Impact of HR practices on employee performance

Submitied By
Syed Sheharyar Zaidi



Whether an organization consists of five or 25,000 employees, human resources management is vital to the success of the organization. HUMAN RESOURSE is important to all managers because it provides managers with the resources (the employees) necessary to produce the work for the managers and the organization. Beyond this role, HR is capable of becoming a strong strategic partner when it comes to establishing the overall direction and objectives of key areas of human resource management in order to ensure that they not only are consistent with but also support the achievement of business goals.
The major shift of modern economy from production to services has made the importance of human recourse more than ever. Human recourse is the most important asset to attain competitive advantage . Knowledge Company is a new concept that is getting attention of CEOs of big companies. Basic idea of a knowledge company is sharing knowledge between employees without any restrictions. The reason is to leverage human resource by converging new ideas into groundbreaking innovation .  
The focus of this paper is to establish that human resource practices are the key to enhance the employee performance.

Kashf Foundation

Inspired by the success of the Grameen Bank, Kashf Foundation (meaning miracle or revelation i.e. a process of self-discovery) began in 1996 as an action research program focusing, for the first two years, on determining and understanding key factors having an impact on the demand for microfinance services by poor women.
Kashf Foundation began as a the first specialized Microfinance institution in Pakistan, it was the first Microfinance institution targeting only women from low income communities and it was also the first Microfinance institution to charge a sustainable price for its services. Since its inception, Kashf Foundation has continued to trail-blaze in 1999 it introduced the first pro-women consumption loan in the sector, in 2001 it was the first Microfinance institution to offer micro-insurance services by collaborating with one of Pakistan’s oldest insurance companies, in 2003 it was the first Microfinance institution to become financially sustainable, in 2004 it was the first Microfinance institution to obtain an investable credit rating and in 2007 it has been able to close over $36 million in commercial deals with key local and international banks.
Kashf's mission is to alleviate poverty by providing quality and cost effective microfinance services to low income households, especially women, in order to enhance their economic role and decision-making capacity. To attain their goal Kashf has gone beyond the traditional Grameen model. Using the basic concept of Micro finance they have created other products e.g. Home improvement loan, Emergency loan, General loan and insurance.
Our future goals are to:
•    Improve access and scale of microfinance services by demonstrating that women in Pakistan are credible and are active economic agents by reaching out to 750,000 female clients by 2010
•    Continue to innovate by creating client-driven products and services for low income households, including home improvement loans and a health insurance product
•    Strengthen customer care processes by empowering field staff to listen to client feedback on a continuous basis


This study required both secondary as well as primary research. Primary research was of core important because of the uniqueness of topic. There hasn’t been a lot of work done on such a topic specifically in Pakistan. Secondary research helped creating the link between the findings of primary research with thesis topic.

Secondary Data Collection:

Secondary data was collected from following sources.
•    Annual Report.
•    Articles.
•    Books
•    Internet
•    Business Magazine

Primary Research

The study required research to be conducted on two levels, at managerial level to dig deep into human resource policies, secondly for all employees to find the impact of these policies.

Primary Data Collection:

Company records
Annual reports and Human resource Manual were very important documents for this study.


Interviews were conducted with different managers of the firm. The focus of these interviews was to dig deep into human resource policies and practices. And to find out what impact do they have on employee performance. And to ascertain that human resource practices are the key to employee performance.   

Questionnaire was design to assess how the employee are responding to human recourse practices The findings from secondary data and in-depth interviews had played a major and guiding role in designing part of the questionnaires efforts were taken in the selection of the questionnaire to capture the maximum relevant information from the respondent .

