Exploring the Relationship between Human Resource Practice, Performance Management Systems and Employees’ Performance

Abstract

Regardless of the size and area in which the organisation is operating, employees are considered assets of any successful organisation. In this modern, human resource management practices are unquestionably that is one of the most important that influence employee performance. The world is becoming increasingly competitive, and employee performance has become crucial to ensure the success of the organisation. Employees are expected to perform competently in providing proper service to internal and external stakeholders. To achieve better performance from employees, organisations need to recognise that several factors influence performance. Although human resource management and performance management system are dated, they are relevant to influence the performance of employees. Therefore, organisations must go beyond and understand that employee performance can be identified through an effective human resource management practice and performance management system.

1. Introduction

The current chapter focuses on exploring the relationship between human resource practice, performance management systems and employees’ performance. From this point of view, the demand for employee performance and fame is at an all-time high [1]. In the opinion of [2], employees contribute significantly to the organisation’s ability to produce income, maintain product innovation, and assure its viability and sustainable operations, among other things. Nowadays, in the dynamic and global era of business, employees play a crucial role in achieving company goals [3]. It is essential to understand that one of the key elements influencing an organisation’s performance is thought to be employee performance [4]. Additionally, employees serve as key players to determine the success and failure of the organisation [5].

Organisations must be aware that employees are the assets to any organisation and their performance is directly associated with organisational performance [6]. The consequences of organisational success primarily rely on how employees behave [4].

Due to the environment that is always changing, HRM is often the source of sustainable competitiveness [7]. It is also considered that the organisation would not exist without employees, [8] pointed out that there is empirical evidence that indeed there is a strong link between HRM practice and performance. Scholars such as [9] showed that the impact of HRM practice on employee performance has recently been a contentious area of research. Shah and Khoso [10] argue that whether private or public, Human resource practices have a big influence on employees’ performance. As organisations are striving to meet their structured objectives, a performance management system fosters hope for employee performance and encourages employees to put out the determination anticipated of them by the organisation [11]. Organisations have the responsibility to develop effective performance management programs that give employees encouragement and feedback, which raises their motivation and performance [10].

2. Human resource practice

The role of HR is recognised at all levels and stages. Consequently, one of the organisation’s pillars is human resources [12]. HRM is essential for management because its deals with the organisation’s most precious resource, which is known as HR [4]. In this era, the discussion around the competitiveness of organisations centres on human resource management, which is a crucial component in the development and maintenance of a highly productive workforce [13]. In this context, HRM should, therefore, be able to influence the organisation’s HR to achieve organisational goals to improve the organisation’s competitive profile [14]. It is observed that every organisation’s human resources department is in charge of determining whether an organisation succeeds or fails [15].

Alsafadi and Altahat [16] define HRM as the processes used in a firm to manage its human resources, including employing staff members, nurturing staff development, overseeing performance and compensation, and encouraging employee input into decision-making. One of the crucial responsibilities of HR is to manage employees in the organisation and their practice should be in line with the organisational plan [17]. Mainly because without human resources, an organisation’s resources cannot be managed and developed [12]. To gain a competitive advantage, the majority of organisations have been focusing on their HRM practices and how they respond to global problems [18].

Cruz and Cabaluna [17] refer to “HR practices” as an organisation’s strategic operations, which involve the mission and goals of the HR Department in line with the corporate objectives. “HRM practice” is a broad term that, according to [9], entails several connected but separate activities, duties, and procedures for the entire human resource of the organisation.

3. Components of human resource practices

The study conducted by [6] discovered that HRM practices namely training and development, reward, performance reviews and worker performance are significant relationships and employees’ performance. According to [18], HRM techniques such as training and development, performance appraisal, incentive and remuneration have been found to improve employee performance. In particular, when HR procedures are in line with the culture of the firm, they are more likely to be effective and have a significant influence on the performance of the [10].

3.1 Training and development

Giving employees adequate training and on-the-job knowledge is a necessary approach to ensure that employees are adequately qualified to prosper in their work [17]. Employee knowledge is improved by training [19]. According to organisational changes, training and development are needed to impact employee performance [18]. The efficacy of an organisation’s HR training program is influenced not only by the program’s quality but also by how well it integrates with other features of human resource management [15]. Employees are well-prepared for their jobs and know exactly what is expected of them by the organisation [19]. Training and development aid in boosting employee dedication and loyalty to assist them to work for the organisation for a longer period [2]. Employers can achieve organisational goals and maintain employee loyalty through training [19]. Employees can work more productively with the aid of training by expanding their knowledge and skills [20]. The study of [6] discovered a relationship between training and development and employee performance.

