Do Human Resource Practices Affect Employee Performance?: January 2014
Do Human Resource Practices Affect Employee Performance?: January 2014
Do Human Resource Practices Affect Employee Performance?: January 2014
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Abstract
HR Practices have been considered as major tool to enhance employee performance. This
research study identifies major practices of HR lead to enhanced Employee Performance (EP) at
banks operating in Lahore, Pakistan. Four HR Practices have been selected for this research
study that includes Merit based Recruitment & Selection; Performance based Compensation,
Organizational Commitment and Training & Development. Results support the proposed
theoretical model that link HR Practices and EP in three banks located in Lahore, Pakistan. This
study concludes that all testable variables have positive relation with employee performance,
Pakistani banks are therefore recommended to adopt the stated HR practices to enhance EP
which in turn can enhance Company’s Performance
1.0 Introduction
Human resource is an important and critical area of management and HR practices are an
important area of research since the last few years. HR practices increase the level of employee
performance and the employees feel more comfortable and secure where HR practices are
implemented. HR practices played an important role in the performance of organizations,
particularly in banking industry.
In the current competitive market, success is less dependent on capital and more on
innovation, speed and acceptability. Effect of human resource management on firm performance
has received considerable importance in last 25 years showing effective connection between HR
practices and firm performance (Qureshi et al., 2010). Thus HR is interlinked with all the
managerial functions involved in the practices of recruitment & selection, training &
development, organizational commitment and compensation and these practices increase the
potential of employees in banking sector.
Research in Human Resource Management (HRM) is a decade old phenomenon for local
industry nevertheless research about HRM functions (Ali and Jadoon, 2012) and HR Practices
(Qureshi, 2010) and Contextual HRM (Khilji, 2002) provide reasonable insight on HRM and its
implications for business environment. Khilji concludes that the gap between stated policies and
real practices of HRM are causing employee’s frustration because application of international
HRM models may not be imported because of their alien nature.
The scheme of this article consists of four sections, first section includes the literature
review, second presents the theoretical framework, third involves the research thesis and the
fourth section includes conclusion, managerial implications and future research directions.
Historically HR universal Practices bundle (Huselid, 1995) like selection, training and
development, performance appraisals, rewards and compensation in international setting where
the HRM has already tested and adopted for achieving competitive advantage with and through
people. Nonetheless in Pakistan, Family owned businesses are dominated but they have stated
recognizing the significance of HRM in Pakistan. Realization of HR practices and their strategic
use is increasing gradually and visionary companies are using these practices in competing with
other firms (Ali and Jadoon, 2012). HR practitioners are struggling to meet the emerging
challenges of new values of knowledge workers who have necessitated a new paradigm of
practices for attraction and retention of talent for organizational sustainability (Khilji, 2002).
This research explores specifically the relationship of HR Practices and employee performance.
Many variables are measured under the HR practices but this research consists of four HR
practices that include recruitment & selection, training & development, organizational
commitment and compensation. The reason for selecting these four practices is that in the
developing regions physiological needs (Compensation and organizational commitment) have a
significant impact on employee performance.
The banking industry in Pakistan is important for the economy, it is the symbol of self-
reliance, national security, and plays a vital role in generating government revenue. Pakistan
inherited a weak banking network in 1947 and later on in 1970’s nationalization of banks in
Pakistan did not give an edge to banking sector as planned. In 1990’s privatization and
restructuring in banking sector made a well-developed banking network having different
financial institution with a central bank (state bank of Pakistan) and different commercial banks
(Qureshi et al., 2010).
Fundamental theory in the back of this research is resource based view. Resource base
view argues that a firm’s competitive advantage can be achieved through its internal resources
instead of the external factors that the organization is facing. It has already been established that
the concepts of complexity align well with RBV. Traditionally, complex resource based
perspective is grounded in four fundamental assumptions of any organizational resource (Hart,
1995). Firstly Resource must add positive value e.g. in HR context employee can add value by
marketing, making strategies or even by entering data in company’s database. Secondly, resource
must be unique, for HR concepts, although every employee has unique set of skills aptitude and
knowledge, while across organizational structure employees are not equally important, e.g. in
Pakistani settings, in software house it may be easy to hire a Software engineer but in US
economy it might not be an easy task, at the same time retention of software engineer may be
problem for local organization but for US firm it might not have been issue. Thus uniqueness of
resource varies from one setting to another. Thirdly, resource must be imperfectly imitable e.g.
software engineer may develop an HR module successfully using specialized technology,
nonetheless same person may not be useful from other software house dealing in online
education products, Thus different business environments will dictate organizations accordingly.
