Impact of Human Resource Practices On Employee Perceived Performance
Impact of Human Resource Practices On Employee Perceived Performance
Impact of Human Resource Practices On Employee Perceived Performance
The main endeavor of this study is to examine the relationship and nature of relationship between the
employee perceived performance and human resource (HR) practices (compensation, performance
evaluation, and promotion practices) in the banking sector of Pakistan. Survey of 235 banking
personnel was conducted through personally administrated questionnaire to investigate the impact of
HR practices on employees’ perceived performance. The relationship and nature of relationship is
calculated by applying the Spearman’s correlation matrix and multiple regression analysis. The
Spearman’s correlation results demonstrate that, the employee perceived performance and HR
practices has the positive and significant relationship. The regression results indicate that the two HR
practices: performance evaluation and promotion practices are significant but the compensation
practices are not significant. Moreover, this study provides help for top-management of banking sector
to design or revise their HR policies and make practices to attain high employee performance.
INTRODUCTION
Performance of any organization largely depends on the last two decades, focusing on HR practices has been an
performance of its employees. Successful organizations imperative and decisive area for organizational perfor-
are increasingly realizing that there are number of factors mance. Effective HR practices improve the performance
that contribute to performance but human resource is of organization and lead to higher profits. Datta et al.
clearly the most critical (Mello, 2005). In spite of the size (2003) found that best use of HR practices reveals a
and nature of an organization, the activity it undertakes, stronger association with efficiency of firm. Human
and the environment in which it operates, its success resource management (HRM) practices have significant
depends on its employees‟ decisions and their behavior. association with accounting profits of banks (Delery and
To evaluate performance of employees in organization is Doty, 1996). Pakistan is an under researched country
one of the major purposes of employing human resource (Aycan et al., 2000). In Pakistan, little research has been
practices. In the competitive environment of modern era done to explore the association between HR practices
organizations are persistently improving performance of and employee performance in banking sector. Banking
their employees by improving HR practices. Caliskan sector of Pakistan is playing basic role in the develop-
(2010) acknowledged that HR practices are one main ment of country‟s economy. Modern banking system is
source of competitive advantage. Many researchers have necessary to tackle the needs of such a developing
proven that HR practices have a significant and positive country (Zaidi, 2005). From last five years, growth and
relationship with employees‟ performance (Delery and turnaround in Pakistan‟s banking sector has been
Doty, 1996; Guest, 2002; Harley, 2002; Huselid, 1995; incredible and classified as best performing sector of
Qureshi et al., 2006; Tessema and Soeters, 2006). From Pakistan (Akhtar, 2007). According to OSEC business
network Switzerland February 2011 report, “Banking
sector of Pakistan comprised of 36 commercial banks
(including 25 local private banks, 4 public sector
*Corresponding author. E-mail: [email protected]. commercial banks and 7 foreign banks) and 4 specialized
324 Afr. J. Bus. Manage.
banks. Among these banks, there are 6 full-fledged real incomes, hard working conditions, political inter-
Islamic banks” (Consulate General of Switzerland, 2011). vention and deprived management from decades created
Researchers have singled out Pakistan banking sector cadres of public servants in most of developing countries
for study as in Pakistan both conventional banking and resulted constantly de-motivation and dispirited (Baron
Islamic banking co-exist. Pakistani banking sector and Kreps, 1999; Das, 1998; Jaeger et al., 1995;
normally focus only on domestic money market and Kiggundu, 1989).
because of this reason Pakistan did not affected severely Cohen et al. (1997) had summarized problems of HR in
by the recent failures of banking sector worldwide such developing countries: low levels of salary, deficiency of
as Lehman brothers (Zingales, 2008). Conventional useful performance values, lack of ability to fire people,
banks have grip in Pakistan‟s money market but are also small number of incentives for excellent performance,
focusing to provide Islamic banking services to maintain employment measures that do not catch the attention of
customer‟s confidence in their institute. Islamic banking is properly skilled people, promotion guidelines based more
an aspect of banking which is gaining quite a bit of on seniority than on actual performance of employees,
attention world wide after the current global financial deliberate promotion and lack of compensation against
turmoil. Wilson (2000) revealed that islamic banking in hard work, deficient and uncomforting management by
west is also attracting the interest of non-muslims to join supervisors and lack of motivating tasks. Budhwar and
this growing sector. Other reason to focus upon banking Debrah (2001) revealed that many developing countries
sector is that this sector is biggest employer of fresh face unintentional barriers in the way of development due
graduates. As this sector provide reasonable compen- to outdated and unproductive human resource manage-
sation to employees as compared to other sectors. ment (HRM) systems. In recent times, the major focus on
Pakistan is an Islamic country, in past due to religious HRM writing has been to elaborate the significance of
issues (interest) the tendency to join banks was efficiently administrating human resources of enterprises
significantly low among local graduates. But now due to (Ahmad and Schroeder,2003; Delaney and Huselid,
very rapid growth of Islamic banking, many Pakistani 1996; Ichniowski et al., 1997).