Literature Review

HRM is directed at management in viewing employees as an important strategic resource for an organization with a significant emphasis being put on planning, monitoring, motivating and mediation rather than control orientated functions alone, (Torrington et al, 2002). Accordingly these organizational changes and external competitive environmental forces forced Tenors to adopt a strategic HRM approach in solving emerging conflicts and issues related to employees in particular during the organizational change process it was undergoing.
An organization is composed of individuals who are organized in certain ways in order to achieve organizational objectives. However some organizations put stress on team working while others focus more on individual work activities, (Brooks, 2003)
Psychological well-being is dealt with in psychological literature in terms of mental health. However a psychological perspective has become increasingly important in human resource management literature as well as in organizational behavioral research. This is because of the suggested relationship between an individual’s psychological condition and their job performance, (Bradburn, 1969; David and Smeeding, 1985; Wright and Cropanzano, 2004).
Researchers suggest that psychological well-being in terms of happiness maximizes both personal health as well as job performance and raises organizational productivity generally. During the organizational change process in Tenors anxiety and stress levels were increased and employees felt insecure in terms of job and pay level. Staff from Textile generally changed their work environment due to the closure and inefficient information transformation and communication among subsidiaries generated barriers and a sense of panic among employees. As mentioned before human resource is perhaps the most important strategic resource and its performance directly influences organizational competitive capabilities.
Best (2001) discussed the new economy, as a knowledge-based economy without borders, where the race is between companies and locales over how to learn faster and organize more flexibly to take advantage of technology-enabled market opportunities (Best (2001) cited in DeFillippi, R. 2002). Organizations’ have changed in the way they operate, shifting from immobile-wired infrastructures to mobile, miniature, and wireless modes of communication, computing, and transacting. Customers now demand 24 hour service, with any time, any place" solutions of their problems (DeFillippi, R. 2002)
According to this definition, we can see that human resource management should not merely handle recruitment, pay, and discharging, but also should maximize the use of an organization's human resources in a more strategic level. To describe what the HRM does in the organization, Ulrich, D. & Brocklebank, W. (2005) have outlined some of the HRM roles such as employee advocate, human capital developer, functional expert, strategic partner and HR leader etc.
It seems that HRM is so crucial to the organization, for what it does has nearly covered all aspects of the business – from strategic planning to the training and development, but unfortunately, its importance has not been accepted by everyone. As proposed by Morton, C, Newall, A. & Sparkes, J.
Michael Armstrong defines the human resource as the valuable resource of any organization. He talks about two types of Hr versions hard HRM and soft HRM. Hard version contains qualities that are easily quantified like performance, meeting targets, Absenteeism etc. and the soft version contains motivation, Leadership. He says soft version which is often neglected is more important.  
Wright T M McMahan says that competitive advantage gained by highly efficient workers is more sustainable. The reason is human resource is most difficult to imitate.

Micro Finance Industry

The Pakistan Microfinance Network (PMN) is a network of organizations engaged in microfinance and dedicated to improving the outreach and sustainability of microfinance services in Pakistan.
Compared to some other countries, the microfinance sector in Pakistan is in the initial stages of development. Estimates suggest that as many as 5.6 million households in Pakistan need microfinance services, but services reach only a tiny fraction of this population, probably less than one percent. If microfinance is to achieve its potential, and serve a large share of the microfinance market, practitioners must improve their programs. The PMN in an effort to address these issues has become increasingly active since 1999. The network has been able to establish its membership, activities, and credibility. It has built greater awareness among policy makers, launched comprehensive capacity building initiatives, and established standards and benchmarks for transparency in

1.    First Micro Finance Bank Limited.
2.    Khushhali Bank Limited.
3.    Network Microfinance Bank Limited.
4.    Pak Oman Micro Finance Bank Limited.
5.    Rozgar Microfinance Bank Limited.
6.    Tameer Micro Finance Bank Limited.
7.    Kashf Foundation


Torrington, D., Hall, L. & Taylor, S. (2002) Human Resource Management 5th edition, Harlow UK, FT Prentice Hall.
Brooks, I. (2003) Organizational Behavior: Individuals, Groups and Organization, London UK,
Radburn, N.M. (1969) The Structure of Psychological Well-Being, Chicago USA, Aldine Publishing Company.
Wright, T.A. & Hobfoll, S.E. (2004) Commitment, Psychological Well-Being, and Job Performance: An Examination of Conservation of Resources Theory and Job Burnout, Journal of Business and Management, Winter Vol.9 Issue 4.
Strategic human resource management By Michael Armstrong


