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The role of the human resources department in budgeting: evidence

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DOI: 10.1108/14013381111157355

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 Journal of Human Resource Costing & Accounting
The role of the human resources department in budgeting: evidence from Greece
Sandra Cohen Sotiris Karatzimas
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evidence from Greece", Journal of Human Resource Costing & Accounting, Vol. 15 Iss 2 pp. 147 - 166
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Role of the
The role of the human resources HR department
department in budgeting: in budgeting
evidence from Greece
147
Sandra Cohen
Athens University of Economics and Business, Athens, Greece, and
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Sotiris Karatzimas
University of the Aegean, Chios, Greece

Abstract
Purpose – The purpose of this study is to examine the involvement of the human resources (HR)
department throughout the budgeting process and furthermore to investigate the use of budgets for
motivation, communication, performance evaluation and control in the Greek business environment,
from the perspective of the HR department managers.
Design/methodology/approach – Empirical evidence is based on the responses received from HR
department managers in 100 Greek companies with a distinct HR department to a structured
questionnaire.
Findings – Results suggest that the HR department has limited involvement in the budgeting
procedures, which in turn could explain the limited use of budgets as a means of performance
evaluation and communication from a HR management perspective. Nevertheless, both the size of the
HR department and the number of employees have a positive effect on the HR management and
budgeting interaction. The survey presented in this paper provides corroborative evidence that HR
departments in Greece do not fully exploit the wide potential offered through budgeting as a means to
achieve their goals.
Originality/value – The study contributes to the literature by analyzing the responses of HR
department managers and their views towards the budgeting function from a HR management
perspective in Greek companies.
Keywords Budgeting, Human resources, Human resources department, Motivation, Communication,
Performance evaluation, Control, Greece
Paper type Research paper

1. Introduction
Budgets are more than just an instrument that helps management to plan and control.
They have a very wide scope, while extensive research is still devoted to understanding
how they work (Hansen and van der Stede, 2004). Budgets constitute a mechanism that
can be used in order to coordinate the various parts of an organization, to control and
measure employee performance, to motivate personnel and to increase communication
(Fisher et al., 2002; Yuen, 2004; Hansen and van der Stede, 2004; Parker and Kyj, 2006).
Apart from other functions, e.g. recruitment, training, and pensions, etc. the human
resources (HR) department duties encompass performance-related bonus scheme
development, the internal information flow and employees’ motivation. Thus, the degree Journal of Human Resource Costing &
of the HR department’s involvement in the budget preparation and implementation Accounting
Vol. 15 No. 2, 2011
phases could increase the utility of the above-mentioned budgeting characteristics. pp. 147-166
However, analyzing the budgeting function from a HR management perspective is not q Emerald Group Publishing Limited
1401-338X
common in the literature. A limited number of studies have been conducted regarding DOI 10.1108/14013381111157355
 JHRCA the management accounting-HR management interface from a HR perspective
15,2 (Berry and Bacon, 2002; Stiles and Kulvisaechana, 2003; Bacon and Berry, 2005;
Kouhy et al., 2009) evidencing that both management accountants and HR managers are
becoming aware of the justifiability of HR management initiatives on financial aspects.
Nevertheless, in the main, however, empirical research has not yet focused on budgeting.
This study has a dual scope. First, to identify the involvement of the HR department
148 in the budgeting process since, in the Greek business environment, the role of this
department is still quite indistinct. Second, to investigate the interaction between the
budgeting process and specific management functions performed by the HR department.
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Budgeting addresses several issues that are related to HR management such as the
motivation of the personnel, internal communication, performance evaluation and control.
Our study seeks to explore whether the HR department in Greek companies actually make
use of these opportunities offered through budgeting. More specifically, we address
specific questions to HR department managers concerning the extent to which Greek
companies use the budget-related rewards and the budgetary goal level of difficulty
in order to motivate employees and managers, whether budgets are used as a basis of
vertical and horizontal information flow, the use of budgets as performance measurement
mechanisms as well as the impact of budgetary control on employees’ behavior.
The study contributes to the literature by analyzing the responses of HR
department managers on issues that deal with the budgeting function in Greek
companies from a HR management perspective. The Greek business environment is an
interesting setting because due to the rather small size of Greek firms, many standard
HR practices have only received attention during the last decade (Papalexandris and
Panayotopoulou, 2005). Yet, as larger Greek companies have begun to establish HR
departments, the responsibility for HR matters has gradually started to be shared
among the HR department and the line managers, aiming at a better coordination and
integration of the HR function with other business functions.
The number of studies that have dealt with HR management in Greece is rather
limited (Papalexandris, 1991, 1992; Papalexandris et al., 2002; Myloni et al., 2004;
Papalexandris and Panayotopoulou, 2005). Additionally, most of these studies have
concluded that the use of systematic HR practices in Greek firms is lower compared to
the subsidiaries of foreign companies operating in Greece[1]. Therefore, the
conclusions of this study, apart from enriching literature with evidence from a
continental European setting, are also expected to be informative in those other
settings that share common characteristics in terms of the level of HR management
maturity with Greece.
The rest of the paper is organized as follows. In the second section, the relevant
literature is reviewed. In the third section, the survey’s methodology is analyzed, while
in the fourth section, one the empirical results are presented. Finally, the paper
concludes with a discussion of the findings.

