Chapter 2 Literature Review 2.

1 Introduction

2.2

Human Resource Management (HRM) Practices Many successful organizations agreed and realized that even there is number of factors that can affect individual performance, human resource has shown the most critical (Daud, 2006) factors especially in the modern era with high competitive environment. That is why they are persistently improved (Bowra, 2012) in the area of HRM practices. Moreover, HRM practices have been proven have a significant and positive relationship with employee performance which directly improve the performance of organization and lead to higher profits (Baloch et al., 2010). Daud (2006) has defined Human Resource Management (HRM) as a system, a philosophy, policy and practices which can influence employee in an organization in term of motivation, to reduce and eliminate attitude of loitering on job and to enhance retention among them. According to Armstrong (Raigama et al, 2010; Nik Ab, Rahman & Shah Alam, 2011), HRM is a strategic and coherent approach to the management of one organizations most value assets where the individual employee or team of employee contribute to the success by achieving organizations goals or objectives. In order to achieve the goals, all decision of management and practices that has direct impact to the employee (human resource) who work for organization should be involved in HRM. The activities or practices of HRM involve staffing, training and development, performance appraisal, compensation management, safety and health, industrial relations, career planning, compensation and employee participation. (Marwat, Quershi & Ramay; Ahmad & Shahzad, 2011). There are many more variables which may be considered under the practices of Human Resource Management but this study included three HRM practices which are training, performance appraisal and compensation.

2.2.1

Training The main factors why employee goes for training is to acquire new skill, abilities and attitude towards their present job which means that, it involves designing and supporting learning activities to achieved desired level of performance (Kennedy, 2009) .For example when there is a changing of technology (Laing, 2009) where they need to cope with new processes and production technique used in the organization. We should realize that not every employee in an organization is equipped with some sort of expertise and able to carry out every task assigned to them unless they already have experience on that specific assignment (Farooq and Khan, 2001).

2.2.1.1 Types and Methods of Training There are many type of training can organization provides to their employee. In the study of Brum (2007), training has been divided into two dimensions of related cost which are training related to direct cost and training related to indirect cost. The direct cost related training may include instructor salary, materials and follow up supervision

while the indirect cost related to the worker output and productivity during and after the training they has undergone. In addition, below are the summary of various types of training that taken from study of Liang (2009). Organization can adopt those training depend on their objectives of training and what they expect after the employee undergone the training. Types of Training Refresher Orientation Career or Development Job Objectives Exposed the employee to modern trends in field of business; involves updating skills to meet the job requirement of employees. Ensure all new entrants familiarize with the organizations goals, structure, culture, work standard and other conditions of employment. Aims at preparing employees for the future. This enables employees to take up higher responsibilities. Teach present employee to perform the job for which he or she was hired or employed for; help employees to acquire the necessary skills and experience for specific jobs.

In study of Liang (2010) already spelled out clearly methods of training can be use by the organization. Example methods of training can be used are (1) on-the-job training which consists of learning by doing, mentoring and shadowing and job rotation, (2) Vestibule training, (3) Behavior Modeling, (4) Understudy Training, (5) Case study, (6) Business exercise and lastly (7) Group training. This study will not mentioned again about it but what is important are methods selected must based on identified training needs, training objectives, an understanding on the part of the trainees, the resources available and an awareness of learning principles. 2.2.1.2 Benefits of Training In the study of Kennedy (2009), he has pointed out some potential advantages of training to the employee and also organization which are:Pools of qualified replacements for employees who may leave or be promoted to positions of greater responsibility can be created; Organization will have the human resources needed to support business growth and expansion; Business can easily adapt to the rapidly change of competitive environment especially to make use of advanced technology; Employee efficiency and motivation can be improved and can lead to gains in both productivity and job satisfaction. To succeed in achieving the objectives of its training program, the design and implementation must be planned and systematic, tailored towards enhancing performance and productivity.

