WILLIAM OWINO NYAMUNGA2026-03-312026-03-312025-09https://repository.cuea.edu/handle/123456789/650ThesisCompensation was viewed as an important element that motivated employees to contribute positively to generating innovative ideas that improved the organization’s level of productivity. The thesis had several objectives, including evaluating the effects relating Piece rate pay on the performance of employees, investigating the influence that bonuses on employee performance within the Kenya National Treasury, exploring the effects of skill-based renumeration on the performance of employees, and assessing the effects of Merit-based renumeration on relation performance of employees at the Kenya National Treasury. The theories supporting the thesis included the Expectancy, Agency, Ability, Motivation, Opportunity (AMO Postulate) and the Theory of Equity. The thesis had a descriptive research design and was based on a sample of 305 participants. The thesis utilized an interview guide and questionnaire to get data. Findings were presented in various charts, tables and graphs. Qualitative data were thematically analyzed; information was then presented in a narrative thematic format. Findings revealed bonuses had a significant effect on the performance of employees when implemented transparently in a fair manner. Employees who regularly receive bonuses tied to their performance targets reported increased motivation, job satisfaction, and productivity. Skill-based pay was found to positively influence employee performance by promoting continuous learning and versatility. Findings of Merit-based pay also showed a strong link to improved employee performance, especially when performance appraisal systems could be transparent and well-structured. The correlation between different forms of compensation systems and performance at the Kenya National Treasury showed some statistically significant findings. In this case, indicating a slight positive statistically significant correlation between bonuses and employee performance, with a correlation coefficient of r = .480 and a p-value less than .001. Similarly, the relationship between skill-based pay and employee performance was statistically significant with a correlation coefficient of r = .410 and a p-value less than .01. The thesis also indicated a statistically significant positive relationship between pay based on merit and performance among employees, though weaker (r = .320, p = .002). Finally, piece-rate pay had a weak but statistically significant positive relationship with the performance of workers, with a correlation coefficient of r = .210 and a p-value of .030. Although the relationship was not as strong as when other forms of pay are used, it did show that paying workers based on the quantity of their production could improve performance. It was recommended that organizations should develop and institutionalize transparent, performance-based bonuses that were associated with clear and measurable indicators that ensured fairness and boosted employee motivation. Findings revealed that bonuses significantly impacted employees’ performance, with financial provisions serving as motivators that triggered an increase in productivity. Skill-based pay was another avenue that, if implemented, could positively encourage professional development at an individual level. Employees also responded positively when their skills were recognized by management. Merit-based pay was also viewed by respondents as a way that could significantly improve performance if aligned with transparent performance appraisal systems. The thesis found that although piece rate was not used in the mainstream public service, it could be used in increasing productivity in special programs such as Kazi mtaani and the affordable housing programs.en-USPerformance-based compensationemployee performancecompensation systemspublic sector organizationshuman resource managementperformance managementKenya National Treasury and Economic PlanningThesis