Impact Of Hr Practices On Employee Performance Business Essay


Employee performance has always been a challenging phenomenon for the top management of organizations. Despite of many reforms in HR practices to enhance the employee performance, yet the desired level of employee performance is not achieved, that makes it more challenging. In today's world of highly competitive environment, only those organizations will survive that will compete their best for employee performance because it is key success factor for every organization. We suggest the top management to include employee training, performance appraisal, compensation and employee participation in their prime HR practices. Objective of this paper is mainly concerned with determination of any linkage/relationship among employee training, performance appraisal, compensation, employee participation and employee performance. 150 respondents at Bahawalpur, Bahawalpur, Pakistan, conducted a field survey. To check the data, the exploratory and confirmatory analyses were made. Proposed hypothesis were tested by regression analysis. The results were quite significant. Current study found positive significant relationship among employee performance and its factors (employee training, performance appraisal, compensation and employee participation).

1.0. Introduction

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Entire Universe is created perfectly, where each element has its existence and still exercises its functions based on strong links and integration between them. All items are well aware of their limitations, which is the only reason they are propagating the system of the universe. When obligations are bothered by any means, then their performance loses its rhythm. In addition, every organization is a combination of different units and departments, where each department consists of number of people and all people with different thoughts, attitudes, behaviors, values, beliefs, cultures and experiences work together for the achievement of a specific set of objectives. Efficient and effective achievement of these objectives is only possible if each member of all departments ​​must be well aware of its responsibilities and limitations, and they can help each other with any assignment and can enhance the system the whole organization.

The performance of an organization depends largely on the performance of its employees. Successful organizations are becoming more aware that there are several factors that contribute to the performance of the organizations but human resources are clearly the most critical. Despite the scale and nature of an organization, the activity they wish, and the environment in which it operates, its success depends on employee's decisions and their behavior. To evaluate performance of employees in the organization is one of the most important goals of the employment of human resource practices. In the competitive environment of modern organizations, they are constantly improving the performance of their employees by improving HR practices. Caliskan(2010) recognized that HR practices are an important source of competitive advantage. Many researchers have demonstrated that HR practices have a significant and positive relationship with the employees' performance. (Delery and Doty, 1996; Guest, 2002; Harley, 2002; Huselid, 1995; Qureshi et al., 2006; Tessema and Soeters, 2006).

Of the last two decades, the emphasis on HR practices is an imperative and decisive area for performance of the organization. Effective HR practices to improve organizational performance and lead to higher profits. Datta et al. (2003) found that the best use of HR practices reveals a strong association with business efficiency. Human Resource management (HRM) has a significant association with the accounting profits of banks (Delery and Doty, 1996). Pakistan is a country in research (Aycan et al., 2000).Pakistan, little research has been done to investigate the association between HR practices and performance of employees in the banking sector. Bahawalpur,Pakistan's banking sector plays vital role in the economic development of the country. Modern banking system is necessary to meet the needs of a developing country (Zaidi, 2005). The last five years, the growth and recovery of the banking sector in Bahawalpur, Pakistan has been incredible and ranked as the best performing sector of Bahawalpur, Pakistan (Akhtar, 2007). According to OSEC business network Switzerland February 2011 report, "Banking sector of Bahawalpur, Pakistan comprised of 36 commercial banks (including 25 local private banks, 4 public sector commercial banks and 7 foreign banks) and 4 specialized banks. Among these banks, there are 6 full-fledged Islamic banks" (Consulate General of Switzerland, 2011).