2.2.2

Compensation Nathani, Sandhar & Chakraborty (2010) defined compensation as the total remuneration whether in cash or in kind, payable by an enterprise or organization to employee in return of work done by latter during the accounting period. Caruth and Handlogten had emphasized that (Bowra et al., 2012) Employees are encouraged when they are financially rewarded directly fasten to their performance. Compensation can be divided into few types. Direct compensation includes employee wages and salaries, incentive payments, bonuses and also commissions. While indirect compensation encompasses many benefits that provided by their employers which is non-financial compensation include the fringe benefits like free insurance, subsidized lunch and others. Another type of indirect compensation is more on intrinsic rewarding jobs like comfortable and nice work environment of flexible work hour in order to accommodate employees needs. Principle of Effective Compensation Taken from previous study, Pasetya and Kato (2011) have highlighted Cascios Principle of Effective Compensation (1995) in granting effective compensation to the employee who works for one organization. There are as table below: Principle Fairness Justice Take into account the ratio between the highest and lowest salaries, cost of living, and so forth. There should be a good element of justice in connection with the element of working time and job performance. The employees who perform similar tasks get the same compensation as well. With attention to things that are not directly related to the job or position, such as illness, layoffs, accidents at work, epidemics, natural disasters, or the like. In terms of easily calculated, or easily understood by employees. Should be controlled in the sense that any element of extravagance. Must be considers to the balance between compensation as it relates to employment or occupation, with which is not related to job or position. Capable of inducing employees to give the maximum contribution to the company Compensation should be an agreed outcome or the result of negotiations between the employees with management.

Security Clarity Cost control Balance Stimulating Agreement 2.2.3

Performance Appraisal In the study of Islam & Rasad (2005) and Dargham (2008), definition of performance appraisal has been taken from the study of Lansbury in 1988. It is the process of identifying, evaluating and developing the work performance of the employee in the organization, so that organizational goals and objectives are effectively achieved while, at the same time, benefiting employees in terms of recognition, receiving feedback, and offering career guidance.

Meanwhile, Jefferson (2010) has defined performance appraisal as a process of measurement on how well an individual is doing their job. Normally appraisal is being done annually in order to boost job performance, to see the present performance, which area needs more attention and to inform both parties which are employee and employers as to expectations. According to Kumar (2005), McGregors study in 1987 has classified performance appraisal objectives into three which are administration, Informative and motivational which can conclude all definition mentioned above. Objectives Administration Informative Motivational Providing an orderly way of determining promotions, transfers and salary increases. Supplying data to management on the performance of subordinates and to the individual on his or her performance Creating a learning experience that motivates staff to develop themselves and improve their performance.

2.2.3.1.1

Different Methods of Performance Appraisal

Many methods can be used by the organization to evaluate the employee performance. Jafari et al. (2010) categorized three existent approaches for measuring performance appraisal. These are (1) absolute standards (2) relative standards and (3) objectives. While in the study of Marikova on Job Performance Evaluation, she mentioned and elaborate on six methods that most important which are Forced distribution, BARS (behaviorally anchored rating scales, 360- degree feedback, MBO (management by objectives), self evaluation and performance review dialog. 2.2.3 Job Design The introduction of new technologies, new business processes and new ways of working have has create particular initiatives such as call centre operations, e-business working, supplychain partnerships, enterprise ,resource planning systems, dispersed teams, just-in-time working and the like, involve choices (whether made explicitly or implicitly) about the design of peoples jobs (Clegg & Spencer, 2007). Job design is the deliberate purposeful planning of the job, including all its structural and social aspects and their effect on the employee and in broader concept; it can refer to any part or combination of parts of the job (Jr, 1981). Moreover, Gabr and Mohamed (2012) defined it as the characteristics of jobs, such as the variety of skills demanded that will affect the ones satisfaction. Meanwhile, Alishiri (2012) describes the concept of job characteristics is more on designing a job that will motivate employee and by doing that, employer will see the fulfillment of his demands in the successful performance of the jobs and aims assigned to the employee.

