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This paper examines the impact of HR practices on employee performance in Habib Bank Limited.
The reason we investigated the impact of HR practices (Compensation Practices, Promotion Practices and Performance Evaluation
Practices) in Habib Bank Limited in order to evaluate the performance of their employees.
A number of researchers have established the relationship between HR practices and employee performance but they mainly
discussed developed countries. Little evidence is available about relationship between HR practices and employee performance from
developing countries like Pakistan. This study examine the relationship between three HR practices i.e. compensation, promotion
and performance evaluation and perceived employee performance among HBL Pakistan. The result of the study indicates a positive
relationship between compensation and promotion practices and employee perceived performance while performance evaluation
practices are not significantly correlated with perceived employee performance. HBL need to revise Performance Evaluation process
and define clear career paths to enhance the performance of employees. Subjectivity overruling objectivity and performance
Introduction
Habib Bank Limited commonly referred to as "HBL" and head-quartered in Habib Bank Plaza, Karachi,Pakistan, is the largest
bank in Pakistan. The bank has a network of over 1450 branches in Pakistan and 55 branches worldwide. It has a domestic market
share of over 40%. It continues to dominate the commercial banking sector with a major market share in inward foreign remittances
(55%) and loans to smallindustries, traders and farmers. Overseas, it has operations in the following countries:
Afghanistan, Australia, Bahrain, Bangladesh, Belgium, Canada, China, France, Hong
Kong, Iran,Kenya, Lebanon, Maldives, Nepal, Netherlands, Nigeria, Oman, Singapore, Sri
Lanka, Tanzania,Turkey, UAE, UK & USA.
Mission
To be recognized as the leading financial institution of Pakistan and a dynamic international bank in the emerging markets,
providing our customers with a premium set of innovative products and services, and granting superior value to our stakeholders –
Services
Habib Bank offers the basic range of banking services to its customers, to include Commercial, Corporate, Investment, and Retail
History
Mohammed Ali Jinnah, Pakistan's founding father, realized the importance of financial intermediation while he was campaigning
for the creation of a separate homeland for the Muslims of India. He persuaded the Habib family to establish a commercial bank that
could serve the Indian Muslim community. His initiative resulted in the creation of Habib Bank in 1941, with HO
in Bombay (now Mumbai), and fixed capital of 25,000 rupees. The bank played an important role in mobilizing funds from the
Muslim community to finance the All-India Muslim League's campaign for the establishment of Pakistan. Habib Bank also
played an important role in channeling relief funds to the people hurt in the communal riots and violence that preceded the
After Pakistan was born in 1947, Habib Bank, at the urging of Governor-General Jinnah, moved its headquarters to Karachi,
Pakistan's first capital. This gave Karachi its first commercial bank of the newly formed Islamic Republic of Pakistan. The Habib
family owned and managed the bank until the Pakistan government nationalized it on 01 January 1974.
1961 HBL opened the first of what would become 6 branches in the UK.
1969 HBL opened first of 3 branches and an OBU in Bahrain. However, HB’s branch in Aden is nationalized.
1972 HBL opened the first of 11 branches in Oman. HBL constructed Habib Bank Plaza in Karachi to commemorate the
1974 The government of Pakistan nationalized HBL and HBL merged with Habib Bank (Overseas).
1975 HBL opened a branch in Belgium. HBL also merged with Standard Bank, a Pakistani bank.
1976 HBL opened a branch in the Seychelles, the first of two branches in Bangladesh, and a branch in the Maldives.
1981 HBL established Nigeria Habib Bank with 40% ownership. HBL also opened a representative office in Teheran.
1984 HBL established Habib American Bank in New York with a branch each in Manhattan andQueens, and a US
1991 The Habib Group established a separate private bank, the Bank AL Habib, after private banking was re-established in
Pakistan. HBL opened a branch in the Fiji Islands, and took over the Paksistani branches of failed bank, BCCI.
2002 On June 13, 2002 Pakistan's Privatization Commission announced that the Government of Pakistan had granted
the Aga Khan Fund for Economic Development (AKFED), a subsidiary of theAga Khan Development Network, rights to
51% of the shareholding in HBL, against an investment ofPKR 22.409 billion (USD 389 million).
