Description
It has become clear that firm performance has important implications for employees and organizations as confirmed by past researchers. This study examines human resource practices and the impact of incentives on manufacturing companies in the Malaysia context. Three types of human resource practices namely, performance appraisal, training, and information technology have been chosen as the focus of this research with the presence of incentives as moderator on organizational performance.
HUMAN RESOURCE PRACTICES AND
ORGANIZATIONAL PERFORMANCE. INCENTIVES AS
MODERATOR
ABANG AZLAN MOHAMAD
Universiti Malaysia Sarawak, Faculty of Economics and Business,
94300 Sarawak, Malaysia
Tel: +60 82 582459; Fax: 60 82 671 794,
Email: [email protected]
MAY-CHIUN LO
Universiti Malaysia Sarawak, Faculty of Economics and Business,
94300 Sarawak, Malaysia
Tel: +60 82 582360; Fax: 60 82 671 794,
Email: [email protected]
MAW KING LA
Universiti Malaysia Sarawak, Faculty of Economics and Business,
94300 Sarawak, Malaysia
Abstract
It has become clear that firm performance has important implications for employees and
organizations as confirmed by past researchers. This study examines human resource
practices and the impact of incentives on manufacturing companies in the Malaysia
context. Three types of human resource practices namely, performance appraisal, training,
and information technology have been chosen as the focus of this research with the
presence of incentives as moderator on organizational performance. This is imperative in
order to ensure the successful management of employees and also to improve productivity
and achievements of an organization. The research uses a sample of eighty-five firms in
Sarawak, Malaysia, voluntarily participated in this study. The results have indicated that
the two components of human resource (HR) practices namely, training and information
technology have direct impact on organizational performance. It was found that incentive is
positively related to organizational performance but did not moderate the relationship
between both HR practices and organizational performance. Implications of the findings,
potential limitations of the study, and directions for future research are suggested.
Keywords: HR practices, organizational performance, incentives, training, performance
appraisal, information technology
.
JOURNAL OF ACADEMIC RESEARCH IN ECONOMICS
VOLUME 1 NUMBER 2 OCTOBER 2009 229
1. INTRODUCTION
Organizations are now evolving toward structures in which rank means
responsibility but not authority, and where the supervisor’s job is not to command,
but to persuade (Drucker (1999). Blickle (2003) contended that, in order to be
effective, it is critical for managers to influence their subordinates, peers, and
superiors to assist and support their proposals, plans, and to motivate them to carry
out with their decisions. Previous researchers on managerial performance such as
Kanter (1982) and Pavett and Lau (1983) pointed out that an important component
of successful management is the ability to influence others. There is a growing
body of work on HR practices and organizational performance (e.g., Li, Zhao, &
Liu, 2006; Sanchez, Jimenez, Carnicer, & Perez, 2007; Lin & Chen, 2007) which
showed an important linkage between HR practices and organizational
performance. In addition to that, Brower, Schoorman, and Tan (2000) stated that
effective managers do not work in isolation from their subordinates, instead they
would prefer to work with their subordinates, and the nature of the relationship
between the manager and subordinate has been acknowledged as complex,
interactive, and exist reciprocity in the dyad.
Despite the enormous breadth of the literature on the relevance of HR
practices to organizational behavior in general, and to an understanding of
organizational performance in particular, research studies of HR practices,
incentives, and organizational performance are not well integrated. Having said
that, a better understanding of these effects will offer insights into positively
influencing organizational performance such as sales revenue, profitability, net
asset return on investment (ROI), and market share. In addition, most prior
researches focused on cases in Western countries, while very few researches on HR
practices have focused on emerging economies such as Malaysia, hence, it will be
interesting to see the much different research results on HR practices on
organizational performance due to the huge differences in the market environment
and the management practices between Western counties and Malaysia.
The major concern of this research is to determine whether HR practices
and organizational performance are significantly linked in the manufacturing
companies situated in Malaysia. Although HR practices and organizational
performance have been widely studied, their distinct relationship has received
limited empirical scrutiny, especially in the case of small and medium industries
(SMIs). To fully understand, explain, and predict organizational performance, it is
imperative to investigate how incentives operate as a moderator on organizational
performance. The endeavor to embrace incentives between HR practices on
organizational performance was undertaken because it was deemed that more
precise conclusions concerning the effective use of HR practices could be revealed,
which would be of more value, theoretically, and empirically. Hence, this research
attempts to answer the following questions:
JOURNAL OF ACADEMIC RESEARCH IN ECONOMICS
230 VOLUME 1 NUMBER 2 OCTOBER 2009
(i) Do HR practices directly predict organizational performance?