2.3.1

Job Characteristics Model Behavioral scientists attempted to identify and explain various job dimensions that would influence performance of people who perform the jobs (Johari, Mit & Yahya, 2009 and the theory that best exemplifies these attempts perhaps is the one put forth by Hackman and Oldham (1975) since most work design attention has centered on their job characteristics model (Perry, Mesch & Paarlberg , 2006). According to Hackman and Oldham (1975), job characteristic is particularly concerned on how the work is done and nature of tasks associated with that work. Furthermore, it has been defined as the job design that results three psychological states which are meaningfulness of the work performed, responsibility for work outcomes and knowledge of the results of work performed that bring about positive work outcomes. Job characteristics Model of Hackman and Oldham comprise five dimensions (Judeh, 2012; Birnbaum,Farh & Wong1986) as defined below:

1. Skill variety: Skill variety is the degree to which the job requires incumbents to 2. 3.
perform a wide range of activities using various skills and talents. The employee who is open to change is likely to be motivated when having a job variety. Task identity: Task identity is the degree to which a job requires completion of a whole and identifiable piece of work that is, doing a job from beginning to end with a visible outcome Task autonomy: Autonomy involves freedom to make decisions and present solutions to all problems in relation to the job with limited control from supervisors. It is the degree of freedom the job provides to the incumbent in scheduling and conducting the work. Task significance: Task significance is the degree to which the job has a substantial impact on the lives of other people, whether those people are in the immediate organization or in the world at large Feedback: Supervisor or others feedback relates to the degree to which performing the work activities results in the employee obtaining direct and clear information about the performance effectiveness.

4. 5.

2. 4

Career Planning Definition of career planning by Dessler (2008) is a deliberate process where an employee becomes aware of his or her personal skills, interests, knowledge, motivations, and other characteristics; acquires information about opportunities and choices; identifies career-related goals; and establishes action plans to attain specific goals (Abdulkadir et al., 2012)

Performance There are different views on what performance is. In order to achieve the organizations goals, managing the employee performance is very necessary because employee performance also directly related to organizations productivity and success. High performance individual also can ensure of organizational competitive advantage because enable to meet its goals and deliver products and services they specialized in (Sonnentage and Frese, 2010). Shahzad et.al (2011) has defined performance as the results or impacts of activities of an individual over a given period of time. Moreover, individual successful criteria in their work also one of the definition of performance (Jamshidi et.al, ) where usually calculate based on the sales or production (output rate) or compared the success rate to expectations of the organization. Meanwhile in the view of Ojo (2009), performance is the extent of carrying out assignment or task by an employee with their capabilities to acts in certain situations. Employee Performance According to Pasetya and Kato (2011), the accomplishment of organizational goals which resulted from the employee set of behaviors which consist of combination of effort, ability and perception of tasks has been defined as employee performance. While in the view of Kazmi, Amjad and Khan (2008) the job performance is the outcome of three factors working together: skill, effort and nature of work condition. Knowledge, abilities and competencies are the skills employee brings to the jobs; degree of motivation to get the job complete is the effort of the employee and lastly is nature of work conditions which defined as degree of accommodation of conditions in facilitate the productivity of employees. There are number of factors that may be affecting the employees performance. Zahagier and Balasundaram (2011) have pointed out varieties of factors that may affect performance such as:

IRF (which is the combination of different attributes i.e. value, beliefs, critical thinking, and anticipation of success and work attitude); JRF (i.e. needs, self-concept, personal impact skills competence, feedback, incentives and rewards); ORF (i.e. organizational culture, norms and standards used at work, communication, supervisor and colleague support).

Relationship between Employee Performance and HRM Practices

Theoretical Framework

Training

Compensation

Performance Appraisal HRM Practices Employee Performance

Job Design

Career Planning

Selection