Human Resource Management And Firm Performance – A Case Study Of Small And Medium Enterprises Of Pakistan

Small and medium enterprises are considered as a great source of economic growth and development of the country. However, in Pakistan the development of these SMEs is very slow because they lack indelivering good performance. Therefore, the present study aims at identifying components that help to increase the SMEs performance in the country. Managing the human resource of any organization is one of the most difficult tasks. However, if they were managed in a better way they yield positive results. Similar is the case with the SMEs operating in the country. This study incorporates certain variables including compensation and benefits, performance appraisal, employee involvement, training and development and job security. The following variables are considered as an important factor for the firm performance.

A survey approach was used in order to collect the data from the respondents. The data was collected from the employees of SMEs of Pakistan. The overall empirical assessment revealed positive results between the hypothesized relationships. However certain implications of the study ensured that while SMEs accepting the human resource practices will help to increase the firm performance.

This study will help to bring in awareness to the SMEs of Pakistan in order to bring proper human resource practices in their firm that will help to increase the firm performance and contributes in the economic growth.

Key words: Small and Medium Enterprises, Human Resource Management, Firm Performance.


















The research presented in the present thesis was conducted to examine the relationship between human resource management practices including compensation and benefits, performance appraisal, employee benefit, training and development and job security on performance of small and medium enterprises of Pakistan.  This chapter includes background of the study, problem statement, questions and objectives of research, significance of the study and structure of the thesis.


Small and medium enterprises are considered as one of the major contributor of economic growth and development of the country (Man et al., 2012). These small scale enterprises depend on few critical success factors. With the minimum number of employee the SMEs are considered as an appropriate place for any employee. However, in Pakistan the SMEs are not sharing their part in the country’s economic growth and development (Ayyagari et al., 2007). According to Jasra et al., (2011) the SMEs management in Pakistan are usually unaware of the human resource management practices. Therefore, these companies’ performances lack as compared to those operating in foreign countries. This lack in performance leads to unproductive results.

Human resource management is liable for the implantation of the human resource practices in view of greater interest for the firm performance (Cassell et al., 2002). The functions of HR includes from the recruitment process, to training and development, through compensation and benefits finally the rewards such as compensation and benefits and till termination of employees (Storey, 2007). According to MacDuffie (1995) the HR practices helps in the development of the organization. The human resource is the most valuable assets of any organization. The talented work force is the need of any organization. As, Yew, (2005) indicated that the HR plays a vital role in sustaining the competitive advantage of the firm. Similarly SMEs as being much smaller organizations with concentrated workforce are also pertinent to HR practices. Furthermore, Combs, Liu, Hall and Ketchen, (2006) incorporated that with such concentrated workforce, each employee represents as a sustentative element for the organization and therefore, each employee has a significant impact on the overall performance of the firm. As, SMEs having smaller operational business each employee have a potential impact on the performance of the firm.

In such Instances it has been widely debated that the SMEs operations needs to be streamlined with the HR practices. These practices will help in gaining competitive advantage and improve the firm’s performance (Christen, Iyer and Soberman, 2006). Though due to time constraint the following study would be unable to include each perspective but five major practices have been selected which are human resource Compensation and benefits, performance appraisal, employee involvement, training and development and job security which are major contributor to the firm performance (Gomez-Mejia, Balkin and Cardy, 2004; Storey, 2005; Bebchuk, 2009). The Vives, (2006) incorporated that firm effectiveness and sustainable competitive advantage cannot be achieved until the successfully implementation of HR practices in any organization. Similarly Koch and McGrath (1996) presented a similar logic regarding the relationship between HR practices and the productivity of the firm. They argued that a highly productive workforce is likely to have attributes that make it a particularly valuable strategic asset,” (p. 335). Further they suggested that the human capital is not imitable with the fierce competition in the business talented stock of work force helps in the effectiveness of firm performance.

The following factors contribute in increasing job performance employee commitment, engagement and satisfaction where by reduce burnout and job stress (Paul and Anantharaman, 2003, Gomez-Mejia, Balkin and Cardy, 2004, Berrone and Gomez-Mejia, 2009). Many researchers have incorporated different theoretical approaches that demonstrate that the firm performance is largely dependent on the employee job satisfaction, engagement and commitment of an employee (Gomez-Mejia, Balkin and Cardy, 2004; Storey, 2005, Therefore, in order to increase the effectiveness of the organization there is a great need better HR practices in the firm.

Performance appraisal (PA) is a human resource management practice, recently PA has widely been researched and its ultimate effects on the employees and on the organization(Shrivastava & Purang, 2011). The evaluation process is a critical aspect of management, where the employers and employees both are at a surge of better results, though it normally does not occurs. Therefore contemporary organizations are encouraging better evaluation processes. As, Edwards and Rothbard, (2000) study indicates that the PA system builds a strong trustworthy relationship between the employer and employee whereas also increase employee commitment. Similarly various studies indicated that if the employees are satisfied from the appraisal process it creates a healthy work environment of the organization (Jasra et al., (2011; Edwards and Rothbard, 2000). However, such systems need to be projected in ever organizational type this creates a better working environment, satisfying employees, improve performance and motivates employee for other job assignment. The present study exhibits an important predictor of firm performance. As SMEs are different types of organizations but the better evaluation process help employees to get satisfied from their job. This paper argues that in Pakistan PA system lacks in the SMEs therefore with the lack of this important contributor the SMEs performance in Pakistan remains stumpy.

In recent studies of organizational disciplines exhibits that amongst the HRM practices an essential predictor of organizational performance is the employee involvement. Employee involvement encompasses various practices of an employee. According to Fenton-O'Creevy, 2001 employee involvement is the ‘exercise, by employees of influence over how their work is organized and carried out' (p: 28). Numerous researchers defined this variable as the direct participation of employees in organizational matters and incorporating their own ideas, expertise to achieve organizational goals (De, Wetzels and Feinberg, 2001, DeNisi and Pritchard, 2006; Collins and Clark, 2003). Whereas it’s also been establish that employee involvement and firm performance has relationship, Carayannis and Jorge, (1998) argues that establishing trust is a component of employee and organizational and this trust can be created with the employee involvement in organizational matters. With the involvement of employee in organizational matters build strong sense of ownership. This sense enables to build stronger and positive inclination to the organization and thus this surge helps employee to cooperate more for the firm performance. The SMEs while incorporating employee involvement help them to achieve better results. With the minimum number of employees this involvement process can be sturdier.

Various empirical studies demonstrate that monetary policies are determinant of the employee performance (Paul and Anantharaman, 2003, Mirror, 1999, Berrone and Gomez-Mejia, 2009. Although many argue that not only the monetary policies but other psychological measures are much greater contributor of employee performance. The present paper provides an empirical investigation of compensation and benefits and its impact on firm performance. It includes both the psychological and monetary aspects. The HRM practices of rewards and remuneration process includes much complexities. However, it has much positive results on the job performance that ultimately benefits the overall firm performance but the intricacies involved in compensating and provision of benefits need quality managerial skills (Paul and Anantharaman, 2003).

The SMEs comprises of small scale business the compensation and benefits provision enables employee to greater motivational level. Furthermore, Rajgopal, Shevlin and Zamora, (2006) contends that it does not depend upon the volume of the reward but instead it the appreciation and encouragement of the work done. This gratitude helps increase the employee cognitive perception towards their firm thus they contribute much in the firm performance.

Where we have discussing the cognitive measure job security also brings psychological uplift in ones’ carrier. Job security relates to its postulated outcomes, where it brings degree of uncertainty with job provision (Combs, Liu, Hall and Ketchen, 2006). Job security is always being a great concern for the employees while working in any of the private organizations. However, with the advancement of organizational system job security of employees has increases. But in Pakistan it is still a great concern for the people working in private sector organizations. SMEs in Pakistan under both public and private collaboration in such instances the employees needs to secure their job. Therefore, SMEs needs to build confidence amongst their working regarding their job security. As, Pagés and Heckman, (200) argues that job security removes the doubts of employees of being un employed therefore, concentrate more on the present position and task. The continuous search reduces the performance of employee and leads to poor performance of the firm. There is a great need in SMEs to take initiatives for job security.

With the overall practices a more concentrated practice on the position that an employee is holding requires training and development. The Chartered Institute of Personnel and Development in 2000 bought a concept of training and development with the view of continuous learning and development of employees. Organizational psychologists believe that training of employees is an important predictor of firm effectiveness (Carayannis and Jorge, 1998). With the increase in new advancement such as technology and other measures require better work force. The companies are changing on continuous pace in order to compete in the external environment. Therefore, they are bringing new technological measure in their organization. In such instances it has been observed that mostly employees resist, Deissinger (1994) argues that the major cause of resistance is that employees are reluctant in adopting the recent measure. The better approach is T&D; it will help the workforce to learn new technology and advancements (Carayannis and Jorge, 1998). It has also been observed that companies following practices of training and development reduce the turnover rate, increase performance and improve firm performance. This study also investigates that what impact does the training and development will have on small scale firms such as SMEs. Whether, SMEs should invest in developing such training and development sessions for their employees in order to improve the overall firms’ productivity and growth.

Thus in the present study we are contended to identify the present situation of SMEs in Pakistan and also incorporating that what measures is necessary for their development. However, it’s an established fact that SMEs can be a greater source of country’s economic growth. The following empirical analysis on management practices will help in identify that what proportion of these variables will be able to contribute to SMEs performance. Whereas, the results also reveal that what proportion of investments does SMEs need for bringing in this industry at a road of success. The whole set practices that will help SMEs for their economic development and growth.

1.2Significance of the study

The Small and medium enterprises are small scale enterprises though they have huge impact on the country’s’ economy. The foreign countries pay a huge attention on the small and medium enterprises has they are aware of their output generations therefore, lays prescribed policies for the development and the SME’s. However, in Pakistan the SME’s share of economic development is much low but through proper policy implementation and government support. This industry can be a good source of revenue generation and incorporates better share in the country’s economy. Therefore, the present study aims to identify that how the SME’s performance can be improved through development of its human resource. Human resource is the most valuable assets of any organization by analyzing the impact of various factors as the study incorporates few variables such as compensation and benefits, performance appraisal, employee benefit, training and development and job security impact the performance of SME’s. Thus analyzing these important variables helps SME’s of Pakistan to design better human resource practices for their growth and development. Furthermore, few studies have been conducted on the relationship between these variables and SME’s and those studies are conducted on western contexts, but as macro environmental factors of Pakistan’s SMEs are quite different, therefore, generalizing those results in to the Pakistan environment will leads to pseudo results. So, the following research will be a great aid to the SME’s in order for their growth and development.

1.3Problem statement

Nevertheless a huge amount of research has been conducted on the human resource management practices and its impact on the organizational performance (Dowling, 2008; Urilch, 2013; Datta, Guthrie, and Wright, 2005). However, limited understanding has been developed between the SME’s performance and human resource practices. The functioning of SMEs is much different from the contemporary organizations. In such instances it is of utmost important to study and research on the issues that are hindrance in their performance. This prominent lack of evidentiary information regarding the human resource practices and the SMEs performance creates problems for the firms. Therefore, the present study is intended to identify the relationship between the human resource practices including compensation and benefits, performance appraisal, employee benefit, training and development and job security on the SMEs performance.

1.4Research Question

This study will address the answers of following questions

  1. The first question aims to identify the effectiveness of compensation and benefits the Small and medium enterprises?
  2. This next question ascertains that whether performance appraisal effect the small and Medium enterprises performance? I.e. if the human resource management has better practices of performance appraisal what impact does it have on the organization performance.
  3. In human resource management what impact does employee involvement has on the performance of Small and medium enterprises?
  4. How does training and development of the employees affect overall Small and medium enterprises performance?
  5. The question aims to identify the effect of job security on small and medium enterprises performance?

1.5Research Objectives

The aim of present research is to investigate the role of human resource management practices including compensation and benefits, performance appraisal, employee involvement, training and development and job security on performance of small and medium enterprises of Pakistan. This research aim will be accomplished through certain objectives which are listed below.

  1. To analyze the factors of human resource management on the performance of SME’s.
  2. To assess the relationship of compensation and benefits, performance appraisal, employee involvement, training and development and job security on the performance of SME’s.
  3. To recommend practitioners of SMEs that how they can improve firm performance through human resource management practices

1.6Thesis Structure

The thesis write up is sequenced in the order described by the university guidelines. They are divided in various chapters sequencing with first chapter that is the introductory chapter including the background of the study variables and their relationships, posing the research question, objectives and significance of the study as well. The second chapter includes the concepts and definitions of the variables under study, following the theoretical reflections, critical analysis of the literature to the topic that is evidenced from the literature and also the research model. The third chapter is the methodology section which includes the research design, instrument used, the participants and procedures, level of analysis and data analysis techniques used. After the methodology the fourth section of the thesis is the analysis and empirical results of the study are presented and fifth chapter includes the key findings of the study, implications including theoretical and empirical, limitations discussed and conclusion of the complete study.  Finally the references used in the following study and appendices section containing the questionnaires used in the study.

















The present chapter is focusing on reviewing the relevant literature on effectiveness of human resource management practices in defining the performance of organization. The discussion has carried out in different sections. Firstly, the core concepts and definitions of the study variables are provided in the light of prior research. Secondly, the brief section has discussedthe linkage of human resource management practices with performance of organization. Followed by this, the discussion has moved to association of all HRM practices with performance of organization. Finally, the section of literature review has summarized by the researcher.

2.1 Concepts and Definitions

Compensation and Benefits: The compensation and benefits can be termed as the output of employee’s performance within an organization and it has considered as the corner stone for producing and maintaining competitive workforce (Cappelli and Neumark, 2001). The compensation planning strategies of organization are found to be directly related with the performance of employees and organization. The compensation can be monetary and non-monetary (Ramsay, Scholarios and Harley, 2000).

Performance Appraisal: Performance appraisal refers to the evaluating process of employees by the management in order to improve their performance, identify the requirements of their training and development and to motivate them (Armstrong and Baron, 2000). It is an important constituent of human resource management and have also been widely researched under the tenant of industrial psychology.

Employee Involvement:The employee involvement is a novel philosophy that offers discretion to no-managerial members of an organization to get engage in decision making of organization (Storey, 2007). The concept of employee involvement has emerged in contemporary organization that has allowed the employees to make decisions regarding their job (Gomez-Mejia, Balkin and Cardy, 2004). Therefore, the employee involvement offers an opportunity to employees to accomplish the mission and goals of organization based on their unique skills and capabilities.

Training and Development: The training and development has been defined as the way that can help to achieve the desired level of employees’ skills with an aim of reducing performance gap of employees.  The training and development is the educational process which is aimed at developing the knowledge and skills of employees to improve their performance (Boxall and Purcell, 2011). It also fosters the ability and readiness of employees to accept and adapt change in timely and appropriate manner (Seibert, Silver and Randolph, 2004).

Job Security: The job security can be termed as an assurance maintained by an employee about the continuity of his/her job within a specific organization (Collins and Clark, 2003). The jobs which are high on security are associated with lesser chances of getting unemployed. The collective bargaining agreement and labor legislations are the way to ensure job security through prevention of arbitrary termination (Datta, Guthrie and Wright, 2005).

Performance: The organization’s performance is linked with the achievement of desired output of organization and it is based on realization of goals and objectives of organization (Dowling, 2008). The overall performance of organization is comprised of three features; financial aspect of performance, performance of product and return of shareholders (Daley, 2006). The performance of organization is enhanced through aggregate performance level of all key areas of organization.

2.2 Human Resource Management Practices and Firm’s Performance

In the contemporary business environment of intense competition, the human resource management practices are defined as the procedures and standards of organization ranging from attraction and recruitment of employees to development and retention of employees (Collins and Smith, 2006). The growing stream of research has focused on empirical investigation of HRM practices on the performance of firm (Christen, Iyer and Soberman, 2006). The numerous researchers who have studied the linkage of human resource management practices with effectiveness of organization, have considered the resources based view as theoretical reflection of the construct (Aycan et al., 2010). According to the researcher, the human resource management practices act as the way of attracting and retaining the highly skilled and qualified human resources. The talented human resources are inimitable and rare and they have the ability to offer unique competitive advantage to the organization in long run. The present research study has included five key practices of human resources management encompassing the following; compensation and benefits, performance appraisal, employee involvement, training and development and job security.     

The basis of linkage between human resource practices and firm’s performance goes back to the classic economic theory. According to advocates of this theory, the firm’s growth and productivity mainly relies on the aspect of division of labor and specialization of employees within work unit (Boxall and Purcell, 2011). It has asserted by scholars that in the age of advancement of technology the HRM practices serve as the way of offering comparative advantage to organization (Wright et al., 2003). The human capital development has been considered as an important factor in practice and it has also gained prominence among researchers. The human resources management practices incorporated into current study include; compensation and benefits, performance appraisal, employee involvement, training and development and security.

2.3 Linkage of Compensation and benefits with Firm’s Performance

The compensation of benefits of employees are considered as highly associated with the performance of organization. The employees who received fair compensation and benefits in exchange of service that they offer to the organization are likely to perform effectively to attain the desired goals of organization (Way, 2002). There are different facets of compensation and benefits including the following; salary, incentives, rewards and indirect compensation (Ugboro and Obeng, 2000). Firstly, the salary aspect of compensation and benefits is associated with the monetary returns for services that are rendered by employees (Combs, Liu, Hall and Ketchen, 2006). The monetary rewards are considered as an important factor that can motivate employees such that they may work hard with an aim of gaining more monetary rewards. The employees’ response to the monetary rewards provides that salary can be a strong predictor of employees’ performance. Moreover it has offered in prior research that employees who receive higher wages for their performance are likely to be highly satisfied and consequences could be in the form of increased performance of employees (Crossman and Abou-Zaki, 2003). Thus, it is reasonable to offer that salary can lead to enhanced performance of employees.

Followed by this, the second aspect of compensation and benefits include the incentive and rewards. The research has offered that rewards and incentives are associated with increased level of employee’s performance (Wright, Gardner and Moynihan, 2003). The rewards and incentives that are being offered to employees are an important source of employee retention and therefore, it assist in maintaining a skill inventory within organization. The employees receiving rewards develop higher sense of achievement, which can help in reduction of stress and thus the performance of employees can improve in long run (Ahmad and Schroeder, 2003). It has also been provided by the researchers that conflict within organization can be minimized by the reliance of management on effective reward system (Aycan et al., 2010). Therefore, a healthy working environment can be maintained with the help of incentives given to employees and its overall benefit is in the form of better employee performance.

Along with this, the indirect compensation is considered as key contributor behind the satisfaction and commitment of employees. The indirect compensation is likely to be comprised of social security, work life balance, pension plans of employees and other related benefits(Ulrich, 2013). The indirect compensation is reflected as the psychological force of employees that can serve as the basis of fostering the employee engagement. The employees receiving greater level of indirect compensation are likely to develop greater sense of achievement and they also feel aligned with strategic values and goals of organization (Zacharatos, Barling and Iverson, 2005). Thus,the indirect compensation of employees can increase their willingness of performing with their potential with an aim of achieving the goals of organization. Finally, the employees are the core asset of any organization and addressing the problems of employees and benefiting them in timely and effective way can help the organization in raising and achieving the high standards of performance.

Furthermore, it has been mentioned by Ulrich (2013) that organizations, in which internal promotions are maintained on the basis of merit rather than on the basis of seniority are more likely to gain commitment of employees. It has been highlighted in the research study that adoption of incentive systems can be helpful for organizations in the form of positive market reaction which can affect the stock market of the company in positive manner (Laird, Holton and Naquin, 2003). The performance based compensation system is an important facet in defining the performance of firm and motivation of employees can act as a crucial mediating variable. The result of a study conducted by Wright et al (2003) has indicated that employees who receive their desired rewards are likely to perform better and they hold significant importance in increasing the overall performance of organization. In the light of these views, it can be argued that employees who receive merit based rewards and performance based compensation are an important source of enhanced performance of organization.

H1: The compensation and benefits of employees will be positively associated with performance of SMEs.

2.4 Performance Appraisal and Firm’s Performance

The performance appraisal holds an important place in human resource management as it produces definite critical outcomes within organization(DeNisi and Pritchard, 2006). It is one of the most important tool in any organization, which evaluates the performance of employees and helps in their development (De, Wetzels and Feinberg, 2001). The performance appraisal process of an organization is well structured and it is well documented by the organization to guide the decisions making related to human resources (Collins and Clark, 2003). One of the purpose of conducting performance evaluation is to provide clear insight of employees' performance and to make decisions about compensation, distribution of rewards among employees, layoffs and training of potential employees (Boxall and Purcell, 2011).It has been offered by the prior researchers that along with serving the evaluative purposes, the performance appraisal also serves as developmental purposes and satisfaction with performance ratings can help in improving the performance of employees (Datta, Guthrie and Wright, 2005).

Recently, the performance appraisal has been considered as a strategic approach by contemporary organizations and they are aimed at integrating the performance appraisal with other core activities of human resource management (Edwards and Rothbard, 2000). The justification to this argument lies in the fact that employees’ feedback is considered as an important factor for carrying out effective performance evaluation within organization. The employees can offer their feedback about suitability of job design and availability of resources(Fletcher, 2001). Furthermore, the performance evaluation ratings can serve as the basis of highlighting weaknesses and strengths of employees. The in-depth insight on employees’ performance also help in assessing the needs of employees and therefore serves as the basis of development programs of organization (Daley, 2006). The performance evaluation differentiates poor performers and good performers and thus, decisions regarding retention and termination of human resources can be carried out (Evans and Davis, 2005). Therefore, by recognizing the high performers, management can offer them bonuses and rewards based on their performance and it can help in enhancing the level of satisfaction, motivation and productivity of employees.

Similarly, the active involvement of employees in performance appraisal can serve as the basis of identifying the causes behind poor performance and timely corrective measures can enable the organization to transmit poor performance into good performance (Fitz-Enz, 2000). Along with this, an important aspect that defines effectiveness of performance appraisal is associated with incorporation of justice phenomenon in performance appraisal process (Wright and Boswell, 2002). The employees who perceive high fairness in performance appraisal are more likely to feel connected with organization and they are committed towards their job (Guest, Michie, Conway and Sheehan, 2003). Therefore, their commitment and motivation enhanced through performance appraisals can lead to improved performance of employees and can directly impact organizational performance positively. Furthermore, the review sessions of performance evaluation can assist the employees to gain clarity of their responsibilities in effective manner, which can help them to perform effectively (Ahmad and Schroeder, 2003).Thus, it is evident that likewise other HR practices, performance appraisal contributes positively in performance of organization.

H2: The performance appraisal of employees will be positively associated with performance of SMEs.

2.5 Linkage of employee involvement with Firm’s Performance

The phenomenon of human resource management is purifying over time and it is also modifying the role of employees within organization. The today’s organizations are flatter in comparison to traditional organizations and employees are keen to participate in varrying operations and activities of organization. The concept of decentralization is gaining increasing attention based on high innovation requirements of dynamic business environment. The employee involvement has increased in order to foster creativity among employees (Whitener, 2001). The businesses are working beyond the traditional boundaries and in order to cope with dynamic globalized businesses, the employee empowerment is increasing significantly (Zacharatos, Barling and Iverson, 2005). Similarly, the emergence of strategic human resource management has considered employee involvement as an important method of gaining competitive advantage (Collins and Smith, 2006). The research has indicated that the inability of organizations to respond to change and alignment with strict hierarchy can contribute to their inability to achieve performance goals (Lepak and Snell, 2002). On the other hand, the organizations who are offering significant importance to employee involvement are likely to encourage participative approach of decision making and they can gain high competence in long run.

It is important to note that there are different ways through which empowerment and involvement of employees can lead to performance of organization. The time of making decisions can be reduced by incorporating aspect of employee involvement into account (Holton, Bates and Ruona, 2000). This aspect of employee involvement can assist the organizations to generate highly innovative solutions that might not be possible in organizations having strict hierarchy (Allen, Shore and Griffeth, 2003). The discretion to participate in decision making of organization can help the businesses to get highly motivated employees with enhanced sense of achievement. The involved employees are also likely to align with the organization and therefore, they are more likely to perform effectively for welfare of organization (Boxall and Purcell, 2011). Thus, the involvement of employees can help in generating competitive advantage in long run. Along with this, the employees’ involvement can also lead to develop positive attitudes among employees (Laird, Holton and Naquin, 2003; Kuhnert, Sims and Lahey, 1989). The employees then may begin to own their work with high commitment and responsibility, which is the source of increased performance of employees. The organizations can reach their goal of high performance with greater ease by relying on less control and more discretion to employees.

The notion of autonomy and employee involvement have found to be associated with good relationships among employees (Datta, Guthrie and Wright, 2005). The better quality relationship among employees are termed as the core of contemporary organizations and most of working of organization is handled through team work. The higher involvement of employees and their improved participation can reduce the dependence of employees from management and emergence of self-managed teams can help them to work with high potential (Dowling, 2008). Along with this, it is also important to note that employees who are supported to become self-sufficient at their work are more likely to enhance their learning for reducing work related mistakes and they can improve the level of their performance. Consequently, the micro management can also be reduced and management can focus their attention on realization of organization’s goals (Aguinis and Kraiger, 2009).

In addition to it, the aptitude expansion of employees has found to be linked with increased delegation of authority. Opposite to it, handing over employees with decisions and strict control of management is found to restrict the competence level of employees and cm affect their performance negatively (Rajgopal, Shevlin and Zamora, 2006). Within the notion of self-managed teams and decentralized employees, the management’s responsibility reduces to provide feedback and highlight the performance problems (Evans and Davis, 2005). By highlighting problems, they can encourage employees to take corrective measures for overcoming those issues and it can lead them to gain benefits of better performance of employees. Similarly, the increased involvement of employees can be linked with reducing the rate of absenteeism within the organization and can increase satisfaction of employees towards their job (Moreland and Myaskovsky, 2000). Therefore, it can make the employees happy and they can contribute to growth of organization in an effective manner. All of the evidences provided from the literature has led to the conclusion that employee involvement can be considered as the best way for contemporary organizations to improve their performance through positive employee related outcomes.

H3: The involvement of employees will be positively associated with performance of SMEs.

2.6 Linkage of Training and Development with Firm’s Performance

The needs of employees regarding skills’ improvement can be addressed substantially through training and development (Guest, 2002). The training and development reduces skills gap and timely training serves as the way of increasing satisfaction of employees. Along with this, the employees who are offered significant level of training and development opportunities are more likely to perceive themselves as valued members of organization. The training and development of organizations can also help the organizations to reduce the cost associated with recruitment and sourcing of employees, as there is lower level of associated risk of employee turnover. Likewise, the extensive training and development adds to increase the market value of human resources of organization that leads to greater commitment and performance of employees (Holton, Bates and Ruona, 2000). The active organizations in training and development are engaged in career planning of their employees as well, which lets them to take responsibility of their own development and provide long term advantages to organizations with continuous improvement in employee performance (Heneman, Ledford and Gresham, 2002). It has been highlighted by the prior researchers that small and medium enterprises can be referred to as rapidly growing firms (Hayes and Schaefer, 2000). The rapid growth of Small and Medium Enterprises (SMEs) can be initiated and supported through capable human resources and in order to support their growth strategies they need to extensively train and develop their employees (Huselid, 1995).

The contemporary businesses that are operating in highly dynamic business environment are required to gain higher level of differentiation within industry. The differentiation can help them to gain sustainability in long run (Judge et al., 2001). The importance of retention oriented training has also asserted by the prior researchers stating that it can contribute largely in retaining the competitive workforce (Kuvaas, 2006). It is further note able that high dynamism and rapid growth of technology is demanding for adoption of new technology (Billett, 2001). The innovation within processes of organization is increasingly important and it may create complexity for human resources of organization (Burke and Hutchins, 2007). The increased complexity of organizational operations can create higher demand of training and development. Thus, the training and development of employees is crucial for handling the newness and it can lead to improve performance of employees in the process of complying with innovative requirements of industry.

Along with this, it has been describedby prior researchers that approach of human resource management is shifting towards strategic and it is important for organizations to get engage in offering opportunities for effective learning of employees (Ramsay, Scholarios and Harley, 2000). It is based on the fact that contemporary organizations are knowledge based and there is increasing importance of learning that can lead to performance improvement and competitive advantage of firms in long run (Moreland and Myaskovsky, 2000). Likewise, it has been found by Laird, Holton and Naquin (2003) that the education and development of employees is associated with short and long term indicators of performance and productivity of organizations. Therefore, it can be argued that along with knowledge and skills of employees, effective training and development can contribute to capacity development of organizations and helps in meeting the standard performance level by organizations.

Similarly, the Yousef (1998) has provided that investment of organizations in technical and non-technical training can contribute in the form of high return by increasing the knowledge base of organization. The learning organizations are one of the most prevailing trend in the contemporary business environment and training is among the strategic requirements of human resource management (Kraimer et al., 2005). The companies who offer little support to its employees and neglect their development are among the one which are likely to face many problems related to employee retention. It has been reported by the researchers that organizations who offer technical and non-technical training to its employees are able to enhance the market value of their employees which help them in retaining highly skilled employees in long run (Nickell and Layard, 1999). the employees who receive training and development within organization develop a complete mix of skills which can contribute in increasing the employee performance and consequently lead to high performance of organization.

H4: The training and development of employees will be positively associated with performance of SMEs.

2.7 Job Security and Firm’s Performance

It is evident that trend of organizational restructuring is enhancing over the recent decades and there is increasing rate of mergers and acquisitions. Along with this, the huge number of employees are outsourced every year, which is causing uncertainty of jobs among employees (Berrone and Gomez-Mejia, 2009). The feeling of insecurity about the job and fair of losing jobs has mainly contributed in reduction of motivation and engagement of employees on their jobs (Kuvaas, 2006). Based on this reason, the organizations are highly realizing the importance of job security and they are making efforts for enhancing the morale of employees. The employers are trying to offer greater security to employees at their job. It has been claimed by the scholars that increased level of job security serves as the way of increasing commitment of employees and they may increase their engagement level (Mirror, 1999). The phenomenon of jobs security can be best explained in terms of reciprocity norm, which suggests that when employees are offered high security at job then they are more likely to increase their investment at the job (Paul and Anantharaman, 2003). Therefore, in return of high degree of job security, the employees increase their level of performance, which is highly beneficial for organizations.

The job security is among the one of HR practices which have gained prominence among the researchers and practitioners (Becker, Huselid and Ulrich, 2001). It was highlighted by the prior researchers that there exist a significant association between job security and psychological and physical health of employees. Along with this, the job security also defines the level of employee satisfaction and employee engagement that can consequently have a positive impact on performance of employees (Zacharatos, Barling and Iverson, 2005). The increased level of employees’ performance serves as the way of improving performance of organization as a whole. In addition to it, the employees who are secure at their jobs are more likely to feel connected with their organization and they are less inclined to search for new job opportunities (Rajgopal, Shevlin and Zamora, 2006). Therefore, they are more likely to stay with organization in long run and organization can successfully retain highly talented employees through job security. Furthermore, the strengthened human inventory of organization can serve as the way of increasing performance level of organization (Phillips, 2012). Thus, there is significant association of job security with improved performance level of organization.

The indirect association of job security with the firm’s performance is based on enhanced level of employee commitment. The argument can be strengthened by the results of the study which has been conducted on 101 firms by (Appelbaum, 2000). He provided that employees who reported high job security were found to be high on employee commitment as well and their overall performance was better than their other counterparts who scored low in terms of job security. Along with this, the social cognition theories were applied by some researchers with an aim of exploring association of job security with levels of firm’s performance (Bebchuk, 2009). These theorists have focused on the perceptive reactions of employees about the security of their jobs and provided that employees who perceived job security positively were performing better than those who perceived job security negatively. The evidences from the literature have shown that both perceived and actual job security is found to be associated with the higher level of employees and firm’s performance (Aguinis and Kraiger, 2009). Finally, the SMEs, are perceived as contributing less to the sense of achievement of employees in comparison to the large corporations and it is crucial for management of SMEs to ensure high job security with an aim of gaining benefits in form of improved employee and organization performance.

It is evident that employees who receive high job security are likely to generate positive outcomes. A study has been conducted on the employees of banking sector and offered that employees who perceive high job security are more likely to perform well in the organization (Ahmad and Schroeder, 2003). Along with this, the agency issues will reduce and employees will feel more connected with the organization (Boxall and Purcell, 2011). They will offer high interest towards the organization’s goals, rather than their personal objectives and it will be highly beneficial for organizations in terms of performance improvement. The secure employees will see their long term interest in the organization and it will motivate them to work for long term growth of organization. Therefore, it can be provided that organizations who offer high value to the security of employees and rely on trade legislations regarding termination of employees are likely to gain higher advantages regarding their performance.

H5: The job security of employees will be positively associated with performance of SMEs.

2.8 Summary

The current section is comprised of deep investigation of relevant literature, which is laying emphasis on the association of human resource management practices on the performance of frim. The significant HR practice which have been taken into account are performance appraisal, compensation and benefits, employee involvement, training and development and job security. Firstly each of the key concepts have been defined in an appropriate manner and secondly their linkage has been established with the firm’s performance. The performance appraisal has been found to associate with organization’s performance in the manner that it can contribute to identify the performance problems and can help to take corrective actions in the form of training and development and can motivate employees to improve their performance. Along with this, the compensation and benefits are directly related with improved performance of employees by increasing satisfaction of employees through monetary and non-monetary rewards. Similarly, the employee involvement helps them to innovate and increase their flexibility which fosters their performance to get better with time. Additionally, the training and development of employees is an important way which helps in improvement of their skills, abilities, and knowledge related to job and leads to better performance of employees and organization. Finally, the job security of employees is important in defining their satisfaction and commitment and further defines the performance of organization through employee’s contribution.















This chapter details the methodology used in this research. The chapter will outline research framework, research design, instrumentation and quantitative measures, sample design including population and sample frame and research sample size, data collection procedure, and approaches to analyse data.

3.1Research Framework

Research study depends upon a foundation which is known as ‘theoretical framework’, which describes the relationship between the variables (dependent and independent)(Sekaran, 2006). In this present study theoretical framework is drawn from an extensive research on the topic of human resource management and its practices and its effect on the firms of small and medium enterprises (Gomez-Mejia, Balkin and Cardy, 2004; Storey, 2005; Bebchuk, 2009; Jasra et al., 2011). Theoretical framework of research portrays the linkage between the dependent, independent variables, mediationvariables and moderationvariables. In the present study we are identifying direct relations no mediating and moderating variable has been added. Following theoretical framework shows dependent variable SMEs firm Performance, independent variables including Compensation and Benefit, Performance Appraisal, Employee involvement, , Job security and Training and Development. The relationships between the variables are explained in the literature section of the present study in detail.


Compensation And Benefit


Performance Appraisal

Employee Involvement


Training and Development


Job security

SMA Performance

Theoretical Frame work






3.2Research Design

A quantitative research design used by researcher in the present study focuses to obtain more precise, definitive and consistent results. The purpose of research design is to examine the validity of the hypothesized relations among various variables and to deduce the empirical evidence from the stated hypotheses which are the aim of the following paper (Kerlinger & Lee, 2000). The research carried out in human resource management is mostly through the cross-sectional field study or through the survey approach. Both of the applied strategies are good source to accumulate data from the respondents and it increases the reliability of results of the study. In the present data in order to test the aforementioned hypothesis a survey has been conducted on the work force of Small and Medium Enterprises of Pakistan. The survey strategy is related with deductive research approach; it’s a feasible approach for the collection of relatively huge amount of data from an ample population in a more prescribed and efficient way (Sekaran, 2006). Survey approach provides answers of who, where, what, how many, and how much indicating answering all related questions associated with it. Furthermore, this study is carried out in a natural environment with no interference by the researcher, thus to get the true response from the respondents. The unit of analysis for the study was individuals.

3.3Instrument Selection

In the present study questionnaire was developed with the closed ended questions. Keeping in view the nature of survey approach, as it opposes to in depth interviews, experimentations or focus groups. However there is a need to build Interpersonal contacts with the respondents as not influence the respondents but to collect the data which is considered as the necessity for this research. The research instrument consists of two sections. The section one elicits demographic questions about the respondents including, position in SME, age, gender and experience and the second portion involves with the questions of the variables under study.

3.4Quantitative Measures

The variables involved in the following study include five independent (performance Appraisal, Employee involvement, Compensation and Benefit, Job security and Training and Development) and one dependent variable (SMEs firm performance). The following measures are used in the study.

3.4.1Performance Appraisal

The performance appraisal was measured with two scales including the “Administrative Purposes” and the “Developmental Purposes”. The administrative purposes were measured with Cleveland et al., (1989) validated scale and the administrative purposes Longenecker, Liverpool & Wilson, (1988) scale was used. The respondents on 5- point likert type scale 1= to a small extent, 2= somewhat small, 3 = neutral, 4= somewhat large and 5= to a large extent. The scale  of Administrative Purposes contains four items the sample items include, ’Performance evaluation system of my department guides promotion of an employee’ and ‘Performance evaluation system of my department aids decisions regarding transfer of an employee’. While the scale for performance evaluation and its “Developmental Purposes” consists of five items the sample items include ‘Performance evaluation system of my department identifies individual strengths’ and ‘Performance evaluation system of my department identifies employees’ weaknesses’.The Cronbach’s alpha coefficient for the administrative purpose scale is 0.81 and for the development purpose is 0.85.

3.4.2Employee Involvement

Employee involvement was measured with Shah and ward (2007) validated scale. This scale contains four items. Participants responded to each item using a 5-point Likert scale (1) no implementation; (2) little implementation; (3) some implementation; (4) extensive implementation; (5) complete implementation. Representative items include “employees are key to problem solving teams” and “employees drive suggestion programs”. Negatively worded items were reverse coded prior to all analyses. The Cronbach’s alpha coefficient for the study is 0.87.

3.4.3Compensation and Benefit

The Compensation and benefit was measured with the scale of Rosen et al., (2013). The scale contains five items. The respondents indicated the degree of their agreement on 5- point likert type scale 1= to a small extent, 2= somewhat small, 3 = neutral, 4= somewhat large and 5= to a large extent. Sample items include ‘My supervisor has ensured that my compensation arrangement (e.g., hourly vs. salaried) meets my individual needs’ and ‘Because of my personal circumstances, my supervisor has created a compensation arrangement that is tailored to fit me’.The Cronbach’s alpha coefficient for the study is 0.82.

3.4.4Job Security

Job security was measure on the validated scale of Oldham et al., (1986). The scale contains eight items. However teo items were reverse coded in orderto reduce common biases.The respondents indicated the degree of their agreement on 5- point likert type scale 1= to a small extent, 2= somewhat small, 3 = neutral, 4= somewhat large and 5= to a large extent.Sample items include, ‘If my current organization were facing economic problems, my job would be the first to go’ and ‘My current organization will not cut back on the number of hours I work each week’. The Cronbach’s alpha coefficient for the study is 0.83.

3.4.5Training and Development

Training and development was measured with the validated scale of Ahire et al., (1996). The respondents indicated the degree of their agreement on 5- point likert type scale 1= to a small extent, 2= somewhat small, 3 = neutral, 4= somewhat large and 5= to a large extent. Sample items include ‘Resources are available for employee quality training in our plant and “There is almost always some kind of employee quality training going on in our plant”. The Cronbach’s alpha coefficient for the study is 0.81.

3.4.6Firm Performance

The firm performanceis measured on the validated scale of Bardie et al., (1994). The scale contains three items.The respondents indicated the degree of their agreement on 5- point likert type scale 1= to a small extent, 2= somewhat small, 3 = neutral, 4= somewhat large and 5= to a large extent. Sample items include ‘our profit has been generalized above the industry average’ and ‘Our inventory turnover ratio is gradually higher than the industry average’.  The Cronbach’s alpha coefficient for the study variable is 0.87.

3.5Sample Design

In this study convenient sampling was conducted which is a non- probability sampling approach. With this approach the respondents were included as per the researcher’s convenience to gain insight information relevant to the following study variables. This approach is helpful as it serve the purpose of study by targeting numerous respondents within a small time. Sekaran, (2006)argued that with this approach a large number of respondents can be targeted and these respondents are willing to volunteer, whereas it is also accessible and not very expensive which help research to conduct the procedure with a limited budget. In the present study total sample size was 326. According to Kline (2005) 300 is considered as a large sample size. The respondents were selected on convenience bases, however it was ensured that participating must be from all age groups, experience and no gender bias or any such error should occur that affects the results of our study.

3.5.1Population and Sample Frame and Research Sample Size

The objective of the following study is to identify the employees of SMEs. So, the population of the present study includes all the employees of SMEs in Pakistan. Krejcie and Morgan (1970) table was used to identify the sample size of this study, this table exhibits specific guidelines on selecting a specific sample . As previously discussed with the nature of study a sample size of 326 was used in order to analyze the relationship between the variables and to signify their extent to which one variable depend on other.

3.6Data Collection Procedure

In the following quantitative research, survey was administered to collect data from the respondents. To avoid the problem associated with extreme response bias negatively worded items were used they were however reverse coded before conducting the analysis procedure. The questionnaire was developed on Google Doc and then dispatched to the prescribed mails of the respondents. The emails of the respondents were obtained through the SMEDA which is the small and medium enterprise development authority of Pakistan. However online response rate was much lower than predicted only 5% response rate was calculated. Therefore, the questionnaires were then dispatched directly to the respondents in order to get more responses. Total 475 questionnaires were delivered to the employees and managers of SMEs. However, after the one month continuous visits to different small and medium enterprises of Punjab province a total of 356 questionnaires were received back which accounts a total response rate of 75%. Whereas after scrutinizing the questionnaire few amongst them found to be empty, few of the half-filled and few were seemed as unfinished. Therefore the total of 30 was not included in the data set. Such responses create misleading results if included.

3.7Approaches to Data Analyses

3.7.1Reliability and validity

The reliability of the constructs was squared by the most commonly used reliability testing method the Cronbach alpha (α). According to Sekaran (2006), in the social research area if reliability of the scale is greater than α= 0.80 then it is considered good, if reliability is α= 0.70 then it falls in the acceptable range, while α= 0.60 or less is poor. Reliability analysis is used for testing both consistency and stability of the items consisted in the scale. This is an important measure for conduction of research whereas consistency indicates the domain of the following variables items. Cronbach’s Alpha determines the internal consistency or average correlation of items in a survey instrument to gauge its reliability (Tavakol and Dennick, (2011). The Cronbach’s Alpha (α) is also known as the inter-ratter reliability which is defined as how well the items are correlated amongst each other. The Cronbach’s alpha values of all the scales are presented at the scale development section. The Cronbach’s alpha values in present study are within acceptable range indicating good correlation between the items, which illustrates that the constructs used for the present study are highly reliable. Similarly the composite reliability is also used to dheck the reliability of the scale in order to get more reliable empirical results.

3.7.2Hierarchical Regression

To test a fore mentioned hypothesis hierarchical regression analysis was used to see the likely impact of one variable over another. Hierarchical regression is a flexible method for determining the effect of independent variables on the dependent variable in the regression process (Ho, 2006; Tavakol and Dennick, 2011)). However, there are certain rules and assumptions to be followed before conduction regression on the variable. Following assumptions are discussed below:

In order to encounter various assumptions of regression method, numerous statistical techniques are used. These techniques indicate that no assumption has been violated and hence the results are considered much accurate. Prior to analysis in the present study the researcher has assessed the assumptions of normality, treating missing values,the outliers and multicollinearity.Normality is defined as that weather the data is normally distributed or not. This is assumption can be full filled through different tests including the Kolmogorov-Smirnof test and through the value of kurtosis.The assumption of normality was assessed by the values of kurtosis which indicates that if it is not exceeding 10 it is in acceptable range. Treating outliers is another important assumption of regression analysis, as according to Ho, (2006) the outliers pull the data in either direction thus deviate the true mean cannot be obtained. Test that are used to identify outliers include Grubbs test, Tietegen-Moore test and generalized extreme studentized deviation (Tavakol and Dennick, 2011). Further, more it is necessary to obtain more reliable results there is a need of treating these values. However, various methods are used to treat outliers it involves methods like elimination of the outlier, secondly a mean of the respective value in order to minimize the effect. The present data was screened from outliers and missing values with the values of z-score were within the range of 3. The next assumption is the Multicollinearity which is known as the linear relationship between to independent variables. It can be verified through tolerance index (TI), correlation matrix, variance inflation facto (VIF) and the condition index. The multicollinearity amongst the variables were indicated when values are above 0.8, in this study the highest correlation was observed was .7 thus suggesting that there is no multicollinearity between the variables Field (2005). However the values of TI and VIF revealed that the values are far from the thrush hold values of 0.1 and 10 (O’brien, 2007).

3.7.3Statistical tools

The present study in order to analyze the data uses Statistical Package for Social Sciences (SPSS) version 19. The following techniques of analysis used namely descriptive statistics, reliability analysis, correlation analysis and regression analysis.

3.8Ethical Concerns

Ethics is an important aspect in any research study (Ho, 2006).This research is an exploratory study is conducted in order to analyse the problem at hand and results are not aimed to harm any organisation or people physically or psychologically. The respondent’s identity was fully kept confidential and their personal information was also kept anonymous. Their will and wishes has been respected by the researcher. Furthermore, every respondent has given full right to withdraw or back off at any stage of if they felt uneasy. No forced participation was made in the present study. In addition the respondents were fully communicated about the aim and objective of the present study as they do not feel that any deception was made during the study. All such cautions have been adopted in order to avoid any ethical issue during and after the study.













The following chapter includes the testing of the hypothesized relationships of the variables. The regression analysis is used to test the aforesaid hypothesis. Finally the results were presented and then discussed of all the variables under study.

4.1Data Preparation

4.1.1Common Method Variance

Common method variance or common method bias is a serious problem in survey approach as it has serious consequences on the empirical results of the study. According to Ho, (2006) it is defined as the variance that is attributed to the measurement rather than the construct that what actually assume to present. Therefore it is necessary in order to generate reliable empirical results there is a need to reduce the common method variance. In order to take in to account this potential problem in the present study both the ex-ante approach and ex-post approach are used to reduce this major problem.

The ex-ante approach is taking common method variance problem at the design stage. Therefore, the questionnaire is designed with great care before dispatching it to the respondents. An introductory paragraph was written for the respondents in order to ensure that they can easily understand the approach. Next the questions are modified in to more understandable language however it was also ensured that they do not describe other meanings. Finally reverse coded items were used as well in order to reduce the common variance and Sekeran (2006) incorporated a large sale size also helps to reduce the common method bias.

The second approach is the ex-post approach which is post design approach. The Richardson et al. (2009) argued that this approach is the co-relational marker technique; this approach identifies the full collinearity test and also signifies the convergent and discriminant validity of the construct. Harman’s single factor test is the most common and prescribed technique identifying that single variance is not determining complete variance in the data set.

4.1.2Data coding

Before the data was entered in to the software (SPSS-19) package it was coded accordingly. Data coding signifies that the questions in the questionnaire are marked with alphabets or numerical numbers. This coding helps in identifying the items in the statistical Package.

4.1.3Validity and Reliability

The reliability and validity tests are conducted in more cautious manner. In the validity check the factor analysis will demonstrate which items factor loading. The low factor loadings should be removed from the scale (Ho, 2006). Thus in the present research model fit indices are analyzed for the better model fit. The reliability test is used to check the consistency between the items (Tavakol & Dennick, 2011). The present study indicated reliability tests through the Cronbach’s alpha ( ). The Cronbach’s alpha ( ) of the following variable are above the 0.7 indicating that they are reliable.

4.2Demographic Analysis

The demographic analysis of the following study reveals that respondents completed the questionnaire majority belong are male 78 % and only 22% forms filled from female respondents. The respondents’ age ranged from 18 to 25 years having experience of 1 to 5 years (20%) and the 26 to 35 having experience more than 6 to 10 years (40%) whereas rest 30% having more than age of 36 years and above 10 years’ experience. Mean and standard deviation of the demographics variables are presented in table 1.

4.3Average Variance Extracted and Composite Reliability

The average variance extracted is an appropriate method of assessing the convergent validity. It is defined as the amount of variance the construct demonstrates in relationship with the associated errors (Costello, 2009). Following formulae is used to assess the average variance extracted.

AVE = Summation of squared factor loadings/ (summation of squared factors loadings) (summation of error variance)

The composite reliability is used to assess the reliability. The factor loadings in the composite reliability are the correlation of each factor.

CR = the squared sum of standardized loading / the squared sum of standardized loading + the sum of the variance that is caused because of the associated random measurement

The AVE and CR of the present research are indicated in the table 2 of inter correlation between variables. All the values of AVE and CR are in the acceptable range.

4.4Hypothesis Testing

In the present research the direct relationships between the variables has been identified. Hypothesis 1 identifies the relationship between the compensation and benefits and the firm performance.

H1: The compensation and benefits of employees will be positively associated with performance of SMEs.

The results presented in the table 3 identifies that there is positive relationship between the compensation and benefit and the SME performance (β = 0.242, p < 0.001). If the employees of the firm are properly compensated and benefits are granted the employees improve their performance which ultimately increase firm performance. Thus the hypothesis 1 is accepted.

Hypothesis two is the relationship between performance appraisal and firm performance.

H2: The performance appraisal of employees will be positively associated with performance of SMEs.

The results identifies that there is strong association between the performance appraisal and the SMEs performance level (β = 0.312, p < 0.001). This indicating that good appraisal processes are a great source of employee satisfaction thus increases firm performance. Based on these values the H2 is also accepted.

Hypothesis 3 defines the associated relationship between the employee involvement and the performance of the SMEs.

H3: The involvement of employees will be positively associated with performance of SMEs.

The values of the results reveals that there is a positive associating between the employee involvement and the SMEs performance (β = 0.222, p < 0.001). Firms who promote the employee involvement have greater opportunities of growth and development and increases overall performance of the firm. Thus the hypothesis 3 is accepted.

Hypothesis 4 investigates the relationship between the training and development and the SMEs performances

H4: The training and development of employees will be positively associated with performance of SMEs.

The results reveals that there is a strong positive relationship between the training and development and the firms performance (β = 0.015, p < 0.001). When training and development sessions are conducted in thefirm it increase the overall efficiency of the workforce and increase firms performance as well. Based on the values we are accepting the hypothesis 4 of the present study.

Hypothesis 5 the last hypothesis identifies the relationship between the job security and the firms’ performance.

H5: The job security of employees will be positively associated with performance of SMEs.

The results reveal that job security and firm’s performance has direct and positive relationship with each other (β = 0.211, p < 0.001). If the firm provides job security to the employees that leads to higher firm performance. Based on the values hypothesis 5 is accepted.













Table 1 Descriptive Statistics

































SMEs Performance






Compensation and Benefit






Performance Appraisal






Employee Involvement






Training and Development






Job security





Note: N = 345













Table 2

Inter-correlation between variables



































































SMEs Performance













Compensation and Benefit













Performance Appraisal













Employee Involvement













Training and Development













Job security






































Note:*p <.05, **p <.01, ***p <.001; values in parentheses represent reliability measures (Cronbach’s alpha); AVE = Average Variance Extracted > 0.5, CR = Composite Reliability >0.7, N= 345.




Table 3 Regression Analysis



SMEs Performance


Direct Effect



Compensation and Benefits



Performance Appraisal



Employee Involvement



Training and development



Job security


Note p< .0001**


Theoretical Frame work



Compensation and Benefits

Performance Appraisal

Employee Involvement

Training and development

Job Security

SMEs Performance





































The discussion chapter refers to the explanation regarding the empirical findings of the study. The empirical results are being discussed with respect to findings from the prior research with an aim of finding consistency with existing stream of literature. The implications of the present study findings are being detailed for the theory and practice. Furthermore, there are certain limitations as well which may affect the generalization of overall results has also been stated. Followed by this, with the prescribed limitations, future guidance research approaches relating to HRM practices and firm’s performance are also highlighted. Finally, a conclusion was also stated of the overall study.

5.1 Key Findings

The prime aim of current research study was to investigate likely association of HRM practices with the performance of small and medium enterprises. The linkage among these variables has mainly been studied in the literature and widely used human resource practices include; compensation and benefits, training and development, employee involvement, performance appraisal and job security (Evans and Davis, 2005; Datta, Guthrie and Wright, 2005; Boxall and Purcell, 2011; Ugboro and Obeng, 2000). All of these HRM practices are found to be associated with the performance of organization and it has also been affirmed by the results of current study, conducted on small and medium enterprises of Pakistan.

In present research, we fully expected association of compensation and benefits with performance of firm and it has been found that both the monetary compensation and non-monetary benefits were highly associated with the increasing levels of firm performance. The small and medium enterprises of Pakistan have highly reflected that employees who receive high compensation and benefits were more productive and they were actively engaged towards betterment of firm performance. These results are according to the findings of previous studies conducted by Ulrich (2013) and Sun, Aryee and Law (2007) who reported that employees who received high salaries were offering their full potential for performing any given task and they were contributing significantly in overall performance of organization. Along with this, the results are also supporting the advocates of motivational theories who have asserted that high pays and reward recognition are more likely to enhance the performance of employees (Zacharatos, Barling and Iverson, 2005; Lepak and Snell, 2002; Collins and Smith, 2006; Way, 2002).

Furthermore, among the human resource practices, positive association of performance appraisal was also expected with the performance of organization. It was found that fair and effective appraisal of performance was considered as an important facet in defining the overall satisfaction of employees and it has the potential to shape performance of organization. The small and medium enterprises of Pakistan are relying heavily on evaluation of employee performance and they have provided that timely appraisal and know-how of employee’s good and poor performance has helped them in improving the performance of employees and of organization. These results are according to the findings of previous researcher in which they have focused that in order to build an environment that can enable to improve the performance of any organization, hence performance appraisal can be considered as an important tool (Appelbaum, 2000; Billett, 2001). Along with this, the Aguinis and Kraiger (2009) findings are also aligned with the results of preliminary research and has asserted on the notion that in order to meet the objective of high performance, organizations can rely on improvement of their performance.

Along with this, the consideration has offered to the employee involvement and the results have provided that increased involvement of employees in organizational activities can be considered as an integral factor in defining the overall performance of organization. The employees who were offered an opportunity to get engage in decision making activities were found more committed and more productive in current research. These findings are supported by the research conducted by Allen, Shore and Griffeth (2003) who has laid emphasis on the linkage between employee involvement and improved performance of organization. In related vein, the results are also supported by the recent work of Holton, Bates and Ruona (2000) who has offered that employees who were empowered and felt that they have the ability to influence decision making within organization are better able to perform their given tasks and their overall performance will contribute positively in organizational performance.

Likewise, one of the most important human resource practice is the training and development. It has been found that employees who were trained and supported by the organization to learn new knowledge and skills were more engaged and productive. Their overall performance was better that employees who received less training and development opportunities. These findings are well aligned with the prior researches conducted by Phillips (2012) and Ramsay, Scholarios and Harley (2000), who have reported that organizations who adopted formulated procedures of training and developing their employees were among the high performing organizations. The training and development is one of the core activity performed by human resources management department and it is most important for increasing the performance levels of organization (Moreland and Myaskovsky, 2000; Rajgopal, Shevlin and Zamora, 2006; Guest, 2002). These results have substantially contributed to improve the performance of organization.

Finally, the job security is an important facet among human resource management practices. The results of preliminary study have provided that employees who were more confident about their future positions and continuation of their job were more committed towards their job and they were performing better. These results are indicative of the fact that small and medium enterprises who have offered high job security to their employees were performing better than their other counterparts. These results can be contrasted with the prior researches which have shown that employees with high level of job security are more beneficial for organizations in terms of their performance (Paul and Anantharaman, 2003; Berrone and Gomez-Mejia, 2009; Kuvaas, 2006). Along with this, these results are also supported by the research conducted by Becker, Huselid and Ulrich (2001) who have provided that employees with lower risk of losing their job are more committed and they have reported better performance in long run.

On the basis of these key findings it can be asserted that all of human resource management practices are linked with the better and enhanced performance of organization. The small and medium enterprises could focus their attention on following key aspects with an aim of enhancing employee related outcomes within an organization (Zacharatos, Barling and Iverson, 2005; Becker, Huselid and Ulrich, 2001). These human resource management practices ca help in saving most crucial resource of an organization that is competitive and highly skilled work force. Moreover, these results are reaffirming the linkages offered in classic economic theory, which are providing that organizations can gain economic advantages by relying on human resource management practices (Christen, Iyer and Soberman, 2006; Aycan et al., 2010). Therefore, it is an important aspect for the managers to be considered with an aim of becoming high performing organization.

5.2 Implications for Practice and Research

The findings of the present research have implications for theory and practice. In reference to the practical implications, the results can be considered as an important recommendation by the practitioners to adopt certain practices for managing the human resource of any organisation more comprehensively. The mangers can realize the importance of compensation and benefits on the performance of employees. Furthermore, the managers in small and medium enterprises can reshape their reward management system. They can recognize good performance with an aim of motivating the employees to perform better.

Along with this, the importance of performance appraisal can be realized by the managers of the organization and they can focus on effectiveness of their performance management system. The small and medium enterprises can retain their employees by recognizing their performance through evaluation and they can revisit the performance standards for enhancing commitment and engagement of employees. It can help them to gain better performance of organization. In similar way, the managers can understand the modern trend of work force and they can incorporate concept of employee empowerment and employee involvement in their organization. The findings of current study can act as a guiding principle for the managers to raise the standards of excitement and engagement within organization. It can help them to get greater benefits in the form of enhanced performance of employees.

Furthermore, the managers of contemporary organizations can help the employees in development of their skills by offering the greater opportunities of learning through training and development programs. The managers can understand that how important the training is for employees and how it is offering them benefits. The results have also guided the managers that in era of innovation, the training is inevitable for guiding them. Finally, the aspect of job security can be considered by practitioners. On the basis of strength of relationship among different human resource practices and organization’s performance in current research, the managers can make a comparison of the most important and least important HR practices. Therefore, they can incorporate the practices which are most beneficial for them.

Regarding the theoretical implications, the results of the present study study have contributed significantly in the wide stream of the literature. It has positively incorporated in the theory of human resource management and provided evidence that which of the human resource management practices can be beneficial for organization.

5.3 Limitations

Besides having large theoretical and practice approaches, the present study has certain limitations as well. These limitations guide that in order to generalize the results cautions needs to be taken. The linkage of human resource management practices with the firm’s performance is a causal phenomenon and the adopted methodology requires more appropriation. The causation must be studied over time and for that purpose a comprehensive longitudinal study will help in giving a better insight. Nevertheless, by focusing at the time constraint, in case of current study, the current research design was appropriate.

Moreover in the present study the chosen human resource management practices are just few out of whole set of practices and they may not reflect the HR practices in an accurate manner. While prohibiting of some of human resource management practices can generate issues of biasness in the results and they cannot demonstrate more comprehensively the association between the variables. In addition, the problem associated with the method bias could also contribute and can affect the results; this problem arises when data was collected at one point in time. However, the results of current study could be considered as free of mono method bias due to adoption of different analytical and statistical techniques to overcome the issue. Lastly, the social desirability bias which also can be an important limitation for the present study , which is indicative to the point that the responses of respondents are based on some socially desirability. Therefore, all of the above mentioned factors are needed to be considered carefully by while generalizing the results of the study in any work settings.

The present research has been conducted in the settings of collective culture, where employees are likely to be affected by their coworkers and the results might be different when same investigation will be carried out in different cultural setting such as, individualistic. It has been provided by Combs, Liu, Hall and Ketchen (2006) that human resource practices materialize results over time, such as the results of training and development cannot show advantages immediately. Therefore, the impact of such practices cannot be understood in short span of study.

5.4 Directions for Future Research

The present research has contributed in increasing the understanding of the association between HRM practice and firm’s performance. However with few limitations which are needed to be carefully considered by the future researchers. A comprehensive view of the association between variables needs to be provided, though longitudinal research design needs to be consideredWith certain limitations, current research has considered only few practices of human resource management and it is of greater importance that the future researchers to consider other practices like; health and safety and work life balance and such variablesneeds to be gauged on their importance level.

Similarly, in order to reduce the mono method bias, researchers can consider collecting data at different points of time rather than at one pint of time. The future researchers can also use the negatively worded sentences in order to reduce the effect of social desirability bias. Moreover, in order to investigate the impact of cultural values which form the work settings and mind set of employees, the currents study should be replicated in another setting to make the results more generalizable.

5.5 Conclusion

In summary, the present research has motivated by the notion that human resource management is an important factor which can help in gaining competitive advantage and human resource practices are important to meet the goals of high performance of organizations. The most widely used human resource practices form the literature has been taken which includes; performance appraisal, employee involvement compensation and benefits, job security and training and development. The study was conducted on the small and medium enterprises of Pakistan and the results have indicated that organizations which have followed the human resource practices are the one which have gained from increasing performance of employees.The study have guided future research as well.



















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  1. Questionnaire
  1. Personal Information.

A1. Gender


  • Male
  • female


            A2. Age


  • 18-25 years
  • 26-35 years
  • 36-45 years
  • 46-55 years
  • 56 and above


            A3. Education


  • Ph.D.
  • Masters
  • Bachelors
  • Matriculation
  • Intermediate
  • None


           A4. Professional Experience


  • 0-5 years
  • 6-10 years
  • 11-15 years
  • 15-20 years
  • 20 and above



  1. Please indicate your firm Compensation and benefit policies?










Employees are key to problem solving teams







Employees lead product/process improvement effort







Employees drive suggestion programs







Employees undergo cross functional training






  1. Please indicate how is the Performance Appraisal of your firm?




Some what


Some what



Guides promotion of an employee







Aids decisions regarding transfer of an employee.







Documents and recognizes employee performance.







Helps to make decisions regarding termination of poor performer







Identi Identifies Individual Strengths







IdeI     Identifies employees weaknesses







Provide quidance in the area were employee needs training







            It used to provide feedback about the employee performance







L      Lets employee know how it stands with the achievement of organizational goals







  1. Please indicate your level of involvement with the firm decision?




Some what


Some what



My supervisor has ensured that my compensation arrangement (e.g., hourly vs. salaried) meets my individual needs







Because of my personal circumstances, my supervisor has created a compensation arrangement that is tailored to fit me







Because of my unique skills and contributions, my supervisor has been willing to negotiate my compensation







Beyond formal policies, my supervisor has raised my pay because of the exceptional contributions that I make to the organization







After my initial appointment, I negotiated with my supervisor to develop a compensation plan that rewards my unique contributions







  1. Please indicate the training and development provided to you?




Some what


Some what



There is almost always some kind of employee quality training going on in our plant.







Plant managers are often involved in quality training.







Most employees in our plant are trained to use quality problem solving techniques such as cause and effect diagrams.







Most employees in our plant do not view each new quality seminar or training program as “just another fad”.








Resources are available for employee quality training in our plant.







  1.       Please indicate your Job security concerns with your firm?









I will be able to keep my present job as long as I wish.







My current organization will not cut back on the number of hours I work each week







If my current organization were facing economic problems, my job would be thefirst to go







I am confident that I will be able to work for my organization as long as I wish.







My job will be there as long as I want it.







If my job were eliminated, I would be offered another job in my currentorganization







Regardless of economic conditions, I will have a job at my current organization







I am secure in my job







  1. Indicate the overall of your firm performance?









Our profits have been generally above the industry average







Our return on assets have been generally above industry average







Our inventory turnover ratio has been generally higher than industry average







Thank you for taking time out to fill this questionnaire. The information provided will be held confidential and will be used for academic purpose only.Your participation is highly appreciated.





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