(ii) Does incentives significantly moderate the relationship of HR
practices and organizational performance?
2. THEORETICAL BACKGROUND
2.1. FIRMS PERFORMANCE
Firm performance has been researched in the past extensively. Some of the
financial indicators which determine firm performance are like productivity,
profitability, turnover etc (Nickell, 1995; Estrin & Rosevear, 1999). Past
researchers such as Noe, Hollenbeck, Gerhart and Wright (2000) contended that
human resource management (HRM) is known as the central business concern, that
shapes the behavior, attitudes, and performance of the employees, hence, HR
practices are important tools for organizational performance. Hom and Griffeth,
(1995) posited that when employees are not committed to their firms, this would
lead to reduction in productivity, poor service quality provided, lost business
opportunities, and subsequently increased administrative burden to the companies.
Ramsey, Scholario, and Harley (2000) who have conducted a research to
investigate the link between HR and productivity found that HR practices have in
fact improved the performance of the companies. Other researchers who have
conducted similar researches are Arthur (1994) and MacDuffe (1995). This is
further supported by Horgan and Mohalu (2006), Bashir and Khattak (2008) that
some selected HR practices are associated with better employee performance.
However, the influence of HR practices is found to have affected firm performance
when it involved and allowed employees to contribute on organizational outcomes
(Wright, McCormick, Sherman, & McMahan, 1999).
The impact of HR practices on organizational performance were noted in
past researches where HR practices were linked to lower employee turnover
(Huselid, 1995), better employees’ organizational commitment (Wright, Gardner,
& Moynihan, 2005), and improved on the work skills and behaviors of the workers
(Wright, Gardner, Moynihan, & Allen, 2005). It was noted that most of the
research on HR practices mainly revolved around developed countries. It is
interesting to investigate the impact of HR practices on employee performance
since developing countries are not fully comparable to the situation in Western
parts of the world (Tessema & Soeters, 2006).
2.2. INCENTIVES
Miller and Whitford (2007) argued that the role of incentives has expanded
considerably in view of the fact that it has been studied rigorously in principal-
agency theory. Past researchers (e.g., Prasnikar, Ferligoj, Cirman, & Valentincic,
JOURNAL OF ACADEMIC RESEARCH IN ECONOMICS
VOLUME 1 NUMBER 2 OCTOBER 2009 231
1999) have found that there is a strong relationship between management incentive
and risk-taking which would subsequently lead to better firm performance. The
role of incentives on behavior has been well documented in the literatures.
Incentives come in the form of monetary rewards or other types of incentive-based
remuneration such as stock option, share ownership, rewards, and bonuses.
Employees’ performance is substantially better under incentive plans which are
substantiated by supportive innovative work practices (Ichniowski, Shaw &
Prennushi, 1997).The conceptual model of this study is based on agency theory
which explained that the risk-neutral principals would prefer their agent to
maximize the firm returns (Baysinger & Butler, 1985). Hence, this study grounds
the conceptual model with agency theory in order to better understand whether
incentive would serve as a moderator in affecting firm performance. On the other
hand, Armstrong (2001) linked incentives to the achievement of previously set
targets which are designed to motivate people to be more productive to achieve
high level of firm performance. Ian, Jim and Will (2004) concurred that incentives
should be incorporated to organization strategies as seen as a technique which
organization can apply in order to achieve higher productivity in accordance with
goals.
2.3. EMPLOYEE TRAINING
Past researchers have found evidence on the impact of training on
productivity and where employees and employers were able to share the benefits
from training (Conti, 2005; Dearden, Lorraine, Reed & van Reenen, 2006; Ballot,
Gerard, Fakhfakh, & Taymaz, 2006). On the other hand, Lynch and Black (1995)
whose research focused on the generality of training to organizational performance
revealed that only off-the job (general) training improves on the performance
whereas on the job training does not. This is further concurred by Barrett and
O’Connell (2001) that general training has positive impact on firm performance
whereas firm-specific training does not. On the other hand, Nankervis, Compton
and McCarthy (1999) were of the opinion that effective training would not only
equip employee with most of the knowledge and skills needed to accomplish jobs,
it would also help to achieve overall organization objectives by contributing to the
satisfaction and productivity of employee. Past researchers such as Drummond
(2000) revealed that training provides adequate criteria to an individual to perform
better in a given task and subsequently contributes to the firm performance
(Rothwell, Sullivan & McLean, 1995). However, Drucker (1999) commented that
training is an expensive way of attempting to enhance human productivity.