DeFillippi, R. (2002) Organisational Models for Collaboration in The New Economy. Human Resource Planning, Dec 2002 v25
Morton, C, Newall, A. & Sparkes, J.
Wright T M McMahan international Journal of HRM 5(2), 301-326

Research purpose:

Why Human Recourse practices are more important than any other factor to enhance employee performance
Some organizations proclaim, “Our people are our most important asset.”
I believe this slogan is true. I believe that it is more than some fancy words. I believe that an organization’s people are its primary source of differentiation in the marketplace. Carefully and purposefully designed human resource policies are the key to employee performance. In this study I have tried to determine what kind of human recourse practices are best for employee performance.
The HR department in any company can be its heart in the body. If used strategically. HR is a company’s human resource multiplier. The functions of an HR professional should focus on the company’s greatest resource of all its employees. Without good employees, the best business plan and ideas will fail.
In your business there are experts to oversee and advise you on various areas and departments. For example, your CFO’s sole purpose is to keep their eye on the financial functions and decision for the company. Without good accounting and insight on your cash flow, investments, and balance sheet you risk making poor business decisions and potentially going out of business.
Likewise, there are many reasons why the role of HR in a company is important to its survival and success. The reasons why HR is important can vary depending on if you look at the issue from a manager or employee perspective .
HR department in any organization has a dual purpose. At one side it is formulating strategies for the company to make employees work efficiently, so that the company’s investment in the human resources is not getting wasted. And on the other hand HR department works as employee’s advocate, that is to make sure that employees are benefiting from such policies.
Human resource policies are as important for managers as they are for employees.

Importance for Management

One way to be a company resource multiplier is to help managers be better managers, which in turn will help prevent or eliminate distractions for your employees. Employees don’t leave bad companies, they leave bad bosses Good managers are crucial to an effective organization but most have to learn how to be effective. The role of HR in a company is to help develop and coach   managers to do the best job possible. HR’s role is to advise and assist management on how to manage employees and deal with difficult situations.
HR is important for managers so that they can stay focused on their job. There is a lot of new regulation that came out this year that affects businesses. One role of HR in a company is to unravel the complicated employment regulations using their expertise and to advise management about how they affect the business. This makes managers life easy and he can perform his duties conveniently. 
High performance is only achieved when right person is hired for the right job. HR is important for managers because it can assist with strategic hires. Recruiting is the number one way for HR to make an impact on the organization. Bad hires have certain cost associated to it. It can be easily avoided if thee is a purposeful method of hiring.   Hiring right means reduced turnover and increased retention. It means finding the high potential candidate who can do ten times as much as the average employee and then being able to convince them to work for you. It also means not hiring problem employees to start with. Again, going back to the notion that HR practices increase employee performance, by hiring right you can focus on growing the business not dealing with problem employees. To do this there should be a systematic interview process that probes for work ethic, attitude, aptitude and motivation, in addition to determining if they have the right skills for the job. HR can be an instrumental in the process.

Importance for Employees

HR is an advocate for employees. The functions of an HR Professional are to make sure that all employees are treated fairly and equitably and that the needs of the business are balanced against the needs of the employees.
Human resource is the only resources that cannot be bought like machinery or property that makes it more important than any thing. Because of that companies are always looking for new ways to attract and engage their employees.    
I have presented only the most essential reasons why HR is important that came out in the interviews with Kashf’s management. There are many more when you look at the day-to-day operations of a smooth-running, successful company. HR is more than someone who takes your new hire paperwork or files the benefit forms. The role of HR in a company affects all aspects of the organization. Why? Because HR supports employees and employees are your most important resource.