2. Literature review
Several studies analyze the relation between budgeting[2] and motivation,
communication, performance evaluation and control (Merchant and van der Stede,
2003; Marginson and Ogden, 2005; Kominis and Emmanuel, 2007; Byrne and Damon,
2008). In the following paragraphs, we discuss the empirical evidence concerning the
interaction of budgeting with the above-mentioned dimensions. Also, we present
 the findings of the few studies that analyze the interaction between management Role of the
accounting and HR management through the prism of HR management. HR department
in budgeting
2.1 Motivation
We consider two factors as being the most important in studying the motivational
impact of the budgeting procedure: first, the relationship between achieving budgetary
goals and the organization’s reward system and second, the budgetary goals’ level of 149
difficulty.
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2.1.1 Motivation through rewards. Hofstede (1968) noted that the budget procedure
motivates when related to performance evaluation and the organization’s reward
systems. This means that employees perceive budgets as targets to achieve in order to
receive promotions and bonuses. Since, achieving expected performance is related to
standard rewards, employees are expected to try harder to reach their goals, which will
in turn result in increased productivity (Merchant and van der Stede, 2003; Reid, 2002).
Senior management typically increases managers’ and employees’ performance
through the promise of rewards for expected results.
Deci (1971, 1972) distinguishes between two types of reward. Intrinsic
rewards are those that come from inside, such as the satisfaction from achieving an
assignment or a goal, while extrinsic rewards include recognition, prizes and of course,
performance-based payment. Moreover, the latter refer to financial rewards (bonuses,
profit participation and commissions, etc.) and non-financial rewards (promotions,
plaudits and recognition, etc.). Most research studies on motivation focus on extrinsic
rewards, although many perceive intrinsic motivation as being stronger (Dermer, 1975;
Kaplan, 1998; Kominis and Emmanuel, 2007). The reason for this lack of consensus is
that monetary rewards for exceptional performance often have an effect opposite to
that which is intended. Employees might perceive themselves as working for money,
which will consequently reduce their motivation. Sometimes, it is more effective to
relate the budget achievement to intrinsic motivation, instead of trying to improve
performance by using financial rewards.
What is it that does eventually motivate personnel to achieve the budgetary goals?
What would be best for the top management: to relate the budgetary goals to financial
or non-financial rewards? Ronen and Livingstone (1975) agreed that the basic
principles of expectancy theory could be used to complete the findings that come from
researches about budgeting and employees’ motivational behavior toward rewards.
Kominis and Emmanuel (2007) used an extended version of the traditional expectancy
theory. Their survey of 200 middle managers employed in a large financial service
company concluded that both extrinsic and intrinsic rewards have a significant
positive impact on motivation. Particularly, concerning Greece, Emmanuel et al.’s
(2008) study demonstrated that extrinsic and intrinsic rewards have a direct and
significant influence on motivation.
2.1.2 Motivation through budgetary goal level of difficulty. Target setting through
budgets is an obvious way to provide employees and managers with clear, measurable
and specific targets (Lyne, 1988). The level of difficulty of budgetary goals comprises a
very important motivational factor as well. While easily attainable goals seem to pose
no challenge for managers and, therefore, have little motivational impact, too difficult
ones – almost unattainable – may cause feelings of failure and low self-esteem (Becker
and Green, 1962; Dunbar, 1971). Expectancy theory indicates that there would be little
 JHRCA motivation in cases, where the target is considered to be too difficult regardless of the
15,2 reward. According to Reid (2002), difficulty affects the employees’ expectations
towards budget achievement. Kenis’s (1979) study in 16 manufacturers concluded that
in order to motivate managers more efficiently, budgetary goals should be difficult
enough but at the same time attainable. Nevertheless, according to Kominis and
Emmanuel (2007), the often-cited target characterisation of “difficult but attainable”
150 may not motivate all managers. Yuen’s (2004) research in 108 hotel managers indicated
that difficult goal situations can be solved under clear reward systems while
Marginson and Ogden (2005) found that the budgetary goals have a powerful influence
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on the manager’s behavior. Finally, Emmanuel et al. (2008) found that the attainability
of targets has a significant motivational impact in Greek companies.