2.4. INFORMATION TECHNOLOGY
Technological innovation was found to have strong impact and influence
on firm performance (Nohria & Gulati, 1996; Lin & Chen, 2007). As stated by
Hassan (2007), globalization and technological advancement are moving
organizations to develop new business strategy and future directions. According to
JOURNAL OF ACADEMIC RESEARCH IN ECONOMICS
232 VOLUME 1 NUMBER 2 OCTOBER 2009
Pratali (2003), technological innovation helps to improve the competitiveness of
the companies and subsequently increase company value. Hitt, Hoskisson, and Kim
(1997) further elucidated that the technology capabilities of the firms has vital
influence on long-term performance of the firms. In addition, Dave and Wayne
(2005) concluded that human resources regularly find new application of
technology to improve their efficiency and their effectiveness in an effort to
influence firm performance. Some scholars commented that innovation has mixed
result. Some said that innovation leads to long-term growth for the companies
(Leifer, O’Connor, & Rice, 2001; Li, Zhao, & Liu, 2007), while others commented
that innovation will result in resource inefficiencies (Foster, 1986).
Nonetheless, past researchers (McLaughlin & Harris, 1997) found out that
technology account on business is minimal as many firms which incorporated
technology to do transaction work, surprisingly, has a relatively low impact on
performance. As stated by Mumford (2000), if firms emphasize too much on
outcomes, they will tend to develop low-level technological innovation in order to
avoid high uncertainty.
2.5. PERFORMANCE APPRAISAL
Comprehensive performance appraisal system forms the basic yardstick for
assessing an individual’s performance, highlight potential for future career
advancement, most importantly, to improve the performance (Mullins, 2002).
Lecky (1999) defined performance appraisal system as a benchmark which is set
against specific task performance, define and evaluate current performance. It
requires the input and output such as remuneration, pay rise, level of expectation,
promotion and managerial planning. In addition, it is a merit rating which should
be beneficial to both parties and must be constantly reviewed to suit the
requirement. The system explicitly mentioned the individual’s needs and thus has
far reaching effect of improving productivity. Dave and Wayne (2005) argued that
performance appraisal is an instrument whereby an individual was retaliated by the
assessment due to certain personal dissatisfaction, and it has adversely affected
future performance. Nonetheless, study by Hassan (2007) has discovered that in
Malaysia, the focus on employee development has yet to be the centre stage in
organizations.
3. METHODOLOGY
3.1. SAMPLE
With an aim to generalize on firms in Sarawak, the population of the
present study consists of manufacturing companies located in Sarawak, Malaysia.
Currently, the manufacturing sector is considered as one of the cornerstone of
JOURNAL OF ACADEMIC RESEARCH IN ECONOMICS
VOLUME 1 NUMBER 2 OCTOBER 2009 233
Malaysia’s economic diversification strategy. The researcher has selected large
scale manufacturing companies in Sarawak using convenient sampling. Two
hundred sets of questionnaires were distributed to executives working at
manufacturing companies in Sarawak, however only 85 copies of questionnaires
were usable for analysis.
3.2. MEASURES
The questionnaire used in this study consists of three parts. Section 1
required the respondents to rate a total of 20 items on the four components of HRM
namely, training, incentives, information technology, and performance appraisal
which were extracted from past researches such as Snell and Lau (1994), Kuratko,
Hornsby, and Naffziger (1997), and Zahra, Neubaum, and Huse (2000). Incentive
questions such as incentive increases individual material fortune, incentive
increases opportunity to gain economic interest in the firm were asked.