Researchers have distinguished for the study of the banking sector in Bahawalpur, Pakistan, as both traditional banking and Islamic banking co-exist. Bahawalpur, Pakistani banking sector usually focus only on the domestic money market and for this reason Bahawalpur, Pakistan has not severely affected by the recent failures everywhere in the banking sector as Lehman Brothers (Zingales, 2008). Traditional banks have taken on the money market in Bahawalpur, Pakistan, but also focus to provide Islamic banking services to maintain customer confidence in their institute. Islamic banking is one aspect of the bank earns a little attention in the world after the global financial crisis. Wilson (2000) found that Islamic finance in the West also attracts the interest of non-Muslims to join this growing sector. Another reason to focus on the banking sector is that the sector is the largest employer of graduates. As this sector provides fair compensation for employees compared to other sectors. Bahawalpur, Pakistan is a Muslim country, leaving because of religious issues (interest) tend to join the banks was significantly lower among local graduates. Now, because of the very rapid growth of Islamic finance, many Bahawalpur, Pakistanis commercial banks have also started to Islamic banking, which motivated graduates to join this sector. Based on these facts, the researchers went to investigate the impact of human resource practices in the banking sector of Bahawalpur, Pakistan using the response of employees through the survey. The objective of this paper is to examine the relationship between HR practices and performance of employees in the private banking sector of Bahawalpur, Pakistan. However, there are several factors that affect the performance of employees, but the study focused on the relationship between HR practices four (training, performance evaluation, compensation and employee participation), and employee performance. Therefore, the findings and results of this study will help the banking sector to improve or revise their strategies for human resource practice. The remaining paper is prepared as follows: literature, data and methodology paper, the empirical results of the study and the conclusions of this study. Private Banking sector of Bahawalpur, Pakistan has seen phenomenal growth in recent years. To benefit from growing market, private banks require the right people for the right job. To attract, retain and add to share holder value of innovative human resource management practices should be implemented.

2.0. Literature Review

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Human resource policies and practices of an organization are important forces significantly to determine the behavior and insolence employees. Human resource management takes many forms now, but the management of human resources in organizations is virtually to call people and maintain working relationships.

Developing countries now consider crucial component in effective HR development strategies than ever (Bennell, 1994; Budhwar and Debrah, 2001; Hilderbrand and Grindle, 1997; Kiggundu, 1989, Praha, 2004, World Bank, 1994). Most researchers showed that declining real incomes, difficult working conditions, management intervention and private policy for decades created frameworks officials in most developing countries has led to permanent demotivation and discouraged (Baron and Kreps, 1999; Das, 1998, Jaeger et al, 1995;. Kiggundu, 1989). Budhwar and Debrah (2001) revealed that many developing countries are faced with unintentional barriers in developing due to the resource management outdated and unproductive (HRM) systems. Lately, the major emphasis on writing HRM was to develop the significance of effective administration of human resources business (Ahmad and Schroeder, 2003; Delaney and Huselid, 1996. Ichniowski et al , 1997). There are a number of HR practices that affect employee performance, but we are the following four:

2.2. Training

Training its name tries to bridge the gap between employees and the main contents of their working environment. It can be in the form of learning the elderly, receiving satisfaction, cooperation from their peers, and respects and obeys the subordinates. It enables employees to actively participate in the provision of support suggestion on their behalf and to carry on the management for the benefit of employees and the organization. These aspects of training to build value in the eyes of those whose minds think tanks revolve around creating value for the organization through the effective use of all kinds of goods, and the most important out of them as their employees. Organizations around the world working with the concept of continuous improvement in their work and employee performance, they should organize programs such as those that can polish the skills of employees and can develop skills that are required in the workplace, (Jie and Roger, 2005). training not only develops but also mentally prepare employees to better their health to be with the mind active and productive thinking organization (David, 2006).

With the ability to mental and physical development of training employees in good health not only prepares employees retirement to raise their performance, but it also adds attributes for effective capacity of young workers (Becci, 2006). Organizations that produce physical society, they should be very careful about their employees who work on these products. Keep the image in mind with regard to customer need, they will be able to give a better shape employee behavior with them through proper training. In particular, the companies that market their products through its employees must train their employees to change according to customer needs and market trends (Hollenbeck, Derue and Guzzo, 2004).

Improve employee self-efficacy will also work to push their performance level improved and efficient and increase their enthusiasm for their own account (Svenja, 2007). It is also possible thanks to the add in the content of the training program. The training aims to eliminate weaknesses and negative organizational outcomes and tends to improve traditional practices that add very little to approach the targets set (Kathiravan, and Devadason Zakkeer, 2006). Therefore, on the basis of these sets of facts regarding the effects of training, I guess:

H 1; Training affects the employee's performance positively.

