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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

EMPLOYEES PERFORMANCE

VOL 3, N O 1 EXAMING THE IMPACT OF HUMAN RESOURCES MANAGEMENT (HRM) PRACTICES ON

A CASE STUDY OF PAKISTANI COMMERCIAL BANKING SECTOR

Rahim Bux Soomro Lecturer Department of Business Administration Shah Abdul Latif University, Pakistan. Dr. Rehman Gul Gilal Assistant Professor Department of Business Administration, Shah Abdul Latif University, Khairpur, Pakistan Muhammad Masihullah Jatoi Assistant Professor (Corresponding author) Department of Business Administration, Shah Abdul Latif University, Khairpur, Pakistan Abstract The nucleus endeavour of this study was to examine the impact of commonly HRM practices on employee s performance. For all the seven HRM practices (training, selection, career planning, employee participation, job definition, compensation, performance appraisal) support was founded that these were correlated positively with the employee performance based on responses from 150 employees of various commercial banks located in Upper-Sindh. A statistical technique of Spearman Correlation was applied in order to examine impact of HRM practices on employee performance. Further respondents gave highest importance to performance appraisal and then to compensation among individual HRM practices. Key Words: HRM Practices, Employee Performance, Banking Sector, Compensation, Performance Appraisal, Pakistan. 1. Introduction Every banking organization is being considered as one of the most vulnerable business organizations all over the world. There is central role is being played by banks in the economy of a country and thus in Pakistan too. Banks are guardian to the assets of the general people. The banks play a very unavoidable role in a current world of money and economy. These are the banking institutes which are not only influencing and but also facilitating a lot of different but integrated economic activities like poverty elimination, production and distribution of public finance, resources mobilization etc. This comprehensive but complex and painful process of restructuring of banking system started since 1997. Therefore more and more private banks in Pakistan are paying special attention towards creating and maintaining Human Resource Managing department. Owing to sever competition among Pakistani banks, human capital is one of a source of getting competitive advantage for any business (Becker & Huselid, 1998). Pfeffer (1994) had argued that human capital has long been held to be a critical resource in most firms.

