are they?
5. Why is a retention strategy important to a bank, and which variables should it address?

1.5 Research Hypothesis

H0: There is no significant relationship between salary and employee satisfaction.

H1: There is a significant relationship between salary and employee satisfaction.

1.6 Significance of the Study

The study is expected to benefit academics, banks and policymakers. For academics, it adds to the evidence on factors associated with turnover in Nigerian banks, a setting in which sector-specific research is still limited (Maduabuchi & Udeh, 2024), and it offers a base for later studies in other institutions and regions. For banks, the results can inform pay and motivation policies and the design of retention strategies, which in turn can strengthen the sector's reputation as an employer and attract skilled professionals. For policymakers and regulators, the findings provide evidence on workforce stability in a sector that is central to the economy.

1.7 Scope of the Study

The study is limited to employees of selected Nigerian banks, namely First Bank, Fidelity Bank and Sterling Bank, with First Bank as the principal case. It concentrates on one aspect of compensation management, salary, and one indicator of retention, employee satisfaction. Other determinants of turnover, such as career development, leadership and work-life balance, are discussed only where they help explain the findings.

References

Aburumman, O., Salleh, A., Omar, K., & Abadi, M. (2020). The impact of human resource management practices and career satisfaction on employee's turnover intention. Management Science Letters, 10(3), 641–652.

Awolusi, O. D., & Jayakody, S. S. (2021). Exploring the impact of human resource management practices on employee's retention: Evidence from the food and beverage industry in the State of Qatar. Journal of Social and Development Sciences, 12(4(S)), 39–58.

Diana, R., Chan, S., & Ibrahim, R. (2019). Antecedents and consequences of employee turnover intention of the state-owned bank in Indonesia. East African Scholars Multidisciplinary Bulletin, 2(8), 213–220.

Ejike, I. J., Ajike, A. K., & Chukwujama, N. C. (2021). Assessing compensation policy on staff attraction and retention in deposit money banks in Nigeria. International Journal of Business System and Economics, 13(4), 262–275.

Hassan, Z. (2022). Employee retention through effective human resource management practices in Maldives: Mediation effects of compensation and rewards system. Journal of Entrepreneurship, Management and Innovation, 18(2), 137–174.

Jaja, [initials]. (2023). Deferred benefits and employee retention in tier-one deposit money banks in South-South, Nigeria. European Journal of Human Resource, 7(2), 45–59.

Khatun, M., Rahman, S. N., & Khatun, M. (2023). Impact of development opportunities and compensation on employee retention: A comparative study on banking industry of Bangladesh. European Journal of Management and Marketing Studies, 8(1).

Maduabuchi, U. S., & Udeh, F. N. (2024). Human resource practices and employee turnover in commercial banks in Nigeria. Journal of Global Accounting, 10(2), 436–479.

Mebom, C. (2022). Effect of human resource policies on employee performance in public sector organisations: A study of Rivers State University of Education, Port Harcourt. BW Academic Journal.

Nwakanma, C. H. A., & Ikeije, U. U. (2021). Human resource policy and employees' turnover intention in Nigerian banking industry: Evidence from Ecobank Nigeria. The Millennium University Journal, 6(1), 31–40.

Obaze, J., & Samikon, [initials]. (2022). The effects of career development, compensation and engagement on employee retention: A survey of entry-level employees in Nigeria commercial banks. International Journal of Academic Research in Business and Social Sciences, 12(12).

Okbagaber, T. B. (2019). The effect of human resources management on employees retention in IBM Corporation. Journal of Asian Business Strategy, 9(2), 158.