HBL's UK operation came close to being shut down due to regulatory issues with the Financial Services Authority. The
issue was resolved by converting the operations to a subsidiary. Then Habib Bank Limited and Allied Bank of Pakistan
merged their operations (Habib contributed its 6 branches and Allied its 4), into a new bank, called Habib-Allied
International Bank, in which Habib Bank has a 90.5 percent shareholding, while Allied Bank has 9.5 percent.
Simultaneously with the transfer of business to the new bank, both Allied and Habib Bank close down all independent
2004 On February 26, the Government of Pakistan handed over management control of Habib Bank to AKFED. The
Board of Directors was reconstituted to have four AKFED nominees, including the Chairman and the President/CEO and
three Government of Pakistan nominees.
2006 HBL sold the operations that it had established in Fiji in 1991 to Bank of South Pacific.
2009 HBL was granted permission to open Remnibi accounts in China. It already has training and shareholding
Controversy
Habib bank has long been scrutinized by intelligence officials monitoring terrorist money flows.
On July 18, 2007, Mariane Pearl, the widow of Wall Street Journal reporter Daniel Pearl, filed a lawsuit against Habib Bank Ltd over
the 2002 abduction, torture and murder of her husband. The pending lawsuit alleges the bank and its subsidiaries knowingly
conducted financial transactions and provided account services on behalf of Al Akhtar Trust, a Pakistani based charity trust. Al
Akhtar Trust’s accounts have been used to provide financial support to terrorists. However, HBL claims to have frozen Al Akhtar
On October 24, 2007, Pearl's lawsuit against HBL was formally dropped. Lawyers for Mariane Pearl noted that Habib Bank Limited
and the other defendants in the case had not answered the lawsuit filed in July (although Habib Bank Limited had denied ever
supporting terrorism), but they otherwise did not explain their reason for dropping the action. [
The U.S. Federal Reserve Board and the New York State Banking Department criticized Habib Bank Limited for failing to address
Limited agreed to strengthen the banks compliance. More specifically, the Fed ordered HBL to strengthen its transaction monitoring
systems and the filing of "suspicious activity reports" on transactions that do not fit the routine business patterns of the bank's
customer base.
HR Practices
Compensation
Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. Compensation
may achieve several purposes assisting in recruitment, job performance, and job satisfaction.
Compensation is a tool used by management for a variety of purposes to further the existence of the company. Compensation may be
Recruitment and retention of qualified employees is a common goal shared by many employers. To some extent, the availability and
cost of qualified applicants for open positions is determined by market factors beyond the control of the employer. While an
employer may set compensation levels for new hires and advertize those salary ranges, it does so in the context of other employers
Morale and job satisfaction are affected by compensation. Often there is a balance (equity) that must be reached between the
monetary value the employer is willing to pay and the sentiments of worth felt be the employee. In an attempt to save money,
employers may opt to freeze salaries or salary levels at the expense of satisfaction and morale. Conversely, an employer wishing to
reduce employee turnover may seek to increase salaries and salary levels.
Compensation may also be used as a reward for exceptional job performance. Examples of such plans include: bonuses,
Compensation will be perceived by employees as fair if based on systematic components. Various compensation systems have
These systems utilize many similar components including job descriptions, salary ranges/structures, and written procedures.
the responsibilities, requirements, functions, duties, location, environment, conditions, and other aspects of jobs.
Descriptions may be developed for jobs individually or for entire job families.
Job Analysis The process of analyzing jobs from which job descriptions are developed. Job analysis techniques include
Job Evaluation A system for comparing jobs for the purpose of determining appropriate compensation levels for
individual jobs or job elements. There are four main techniques: Ranking,Classification, Factor Comparison, and Point
Method.
Pay Structures Useful for standardizing compensation practices. Most pay structures include several grades with each
grade containing a minimum salary/wage and either step increments or grade range. Step increments are common with
union positions where the pay for each job is pre-determined through collective bargaining.