Finally the resource shall not be substituted with another resource of competing firm, puts an
additional challenge for firms competing in same business e.g. an experienced CEO of telecom
company may be useful and be hired by another firm to enter in local business, at the same time
it will be an opportunity for the firm’s HR department to every time develop new resource (i.e.
CEO) and be market leaders at lower HR cost. When we link this theory with organizational
practices, we can conclude that firms apply various HR practices by considering their unique
resources and environments and these add up to their organization’s value, however wether that
added value results in sustainable competitive advantage depends upon a host of other factors.
We have tried to link this added value in terms of employee performance in this study.
This study discusses various examples depicting the relationship between the HR
practices and their impact on Employee Performance and a positive relation is reflected between
these two variables. This section focuses on important variables discussed under prior research.
The dependent variable (DV) is Employee 00Performance also stated as individual performance
and the Independent Variables (IDs) include Recruitment & Selection (R&S), Training
&Development (T&D), Organizational Commitment (OC) and Compensation & Rewards
(C&R).
The following part of the literature review now specifically focuses on elaborating the
four independent variables and proposing the hypotheses related to them.
Recruitment & Selection is the method through which companies hire the most suitable
candidate for the required job in least cost (Sheehan, Holland, & De-Cieri, 2006). Recruitment is
the process of searching the best candidate for the job (Wright & Kehoe, 2008). Selection is the
process that involves a chain of steps through which candidates are screened for thejob (Sheehan,
Holland, De Cieri, 2006). Various studies have been identified significant positive relationship
between R&S and Employee performance, as an example Khan (2012) identified significant and
positive effect of Recruitment on Employee Performance. Thus the first hypothesis is stated as
under.
H1: Transparent Recruitment & Selection practice ensures Employee Performance in company.
H2: Adopting Training & Development practice in Company enhances Employee Performance.
DeConinck, & Bachmann, (2012) state that Organizational Commitment (OC) is the
method through which the commitment of any employee is calculated in some tangible terms.
OC can be defined as an evaluation of employee success and failure in their task, and in
achieving their goals (e.g. Farndale et al., 2011). OC is the judgement of employee strength and
weakness and evaluation of employee for promotion;it is also a part of managing the career
development. Fair organizational commitment increases the level of employee motivation and
gears them to work effectively to achieve the organization goals and objectives (e.g. Taing et al.,
2011). Organizational commitment indicates power that motivates employees to stay and work
effectively to achieve the organization goals. Progressive organizations recognise the
individual’s identity in organization. Research study has also suggested that commitment has
negative relation with absenteeism. Concept of commitment has a long history but commitment
is defined as an individual’s perception that they are bound to a given target (Wright and Kehoc,
2008). Organizational Commitment’s relation with employee performance is also found positive
and significant by various studies (DeConinck, & Bachmann, 2012).
H4: Merit based Compensation & Reward System policy adoption enhances Employee
Performance in company.
The following framework illustrates that the performance of any employee is been
measured in terms of quality, quantity, cost and value and is effected by Merit based R&S,
Performance Based C&B, OC and continuous company’s commitment for T&D.
Schematic Diagram
Independent Variable
Employee Performance
Dependent Variable
4.0 Data Collection and Research Methodology
Data is collected from three banks of Lahore, Pakistan from 92 branches. These banks are
coded as B1, B2 and B3 i.e. B1 for Habib Bank Limited, B2 for Standard Chartered Limited and
B3 for Muslim Commercial Bank Limited. Five hundreds questionnaires were mailedto
managers of banks whereas 310 where properly filled and usable questionnaires were returned.
Subsequently 88 will filled from B1, 63 from B2 and 159 from B3 respectively.Values show that
average experience of employees was about five to six years, most of them are at middle level
with the salary of 51-to-70 thousand Pak Rupee.