This paper examines the impact of HR practices on employee performance. Hr practices have a strong and positive impact on employee performance. To prove my hypothesis I conducted interviews with the management. The purpose was to examine their HR policies and why management thinks that such policies are key to employee performance. Secondly I designed a questionnaire for the employees to estimate the impact of such policies.   
Organizations adopt different kind of HR practices to increase employee performance. There are countless techniques available to increase employee’s efficiency. But of course not all of them can be implemented at a time. The key is to pick the right policies that are strategically in line with the company’s goal. Before the company hires someone for a post the management must know what the job entails, purpose is to hire right person for the right job. That of course will cost the company in the long run. Kashf has carefully designed their policies that are kept in a manual which is a highly confidential document .

Kashf’s HR Department

Department’s vision “we consider and retain talent as our most valuable asset”
The HR System
Systems and procedure are made for the people to provide parameters for discipline, trust, smooth functioning of an organization. Smooth handling of HR issues breeds trust and employees satisfaction. HR systems Manual assists in achieving these objectives.
It covers Human Resource Key Areas as Manpower planning & recruitment,
Performance Evaluation, Training, Service Rules, HR administration, etc and it is based on current practices with slight changes which should be consistently updated for any changes.
In case of any amendments in future, the responsibility for such changes vests with HR Team, i.e., review, modify and circulate and educate amendments according to all concerned .

Kashf’s HR department has a wide scope but for my thesis my focus was Performance Management and Training & Development. The scope of Performance Management department is as follows   
• Performance management – A management process for ensuring employees are focusing their work efforts in ways that contribute to achieving the company’s mission. It consists of three phases: (a) setting expectations for employee performance, (b) maintaining a dialogue between supervisor and employee to keep performance on track, and (c) measuring actual performance relative to performance expectations.
•    Work plan – A document that describes the work to be completed by an employee within the performance cycle, the performance expected, and how the performance will be measured.
•    Corrective action plan – A short-term action plan that is initiated when an employee’s performance fails to meet expectations. Its purpose is to achieve an improvement in performance.
•    Individual development plan – An action plan for enhancing an employee’s level of performance in order to excel in the current job or prepare for new responsibilities.
•    Performance appraisal – A confidential document that includes the employee’s performance expectations, a summary of the employee’s actual performance relative to those expectations, an overall rating of the employee’s performance, and the supervisor’s and employee’s signatures.
•    Performance documentation – A letter, memo, completed form, or note on which the supervisor indicates the extent to which the employee is currently meeting expectations and provides evidence to support that conclusion.
•    Fair appraisal – Appraising employees in a manner that accurately reflects how they performed relative to the expectations defined in their work plan and in a manner that is not influenced by factors irrelevant to performance.  

Having a well thought out plan is one thing but making it work is another .my question was how the management makes sure that the Hr practices are actually increasing performance of the employees. Following are my findings:

The Process of Managing Performance

Supervisors and managers are responsible for managing the performance of their employees. Each agency’s policy shall specify how the three phases of performance management will be carried out. Agencies shall adopt performance management practices that are consistent with the requirements of this policy and that best fit the nature of the work performed and the mission of the organization .
1. Communicating
“If the employee knows that his work is significantly adding to company’s profitability he gets motivated”, Head of HR states in an interview . So at the beginning of the company’s twelve-month work cycle, supervisors  meet with their employees, establish expectations regarding their employees’ performance,  it is specified how employees’ actual performance will be measured and their success determined, and communicate to them an understanding of how meeting these expectations will contribute to the achievement of the company’s mission.
Performance expectations are written in a document that is called “Work Plan”. Every employee’s work plan is finalized after it is approved by respective head of department of that employee.
2. Maintaining Performance
Employees are responsible for meeting their performance expectations. Progress toward meeting expectations are measured, reported, discussed, and documented throughout the work cycle.  Supervisors are expected to use appropriate supervisory techniques to support employee efforts to meet or exceed their performance expectations. When expectations change during the course of the work cycle, supervisors communicate these changes and modify work plans as necessary. Modifications are signed and dated by both the supervisor and the employee.
3. Performance appraisals
. At the end of the work cycle, supervisors shall evaluate employees’ performance during the past year compared to their performance expectations. They use verifiable information collected and documented throughout the cycle to determine the extent to which actual performance has met the expectations defined in the work plan.
The evaluation is documented on a standard form defined by the company – the “appraisal.” (An agency may define more than one standard appraisal form based on the nature of the work being appraised.) The annual performance appraisal shall use a 5-level rating scale for reporting overall performance. A rating at the midpoint of the scale shall indicate that an employee’s performance has met expectations. (Alternative rating scales are permissible, provided they are convertible to a 5-level scale.) Prior to discussing a completed performance appraisal (that is, an appraisal containing ratings and descriptions of actual performance) with an employee, a supervisor reviews the appraisal with the next-level manager to ensure that ratings are appropriate and consistent. Supervisors shall discuss the appraisals with their employees. Both supervisor and employee sign and date the completed performance appraisal indicating that the discussion has taken place.  
Despite having an immaculate plan not every thing always goes according to the plan. That’s why a contingency plan or a corrective measure is very important.       
When an employee’s performance falls below expectations at any time during the performance cycle, the supervisor shall document the performance deficiency and take actions, including (if appropriate) disciplinary action, to assure that performance expectations will be met within a reasonable period of time.
The supervisor shall document the performance that falls short of expectations by preparing a corrective action plan or other documentation. The documentation will specify (a) the performance problem, (b) the steps to be taken to improve performance, including the timeframe for improvement, (c) the consequences of failure to improve, and (d) a follow-up date.
A corrective action plan shall be considered successfully completed only when the employee’s actual performance has improved to the point where expectations are being met.
Performance deficiencies that occur during the performance cycle shall be referenced in the annual performance appraisal.

Training and development

Once the company has hired the right person for the right job. Next important step is to train him for the future. Many employees may express interest in their current positions or in furthering their careers in other fields.  Supervisors shall work with them to identify strengths and weaknesses and, if appropriate, to help them prepare an individual development plan. Individual development plans may specify how employees can more fully apply their strengths in their current positions, build up areas of weakness, enhance their performance in their current positions, or develop the skills and experience they will need for possible future assignments.
Kashf has a Learning Centre especially for training proposes. They have a comprehensive on the job training program .   
1. Probationary employees are given work plans within a certain number of days (set by the company) of their date of employment.
2. Employees in training progressions shall have work plans, or an equivalent document that describes performance expectations, within a certain number of days of the date of employment.
3. Employees whose responsibilities are changed substantially, either within their current position or by transfer (promotion, lateral transfer, or demotion), shall have work plans established within a certain number of days following the new assignment.
Training the Managers
How effectively employees perform depends to a great extent on how well supervisors manage their performance. Thus, it is essential that agencies train managers and supervisors how to manage their employees’ performance and that responsibility for coordinating the elements of the company’s performance management system be clearly assigned.

Questionnaire Analysis

The questionnaire was aimed to find out what employee feel about the HR practices of the company. The result showed a strong and positive relationship between HR practices and    perceived employee performance. The analysis shows that on job training was most significant HR practice of all. Financial compensation and good working environment are also very important. Analysis showed a weak relationship with performance appraisal and performance.

Research suggests that non monetary incentives are more useful than financial compensation. My next question was regarding the motivational strategies and impact do they have on performance. Keeping employees engaged is very important. Kashf’s HR department trains managers to keep their subordinates. Simple things like letting subordinates participate in planning. Idea is to let everyone share knowledge so they contribute to the company. Important thing for the managers here is that are co-creating the achievement of a vision with them.
Make sure your employees have everything they need to do their jobs. Clearly communicate what's expected of employees, what the company values and vision are, and how the company defines success. Employees can't perform well or be productive if they don't clearly know what it is they're there to do and the part they play in the overall success of the company. Be sure to communicate your expectations--and to do it often.
Get to know your employees, especially their goals, their stressors, what excites them and how they each define success.
Make sure they're trained--and retrained--in problem solving and conflict resolution skills. These critical skills will help them interact better with you, their co-workers, customers and suppliers.
Reward and recognize employees in ways that are meaningful to them. This is another reason why getting to know your employees is so important. Remember to celebrate both accomplishments and efforts to give employees working on long-term goals a boost
Highly motivated employees are true assets to any organization. They're productive, energetic, eager to take on additional responsibilities, and pleasant to be with and work with. Furthermore, they spread their enthusiasm and work ethic to others. But every organization, no matter what the industry or what the size, also inevitably has non-performing, unmotivated, burnt out employees as well. My next question was how the managers handle these kinds of employees.
The answer was that first they sit with the try to figure out the core of the problem. Than based on his personal need steps are taken. Some common strategies are job rotation and job enrichment. Giving an employee a challenging task is a good motivator and works. Providing opportunities for personal or professional growth on the job inspires employees to work hard. . This can be accomplished through attendance at seminars or workshops or by observing other employees in other jobs. In addition, by creating a concrete career pathway (a plan for future career growth), you can motivate this person to strive toward the next job or position in your organization.