2.3. Performance Appraisal

A comprehensive system of performance evaluation is the basic criterion for evaluating the performance of an individual, highlight potential future career, especially, to improve performance (Mullins, 2002). Lecky (1999) defines the system performance evaluation as a benchmark, which is set against the execution of specific tasks, defining and evaluating current performance. It requires the input and output as compensation, salary increases, the level of expectation, promotion and planning management. In addition, there is a merit rating which should be beneficial to both parties and must be constantly reviewed in light of the requirement. The system explicitly stated needs of the individual and therefore has far-reaching effect of improving productivity. Dave and Wayne (2005) argued that performance assessment is an instrument by which a person has been replicated by the contribution due to some personal dissatisfaction, and it has hurt future performance. Nevertheless, the study of Hassan (2007) found that Malaysia, the emphasis on employee development has not yet been center stage in organizations.

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The performance appraisal is a system that is fundamental to a number of important decisions for the organization, especially regarding compensation and promotion (Wiese and Buckley, 1998). It allows both the employee and management awareness of employee behavior and achievements over a period of time (DeVries et al, 1981). Even if it is a necessity, managers generally dread conduct appraisal interviews as well as evaluating dislike being evaluated (Tan and Torrington, 2004). The four main uses of performance assessment is between the person, the person, system maintenance and documentation (Cleveland et al., 1989). To take advantage of these performance evaluations, a system should be put in place. Clausen et al. (2008) states that:

[. . .] An effective performance appraisal work should clearly define the responsibilities of employees and contributions to the organization motivate employees and make a valuable contribution and important staff decisions.

H2: The performance appraisal is positively correlated with the performance of the employee.

2.4. Compensation

Managers must not forget that there is a new attitude towards work and family concerns and responsibility. Today, people are not "detached" from the family business and responsibility, and therefore the days of a person working for one company throughout his career became rare. In addition to having a balance between work and family life, they seek career prospects and better pay for themselves and their family (Ron, 1989. Thwala et al, 2012). Where it considers HRM day care, job sharing, parental leave, flexible working hours, training and retraining and job rotation as an incentive to reconcile the concerns elsewhere Compensation Review and benefits. People are looking for ways of life that is meaningful and less complicated and this new lifestyle has a real impact on how an employee must be motivated and managed. Human resources management has become so complex now, when it was much less complicated in the past when employees were primarily concerned with economic survival (Brian, 1994; Myron, 1993).

Caruth and Handlogten (2001) explained: "Employees are encouraged when they are financially rewarded directly attached to their performance." Leonard (1990) believes that companies are getting more increase return on equity of these companies, which ignores plans adequate long-term incentive. Singh (2004) have shown that the compensation method is a behavior supports employees with the commercial policy of the company. Tessema and Soeters (2006) concluded that the positive correlation between employee performance and compensation practices. Shahzad et al. (2008) showed a positive relationship practices reward the performance of university professors in their search results. Researchers can build support by using theoretical

studies that compensation practices are related to employee performance. . Wright et al (2003) have argued that the employee will exercise discretionary effort if good system of performance management is in place and is supported by the remuneration system linked with the system of performance management.

H3: The compensation is positively related to the perceived performance of employees in the banking sector in Bahawalpur, Pakistan.

2.5. Employee Participation

Guest (2002) argued that the impact of HRM on performance depends on the response of workers to HRM practices, although the impact moves in the direction of the perception of HRM practices by the employee. Wood (1999) and Guest (2002) pointed out that competence; the labor force is engaged and deeply involved that required for better implementation of the business strategy. Huselid (1995) found that the effectiveness of employees depend on the impact of HRM on employee behavior. Increasing the participation of employees, the company will benefit from increased employee productivity due to increased employee engagement. Most previous research has verified significant relationship between HR practices and provided employees (Salt, 2006).

Collins (2005) in a search of a similar nature targeting small businesses have found that effective HR practices results significantly impact employees (employees used the results were different from ours). Mr. Tahir Masood Qureshi (2006) conducted a search regarding the impact of HR practices on organizational performance in Bahawalpur, Pakistan. His results were in favor of our hypothesis that HR practices system organizational performance through effective employee performance.

H4: Employee participation is positively correlated with the performance of the employee.