Salary Surveys Collections of salary and market data. May include average salaries, inflation indicators, cost of living
indicators, salary budget averages. Companies may purchase results of surveys conducted by survey vendors or may
conduct their own salary surveys. When purchasing the results of salary surveys conducted by other vendors, note that
surveys may be conducted within a specific industry or across industries as well as within one geographical region or
across different geographical regions. Know which industry or geographic location the salary results pertain to before
Base Pay
Commissions
Overtime Pay
Stock Options
Travel/Meal/Housing Allowance
Performance appraisal
Performance appraisal, also known as employee appraisal, is a method by which the job performance of an employee is
Identify employee training needs.
Validate selection techniques and human resource policies to meet federal Equal Employment Opportunity requirements.
A common approach to assessing performance is to use a numerical or scalar rating system whereby managers are asked to score an
individual against a number of objectives/attributes. In some companies, employees receive assessments from their manager, peers,
subordinates and customers while also performing a self assessment. This is known as 360° appraisal forms good communication
patterns
The most popular methods that are being used as performance appraisal process are:
Management by objectives
Trait based systems, which rely on factors such as integrity and conscientiousness, are also commonly used by businesses. The
scientific literature on the subject provides evidence that assessing employees on factors such as these should be avoided. The
1) Because trait based systems are by definition based on personality traits, they make it difficult for a manager to provide feedback
that can cause positive change in employee performance. This is caused by the fact that personality dimensions are for the most
part static, and while an employee can change a specific behavior they cannot change their
personality. For example, a person who lacks integrity may stop lying to a manager because they have been caught, but they still
have low integrity and are likely to lie again when the threat of being caught is gone.
2) Trait based systems, because they are vague, are more easily influenced by office politics, causing them to be less reliable as a
source of information on an employee's true performance. The vagueness of these instruments allows managers to fill them out
based on who they want to/feel should get a raise, rather than basing scores on specific behaviors employees should/should not be
engaging in. These systems are also more likely to leave a company open to discrimination claims because a manager can
In the PTF Report it was claimed that “although annual Reports by ministries and departments are obligatory, they are hardly ever
prepared and submitted to government, and where they, they are scanty and hardly confirms with any standards, either in terms of
contents or format. The recommendation was that there should be target setting by ministries where concrete and measurable
A number of researchers have reported that HR practices are positively linked with organisational and employee performances. The
focus and thrust of these studies have been towards developed countries. Little research has been done to test the HR performance
Our study was an attempt to test the relationship between HR practices and employee performance in Pakistan’s banking sector. The
management of Habib Bank Limited is also emphasizing the growth and development of its bankers with various initiatives.
In this situation it is important to find out the determinants which can enhance the employee performance in Habib Bank Limited.
The objective of this study was to facilitate the decision makers in Habib Bank Limited across Pakistan to follow the HR practices
which can improve the performance of Habib Bank Limited employees.
Theoretical Framework
Review of Literature
There are number of HR practices that could be tested in connection with employee performance. A number of research articles had
e.g.,
· The Impact of Human Resource Management and Work Climate on Organizational Performance by Garry A. Gelade and Mark
Ivery[1]
· The Effect of Human Resource Management Practices on MNC Subsidiary Performance in Russia by CARL F. FEY [2]
· The Impact of Human Resource Management Practices on Turnover, Productivity and Corporate Financial Performance by Mark
A. Huselid [3]
· How HR & Training Practices Can Boost Worker Performance (IOMA’s Report on Managing Training and Development) [4]
· Human Resource Practices and Organisational Performance: Can the HRM-performance linkage be explained by the cooperative
· The impact of HR practices on the performance of business units by Patrick M. Wright, Timothy M. Gardner and Lisa M.