The above table reflects the values of Cronbach’s alpha test and the value for the ten
items for this sample was (0.93,0.73 and 0.66) for dependent variable Employee Performance
collected from B1, B2 and B3 respectively. Independent variables are found to be convergent
and reflect discriminate validity and Cronbach’s alpha for Recruitment & Selection is 0.86, 0.77
and 0.67, for Training& Development is 0.88, 0.61and 0.67 for Organizational commitment
alpha is 0.70, 0.60and 0.67 and for Compensation it is 0.89, 0.74 and 0.63. All the values fall in
the acceptable range of 0.6 and above.
Initially data screening was performed i.e. treatment of missing values, normality,
detection outliers, homoscedasticity and multicolinearity. Later Confirmatory factor analysis was
executed using Analysis of Moment Structures (AMOS) 18 student version for validity of
measures (i.e. EF, RBRS, CTD, OC and PBC) is calculated. Model fit indices including Root-
Mean Square Error of Approximation (RMSEA), Comparative Fit Index (CFI), CMIN/df and
Tucker–Lewis Index (TLI) were used to assess model adequacy. RMSEA scores below 0.08, CFI
and TLI above 0.90 and represent model fit (Hameed et al, 2013). Initial model with all factors
reported poor model fit statistics (CFI = 0.81; TLI = 0.79, RMSEA = 0.07). However, the low
factor loadings items were removed. The model fit statistics improved to achieve goodness of fit
for adopted measures (CFI = 0.91; TLI = 0.92, RMSEA = 0.06). Further, statistical validities i.e.
convergent validity (CV) and discriminant validity (DV) were calculated for scales employed
CV was established (i.e. AVE > .50. DV). DV was established as MSV< AVE and ASV <
AVE).
Pearson correlation is used for finding the level of relationship between variables of
interests. Each hypothesis was then tested and the correlation matrix in Tables3.
The first hypothesis stated that Recruitment &Selection (RS) has significance effect on
Employee Performance (EP). Refer to table 3a, correlation statistics (r=0.52; p=0.06), (r=0.44,
p=0.00) and (r=0.58,p=0.00) for B1, B2 and B3 respectively claims that hypothesis is accepted in
case of B2 and B3 because statistically significant, while for B1 it is rejected but positive
correlation exists. Second hypothesis i.e. case of TD and EP for each bank, correlation values
depicts that (r=0.49, p=0.08), (r=0.65, p=0.00) and (r=0.19, p=0.00) the relationship exists and
statistically significant in case of B2 and B3 only to verify the role of Training and Development
for bankers. The correlation of statistics (r=0.62, p=.00) and (r=0.33, p=0.00) depicts statistically
strong relationships for B1 and B3 between OC and EP, whereas correlation is weak in case of
B2 i.e. 0.11(.071). The correlation of value of 0.02(0.01) is insignificant for B1, while correlation
values of 0.20(0.00) and 0.80(0.00) shows significant relations between Compensation and
employee performance.
6.0 Conclusion
This Research study is not without limitations and recommends future studies to be conducted.
First, the sample is taken from different managerial levels of banks based in Lahore and does not
include opinion from other cities of Pakistan. Secondly, future research can be conducted on
other sectors including Telecommunication, Textile, and Software-Houses to present
cross0sectoral investigation of HR practices and their impact on Employee Performance. Finally
mediation analysis of OC can be investigated between HR practices and EP in future. The
managerial implication of the research is to adopt transparent R&S Practices; continuous T&D at
company, performance based compensation for improved Employee performance which
ultimately will enhance organizational outcome.
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The Questionnaire has adopted from Qureshi et. Al (2010). Study and has used Likert Scale (1.
Strongly Disagree; 2.Disagree; 3.Neutral; 4. Agree; 5. Strongly Agree). The items are as under,
whereas (R) represents reverse coding.
Employee Performance
I am recognized fairly in this organization
My personal milestones are recognized in my company
In my company, employees’ hard work is recognised
My company addresses life problems that get in the way of employees performance
In this company we are assisted in coping with workplace stress
I am motivated to do my best when working for this company
I am engaged in any recreational activities for this company
My personal objectives match with organizational objectives
My job tasks conforms to your designated position
I am rewarded competitive according to industry standards