3.2 Rewards and compensation

Compensation is one of the most crucial HRM techniques in an organisation [1]. Rewards for good work can assist keep employees motivated because “you get the behaviours you reward” [5]. There are two different rewards and compensation that the organisation can use namely monetary and some non-monetary rewards. The monetary rewards include cash, bonuses etc. whereas non-monetary rewards include praise, appreciation awards and certificate [18]. Employees who have contributed to the achievement of organisational goals are rewarded in the form of awards [3]. Employees should consequently be given incentives and awards by the organisation to motivate them to work better or improve their performance. There is no doubt that employees will employ less effort or be less committed to the aims of the organisation if they are not happy with the remuneration methods offered by the company [5]. Giving rewards for the work that employees do in carrying out their responsibilities is considered as compensation [9]. Compensation is a systematic approach that offers financial rewards to employees for their work [21]). Additionally, it is said that various organisations ought to use various human resource management techniques. Better behaviour ought to be rewarded [2].

3.3 Performance appraisal

The practice of identifying employees and communicating their work performance is called performance appraisal. In an ideal world, this approach would also involve creating improvement plans [9]. In the study conducted by [6] there is a strong connection between performance appraisals with employee performance. It is argued that employees are more satisfied, put in more effort, and work for the organisation for longer periods if they receive performance reviews according to the stipulated organisational goals and objectives, although [18]. Employee motivation and corporate efficiency can both be improved by performance appraisal [3]. As stated by [18], “Good performance appraisal motivates the employees to perform well boosts good behaviour in organisations such as organisations citizenship behaviour for the environment, reduce absence, and retain in the organisations for the longer period.” Any organisation’s performance frameworks for its employees should be measured via appraisals [3].

4. Performance management system

Performance management is defined as a strategy that considers HRM preferences, organisational culture, communication, and policy [22]. According to [23], performance management is a coordinated procedure in which managers create performance standards or targets with their employees, assess results, and recognise accomplishments to boost employee performance. Performance management and performance appraisal differ in several ways. First, unlike performance appraisal, which frequently only encompasses an annual employee assessment and review and minimal determination to provide ongoing feedback and coaching for improvement whereas performance management is an ongoing and continuous activity. Joint goal-setting, ongoing performance assessments, regular communication, feedback, coaching to improve performance, the execution of development programs, and rewarding accomplishments are all part of performance management [23]. The definitions and responsibilities of each position are clarified as a result of performance management, which aids businesses in clarifying their goals and strategic directions [24].

An organisation’s vision, goals, and objectives should be communicated to all employees through a performance management system. When carried out properly, it allows for a meritorious evaluation of employee performance that demonstrates how each person has contributed to the organisation’s overall objectives [25]. Performance management is preferable for a company because it enables it to make sure that workers are working assiduously to contribute to achieving the key aims and objectives of the organisation [11]. It is appropriate to view Performance management as a system to allows the organisation to monitor employees’ performance and offer necessary support to the achievement of the organisation’s goals and objectives [11]. For performance management improves organisational performance, it is essential to provide employees with guidance toward organisational goals and satisfying performance expectations [22]. PMSs are crucial in helping managers in organisations maintain and improve performance [26]. However, the research consistently demonstrates that organisations do not benefit from the PMS if the results are unfavourable [17]. According to [11], a performance management system provides an organisation with a thorough and skilled management approach to assess the performance results of the organisation and employees. Performance reviews frequently fail to alter how employees work and dissatisfaction with evaluation has been linked to a general lack of satisfaction with one’s job [27]. PMS removes the barriers acknowledged by the staff and the company, enabling them to operate at a high level [11].

5. Performance management system methods

Performance management methods form the foundation of employee appraising. There are two types of PMSs: the more traditional which focus on the past and the modern methods (future-oriented) of employee performance and its effect on the organisational objectives as seen in Figure 1.

Figure 1.

Traditional and modern performance management methods. Source: Author’s compilation.

In the use of rating scales, managers and supervisors conduct performance reviews based on the results of these observations, which are a merit list of the best candidates [28]. Concerning ranking methods, the first step for managers is to identify the highest and lowest performers within a specific department to promote competition among employees [29]. In an easy appraisal, each employee’s performance throughout the rating period and overall is summarised in an essay written by the manager. The supervisor is responsible for writing a thorough and accurate evaluation of the employee’s strengths, weaknesses and future potential, with concrete examples and evidence to support the evaluation process [29]. In this technique, the reviewer writes down initial thoughts and overall impressions of the employee’s performance [30]. ‘Management by objectives’ is a system wherein both employees and managers work together to develop personal objectives. Evaluations of employees in assessment centres are standardised and conducted by many raters using a variety of evaluation criteria. In the workplace, the critical incident technique reveals how well or poorly employees do their jobs [29]. The purpose of a 360-degree appraisal system is to gather data on a person or employee from a wide variety of perspectives [31]. In the behaviour-anchored rating scale, methods and efficacy are the primary metrics of evaluations based on observable behaviour [32]. Recognising, documenting and revealing an organisation’s investment in HR, which is not considered in conventional bookkeeping, is the purview of HR accounting [33].