Moynihan[6]
· The Impact of Human Resource Management Practices on the Performance of European Firms by Paul Gooderham, Kristen
· Human Resource Management, Organizational Performance and Employee Well-Being by David Guest [9]
· Rated to exhaustion? Reaction to performance appraisal processes by Brown M. and Benson J. [10]
· Performance appraisal systems: determinants and change by Brown M and Heywood J. [11]
· Equity-based compensation for employees: firm performance and determinants by Frye M. B [12]
· The importance of HR practices and workplace trust in achieving superior performance: a study of public-sector organizations by
· Human Resource Management, Corporate Performance and Employee Wellbeing: Building the Worker into HRM by Guest D. [14]
· Challenges and prospects of HRM in developing countries: testing the HRM-performance link in Eritrean civil service by Teseema
& Soeters[15]
HR Practices
There are number of HR practices that could be tested in connection with employee performance. Teseema & Soeters (2006) have
studied eight HR practices and their relationship with perceived employee performance. These eight practices include recruitment
and selection practices, placement practices, training practices, compensation practices, employee performance evaluation practices,
promotion practices, grievance procedure and pension or social security. Huselid (1995) used eleven HRM practices in his study
which are personnel selection, performance appraisal, incentive compensation, job design, grievance procedures, information
sharing, attitude assessment, labor-management participation, recruitment efforts, employee training and promotion criteria. This
study examines the relationship between three HR practices i.e. compensation, promotion and performance evaluation and
perceived employee performance. Pakistan is a developing country with very low per capita income and above three practices which
have a relatively direct impact on financial earnings and social status of an individual may be considered the major determinants of
employee’s performance. This is the reason these practices have been selected for this study.
Compensation Practices
Frye (2004) examined the relationship between equity based compensation and firm performance and found positive relationship
between the two. He argued that for human capital intensive firms compensation plays a crucial role in ‘attracting and retaining
highly skilled employees’. As banks are capital intensive organizations, compensation practices of a bank can be of great help in
hiring and keeping hold of highly skilled and competent bankers. Incentive pay plans positively and substantially affect performance
of workers if combined with innovative work practices like ‘flexible job design, employee participation in problem-solving teams,
training to provide workers with multiple skills, extensive screening and communication and employment security’ (Ichniowski et
al., 1997). High performance work practices (including compensation) have a statistically significant relationship with employee
outcomes and corporate financial performance (Huselid, 1995). Significantly positive correlation has been reported between
compensation practices and perceived employee performance by Teseema & Soeters (2006). On the basis of above mentioned
literature and arguments it can be safely assumed that compensation practices are correlated with the performance of employees.
H1: Compensation practices are significantly and positively related with perceived performance of banks in Pakistan.
Promotion Practices
Financially successful companies like HP (Hewlett-Packard) ‘promote and develop from within’ (Truss, 2001). Teseema & Soeters
(2006) found significantly positive correlation between promotion practices and perceived employee performance, however HR
outcomes was used as mediating variable. HR practices including ‘vacancies filled from within’ have been found positively correlated
with work satisfaction and life satisfaction with values 0.24 (P=<0.001) and 0.15 (P=<0.001) respectively (Guest, 2002). Synergetic
systems of HR practices (including merit promotion decisions) lead to higher performance of an organization (Park et al., 2003).
On the basis of above mentioned literature and arguments it can be safely assumed that promotion practices are correlated with the
H2: Promotion practices are significantly and positively related with perceived performance of banks in Pakistan.
‘Performance appraisal represents, in part, a formalized process of worker monitoring and is intended to be a management tool to
improve the performance and productivity of workers’ (Brown and Heywood, 2005). Employee commitment and productivity can be
improved with performance appraisal systems (Brown and Benson, 2003). Appropriate explanation and supervision of performance
lead to higher job satisfaction and professional commitment amongst teachers. This is also true when performance appraisal is low.
Commitment to teaching is a function of teacher’s attitude towards performance appraisal system. (Rahman, 2006). Possibility of
performance appraisal is enhanced by complementary human resource management practices like formal training and incentive pay
and performance appraisal leads to greater influence of productivity (Brown and Heywood, 2005). On the basis of above mentioned
literature and arguments it can be safely assumed that performance evaluation practices are correlated with the performance of
H3: Performance evaluation practices are significantly and positively related with perceived performance of banks in Pakistan.