commercial banks also started giving the Islamic banking Many researchers have recognized numerous HR
services which motivated the fresh graduates to join this organizing practices that significantly influence perfor-
sector. On the basis of these facts researchers went on mance. Pfeffer (1994) supported the employ of sixteen
to investigate the impact of HR practices in banking HRM-related implementations to attain better perfor-
sector of Pakistan by utilizing response of employees mance. Delery and Doty (1996) classified seven human
through survey. The objective of this paper is to examine resource interconnected practices. Most of researchers
the relationship between HR practices and employees have resulted that cluster of HR practices had significant
perceived performance in banking sector of Pakistan. affect on performance than those individual practices
However there are number of factors which affect functioning in segregation (Arthur, 1994; Baron and
employees‟ performance but current study focus on the Kreps, 1999; Huselid, 1995; MacDuffie, 1995). In other
relationship between three HR practices (performance words, an effective employment of those particular prac-
evaluation, promotion and compensation) and tices fallout in high performance transversely all nature of
employees‟ perceived performance. Hence, findings and organizations or state. As will be explained, in this study,
results of this study will help the banking sector to researchers‟ utilize three HR practices that they presume
improve or revise their strategies for HR practice. The influence employee performance. Paauwe (1998) and
remaining paper is prepared as follows: literature review, Guest (1997) found that performance is a comprehensive
data and methodology of paper, empirical results of the and multipart observable fact. Tessema and Soeters
study and the conclusions of this study. (2006) have conducted study on eight HR practices
consist of staffing and assortment procedures, selection
practices, guidance, reward, promotion, and employees‟
LITERATURE REVIEW performance, complaint procedure and allowance or
social security in relative with the perceived performance
Human resource policies and practices of an organization of employees. Qureshi et al. (2006) conducted research
are significantly important forces for determining behavior related to Pakistan regarding impact of human resource
and insolence of employees. Managing HR has many practices on organizational performance and concluded
forms of continuation but human resource management that HR practice system influence business performance
practically in organizations is to make use of people and through outcomes of employees.
maintain employment relations. Developing countries Caruth and Handlogten (2001) explained: “Employees
now consider effective HR more crucial component in are encouraged when they are financially rewarded
their development strategies than ever before (Bennell, directly fasten to their performance”. Leonard (1990)
1994; Budhwar and Debrah, 2001; Hilderbrand and believed that the companies get more increase in return
Grindle, 1997; Kiggundu, 1989; Praha, 2004; WorldBank, on equity than those corporations which ignores the
1994). Most of researchers illustrated that declining of adequate long-term incentive plans. Singh (2004)
Bowra et al. 325
demonstrated that remuneration is a behavior sustains promotion practices and employee performance.
method of employees with trade policy of the firm. Shahzad et al. (2008) have suggested that there is
Tessema and Soeters (2006) have concluded that posi- positive relationship of promotion practices with the
tive correlation exists between employee performance university teachers‟ performance. With the help of
and compensation practices. Shahzad et al. (2008) found literature hypothesis was generated to properly test the
positive relationship of reward practices with the perfor- relationship between promotion practices and employee
mance of university teachers in their research results. perceived performance in employees of banks in
Researchers can build up assumption by the help of Pakistan.
theoretical study that compensation practices are related
with performance of employees. Though, this relationship H3: Promotion practices are positively related with
needs to be tested in employees of banks in Pakistan. perceived performance of employees of banking sector in
Pakistan.