6. Employee performance

Employee performance is one of the key pillars of an organisation’s growth and prosperity in the current economic climate [18]. Employee performance is a sign of an organisation’s effectiveness in accomplishing its objectives [6]. According to [9], “good performance” refers to how well employees have performed in a specific position. Employees must be highly competent and able to adapt to changes in the organisation’s environment to improve performance [14]. Employee performance, as determined and measured by the organisation’s top management, is the accomplishment of activities carried out by one or more employees [6]. To properly execute their jobs, employees must be aware of what to do. Employee performance is expected to be completed following organisational criteria and verified against pre-established acceptable standards while successfully utilising resources in a changing environment [15]. The majority of organisations utilise employee performance as a rating system to assess employees’ abilities and output [9]. Organisational performance is increased by employee performance [18].

7. Relationship between HRD practices and employee performance

Employees are valuable resources for businesses [11]. Today, employee performance is the primary concern and problem for every firm in the globe. Khan and Malik. Little is known about how HR practice affects employee performance, even though it is important and has a critical role in company success [3]. The research’s conclusion indicates that HR procedures do have an impact on performance [3]. Regardless matter whether an industry is small-scale or large-scale, HRM strategies have a significant impact on both individual and organisational performance. The findings of the study conducted by [17] discovered that HR strategies will improve employee performance. This will also be their starting point for advising upper management to realign the necessary HR processes. The majority of studies demonstrated that HRM practices have a significant impact on employee performance and that these practices are strongly related to both employee performance and organisational performance [21]. The policy, philosophy, and system that can affect employees’ attitudes, behaviours, and performance are referred to as HRM practices 14]. Any organisation’s success depends on its human resources, and employee performance is influenced by the HR department’s effectiveness [15].

8. Relationship between HRD practices and PMS

Performance management system falls under the umbrella of HRM [34]. The most crucial instrument and element of the organisation’s HR practices is performance management [35]. Because it has the potential of managing and increasing performance and HRM continues to be undervalued in traditional management systems [23]. performance management is frequently employed as a strategy for managing programs or human resources according to researchers of human resource management [22]. It is used to monitor how employees and teams toward achieving organisational goals as well as to discover personal strengths and areas for progress in the future [35]. The main purpose of performance management, as a component of human resource management, is to extend support for employees’ individual and organisational growth [23]. Performance management is one of the most important HR activities, according to [36]. Therefore, any organisation that offers its employees human resource practices should include performance management as a key component.

9. Relationship between PMS and employees’ performance

The primary purpose of every organisation is to achieve good performance. There is no doubt that PMS improves both employees’ and organisational performance. According to [37] reporting that it is important to prioritise employee input during the evaluation process and performance management will encourage employees to give their best effort. For the success of the PMS, is important for managers and employees must work together concurrently [27]. In the view of [38], PMS is necessary to provide employees with individualised feedback and aid in gathering organisational data for program assessment and HR planning [38]. Performance management, according to [39], is a cycle that tries to create actual employee development through ongoing management and feedback. Gautam and Jain [23] further say that organisations utilise the PMS as an instrument to direct employee performance behaviour in line with the organisation’s strategy. However, each employee must be well aware of his or her job inside the company to have an efficient performance management system [23]. It is a generally held belief that the only organisation that performs will survive and flourish, making employee performance a crucial factor in measuring the firm’s performance [23]. The relationship between employee behaviour and an organisation’s strategic goals is increasingly considered as being mediated by the performance management process [27]. To improve employee performance, performance management should be regarded as a continuous process [39]. Employees and the organisation both benefit from an efficient performance management system [23].

10. Conclusion

According to the research literature review, there is a link between three variables: human resource management practice, performance management system, and employee performance. Employees are valuable assets of the organisation because they help the organisation to achieve its goals. Their performance is crucial to determine the success and failure of the organisation. Therefore, organisations must take new methods to remain relevant in a fiercely competitive working environment. The importance of an effective performance management system and HRM practices must be considered by the organisation to improve employee performance and acquire a competitive advantage over others. Implementing a performance management system should go beyond identifying employees’ weaknesses and strengths and also offer employees the support needed. Employees will be encouraged and motivated to put more effort into their duties as a result of this. Employees should be encouraged to participate in setting expectations, training and development, and being rewarded for their efforts.

Conflict of interest

The author declares no conflict of interest.