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Therefore a link between practices of HRM and employee and organizational performance has drawn substantial attention over the past decade both in the US (Huselid, 1995; Pfeffer, 1998) and the UK (Guest, 1997; Woodand deMenzes, 1998). It is frequently held opinion that employees who are pleased with their jobs are likely to produce better job result. The basis of this opinion is that higher levels of satisfaction grow morale and lessen voluntary turnover (Dole and Schroeder, 2001). Petty et al. (1984) conducted a metaanalysis and concluded that job satisfaction and performance are indeed positively correlated (r = 0.23, uncorrected). How to retain employees has become a very serious question for all banks in the country. Use of best HRM practices is used as tool, in this regard, to create a centre of attention for employees and to retain them. Huselid (1995) used eleven HRM practices in his study which are personnel selection, performance appraisal, incentive compensation, job design, grievance procedures, information sharing, attitude assessment, labour-management participation, recruitment efforts, employee training and promotion criteria. This study used seven HRM practices like training performance appraisal, career planning, employee participation, job definition, selection, compensation. In the background of above-mentioned situation, this study will attempt to find effect of certain HR practices on perceived employee performance in banking sector of Pakistan. 2. Literature Review According to Ulrich (1997), human resource management (HRM) plays a vital function in the success of many firms regardless of their sizes. Service Quality has become a major issue in service-oriented organizations like in banks. Generally banks throughout the world are providing somewhat similar type of services (Lim & Tang 2000), quickly matching their competitors innovations. However, customers can observe differences in the quality of service provided to them by their concerned organizations (banks). As job of banks needs high-involvement of their employees while serving bank customers, therefore there is a direct link between human resource practices and employee performance to create firm-specific human capital. Firm-specific human capital is important because these customer-contact employees manage the boundary between the firm and its customers (Mills et al., 1983), and the behaviour of these employees shapes customers' buying behaviour. Ooi, Arumugam, Safa, and Bakar (2007) identified that HRM is considered as one of the crucial subjects in the research area of management and business for the past few decades due to its impacts on both the individual and organizational performance as a whole. Existing theoretical work in business strategy has enhanced the worth of HR in generating constant competitive advantage. In Accordance with the resource-based view of the firm (e.g., Barney, 1986, 1991, 1995), that firms can build up sustained competitive advantage only by creating worth in a way that is unusual and hard for competitors to imitate competitive advantage . There are number of studies showing that proper management of human resource plays a vital role in formulating and implementing organisational strategy. Most of the research recommends that practices of HRM are fundamental in order for an organisation to accomplish organisational success (Barney, 1991; Jackson & Schuler, 2000; Pfeffer, 1994). There are number of researchers who have found a positive impact of HRM practices on performance of organisations. For instance, Backer and Gerhart (1996), Backer and Huselid (1998), and Dyer & Reeves (1995) in their empirical studies found that firms which align their HRM practices with their business strategy will achieve superior outcomes. Wood (1999) and Guest (2002) put stress that a committed, competent and highly involved work-force is the one which is necessary for best execution of business strategy. Exercising best human resources practices shows a stronger
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association with firm s productivity in high growth industry (Datta et al, 2003).Huselid (1995) found that the effectiveness of employees will depend on effect of HRM on behaviour of the employees. 3. Research Question How practices of Human Resource Management influences Employee Performance. Hypothesis H 1: There is positive association between Training and Employee s Performance. H 2: There is positive association between Performance Appraisal and Employee s Performance. H 3: There is positive association between Career Planning and Employee s Performance. H 4: There is positive association between Employee Participation and Employee s Performance. H 5: There is positive association between Job Definition and Employee s Performance. H 6: There is positive association between Compensation and Employee s Performance. H 7: There is positive association between Selection and Employee s Performance. 4. Methodology Data Collection in order to collect data from respondents samples of questionnaire based on Questionnaires developed by Singh (2004) and Qureshi M Tahir (2006) were dispatched to employees in different branches of banks during the study period located in various areas of Upper-Sind like Sukkur, Jacobabad, Khairpur, Dadu, Shikarpur, Larkana etc. In abovementioned cities of the said region almost all the major banks (under study) have their branches. A sum of 200 questionnaires were sent through courier services and 150 were completely filled in by respondents and backed. To increase the rate of response, the targeted respondents were informed regarding the research objective and confidentiality on separate sheet attached with every questionnaire. Consequently, a response rate of almost 75% was attained. A well-liked method known as pick any, tick any (Sudhahar et al.,2006) was used where respondents were merely required to put a tick-mark in any cell/no shown against each and every question. Further questions were enquired on five-point likert scale from the respondents. 5 for strongly agree, 4 for agree, 3 for neutral, 2 for disagree and 1 for strongly disagree had been specified in order to analyze data. Research Variables From the review of literature, following variables which were expressed in the theoretical framework are given below. Employee performance was the dependent variable, which was going to be examined for relationship with all HRM practices.

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Theoretical Framework

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5. Analyses & Results All seven hypotheses were tested in this study, by carrying out a technique of Spearman Correlation and Descriptive Statistics for analyzing data numerically because this study aimed at founding relationship between human resource management practices and employee performance. As hypotheses were directional hypothesis, therefore one-tailed test was used. SPSS v.13 on Windows XP was utilized for all analyses.

Table 1-Descriptive Statistics

EPP Mean 3.6867 Training 3.8021 PA 3.6953 CP 3.6020 EP 3.5045 JD 3.8350 Compen. 3.6707 Selection 3.6733

Median

4.0000

3.8300

3.7100

3.5700

3.6700

4.0000

3.8000

3.6250

Mode

4.00

4.00

3.57

3.43

4.00

4.00

4.00

3.50

Standard Deviation .74308 .48287 .57810 .58801 .83509 .67234 .66681 .70826

Range

3.00

2.67

3.71

3.57

4.00

3.50

3.40

3.75

Minimum

2.00

2.33

1.29

1.43

1.00

1.50

1.40

1.25

Maximum

5.00

5.00

5.00

5.00

5.00

5.00

4.80

5.00

Sum

553.00 150

570.32 150

554.29 150

540.30 150

525.67 150

575.25 150

550.60 150

551.00 150

Count

Employee job performance is a dependent variable. Training, Performance Appraisal, Career Planning, Employee Participation, Job Definition, Compensation and Selection are the independent variables.