H1: Compensation practices are positively related with
perceived performance of employees of banking sector in
Pakistan. Theoretical framework of the study
The structure in which performance of employees are In this theoretical framework employee perceived perfor-
evaluated once in a year without granting continuous mance is the dependent variable while HR practices
attempts to provide feedback and training, it is only a (compensation practices, performance evaluation and
performance appraisal, it is not the performance manage- promotion practices) are independent variables Figure 1.
ment system (Byars and Rue, 2007). The performance
assessment is believed to be a “systematic description”
of an employee‟s strengths and weakness (Mello, 2005). DATA AND METHODOLOGY
Performance assessment and compensation plays impor-
tant role in developing companies‟ process by enhancing In this study a multi-stage random sampling technique is used. In
the first stage a simple random sample of 3 public and 19 private
efficiency (Abeysekera, 2007). Datta et al. (2003) found
banks of Pakistan was selected for data collection. The list of all
that workers will make use of more exertion with fewer these banks specified in Appendix 1. Selection of the sample is
restrictions if adequate performance management (PM) done through lottery method of simple random sample selection
system is in job and is consistent with the compensation methods (Cochran, 1977). Researchers numbered all the 36
method attached to the managing of performance commercial banks on paper slips and then mixed these slips.
system. Coens et al. (2000) declared that performance Researchers choose one slip and similarly mix others again and
again to reach a reasonable sample of 22 banks for this study. In
evaluation is a mandatory process under which we rate, the second stage, stratified random sampling is used for selecting
evaluate or depict from the rater all or a group of the employees from the sample banks. The reason for preferring
employee‟s work attitudes or quality within a particular random sampling technique is that it gives equal chance to each
time period and the outcomes are retained by the bank operate in the Pakistan and also helpful in generalization of
corporation. Performance evaluation is purely a part of the results of sample back to population (Castillo, 2009).
“bigger whole” (Halachmi, 2005). As many researchers The collection of data from the sample banks were done in a
research survey through a personally administered questionnaire.
concluded that performance evaluation and employee Researchers distributed 300 questionnaires to the employees of
perceived performance have strong relationship (Baloch randomly selected public and private banks of Pakistan and
et al., 2010; Becker and Huselid, 1998). There exist a received 235 completed questionnaires out of 300 which contain
positive relationship between performance evaluation and 78.33% response rate enough for empirical analysis. The reason
perceived employee performance (Tessema and Soeters, for adopting personally administered questionnaire is that this
approach has higher response rate as respondent‟s quires can be
2006). On the basis of aforementioned arguments it will
solved on spot. After collecting the data from personally
be tested that there is an association between perfor- administered questionnaire data is entered, arranged, processed
mance evaluation and employee perceived performance and results are generated through Statistical Package for Social
of employees in banking sector. Science (SPSS 16) software. The measures for this study were
adopted from Tessema and Soeters (2006). Measures include
H2: Performance evaluation is positively related with employees‟ performance (perceived), compensation practices,
performance evaluation and promotion practices (Tessema and
perceived performance of employees of banking sector in Soeters, 2006). Main reason for adopting these measures is that
Pakistan. they were well tested on internal consistency and all measures had
cronbach‟s alpha in the range of 0.73 to 0.82. The cronbach‟s alpha
Promotion constantly go with a remuneration increase, of Tessema and Soeters (2006) and this study are given in the
either it is made within a grade or to the superior grade. A Table 1. Descriptive statistics of all variables consisting of their
continuous procedure, which totally relies on the span of average, maximum value and minimum value also specified in
Table 1.
service and professional “competency”, is accepted at the
Variables in this study were measured through some items. The
moment of promotion to higher step in the job within a four variables consisting of employee perceived performance and
grade promotion. Tessema and Soeters (2006) con- three HR practices, which can be measured by items as specified in
cluded that there is a positive association between questionnaire of Appendix 2. The Likert scale is used in
326 Afr. J. Bus. Manage.
HR Practices
o Compensation practices
Employee perceived
o Performance evaluation
performance
o Promotion practices
questionnaire, consisting of scale that had five different options: 1 techniques of correlation and multiple regression analysis to
for strongly disagree to 5 for strongly agree. Employee perceived examine relationship between employee perceived performance
performance was measured using a 4-item five point likert scale. and HR practices ( Baloch et al., 2010; Qureshi et al., 2006;
The HR practices like compensation practices was measured using Shahzad et al., 2008; Tessema and Soeters, 2006).