On the other hand, Section 2 contained 5 items of questions pertaining to
firm performance based on the research of Daily and Johnson (1997). For example,
questions such as firm performance is associated with increasing rate of sales
revenue, firm performance is measured by increasing rate of profit, firm
performance is related to increasing rate of market shares were asked. The
respondents were asked to describe on a 7-point Likert scale with: 7 = strongly
agree, 6 = agree, 5 = slightly agree, 4 = neutral, 3 = slightly disagree, 2 = disagree,
and 1 = strongly disagree. In addition, personal and demographic data relating to
age, gender, race, length of employment, academic qualification, monthly gross
salary, job position, and industry sector were also collected.
4. FINDINGS
As shown in Table 1, it contains items regarding the demographic of the
respondents such as gender, age, education background, working experiences,
monthly gross salary, etc. Table 1 displays the characteristics of the 85 respondents
in the survey. In terms of gender, respondents were fairly evenly distributed with
40 male respondents (47.1%) and 45 female respondents (52.9%). Of the 85
respondents, the vast majority were Chinese (49 or 57.6%), followed by Malays
(20 or 23.5%), and others (16 or 18.8%). Of the total sample, 21 (24.7%)
respondents were engaged in the industrial sector, while 17 (20%) were from the
consumer sector, 9 (10.6%) were in construction sector, and the rest numbering 29
(34.1%) and 9 (10.6%) worked in the trading or services and others, respectively.
In addition, 48 (56.4%) of them were concentrated in lower level management and
below, while 37 (43.6%) were from middle level of management and above.
The Cronbach’s coefficients alphas for HRM factors ranged from .75 to
.92, respectively, which is clearly acceptable (Nunally, 1978). Whereas standard
JOURNAL OF ACADEMIC RESEARCH IN ECONOMICS
234 VOLUME 1 NUMBER 2 OCTOBER 2009
deviations of the variables were either close to or exceeded 1.0, indicating that the
study variables were discriminatory. The firm performance retained all the 5 items
which accounted for its Cronbach’s coefficients alpha of .83. Generally, the values
indicated good internal consistency estimate of reliability of the grouped items for
both factors. The findings of the reliability analysis are summarized in Table 2.
Table 3 illustrates the intercorrelations among the subscales obtained using
Pearson correlation to determine whether the subscales were independent measure
of the same concept. Generally, the values indicating intercorrelations among the
predictor variables were low, ranging from .29 to .46 (p
It has become clear that firm performance has important implications for employees and organizations as confirmed by past researchers. This study examines human resource practices and the impact of incentives on manufacturing companies in the Malaysia context. Three types of human resource practices namely, performance appraisal, training, and information technology have been chosen as the focus of this research with the presence of incentives as moderator on organizational performance.
HUMAN RESOURCE PRACTICES AND
ORGANIZATIONAL PERFORMANCE. INCENTIVES AS
MODERATOR
ABANG AZLAN MOHAMAD
Universiti Malaysia Sarawak, Faculty of Economics and Business,
94300 Sarawak, Malaysia
Tel: +60 82 582459; Fax: 60 82 671 794,
Email: [email protected]
MAY-CHIUN LO
Universiti Malaysia Sarawak, Faculty of Economics and Business,
94300 Sarawak, Malaysia
Tel: +60 82 582360; Fax: 60 82 671 794,
Email: [email protected]
MAW KING LA
Universiti Malaysia Sarawak, Faculty of Economics and Business,
94300 Sarawak, Malaysia
Abstract
It has become clear that firm performance has important implications for employees and
organizations as confirmed by past researchers. This study examines human resource
practices and the impact of incentives on manufacturing companies in the Malaysia
context. Three types of human resource practices namely, performance appraisal, training,
and information technology have been chosen as the focus of this research with the
presence of incentives as moderator on organizational performance. This is imperative in
order to ensure the successful management of employees and also to improve productivity
and achievements of an organization. The research uses a sample of eighty-five firms in
Sarawak, Malaysia, voluntarily participated in this study. The results have indicated that
the two components of human resource (HR) practices namely, training and information
technology have direct impact on organizational performance. It was found that incentive is
positively related to organizational performance but did not moderate the relationship
between both HR practices and organizational performance. Implications of the findings,
potential limitations of the study, and directions for future research are suggested.
Keywords: HR practices, organizational performance, incentives, training, performance
appraisal, information technology
.