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Table II- Correlations Results

1 1. EPP 2. Training 3. Per. App. 4. Carr. Plng. 5. Emp. Part. 6. Job Def. 7. Comp 1.00 0.17 0.13 0.25 0.20 0.26 0.07 0.09

1.00 0.22 0.23 0.21 0.32 0.19 0.25 1.00 0.39 0.22 0.21 0.28 0.39 1.00 0.25 0.37 0.32 0.30 1.00 0.25 0.23 0.12 1.00 0.24 0.35 1.00 0.18 1.00

8. Select

H 1 suggests that there is positive association between training and employee s performance. There is positive relation between training and employee performance (.17). Although this is not a significant figure but at least it illustrates, definitely, that employees are satisfied that their performance has been increased in last twelve months owing provision of training facilities. H 2 suggests that there is positive association between performance appraisal and employee s performance. There is also positive relation between performance appraisal and employee performance (.13). It signifies that employees are satisfied, though not highly satisfied, with the techniques in which they are being appraised by their concerned organizations. H 3 proposes that there is positive association between career planning and employee s performance. The relation between career planning and employee performance (.25) again it is not very noteworthy but there is a clear positive relation between these variables. This relation shows that concerned organizations have a clear path for successful career of their employee hence performance of employees has been increased in last one year. H 4 offers that there is positive association between employee participation and employee s performance. There is also positive relation between employee participation and employee performance (.20) but not very noteworthy. This denotes that there are somewhat greater numbers of opportunities have been given to employees in decision making process at various levels and resultantly their performance has been increased in the said time. H 5 proposes that there is positive association between job definition and employee s performance.

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Job definition and employee participation (.26) shows positive relation among themselves but not very healthy. At least this relation proves that employees are pleased with their jobs and their performance has been augmented. H 6 suggests that there is positive association between compensation and employee s performance. There is very slight but positive relation between compensation and employee performance (.07). This weak relation clearly demonstrates that employees are not content with compensations given to them by their concerned organizations. H 7 proposes that there is positive association between selection and employee s performance. In last relation between selection and improvement in performance of employee (.09) is very fragile. Here employees are not comfortable with employee s selection procedures prevailing in their organizations. 6. Conclusions The results of this study indicate that there was a good relationship between the employee performance and the HRM practices, therefore it can be concluded that all HRM practices are equally vital for all employees of all levels in every organization. Further this study point to that employees were very much pleased with their compensation and selection procedure adopted by their respective organizations, therefore it is strongly advised that market-oriented compensation may be made available to employees along with trustworthy selection procedures. In accordance with arguments of Wright et al (2003) that an employee will apply flexible effort if proper performance management system is in place and is supported by compensation system linked with the performance management system. Therefore when respondents were enquired to which HRM practice they are given maximum weight than they gave highest weight to performance appraisal of 27% (41 out of 150). Possibly they might imagine this is the only practice if went good in it, than all others will also go better like good compensation, training, career planning and others. For employees second most important HRM practice was compensation and it was 24 %( 36 out of 150). Observations of Singh (2004) are more pertinent in our cultural context, argues that compensation is a behaviour aligning mechanism of employees with business strategy of the firm. Therefore possibly, that most of employees were not pleased with compensation packages. While remaining HRM practices have got mixed response. Table-III HRM Practices priority wise
HRM Practices 1. Training 2. Performance Appraisal 3. Career Planning 4. Employee Participation 5. Job Definition 6. Compensation 7. Selection Total Frequency 16 41 14 15 17 36 11 150 Percent 10.5 27.0 9.2 9.9 11.2 23.7 7.2 98.7

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7. Recommendations In the era of strong competition among organizations all competitive edges can be overcome except motivated human resource. Generally it is very difficult for any organization to duplicate human potential of competitors than the plant, equipment or even products that a company produces (Flanagan and Despande, 1996). Therefore organizations have to forward extraordinary importance the human resource management practices because these are very significant for continued existence of the organization. As the results of this research point to that the pleasant working environment, provision of career development opportunities and rewards are key factors that have an effect on the retention of employees with organization; should be focused and attempted to improve them. 8. Limitations The study is limited in following ways. First, owing to the small sample size generalizability of these findings is confined. Second, there are many other factors which may affect the level of employee performance but due to time restriction other factors were not taken for research.

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REFFERENCES

Backer, B. & Gerhart, B. (1996). The impact of human resource management on organizational performance: progress and prospects. Academy of Management Journal, 39, 779-801. Backer, B.E. and Huselid, M.A. (1998). High-performance work systems and firm performance: a synthesis of research and managerial implications. Research in Personnel and Human Resource Management, 16, G.R. Ferris (ed). Greenwich, CT: JAI Press. Barney, J. B. 1986. Organizational culture: Can it be a source of sustained competitive advantage? Academy of Management Review, 11: 656-665. Barney, J.B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99-120. Barney, J. 1995. Looking inside for competitive advantage. Academy of Management Executive, 9(4): 49-61. Dess, G.D. and Shaw, J.D. (2001), Voluntary Turnover, Social Capital and Organizational Performance , Academy of Management Review, Vol. 26 No. 3, pp. 446-456. Dole, C. and Schroeder, R.G. (2001), The impact of various factors on the personality, job satisfaction and turnover intentions of professional accountants , Managerial Auditing Journal, 16 (4), 234-45. Dyer, L., & Reeves, T. (1995). HR strategies and firm performance: what do we know and where do we need to go? International Journal of Human Resource Management, 6(3), 656-670. Firebaugh, Glenn and Brian Harley (1995), Trends in job satisfaction in the United States by race, gender, and type of occupation. Research in the Sociology of Work, 5, 87 104. Flanagan D.S. and S.P. Despande (1996), Top management s perceptions of changes in HRM practices after union elections in small firms, Journal of Small Business Management, 34(4), 23-34. Gerhart, B. & Milkovitch, G. B. (1992). Employee compensation: research and practice, n Dunnette, M. & Hough, L. (Eds). Handbook of Industrial and Orhanisational Psychology, Consulting Psychologists Press, Palo Alto, CA, 3, 481 569. Guest D (2002). Human Resource Management, Corporate Performance and Employee wellbeing: Building the worker into HRM . The Journal of Industrial Relations 44:3 335-358. Guest D, 'Human resource management and performance: are view and research agenda 'The International Journal of Human Resource Management, 8 (1997)263-276. Hom, P.W. and Griffeth, R.W. (1995), Employee Turnover, South-Western, Cincinnati, OH. Hulin, C.L., Roznowski, M. and Hachiya, D. (1985), Alternative opportunities and withdrawal decisions: empirical and theoretical discrepancies and an integration , Psychological Bulletin, 97, 233-50. Huselid M, The impact of human resource management practices on turnover, productivity and corporate financial performance Academy of Management Journal, 38(1995)635-673. Jackson, S. E. & Schuler, R. S. (2000). Managing Human Resources, A Partnership Perspective, Southern-Western College Publishing, London. Khatri Naresh, Chang Tze Fern, Pawn Budhwar (2001): Explaining Employee Turnover in an Asian context. Human Resource Management Journal volume 11, page 54-74 Lawler, E. and Porter, L. (1967), The Effect of Performance on Job Satisfaction , Industrial

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Relations, 7, 20-8. Lee, Feng-Hui, & Lee, Fzai-Zang. (2007). The relationships between HRM practices, Leadership style, competitive strategy and business performance in Taiwanese steel industry, Proceedings of the 13th Asia Pacific Management Conference, Melbourne, Australia, 2007, 953-971. Lim, P.L. & Tang, N.K.H. (2000), A study of patients expectations and satisfaction in Singapore hospitals , International Journal of Health Care Quality Assurance, Vol. 13 No. 7, pp. 290 299. MacDuffie, J.P. (1995). Human resource bundles and manufacturing performance: organisational logic and flexible production systems in the world auto industry. Industrial and Labour Relations Review, 48, 197-221. March, J.G. and Simon, H.A. (1958), Organizations, John Wiley & Sons, New York, NY. Mills, P. K., Chase, R. B., & Marguiles, N. 1983. Motivating the client/employee system as a service production strategy. Academy of Management Review, 8:301-310. Mobley, W.H., Griffeth, R.W., Hand, H.H. and Meglino, B.M. (1979), Review and conceptual analysis of the employee turnover process , Psychological Bulletin, 86, 493-552. Morrell, Kevin, John Loan-Clarke and Adrian Wilkinson (2001), Unweaning Leaving: The Use of Models in the Management of Employee Turnover International Journal of Management Review Volume 3 No. 3, pp.219-244. Ooi, K.B., V. Arumugam, M.S. Safa and N.A. Bakar, 2007. HRM and TQM: Association with Job Involvement. Personnel Review, 36(6): 939-962. Petty, M.M., McGee, G.W. and Cavender, J.W. (1984), A meta-analysis of the relationships between individual job satisfaction and individual performance? Academy of Management Review, 9, 712-21. Pfeffer, J. (1998). Seven practices of successful organisations. California Management Review, Vol. 40, No. 2, pp. 96-124. Pfeffer J, the Human Equation Boston: Harvard Business School Press, 1998. Price, J.L. and Mueller, C.W. (1986), A causal model of turnover for nurses , Academy of Management Journal, 24, 543-65. Qureshi M Tahir&Ramay I.Mohammad (2006). Impact of Human Resource Management Practices on Organizational Performance in Pakistan . Muhammad Ali Jinnah University Islamabad. Rusbult, C.E. and Farrell, D. (1983), A longitudinal test of the investment model: the impact of job satisfaction, job commitment, and turnover on variations in rewards, costs, alternatives, and investments , Journal of Applied Psychology, 68, 429-38. Schneider, B. and Brief, A.P. (1992), Foreword , in Cranny, C.J., Smith, P.C. and Stone, E.F. (Eds), Job Satisfaction, Lexington Books, New York, NY. Singh K (2004). Impact of HR practices on perceived firm performance in India . Asia pacific Journal of Human Resources 42:3 301-317.

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Sudhahar et al. (2006). Service Quality measurement in Indian retail banking sector: CA Approach. Journal of Applied Sciences , 6 (11), 2377-2385. Ulrich, D. (1997) Human Resource Champions: The Next Agenda for Adding Value and delivering Results. Boston, MA: Harvard Business School Press. p.38 Wood S (1999). Human Resource Management and Performance . International Journal of Management Reviews 1: 4 367-413. Wood S and deMenzes, High commitment management in the UK: evidence from the Workplace Industrial Relations Survey and employers' manpower and skills practices survey Human Relations, 51(1998) 485-515. Wright P, Gardener T, Moynihan L (2003). The Impact of HR practices on the performance of business units . Human Resource Management Journal 13:3 21-36.

Annexure

BIO DATA OF RESPONDENTS Variable Gender Male Female 20-25 26-30 31-35 Age of Respondents 36-40 41-45 46-50 51-55 Above 56 Matriculation Intermediate Education Graduation Masters Diploma with Matric /Inter. Other Total years of Experience 1 to 3 3 to 6 6 to 9 Item Frequency 99 51 38 68 31 6 3 2 0 2 1.0 13.0 68.0 67.0 1.0 150.0 4.0 64.0 16.0 Percentage 66 34 24.7 44.2 20.1 3.9 1.9 1.3 0.0 1.3 0.6 8.4 44.2 43.5 0.6 97.4 2.6 41.6 10.4

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Total years of Experience with this Organization

7 to 9 10 to 12 13 to 15 16 to 19 20 or above

Branch Operations Officer Customer Relationship Officer(CRO) Relationship Manager(RM) Customer Service Officer(CSO) Operation Manager(OM) Designation Branch Manager(BM) Assistant Branch Manager(ABM) Teller No Response Branch Banking(BB) Operations Department Credit Consumer Banking No Response

2 19 16 24 17 11 8 27 26 12 65 13 31 29

1.3 12.3 10.4 15.6 11.0 7.1 5.2 17.5 16.9 7.8 42.2 8.4 20.1 18.8

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Annexure contd..

Name of Bank 1 Silk Bank 2 JS Bank 3 Bank Islami 4 Bank Alfalah 5 Muslim Commercial Bank 6 Standard Chartered 7 Askari Bank 8 Allied Bank Limited 9 United Bank limited 10 Habib Bank Limited 11 Faisal Bank 12 My Bank 13 NIB Bank 14 Bank Al Habib 15 Arif Habib Bank 16 Meezan Bank 17 KASB Bank 18 Bank of Punjab 19 Soneri Bank Total

Questionnaires 6 6 5 9 10 5 9 8 9 10 9 8 9 8 8 9 7 7 8 150

Percent 3.9 3.9 3.3 5.9 6.6 3.3 5.9 5.3 5.9 6.6 5.9 5.3 5.9 5.3 5.3 5.9 4.6 4.6 5.3 98.7

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