6-item, performance evaluation was also measured using 6-item
and promotion practices was measured by using 3-item five point
likert scale. Multiple regression model
Employee perceived performance is dependent variable and
other three variables (HR practices): 1) compensation practices, 2) EPPi = α0 + α1 CPi + α2 PEPi + α3PPi+ α4TENi + α5 GENi +
performance evaluation, and 3) promotion practices are
independent variables in this study. In order to find true and actual Where EPPi = Employee perceived performance, CPi = Compen-
relationship between employee perceived performance and HR sation practices, PEi = Performance evaluation, PPi = Promotion
practices two demographic variables namely Tenure and Gender practices, TENi = Total experienced of the bankers, GENi = Male or
were used as control variables. female employees = Error term.
Details of the respondents are shown in Table 2. The majority of In the regression model, EPPi is dependent variable, which is
respondents fit in the private sector were 71.5% while only 27.5% average of items from 2 to 4 linking to the employee perceived
respondents fit in the public sector. Most of the respondents performance in questionnaire. The first item which is also linking
belonging to non-manager grade were 66.4% while only 33.6% with the employee perceived performance, but not include in
respondents belonging to manager grade. 77% respondents had average. Compensation practices (CPi) variable is the average of 6
masters degree, 21% were graduates and only 1.7% had other items from 5 to 10. The performance evaluation (PEi) variable is
qualifications. Male respondents were 75.7% while only 24.3% are average of 6 items from 11 to 16 and promotion practices (PPi)
females. variable is average of 6 items from 17 to 19. The last two variables
Histograms of total and current job experience of respondents are control variables in model. First control variable TENi (tenure) is
are also given in Figure 2. the third item in the demographics section of questionnaire while
In this study to calculate the exact relationship and nature of the second control variable GENi, (gender) is dummy variable 1 for
relationship, the correlation and multiple regression analysis are male and 0 for female, showing last item in the demographics
used. The prime reason for adopting these techniques is to test section of questionnaire (see appendix 2). The regression
hypothesis as described earlier while other reason is that in order to diagnostics are also applied in the study. Multicollinearity and
investigate the relationship between employee perceived autocorrelation are checked in diagnostic tests to prove that
performance and HR practices. Many previous studies used same regression results are reliable and without biasness.
Bowra et al. 327
Graduation 50 21.3
Qualification Masters 181 77.0
Others 4 1.7
EMPIRICAL RESULTS than cut point 0.6, which shows that there is no
Figure 2. Histogra multicollnearity problem in model.
As our questionnaire was design on likert scale, so the In order to more authenticate multicollinearity problem,
most suitable correlation matrix for this scale is second method of assessing ptoential chances of
Spearman‟s correlation coefficient (rho) matrix. multicollnearity also applied. The variance inflation factor
Spearman‟s correlation between all the variables which (VIF) and tolerance of independent variables is utilized to
are used in our models demonstrated in the Table 3. This confirm again that there is no mutlicollnearity is present in
table shows that employee perceived performance and model. In appendix 3,values of VIF and tolerance of all
HR practices have strong relationship. The correlation independent variables are given. As the values of VIF for
between employee perceived performance and HR each independent variable is less than cut point 5 and
practices show positive relationship and statistically tolerence value of each independent variable is greater
significant. These results of correlation are in accordance than cut point 0.2, so researchers again confirms that
with our theoretical framework and previous studies there is no chance of occurance of multicollinearity in the
(Baloch et al., 2010; Becker and Huselid, 1998; Guest, model(see appendix 3). In order to check autocorrelation
2001; Ichniowski et al., 1997; Tessema and Soeters, in the model, Dubin-Watson statistics (d) is calculated
2006). Another purpose for calculating correlation is to which is 1.907.This value 1.907 shows absence of
assess the potiential chances of multicollinearity before autocorrleation in the model.