JOURNAL OF ACADEMIC RESEARCH IN ECONOMICS
VOLUME 1 NUMBER 2 OCTOBER 2009 229
1. INTRODUCTION
Organizations are now evolving toward structures in which rank means
responsibility but not authority, and where the supervisor’s job is not to command,
but to persuade (Drucker (1999). Blickle (2003) contended that, in order to be
effective, it is critical for managers to influence their subordinates, peers, and
superiors to assist and support their proposals, plans, and to motivate them to carry
out with their decisions. Previous researchers on managerial performance such as
Kanter (1982) and Pavett and Lau (1983) pointed out that an important component
of successful management is the ability to influence others. There is a growing
body of work on HR practices and organizational performance (e.g., Li, Zhao, &
Liu, 2006; Sanchez, Jimenez, Carnicer, & Perez, 2007; Lin & Chen, 2007) which
showed an important linkage between HR practices and organizational
performance. In addition to that, Brower, Schoorman, and Tan (2000) stated that
effective managers do not work in isolation from their subordinates, instead they
would prefer to work with their subordinates, and the nature of the relationship
between the manager and subordinate has been acknowledged as complex,
interactive, and exist reciprocity in the dyad.
Despite the enormous breadth of the literature on the relevance of HR
practices to organizational behavior in general, and to an understanding of
organizational performance in particular, research studies of HR practices,
incentives, and organizational performance are not well integrated. Having said
that, a better understanding of these effects will offer insights into positively
influencing organizational performance such as sales revenue, profitability, net
asset return on investment (ROI), and market share. In addition, most prior
researches focused on cases in Western countries, while very few researches on HR
practices have focused on emerging economies such as Malaysia, hence, it will be
interesting to see the much different research results on HR practices on
organizational performance due to the huge differences in the market environment
and the management practices between Western counties and Malaysia.
The major concern of this research is to determine whether HR practices
and organizational performance are significantly linked in the manufacturing
companies situated in Malaysia. Although HR practices and organizational
performance have been widely studied, their distinct relationship has received
limited empirical scrutiny, especially in the case of small and medium industries
(SMIs). To fully understand, explain, and predict organizational performance, it is
imperative to investigate how incentives operate as a moderator on organizational
performance. The endeavor to embrace incentives between HR practices on
organizational performance was undertaken because it was deemed that more
precise conclusions concerning the effective use of HR practices could be revealed,
which would be of more value, theoretically, and empirically. Hence, this research
attempts to answer the following questions:
JOURNAL OF ACADEMIC RESEARCH IN ECONOMICS
230 VOLUME 1 NUMBER 2 OCTOBER 2009
(i) Do HR practices directly predict organizational performance?
(ii) Does incentives significantly moderate the relationship of HR
practices and organizational performance?
2. THEORETICAL BACKGROUND
2.1. FIRMS PERFORMANCE
Firm performance has been researched in the past extensively. Some of the
financial indicators which determine firm performance are like productivity,
profitability, turnover etc (Nickell, 1995; Estrin & Rosevear, 1999). Past
researchers such as Noe, Hollenbeck, Gerhart and Wright (2000) contended that
human resource management (HRM) is known as the central business concern, that
shapes the behavior, attitudes, and performance of the employees, hence, HR
practices are important tools for organizational performance. Hom and Griffeth,
(1995) posited that when employees are not committed to their firms, this would
lead to reduction in productivity, poor service quality provided, lost business
opportunities, and subsequently increased administrative burden to the companies.
Ramsey, Scholario, and Harley (2000) who have conducted a research to
investigate the link between HR and productivity found that HR practices have in
fact improved the performance of the companies. Other researchers who have
conducted similar researches are Arthur (1994) and MacDuffe (1995). This is
further supported by Horgan and Mohalu (2006), Bashir and Khattak (2008) that
some selected HR practices are associated with better employee performance.
However, the influence of HR practices is found to have affected firm performance
when it involved and allowed employees to contribute on organizational outcomes
(Wright, McCormick, Sherman, & McMahan, 1999).
The impact of HR practices on organizational performance were noted in
past researches where HR practices were linked to lower employee turnover
(Huselid, 1995), better employees’ organizational commitment (Wright, Gardner,
& Moynihan, 2005), and improved on the work skills and behaviors of the workers
(Wright, Gardner, Moynihan, & Allen, 2005). It was noted that most of the
research on HR practices mainly revolved around developed countries. It is
interesting to investigate the impact of HR practices on employee performance
since developing countries are not fully comparable to the situation in Western
parts of the world (Tessema & Soeters, 2006).