The primary goal of any organization is to make profits. To do that you need resources and human resource is the most prized asset for any organization. In today’s competitive environment where innovation is the only true source of gaining competitive advantage the importance of human resource is more than ever. In order to gain competitive advantage the HR department must very purposefully design its strategy that in line the company’s goal. It starts of with hiring the right person for the job. It’s very important because a bad hire can result into a waste of time and money. Employees training are thus a major area that needs to be taken seriously. Training imperatives will automatically gain significance when they are linked with performance and outcomes. Training should be an on going process since requirement of the external environment are changing rapidly.
Performance management programs are good to ensure that people on track and their performance are technically up to the mark. But the originations should enable them to become decision makers. Strictly following routine and order can kill creativity of a human being. Organizations should create an environment that encourages creativity and knowledge sharing should be the spirit of the organization.      
The only way to get the best out of human resources is to value them as assets in the real sense. Keeping the employees involved and engaged by good communication helps improve their performance. It’s the simple things that are often not given much importance like a pat on the back; calling employees by their names, praising the good work done in public have massive implication in boosting morale.   
Following are some strongly recommended suggestions that will help to analyze the HR policies and its implementation. It is necessary to implement training system & introduce proactive strategy making system to solve problems with time management in organizations. Equal Employment Opportunity & pain management techniques should be introduced by organizations to control mal-practices, mal-administration & sexual harassment.

Interview questions

Following are the questions that I asked Managers of Human Resource Department of Kashf Foundation 

1.    What is the Vision of the HR department?
2.    Do you believe that human resource is most important in gaining competitive advantage? and how?
3.    How important is HR management in Employee’s performance
4.    What are the HR practices that are essential to Employee performance?
5.    Is there a system of implementing such policies?
6.    Why do you think HR practices have a positive impact on performance?
7.    How important is Recruitment in Company’s overall performance?
8.    How do you manage the performance of employees?
9.    What is the scope of the Performance Management system?
10.    What are the tools of measuring performance of an employee?
11.    How important is training for any employee?
12.    How important is training for senior managers?
13.    What are the Training programs for Managers and employees?
14.    How do you promote Team Work?
15.    How do you handle ill performing employees?
16.    How important is motivation in an employee performance?
17.    What are the ways through which you motivate your subordinates?
18.    How do you prevent burn outs?
19.    Is Kashf Knowledge Company?
20.    What are the methods of sharing knowledge?


1.    How long you have been employed in this company (Years)?
2.    What is your highest qualification?
3.    My performance is better than that of my colleagues with similar qualifications
4.    I am satisfied with my performance because it is mostly good.
5.    My performance is better than that of employees with similar qualifications in other companies.
6.    The performance of my company is better than that of other companies.
7.    Performance Management system reflects in my performance
8.    HR practices are Motivating
9.    Training is important in my career development
10.    Training reflects performance
11.    Performance evaluation practices
12.    Presence of written and operational performance evaluation
13.    Performance evaluation has a lot to do with my performance
14.    Performance evaluation has a lot to do with my personal decisions
15.    Performance evaluation is considered important task by superiors
16.    Performance evaluation is knowledgeable



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