running multiple regression analysis. As correlaton The Table 4 provides multiple regression analysis
between independent variables in the model are less results of the model which shows that model has three
328 Afr. J. Bus. Manage.
0.245
Compensation practices (CP) 1.000
0.000***
0.322 0.526
Performance evaluation (PE) 1.000
0.000*** 0.000***
significant variables. Performance evaluation is signifi- Performance evaluation has highest contribution in
cant at 1% level of significance. Promotion practices explaining the employee perceived performance is 0.346
variable is significant at 5% level of significance and and significant at 1% level of significance. The result is in
control variable tenure is significant at 1% level of accordance of previous research on banking sector of
significance. While other two variables compensation Pakistan (Baloch et al., 2010). So researchers found
practices and gender are insignificant. The R2 of model is performance evaluation most important HR practices. If
23.86%, which means that HR practices can explain the these practices are properly implemented by the banks in
23.86% changes in the employee perceived performance Pakistan, in return they can get multiple benefits. The
2
in the banking sector of Pakistan. Adjusted R of the previous studies suggested that banks can get multiple
model is 22.19% and coefficient of correlation r is 48.84% benefits from these practices like; Prime merit of
in this study. Value of R2 and adjusted R2 improve from performance evaluation is that it can facilitate the banks
previous study on HRM and University teachers‟ to take proactive actions regarding other HR practices
performance (Reisinger (1997) suggested that value of like increasing salaries under compensation practices,
R2 is smaller in case of primary data and when sample promotion practices and many other incentive schemes in
size is large but number of independent variables is less order to boost performance of the bankers. Second
in the study. Other reason is that it is social phenomena benefit is that banks not only evaluate the strengths and
as this study includes behavior element. But although R2 weakness of its employees but also can take proactive
and adjusted R2 is smaller model is good fit as the F test actions like, training and development of employees.
of model is significant. The value of F statistics is 14.35 Third benefit is that performance evaluation can help the
that significant at 1% level of significance and model is HR department of banks to check usefulness of other HR
good fit. practices like, staffing, selection and training and
Bowra et al. 329
development of employees (Baron and Kreps, 1999; sector also has to properly implement and maintain the
Bowen and Ostroff, 2004; Kalleberg and Moody, 1994; other HR practices like performance evaluation and
Pfeffer, 1994; Tessema and Soeters, 2006). promotion practices. This study can help banking sector
The promotions practices also showing positive and to properly define that HR practices can produce higher
significant relationship in the model. Promotion practices performance of the employees of the banks which
have a contribution of 0.1147 in explaining the employee ultimately results in increasing the productivity and
perceived performance and significant at 5% level of motivation in employees.
significance. This shows that promotion practices can In this study, we adopt personally administered
affect positive to the performance of employees. The questionnaire and choose only three most important HR
result is also in accordance of the previous study done on practices. The future studies can be done by utilizing
banking sector of Pakistan (Baloch et al., 2010). The other HR practices like recruitment and selection
employees in the banking sector of Pakistan are satisfied practices, training and development practices, placement
with having a written and operational promotion policy; practices, and grievance practices.
seniors are preferred in promotion and also considered
merit in promotion (see appendix 2: questionnaire).
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APPENDIX
Appendix 2. Questionnaire:
S/No. Impact of HR practices on employees’ performance in banking sector (academic research survey) 1 2 3 4 5
1. My performance is better than that of my colleagues with similar qualifications 1 2 3 4 5
2. I am satisfied with my performance because it is mostly good 1 2 3 4 5
3. My performance is better than that of Bankers with similar qualifications in other Banks 1 2 3 4 5
4. The performance of my Bank is better than that of other Banks 1 2 3 4 5
5. Presence of attractive compensation system 1 2 3 4 5
6. Presence of equitable external salary 1 2 3 4 5
7. Presence of equitable overtime payment 1 2 3 4 5
8. Presence of salary that reflects performance 1 2 3 4 5
9. Presence of salary that encourages better performance 1 2 3 4 5
10. Presence of salary that reflects standard of living 1 2 3 4 5
11. Presence of written and operational performance evaluation 1 2 3 4 5
12. Performance evaluation has a lot to do with my salary 1 2 3 4 5
13. Performance evaluation has a lot to do with my personal decisions 1 2 3 4 5
14. Provision of feedback of performance evaluation results 1 2 3 4 5
15. Performance evaluation is considered important task by superiors 1 2 3 4 5
16. Performance evaluation is knowledgeable 1 2 3 4 5
17. Presence of written and operational promotion policy 1 2 3 4 5
18. Provision of priority to seniority in promotion decision 1 2 3 4 5
19. Provision of priority to merit in promotion 1 2 3 4 5
(1) Strongly disagree (2) Disagree (3) Indifferent (4) Agree (5) Strongly agree
332 Afr. J. Bus. Manage.
Demographics
The following data is required for statistical purposes only; please do not give your name or identification