2.2. INCENTIVES
Miller and Whitford (2007) argued that the role of incentives has expanded
considerably in view of the fact that it has been studied rigorously in principal-
agency theory. Past researchers (e.g., Prasnikar, Ferligoj, Cirman, & Valentincic,
JOURNAL OF ACADEMIC RESEARCH IN ECONOMICS
VOLUME 1 NUMBER 2 OCTOBER 2009 231
1999) have found that there is a strong relationship between management incentive
and risk-taking which would subsequently lead to better firm performance. The
role of incentives on behavior has been well documented in the literatures.
Incentives come in the form of monetary rewards or other types of incentive-based
remuneration such as stock option, share ownership, rewards, and bonuses.
Employees’ performance is substantially better under incentive plans which are
substantiated by supportive innovative work practices (Ichniowski, Shaw &
Prennushi, 1997).The conceptual model of this study is based on agency theory
which explained that the risk-neutral principals would prefer their agent to
maximize the firm returns (Baysinger & Butler, 1985). Hence, this study grounds
the conceptual model with agency theory in order to better understand whether
incentive would serve as a moderator in affecting firm performance. On the other
hand, Armstrong (2001) linked incentives to the achievement of previously set
targets which are designed to motivate people to be more productive to achieve
high level of firm performance. Ian, Jim and Will (2004) concurred that incentives
should be incorporated to organization strategies as seen as a technique which
organization can apply in order to achieve higher productivity in accordance with
goals.
2.3. EMPLOYEE TRAINING
Past researchers have found evidence on the impact of training on
productivity and where employees and employers were able to share the benefits
from training (Conti, 2005; Dearden, Lorraine, Reed & van Reenen, 2006; Ballot,
Gerard, Fakhfakh, & Taymaz, 2006). On the other hand, Lynch and Black (1995)
whose research focused on the generality of training to organizational performance
revealed that only off-the job (general) training improves on the performance
whereas on the job training does not. This is further concurred by Barrett and
O’Connell (2001) that general training has positive impact on firm performance
whereas firm-specific training does not. On the other hand, Nankervis, Compton
and McCarthy (1999) were of the opinion that effective training would not only
equip employee with most of the knowledge and skills needed to accomplish jobs,
it would also help to achieve overall organization objectives by contributing to the
satisfaction and productivity of employee. Past researchers such as Drummond
(2000) revealed that training provides adequate criteria to an individual to perform
better in a given task and subsequently contributes to the firm performance
(Rothwell, Sullivan & McLean, 1995). However, Drucker (1999) commented that
training is an expensive way of attempting to enhance human productivity.
2.4. INFORMATION TECHNOLOGY
Technological innovation was found to have strong impact and influence
on firm performance (Nohria & Gulati, 1996; Lin & Chen, 2007). As stated by
Hassan (2007), globalization and technological advancement are moving
organizations to develop new business strategy and future directions. According to
JOURNAL OF ACADEMIC RESEARCH IN ECONOMICS
232 VOLUME 1 NUMBER 2 OCTOBER 2009
Pratali (2003), technological innovation helps to improve the competitiveness of
the companies and subsequently increase company value. Hitt, Hoskisson, and Kim
(1997) further elucidated that the technology capabilities of the firms has vital
influence on long-term performance of the firms. In addition, Dave and Wayne
(2005) concluded that human resources regularly find new application of
technology to improve their efficiency and their effectiveness in an effort to
influence firm performance. Some scholars commented that innovation has mixed
result. Some said that innovation leads to long-term growth for the companies
(Leifer, O’Connor, & Rice, 2001; Li, Zhao, & Liu, 2007), while others commented
that innovation will result in resource inefficiencies (Foster, 1986).
Nonetheless, past researchers (McLaughlin & Harris, 1997) found out that
technology account on business is minimal as many firms which incorporated
technology to do transaction work, surprisingly, has a relatively low impact on
performance. As stated by Mumford (2000), if firms emphasize too much on
outcomes, they will tend to develop low-level technological innovation in order to
avoid high uncertainty.
2.5. PERFORMANCE APPRAISAL
Comprehensive performance appraisal system forms the basic yardstick for
assessing an individual’s performance, highlight potential for future career
advancement, most importantly, to improve the performance (Mullins, 2002).
Lecky (1999) defined performance appraisal system as a benchmark which is set
against specific task performance, define and evaluate current performance. It
requires the input and output such as remuneration, pay rise, level of expectation,
promotion and managerial planning. In addition, it is a merit rating which should
be beneficial to both parties and must be constantly reviewed to suit the
requirement. The system explicitly mentioned the individual’s needs and thus has
far reaching effect of improving productivity. Dave and Wayne (2005) argued that
performance appraisal is an instrument whereby an individual was retaliated by the
assessment due to certain personal dissatisfaction, and it has adversely affected
future performance. Nonetheless, study by Hassan (2007) has discovered that in
Malaysia, the focus on employee development has yet to be the centre stage in
organizations.
3. METHODOLOGY
3.1. SAMPLE
With an aim to generalize on firms in Sarawak, the population of the
present study consists of manufacturing companies located in Sarawak, Malaysia.
Currently, the manufacturing sector is considered as one of the cornerstone of
JOURNAL OF ACADEMIC RESEARCH IN ECONOMICS
VOLUME 1 NUMBER 2 OCTOBER 2009 233
Malaysia’s economic diversification strategy. The researcher has selected large
scale manufacturing companies in Sarawak using convenient sampling. Two
hundred sets of questionnaires were distributed to executives working at
manufacturing companies in Sarawak, however only 85 copies of questionnaires
were usable for analysis.
3.2. MEASURES
The questionnaire used in this study consists of three parts. Section 1
required the respondents to rate a total of 20 items on the four components of HRM
namely, training, incentives, information technology, and performance appraisal
which were extracted from past researches such as Snell and Lau (1994), Kuratko,
Hornsby, and Naffziger (1997), and Zahra, Neubaum, and Huse (2000). Incentive
questions such as incentive increases individual material fortune, incentive
increases opportunity to gain economic interest in the firm were asked.
On the other hand, Section 2 contained 5 items of questions pertaining to
firm performance based on the research of Daily and Johnson (1997). For example,
questions such as firm performance is associated with increasing rate of sales
revenue, firm performance is measured by increasing rate of profit, firm
performance is related to increasing rate of market shares were asked. The
respondents were asked to describe on a 7-point Likert scale with: 7 = strongly
agree, 6 = agree, 5 = slightly agree, 4 = neutral, 3 = slightly disagree, 2 = disagree,
and 1 = strongly disagree. In addition, personal and demographic data relating to
age, gender, race, length of employment, academic qualification, monthly gross
salary, job position, and industry sector were also collected.
4. FINDINGS
As shown in Table 1, it contains items regarding the demographic of the
respondents such as gender, age, education background, working experiences,
monthly gross salary, etc. Table 1 displays the characteristics of the 85 respondents
in the survey. In terms of gender, respondents were fairly evenly distributed with
40 male respondents (47.1%) and 45 female respondents (52.9%). Of the 85
respondents, the vast majority were Chinese (49 or 57.6%), followed by Malays
(20 or 23.5%), and others (16 or 18.8%). Of the total sample, 21 (24.7%)
respondents were engaged in the industrial sector, while 17 (20%) were from the
consumer sector, 9 (10.6%) were in construction sector, and the rest numbering 29
(34.1%) and 9 (10.6%) worked in the trading or services and others, respectively.
In addition, 48 (56.4%) of them were concentrated in lower level management and
below, while 37 (43.6%) were from middle level of management and above.
The Cronbach’s coefficients alphas for HRM factors ranged from .75 to
.92, respectively, which is clearly acceptable (Nunally, 1978). Whereas standard
JOURNAL OF ACADEMIC RESEARCH IN ECONOMICS
234 VOLUME 1 NUMBER 2 OCTOBER 2009
deviations of the variables were either close to or exceeded 1.0, indicating that the
study variables were discriminatory. The firm performance retained all the 5 items
which accounted for its Cronbach’s coefficients alpha of .83. Generally, the values
indicated good internal consistency estimate of reliability of the grouped items for
both factors. The findings of the reliability analysis are summarized in Table 2.
Table 3 illustrates the intercorrelations among the subscales obtained using
Pearson correlation to determine whether the subscales were independent measure
of the same concept. Generally, the values indicating intercorrelations among the
predictor variables were low, ranging from .29 to .46 (p