Theoretical framework of the study

Employee Training


Employee Performance

Performance Appraisal H2

Compensation H3

Employee participationH4

3.0. Methodology

Current study is of descriptive nature. Descriptive study means to describe some object or phenomena. Descriptive researcher are those who describe some existing situation rather than to interpret or making their own judgments or decisions. The main objective of descriptive study is verification of proposed hypothesis that reflect the present situation.

3.1. Sample

The collection of data from the sample banks were done in a research survey through a personally administered questionnaire. Researchers distributed 160 questionnaires to the employees of randomly selected private banks of Bahawalpur, Pakistan and received 150 completed questionnaires out of 300, which contain 93.75% response, rate enough for empirical analysis. The reason for adopting personally administered questionnaire is that this approach has higher response rate as respondent's problem can be solved on spot. After collecting the data from personally administered questionnaire data is entered, arranged, processed and results are generated through Statistical Package for Social Science (SPSS 16) software. The measures for this study were adopted from (Marwat et al., 2005; Bowra et al., 2011). Measures include employees‟ Employee Performance, Training, Performance Appraisal, compensation, and Employee Participation.

3.2. Measures

Variables in this study were measured through some items. The five variables consisting of employee performance and four HR practices, which can be measured by items as specified in questionnaire of Appendix. The scale that is used in questionnaire had five different options: 1 for strongly agree to 5 for strongly disagree. Employee perceived performance was measured using 3-items. The HR practice like training was measured using 6-items, performance appraisal was measured using 7-item, compensation was measured by using 5-item and employee participation was measured by using 3 items. Employee performance is dependent variable and other four variables (HR practices): 1) Training, 2) Performance Appraisal, 3) Compensation and 4) Employee Participation are independent variables in this study. In order to find true and actual relationship between employee performance and HR practices four demographic variables namely Gender, Age, Education and Experience were used as control variables.

Scales of the study






Employees Performance

My performance is better than that of my colleagues with similar qualifications.

I am satisfied with my performance because it is mostly good.

My performance is better than that of Bankers with similar qualifications in other Banks.

(Bowra et al., 2011)



Our organization conducts extensive training programs for its employees in all aspects of quality.

Employees in each job will normally go through training programs every year.

Training needs are identified through a formal performance appraisal mechanism.

There are formal training programs to teach new employees the skills they need to perform their jobs.

New knowledge and skills are imparted to employees periodically to work in teams.

Training needs identified are realistic, useful and based on the business strategy of the organization.

(Marwat et al., 2005)


Performance Appraisal

Performance of the employees is measured on the basis of objective quantifiable results.

Appraisal system in our organization is growth and development oriented.

Employees are provided performance based feedback and counseling.

Employees have faith in the performance appraisal system.

Appraisal system has a strong influence on individual and team behavior.

The appraisal data is used for making decisions like job rotation, training and compensation.

The objectives of the appraisal system are clear to all employees.

(Marwat et al., 2005)



Job performance is an important factor in determining the incentive compensation of employees.

In our organization, salary and other benefits are comparable to the market.

In our organization, compensation is decided on the basis of competence or ability of the employee.

The compensation for all employees is directly linked to his/her performance.

In our organization, profit sharing is used as a mechanism to reward higher performance.

(Marwat et al., 2005)


Employee Participation

Employees in this organization are allowed to make decisions related to cost and quality matters.

Employees in this organization are asked by their superiors to participate in operations related decisions.

Employees are provided opportunity to suggest improvements in the way things are done here.

(Marwat et al., 2005)

3.3. Reliability Analysis

Our questionnaire contains 24 items, which measure the relationship of 5 variables. Nunnally (1970) achieves the Cronbach alpha in more than the acceptable value of 0.50. Here is Cronbach alpha of variables in used in this research.

Table2: Reliability of Measurements



Cronbach alpha

Employee Performance






Performance Appraisal






Employee Participation



4.0. Results and Analysis

4.1. Profile of the Respondents

Personal and demographic information such as marital status, age, income, education and occupation has presented in the following table (Table 3).

Table3: Profile of the Respondents













15-20 year





above 40 year


















MS/M. Phil















1-5 years

6-10 years

11-15 years

16-20 years

20 years or above











4.2. Hypothesis Testing

Hypothesis to be tested

H 1; Training affects the employee's performance positively.

H2: The performance appraisal is positively correlated with the performance of the employee.

H3: The compensation is positively related to the perceived performance of employees in the banking sector in Bahawalpur, Pakistan.

H4: Employee participation is positively correlated with the performance of the employee.

4.3.1. Impact of Training on Employee Performance:

According to the outcome of the study, Training has a significant positive association with Employee Performance with (Beta=.269) and (p< 0.006). The results show that price has significant positive impact on perceived value by contributing 26.9%. This validates our H1.

4.3.2 Impact of Performance Appraisal on Employee Performance:

The regression results of the study confirms the significant positive affiliation between Performance Appraisal on Employee Performance with (beta=.239) and (p<0.018). According to these results, Performance Appraisal contributes 23.9% to Employee Performance. These results validate H2.

4.3.3 Impact of Compensation on Employee Performance:

The regression results of the study confirms the significant positive relationship between Compensation and Employee Performance with (beta=.176) and (p<0.046). These results show that Brand Familiarity contributes more than 16.5% to Purchase Intention. These results validate H3.

4.3.4 Impact of Employee Participation on Employee Performance:

The regression results of the study confirms the significant positive relationship between Employee Participation and Employee Performance with (beta=.145) and (p<0.03). According to these results, Employee Participation contributes more than 15.7% to Employee Performance. These results validate H4.

Regression Table


Model Variables


































Figure 2: Structural Research Model

Employee Training Sig= 0.006

β =0.269


Performance Appraisal R2 =.39

Employee Performance Sig =0.018

H2 β =0.239


H3 Sig= 0.046

β =0.176

Employee participation

H4 sig =0.03

β =0.145


Despite of the advancement of modern world and changing circumstances, it has become very obvious for the organizations to compete for competent work forces called efficient employees. Today, organizations are working under immense competition and dynamic environment. Efficient work forces are the real strength of the organizations. The top management must ensure efficient Human Resource policies regarding their work forces. An effective HR policy must include special consideration about employee training, performance appraisal, and employee compensation and employee participation. There is numerous research works in this regard. Our main aim of the paper is to sort out the strength of relationship that heavily affects the performance of the employees.

The main focus of our research was to describe the effect of HR practices on employee performance in private banking sector of Bahawalpur, Pakistan. We analyzed the effect of employee training, performance appraisal, employee compensation and employee participation on employee performances. We start our discussion from Employee Training.

Employees of private banking showed mixed response towards this variable. But still we found a significant positive relationship between employee training and employee performance. As employees get more training schedule, their performance tends to increase in the same manner. Extensive training programs, yearly training programs and new knowledge training programs were very popular among all the employees. Training on new work force also extends the level of employee performance. Hence, there is strong relationship between training and performance.

Another important variable is performance appraisal which also has strong positive relation with employee performance. During our research we found that almost every employee was agree with the statement that employee performance should be measured at regular intervals that might lead towards a positive impact on employee performance. Our research has found a significant positive relationship between performance appraisal and employee performance.

Employee compensation is one the most important factor that has a direct influence on the employee performance. Job incentives, salary packages and other benefits are key factors in determining employee compensation. All the respondents were very keen about employee compensation. In order to boost up the performance of the employees, it is necessary that organization must include employee compensation in their Human resource practices. The organization's objective is directly linked with the employee performance. Meanwhile our research has found significant positive linkage between employee compensation and employee performance.

Another important factor that influences directly on employee performance is employee participation. Freedom of opinion and participation in relevant work decision are the major elements of employee participation. Employee performance is increased when employees are given chances to take participation in management decisions. Employees can play a vital role in management decisions like cost to quality decisions and operation's related decisions. When employees have freedom to suggest about the operations and other matters of the organization then success of the organization is pretty sure. In the same way employees get some involvement of the management environment that boost up the employee performance at a rapid scale. Our research finds a significant positive relationship between employee participation and employee performance. So, we can conclude the discussion in a way that organizations must include efficient HR practices regarding their work forces so that highest level of performance of employees may achieved.