I MPACT OF H UMAN R ESOURCE M ANAGEMENT (HRM) P RACTICES ON O RGANIZATIONAL P ERFORMANCE : A M EDIATING R OLE OF E MPLOYEE P ERFORMANCE

Abstract

The objective of this study was to explore the impact of different Human Resource Management (HRM) practices (i.e. recruitment and selection, training and development, performance appraisal, career planning system, employee participation and compensation system) on Perceived Organizational Performance (POP) and Organizational Financial Performance. Another purpose was exploring mediating role of Employee Performance (EP) between HRM practices and Perceived Organizational Performance. This research study is based on the universalistic perspective showing that a fixed set of best practices can create surplus value in various business frameworks. The Harvard model developed by Beer et al. (1984) guided initial process of domain identification. The most relevant HRM domain recruitment and selection, training and development, performance appraisal, career planning system, employee participation, and compensation system followed by universalistic perspective has been selected for the study. Human Resource Professionals working in different companies of five industries Banking, Insurance, Leasing, Modaraba and Investment were selected for data collection. Primary data from 274 HRM professionals of 129 companies were collected using questionnaire. Secondary data was collected from the published financial reports of the companies listed with Karachi Stock Exchange (KSE) for the period of five years starting from 2004 to 2008. The demographic variables, Industry type, organizational life, no of employees, gender, employee age, education and experience were used with the purpose to find out control variables. The ANOVA identified two variables gender and education significant. Therefore throughout the study these two were used as control variables. For the analysis purpose statistical tools ANOVA, Correlation and Regression were tested using Excel and SPSS. Results identified that all human resource management practices were positively correlated with perceived organizational performance and perceived employee performance, while none of the HRM practice showed substantial contribution towards organizational financial performance. Correlation and beta values of HRM practices were significant with POP in the banking industry. Recruitment and selection (β = .662, p < .001) followed by employee participation (β = .516, p < .01) showed significance in the insurance, (β = .343, p < .001) performance appraisal in the modaraba, and recruitment and selection in the investment industry. Recruitment and selection, training and development and the compensation system significantly contributed towards the Marris Ratio in the modaraba industry. The compensation system in the insurance industry, performance appraisal and compensation system in the leasing industry xicontributed towards Tobin’s Q, employee participation in the banking industry, career planning system and employee participation in the leasing industry and compensation system in the modaraba industry contributed significantly towards Return on Equity (ROE). Recruitment & selection and employee participation in the banking industry, compensation system in the insurance industry and the modaraba and training & development in the investment industries contributed towards Return on Assets (ROA). Employee performance has been tested as mediator between HRM practices and POP. As per recommendations (Barron & Kenny, 1986) partial mediation of employee performance has been proved between HRM practices and POP. This study indicated that organizations using HRM practices effectively on a wider scale generate higher performance. To survive and sustain for the future, it is important that the financial sector companies should implement HRM practices to boost employee performance and the organizational performance index (OPI).