Methodology
The questionnaire was based on questionnaire used by Teseema & Soeters (2006) for measuring impact of various HR practices on
employee performance. The reason for selecting this questionnaire is that it was used to study the impact of same variables as in
present study and was well tested on reliability and validity scales. Questionnaire that was administered consisted of three HR
practices which are Compensation Practices, Promotion Practices and Performance Evaluation Practices and Perceived Employee
Performance
The questionnaire was well tested by researchers on internal consistency and other measures. According to Teseema & Soeters
(2006) alphas for Compensation Practices, Promotion Practices and Performance Evaluation Practices and Perceived Employee
Performance are .82, .74, .73 and .74 respectively. All alphas range between .73 and .82 which is acceptable. The response was
required on five point Lickert scales (endpoints: 1 = Strongly disagree, 5 = Strongly agree).
Participants:
The participants included employee of Habib Bank Limited. A total 120 questionnaires were distributed however 102 were received
back making response rate as 85% and a sufficient sample size was collected for analysis of results.
Findings
Demographics n=102
is to show composition of respondents to have a better understanding about their response and results for present study. The
respondents are male. Majority of the respondents hold a Bachelor degree which at present is the minimum requirement to become
a banker. The martial status of the respondents is an important demographic in the present study as having a married life and
children increase responsibility on individuals and mostly work life conflict situation arises when there is an imbalance between
EP PP CP PEP Mean
Agree 133 61 122 143 2.25
Disagree 31 122 51 41 1.36
Neutral 6 21 31 20 0.33
EP PP CP PEP Mean
Agree 65% 30% 60% 70% -
Disagree 31% 60% 25% 20% -
Neutral 4% 10% 15% 10% -
SD= standard Deviation, EP= Employee Performance, CP= Compensation Practices, PP= Promotion Practices, PEP= Performance
Evaluation Practices
Conclusion
The impact of HR practices (Compensation Practice, Promotion Practice, and Performance Evaluation System) on the employee of
1. The criteria of performance quantification lacks skills & techniques which is effecting the performance of
employee in HBL
2. The pay difference between the different hierarchical levels is a frustrated factor among the employees of HBL
10. The low morale of upper management affecting the overall efficiency of the employees of HBL
Recommendations
— Performance quantification methods should be improved and should and includes better techniques and skills
— There should be less Pay Scale difference between the different Hierarchical level in HBL
— Promotion Policy should be revised and should include less hierarchical level.
— Eid bonuses, hospital allowances and Petrol Ceiling should be separated from monthly Pays
References
1. www.sirim.my/techinfo/p1/management/jan-feb05
2. www.leeds.ac.uk/esrcfutureofwork/downloads/workingpaperdownloads/paper9.pdf
3. www.chrs.rutgers.edu/pub-documents/huselid_12.pdf
4. www.academic- journals.org/cmr/cmr%20papers/(vol%2003%20no%2003)3%20pages/20233-253.pdf
5. www.enap.gov.br/mesa_redonda/download/daley_vasu.mpsa02-ppm.pdf
6. www.blackwellpublishing.com/pdf/wrightetal.pdf
7. www.ukcbs.dk/content/download/48791/703547/file/gooderhamdringdalparry.pdf
8. www.business_analytic.co.uk/article-hrm.pdf
9. www.ibam.com/pubs/jbam/articles/vol10/no1/jbam_10_1_6.pdf
10. www.ferrykoster.nl/pdf/managementrevue.pdf
11. www.hec.ca/gresi/document/cahier0101.pdf
12. www.bc.edu/~jonese1/articles/rynes_AME_2002.pdf
13. www.Swoba.hhs.se/hastba/papers/hastba2000-006.pdf
14. www.bc.edu/~jonese1/articles/sttc_PRC_2004.pdf
15. www.blackwellpublishing.com/pdf/articles/httc/tel.pdf
Questionnaire
Section 1
Matriculation
Intermediate
Bachelor
Masters
M.Phil/MS
Doctoral
4. What is your native language?
Urdu
English
Punjabi
Sindhi
Pushto
Balochi
Sairiki
Others
5. What is your Martial Status?
Married
Un-married
5a. What is your Gender?
Male
Female
E mployee performance
Compensation practices
Promotion practices
y
Strongly Disagree Disagree Neutral Strongly agree
Agree
1 2 3 4 5
20. Provision of Priority to merit in Promotion
Strongly
Disagree Neutral Agree Strongly agree
Disagree
1 2 3 4 5
REACTIONS: