Employee Retention on the Relationship between HRM Practices and Organizational Performance

Human resource activities have frequently been employed to evaluate organizational performance. A fundamental aspect of HRM is the acknowledgment that enhanced performance stems from the workforce within the organization. In recent times, significant attention has been given to understanding the relationship between Human Resources Management (HRM) and performance. Nonetheless, authors have advised for further investigation into the intermediary function of HRM outcomes like employee retention in the correlation between HRM practices and organizational performance.

Organizations typically vary greatly in size and structure, often showcasing more disparities than similarities. Nonetheless, a shared element among these organizations is their attainment of success, which hinges on the expertise, knowledge, and experience of their workforce. In recent times, notable attention has been devoted to understanding the relationship between HRM and performance. However, some researchers have explored the distinct connection between human resource practices and the performance of companies or organizations across various settings. While there's a consensus that HRM correlates positively with organizational performance, further research is required to gather additional evidence supporting this relationship in diverse cultural contexts such as Libya and other developing nations.

Another concern raised by scholars is the critique of the correlation between HRM practices and organizational performance (Katou, 2008; Gerhart, 2005). They contend that this relationship lacks clarity regarding causality. Consequently, they propose the introduction of intervening or intermediary processes in the link between HRM practices and performance. This suggests the incorporation of mediator and moderator elements in the relationship between HRM practices and organizational performance. Building upon this argument, this study adopts an intervening approach, wherein HRM outcomes, specifically "employee retention," would serve as a mediator in the relationship between HRM practices and organizational performance.

HRM Practices

It has been observed through experience that certain HRM policies and practices consistently outperform others, prompting all organizations or firms to adopt these best practices. While numerous studies may claim to exist on HRM practices, many of these investigations focus solely on specific variables. A literature review conducted by Khan (2010) identified five primary HRM practices: training and development, recruitment and selection, compensation and rewards, performance appraisal, and employee participation. Notably, these practices constitute part of the ten HRM practices that will be employed in this study to assess their influence on organizational performance.

To enhance organizational performance and strengthen the correlation between HRM practices and organizational success, organizations must develop retention strategies such as offering rewards, autonomy, and cultivating a positive image. As per Bairi, Manohar and Kundu (2011) there should be a cohesive set of human resource capabilities or assets to address challenges related to employee retention. Consequently, factors such as incentives, compensation, competitive wages, and fairness in remuneration would serve to incentivize and motivate employees to remain with the organization for longer durations. Ultimately, it is suggested that employee retention would act as a mediator in the relationship between HRM practices and organizational performance.

 

 Organizational Performance

Typically, researchers and academics have employed a combination of non-financial and financial indicators to evaluate the performance of companies or organizations. Consequently, both non-financial and financial metrics are commonly utilized by researchers. Financial measures often include sales, profits, and market share, while non-financial indicators may encompass aspects such as efficiency, quality, productivity, as well as behavioral and attitudinal factors like satisfaction, intention to leave, and commitment.

This study conceptualizes organizational performance across various dimensions, including satisfaction, employee relations, turnover intention, and organizational climate. Tseng and Lee (2009) observed that incorporating multiple dimensions undoubtedly enhances the alignment of the study with the environment and adaptive organizational strategies.

Figure 1: Research Framework (Aldamoe, Yazam and Ahmid, 2012)

The framework outlined above is constructed through an extensive review of literature and information gathered from various sources. Regarding the independent variable (HRM practices), five dimensions have been identified drawing on prior research. Employee retention, serving as the mediating variable, is derived from the studies of Katou (2008) and Paauwe and Richardson (1997). It plays a mediating role between the independent and dependent variables (organizational performance), thus influencing the relationship between HRM practices and organizational performance.

 

Conclusion

The study used employee retention as a mediator in the relationship between HRM practices and organizational performance. In recent years, employee retention has garnered significant attention in HRM studies, especially within talent management programs. Human resources practitioners have endeavored to incorporate it into talent programs. To improve organizational performance, organizations should devise employee retention strategies, such as offering rewards, autonomy, and cultivating a positive image. However, factors such as incentives, compensation, and providing competitive and equitable wages should also be taken into account to encourage and motivate employees to remain with the organization for extended periods. Only when these aspects are addressed can employee retention significantly contribute to the relationship between HRM practices and organizational performance.

 

References

Aldamoe, F.M.A., Yazam, M., and Ahmid, K.B. (2012) The Mediating Effect of HRM Outcomes (employee retention) on the Relationship between HRM Practices and Organizational Performance. Available from: https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=d2ade14e12c353adbf85ca97b1c4bd9b37f87368  [Accessed on 02 April 2024].

Bairi, J., Manohar, B. M., and Kundu, G. K. (2011) Knowledge retention in the IT service industry. Journal of Systems and Information Technology, 13(1), 43-65.

Gerhart, B. (2005). Human resources and business performance: findings, unanswered questions, and an alternative approach. Management Revue, 16, 174–185.

Katou, A. A. (2008). Measuring the impact of HRM on organizational performance. School of Industrial and Aeronautic Engineering of Terrassa (ETSEIAT). Universitat Politècnica de Catalunya (UPC).

Khan, A. M. (2010). Effects of human resource management practices on organizational performance: An empirical study of oil and gas industry in Pakistan. European Journal of Economics, Finance and Administrative Sciences, 24, 157-174.

Paauwe, J. and Richardson, R. (1997), Introduction special issue on HRM and Performance, International Journal of Human Resource Management, 8 (3),257-262.

Tseng, Y. F., and Lee, T. Z. (2009). Comparing appropriate decision support of human resource practices on organizational performance with DEA/AHP model. Expert Systems with Applications, 36(3), 6548-655.