Employees’ performance and human resource management practices:A study of banking sector in Pakistan

Prof. Muhammad I. Ramay*

Muhammad Bilal**

Abstract

In developed countries most of the research work and empirical studies have been done on the subject of employees’ performance and human resource management practices and found a significant relationship between HR practices and employee or firm performance. This research is conducted to check whether those results are also applicable in this under researched country. Most of the previous studies have been proved that there is a strong relationship between HR practices and firms’ performance. The aim of current study was to find a relation between employee performance and four HR practices including Training, Job Description, Career planning, and compensation in the banking industry of Pakistan. A questionnaire was distributed to bank employees in the banking sector of Pakistan. The results indicate that three of the chosen practices of HR training, job description, and career planning have a significant influence on the performance of bank employees in Pakistani environment. However compensations practices have insignificant impact on perceived employee performance.

Key words: Human resource management (HRM), training, job description, career planning, compensation, employee performance.

Introduction

At present there are 41 scheduled banks operating in Pakistan whose activities are regulated and supervised by State Bank of Pakistan (http://www.sbp.org.pk). It has been seen that there is an intense competition between banking sector of Pakistan as this sector has been almost privatized. Dr Shamshad Akhtar, Governor of the State Bank of Pakistan (2006) addressed that Banking sector of Pakistan has been transformed within a short period of 5 years (2000-05) from a sluggish and government-dominated sector to a much more agile, competitive and profitable industry. Esra Nemli (2010) stated that HRM practices are one important source of competitive advantage among Organizations. To compete successfully in this environment, organizations continually improving their performance, by improving HRM practices. Horgan & Mo’hlau, (2006) discussed that HR management system is associated with higher employee performance.

Many researchers have proved that HR practices have a positive relationship with employees’ performance. Marwat, Qureshi & Ramay (2009) have found that HRM practices are directly correlated with employees’ performance. Use of best HR practices shows a stronger association with firm’s productivity in high growth industry (Datta et al, 2003). Delery and Doty (1996) argued that there are significant relationships between HR practices and accounting profits among a sample of banks. Singh K (2004) argued that Training and compensation are having positive effects on organization and employee’s performance.

* Professor, Department of Management Sciences, International Islamic University, Islamabad. proframay@iiu.edu.pk ** Department of Management Sciences, International Islamic University, Islamabad. Bilalmba029@yahoo.com

There are several factors which affect on employees’ performance but present study focuses on the relationship between four HR practices (training, job description, career planning, and compensation) and employees’ performance. The purpose of this paper is to study the relation between HRM practices and performance of the employees of banking sector in Pakistan. Hence finding will help the organizations to improve or revise their strategies for HRM practices.

Pakistan is situated in South Asia having a population of about 170 million people. The country has four provinces Punjab, Sindh, Khyber Pakhtunkhwa and Baluchistan. Each province has its own emotional and cultural environment while the Federal region the capital of Pakistan, Islamabad has a population which is a mixture of all provinces. The current study is conducted in this city and its nearby to get generalized results. Importance of this study is that a few researches have been done in this region of Pakistan with these Independent variables.

Literature Review

HRM means employing people, developing their capacities, utilizing, maintaining and compensating their services in tune with the job and organizational requirement. Study shows that Human resources management involves several processes. These processes can be performed in an HR department, but some tasks can also be outsourced or performed by line-managers or other departments. When effectively integrated they provide significant economic benefit to the company. HRM practices involves Workforce planning, Recruitment (selection) Induction, Orientation, Skills management, Training and development, Personnel administration, Compensation, Time management, Travel management, Payroll , Employee benefits , Personnel cost planning, Performance appraisal and Labor relations. Literature relevant to HRM practices and employees’ performance provides different factors which have direct impact of human resource management practices on employees’ performance. Esra Nemli (2010) argued that the way an organization manages its human resources has a significant relationship with the organization’s performance. The prior studies have shown that those firms and organizations which are practicing HRM in their organizations have better results in overall performance of the firm. Wright & Gardner (2005) argued that correlations with performance measures at all 3 times(past, concurrent, and future) are both high and invariant, and that controlling for past or concurrent performance virtually eliminates the correlation of HR practices with future performance. When ever we study the relationship between HRM practices and employees’ performance one question came into mind that how can we compute HR practices. Gerhart et a1 (2000) argue that employees are the preferred source of information for assessment of the actual (as opposed to the official) HR practices. No established model yet exists in this research literature, but research by Guest (1997), Guest et a1 (2003) and Wright ef a1 (2003) provides examples that employee perceptions and evaluations of the existence, implementation and operations of HR practices are useful in the context of HR and performance research. As an example, Wright et a/ (2003) use survey questions on four domains of HR practices: selection and staffing, training, pay for performance, and participation. Qadar Baksh et al (2010) found the three hr practices; promotion, performance evaluation and compensation practices have a significant impact on perceived employees performance of the banking industry in NWFP Pakistan.

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Training

Training Methods include On-the-job and Off-the-job training. On-the-job training is delivered to employees while they perform their regular jobs. Off-the-job training techniques include lectures, special study, films, television conferences or discussions, case studies, role playing, simulation, programmed instruction and laboratory training. Training Programs include harassment training, communication skills training, computer and technical skills training, management and leadership training, diversity training, safety training, conflict management, workplace wellness, supervisor skills development and team building skills training. Patterson et al (1997) while discussing impact of people management practices on business performance has argued that HR practices in selection and training influence performance by providing appropriate skills. Their research has found that HR practices have powerful impact on performance. Huselid (1995) found that training of employees can be helpful to produce positive results. Cooke (2000) argued that training is the tool to develop knowledge and skills as means of increasing employees’ performance.

H1: There is a significant relationship between training and employees’ performance in banking sector of Pakistan.

Job Descriptions

Job descriptions are written statements that describe the duties, responsibilities, most important contributions and outcomes needed from a position, required qualifications of candidates and reporting relationship and coworkers of a particular job. (Qureshi, 2006) Job definition is combination of job description and job specification. It clearly outlines duties, responsibilities, working conditions and expected skills of an individual performing that job. In other words we can simply say that job description is what to do and how to do. It also provides individuals with stimulating and interesting work and gives them the autonomy and flexibility to perform their jobs well. Job description enhances job satisfaction and flexibility, which encourages high performance and productivity.

H2: There is a significant relationship between job definition and employees’ performance in banking sector of Pakistan.

Career Planning

Career Planning involves to conduct regularly career-information events that to inform your workers about their options regarding continuing education and further qualifications. People create career patterns as they make decisions about education, work, family and other life roles (Post, Borgen, Amundson, &Washburn, 2002). A number of researches suggest that the role of employers and employees is changing with reference to career e.g. Ball (1997) argues that as employers take less responsibility, employees need to take control of their own development in order to maintain and enhance their employability. Career planning is a tool that aligns strategy with future HR needs and encourages employee to strive for his personal development (William et al, 1996). Puah & Ananthram (2006) suggests, “Career development has a direct influence on the achievement of job satisfaction and career commitment. Highlighting its benefits for the

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organizations, Hartzenberg (2002) argues, “Organizations are expecting employees to assume greater responsibility for their own future as well as for organization’s success. Similarly, Johns (2005) suggests that employees that have advanced would put more effort into their work. The company policies play an important role in providing career opportunities. It seems that the organization may benefit from increasing commitment across all career stages.

H3: There is a significant relationship between career planning and employees’ performance in banking sector of Pakistan.

Compensation

Compensation can be defined as a paycheck issued by an employer in order to satisfy the compensation commitment that employer has with the employee. Most compensation managers entirely assume that high pay levels will maintain and enhance future performance of employees. Donald G. Gardner (2004) showed some results of a meditated model that suggests that pay level affects employee self-esteem, which in turn, affects employee performance. But on contrary (zaini Abdullah, 2009) concluded in his research that compensation or incentives have no influence on overall performance in the Malaysian business organizations. Singh (2004) argued that compensation is a behavior supporting mechanism of employees with business strategy of the firm. Wright et al (2003) have argued that an employee will exert discretionary effort if proper performance management system is in place and is supported by compensation system linked with the performance management system.

H4: There is a significant relationship between compensation and employees’ performance in banking sector of Pakistan.

Figure-1According to the existing literature the conceptual model in this study is shown in Figure-1.

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Job descriptions

Compensation

Career planning

Employees’ performance

Independent variables

Dependant variables

Training

Research Methodology

Questionnaire

The questionnaire developed for this study was used in the past researches by kuldeep singh (2004) and Qureshi et al., (2007), who used to find out the impact of HR practices on employees performance. Questions regarding independent variables (job description, training, career planning, and compensation) were not changed but some new questions were added on the subject of employee performance and some modifications were made in demographics. The questionnaire required a response to all questions except demographics on five point Lickert scales having extreme points: 1=strongly disagree, 5=strongly agree.

Participants

Sample of the study are the bank employees including cash officers, operation officers, sales officers, and branch managers of six well known organizations including two private commercial banks (Allied Bank Ltd, United Bank Ltd) two public owned banks (Bank of Punjab, National bank of Pakistan) and two Islamic banks (BankIslami, Mezaan Bank Ltd.).

Due to cost constraint a convenient sampling was chosen and 200 questionnaires were distributed in selected number of branches of all banks located in Islamabad and Rawalpindi region. However 191 questionnaires were returned back out of which 5 were discarded due to uncompleted response. As a whole, sample was of 186 members showing a response rate of 93 percent. Table-1 shows the demographic characteristics of the respondents.

Table-1 DemographicsGender Age Education

Male = 123 (66%) 20-30 = 59 (32%) F.A = 26 (14%) Female = 063(34%) 30-40 = 68 (37%) B.A/B.Sc = 83 (45%)

40-50 = 43 (22%) Master = 59 (32%)50-60 = 16 (09%) Other = 18 (09%)

Salary “000” Department Experience

10-25 = 79(42%)26-40 = 46(25%)41-55 = 37(20%)56-70 = 18(10%)71-above = 06(03%)

Personal banking = 37(20%)Operations = 94(51%)Sales = 28(15%)Other = 27(14%)

01-10 = 72(39%)11-20 = 58(31%)21-30 = 45(24%)31-40 = 11(06%)

Statistical Analysis

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Pearson Correlation and Multiple Regression were used for measuring the impact of HR practices on Perceived Employees' Performance. Data was operated by using SPSS 16.

Table-2 Scale ReliabilityVariables Cronbach’s AlphaEmployee performance 0.752Training 0.646Job Description 0.571Career Planning 0.846Compensation 0.613

Descriptive Analysis

The highest mean of 3.8 was calculated for training and Job Description which shows that employees feel that they are well trained and knows what to do and how to do their job. The calculated mean for other independent variables career planning and compensation are 3.6 and 3.3 respectively; which indicates that employees are some what convinced with these factors.

The mean value of 3.8 for the dependent variable i.e., Employee performance shows that employees are performing very well.

Table-3 Mean, Standard Deviations and Other Statics  Employee

performanceJob

Description TrainingCareer

Planning CompensationValid 186 186 186 186 186Mean 3.7812 3.8199 3.8002 3.6382 3.3785Std. Error of Mean 0.03333 0.0364 0.05312 0.05442 .02619Median 3.9 4 3.8333 3.7143 3.6Mode 3.9 4.25 3.83 3.71 3.6Std. Deviation 0.45455 0.49643 0.72453 0.74226 .35717Variance 0.207 0.246 0.525 0.551 0.128Range 1.7 1.5 2.2 2.86 1.17

Correlation Results

The results of Pearson correlation as shown in table-4 indicate that there is a statistically significant relationship between the dependent variable Employee performance and the independent variables Job Description, Training, Career Planning, and Compensation. Correlation of Training with employee performance is 0.723 which is highly significant and there is a positive correlation between them. This shows that by conducting proper training sessions for the employees, high level of employee performance can be obtained.

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Job Description has a positive and significant relationship with employee performance and its value is .668, which shows that by clarifying outlines duties, responsibilities, working conditions and expected skills a firm can get better performance from their employees. Career Planning also showed a significant correlation with perceived employees' performance (0.510). Compensation has a correlation of 0.209 with employee performance, which is positive but mildly significant. We can say that compensation does not affect the performance of employees to a larger extent.

Table-4 Correlations    Employee

performance TrainingJob

DescriptionCareer

Planning CompensationEmployee performance

Pearson Correlation 1                   

Training Pearson Correlation .723** 1      

             Job Description

Pearson Correlation .668** .166* 1    

             Career Planning

Pearson Correlation .510** .498** .145 1  

             Compensation Pearson

Correlation .209** .317** .288** .071 1

             **. Correlation is significant at the 0.01 level (2-tailed).    *. Correlation is significant at the 0.05 level (2-tailed).    

Regression Results

The value of adjusted R square i.e., .512 indicates that 51.2% of the variation in the dependent variable employee performance can be explained by variations in the independent variables job description, training, career planning, and compensation.

The estimated average value of employee performance is 1.09 when job description, training, career planning, and compensation are zero. The change in employee performance is .385 when training increases by 1. Similarly, change in employee performance is .495 when job description increases by 1. Changes in employee performance are .223 and -.099 when career planning and compensation change by 1, respectively.

Except for compensation, the other three variables description, training, and career planning have positive relationship with employee performance. Compensation has a negative relationship

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with employee performance. The most influential variables are job description and training (highest value of 0.495 and 0.385 respectively for Beta).

All the significance levels are well over .05, which indicates that there is a very minor probability that the independent variables do not influence the dependent variable employee performance, in the reported method.

The regression results show that the independent variables job description, training, career planning, and compensation are significantly connected to the dependent variable employee performance. This shows that factors like better training, clarifying their duties and responsibilities, providing opportunities for better career raise the level of performance. Negative value of Beta for compensation indicates that in our culture, compensation may not be a significant factor for the employees to perform well.

Table-5 Regression Analysis

Model R R SquareAdjusted R Square

Std. Error of the Estimate

1 .723a 0.522 0.512 0.31761

a. Predictors: (Constant), Compensation, Training, Job Description, Career Planning

CoefficientsModel

Un standardized Coefficients

Standardized Coefficients

t Sig.

B Std. Error Beta B Std. Error1 (Constant) 1.089 0.298   3.66 0

Training 0.385 0.068 0.467 7.264 0.208Job Description 0.495 0.054 0.54 9.178 0Career Planning 0.223 0.042 0.365 5.345 0Compensation -0.099 0.039 -0.158 -2.51 0.013

a. Dependent Variable: Employee performance

Conclusion

In this study we used employment performance as a dependent variable to check the HR practice, while training, job description, career planning and compensation are independent variables. For that a number of bank branches were selected in Islamabad and Rawalpindi region. A feedback of 186 questionnaires was analyzed in SPSS 16. We used correlation matrix and regression analysis, following are conclusion and suggestions.

Statistical analysis indicates that the employees working in the banking sector feel that their jobs performance is improved by the factors like training and job description. The employees are not satisfied with the pay and the benefits that they get but they are performing well. The reason behind this fact can be explained as most of the employees are having 1 to 10 years experience,

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thus, they want to ensure their position at the job rather to give preference to income they earned. Therefore, there compensation factor matters less to their job performance.

Correlation analysis found the highest correlation for job performance and training which indicates that if the employees are offered trainings timely and on need basis through fair decision-making and sound policies, their performance level rises. Compensation has not a significantly high correlated with employee performance which specifies that the employees with low pay and benefits have higher employee performance depending on their trainings and job description.

Regression analysis indicates that the dependence of training and job description on employee performance is significant, whereas it is not significantly dependent on compensation. Career planning has also a role to play in an employee’s job performance.

Suggestions:

Referring to the empirical evidence obtained from this study; to achieve better employee performance, following factors must be taken into account:

1. HR practices should be taken seriously regarding employees training. On the job and off the job training programs should carry out as it help employees to improve their skills, efficiency and performance.

2. A job should be well descriptive on paper, and it must be included in HR practices to tell the employee his/her duty clearly so that number of errors and mistakes would decrease.

3. To improve the employee performance and attitude towards banking sector there should be more emphasize on career planning, as this increase the motivation level and employee performance.

4. Employees must be consulted for their compensation allowances regarding job. This may help in improving their commitment towards the work. Therefore, it also has taken in practice to give fair compensations to the employees so that they work efficiently.

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