2.2 Communication
Undoubtedly, the budget procedure creates significant information flows inside an
organization. From the initial researches on this topic (Hopwood, 1976; Parker, 1978)
until the present day, it is made clear that budget participation creates an environment
that encourages the exchange and use of organizational information and can
consequently improve performance, since the subordinate’s experience will be
transferred to supervisors, commitment will be raised and structured information
exchange will be supported (Chenhall and Brownell, 1988; Walker and Johnson, 1999;
Clinton and Hunton, 2001). Communication types include upward and downward
communication as well as horizontal communication.
2.2.1 Upward and downward communication. The budgeting process can be used to
gather subordinates’ personal information regarding strategic uncertainties the
organization faces, i.e. situations that might threaten the present organization strategy,
such as competitors’ moves, changes in consumers’ preferences, changes in technology,
etc. (Simons, 1995). Furthermore, the quality of information revealed is expected to
contribute to the preparation of more realistic and accurate budgets (Nouri and Parker,
1998). Since, the budgeting process provides subordinates with information about
what management expects from them (Ronen and Livingstone, 1975), another
important topic is the feedback that is provided concerning the degree to which budget
targets are actually met. In cases, where subordinates are not aware of the results of
their efforts, they are not able to feel success or failure and consequently do not feel
motivated to improve their performance (Becker and Green, 1962; Fisher, 1995; Henri,
2006). The more extensively employees and middle managers participate in the
formulation of the budget, the better communication is achieved and the more realistic
information for the superiors to use during the budget process is gathered. Therefore,
budget setting activities as well as the activities of analysing budget variances reduce
information asymmetry (Emsley, 2001). Parker and Kyj’s (2006) survey showed that
vertical (upward and downward) information sharing during the budgeting process
plays an important role in performance and organizational commitment.
2.2.2 Horizontal communication. Through budgetary participation, the coordination
and the cooperation of seemingly independent departments is achieved, which is
necessary for the efficient performance of the organization as a whole (Brownell, 1982).
Information and practices related to new or improved methods of carrying out certain
business activities are channeled throughout the organization, making it possible for
subordinates to learn and use new methods in their work, and convey them to fellow
 employees (Shields and Young, 1993). Bremser’s (1988) findings showed that the Role of the
budgeting process provides coordinated planning among different functional areas. HR department
2.3 Performance
in budgeting
Joshi et al. (2003, p. 738) stated that: “Budgets are financial blueprints that quantify a
firm’s plans for a future period”. This means that the budget is a standard against
which actual performance can be compared and measured. Since, the budget represents 151
the expected future picture of a company, if subordinates and supervisors are aware of
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its contents, they would be able to make the necessary decisions in order to reduce
deviations year-by-year. Thus, meeting the budget becomes an important goal in itself,
since a great part of the employees’ evaluation will be based on the variance existing
between the budget and the actual results (Searfoss and Monczka, 1973; Guilding et al.,
1998; Blansfield, 2002; Fisher et al., 2002).
2.3.1 Budgets as the main performance measurement system. It is evident that when
budgets are used for evaluation purposes, they intend to “force” subordinates to improve
their performance. This explains why evaluation is related to the reward systems.
It makes employees’ payment and promotions depend on their evaluation (Lau and
Buckland, 2001). Top management uses the budget-emphasis style of evaluation in
order to measure the employees’ performance because it is relatively objective
(Merchant, 1998). Otley’s (1978) research demonstrated that companies with higher
budget emphasis enjoy results close to the desirable. This budget emphasis underlines
the importance of budgetary goals and their relation to the employees’ rewards. Many
other studies all over the world (Anderson, 1993; Douglas, 1994; Guilding et al., 1998;
Blansfield, 2002) showed that the development of a budget is used as the main
performance measurement system.
2.3.2 Budgetary goal clarity level. Another budgetary factor that is related to
performance is the level of clarity of budgetary goals. Clear targets improve employee’s
performance in contrast to unclear ones. Unclear goals may cause stress, dissatisfaction
and frustration among personnel (Locke and Schweiger, 1979). It is common when
employees try to meet unclear targets to use budgetary slack in order to reduce
uncertainty. On the other hand, it is less likely for clear targets to create budgetary slack
(Yuen, 2004).

2.4 Control
Through tight budgetary control management becomes more systematic and managers
are given the opportunity to improve their future planning (van der Stede, 2001;
Wijewardena and de Zoysa, 2001). From this point of view, budgeting becomes a basic
form of control within the organization, as management is able to control the whole
procedure by comparing results to expected values and get involved only when
necessary. When employees appear to have the control over their own destiny, they
exhibit higher levels of job satisfaction and perform better (Brownell, 1982; Otley, 2006).
Often, pressure to meet targets and to improve performance, results in reducing
creativity and innovation. This is evidenced when budgetary control is so strict that it
results in managers not being given the opportunity to act beyond boundaries set by
the budgets. Thus, new ideas, that could potentially bring long-term profits to the
organization are rejected (Pierce and Sweeney, 2004, 2006). Empirical studies
(Otley, 1978; Merchant, 1990; Chow et al., 1996) report that managers who face strict
 JHRCA control tend to spend less of their time for long-term planning. On the contrary,
15,2 empirical evidence advocates (Merchant, 1985; Marginson and Ogden, 2005) that
profitable companies enjoy flexibility as far as their activities are concerned and do not
employ strict budget controls.

2.5 The management accounting-HR management interface from the HR stance

152 From the preceding analysis, it is evident that the relation between budgeting and
several aspects that fall within the tasks performed by a HR department are widely
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studied in the literature. However, there are only a few empirical contributions that
analyze the interaction between management accounting and HR management from a
HR stance. Berry and Bacon (2002) conducted interviews with senior HR and
finance staff in 250 UK companies and reported that a formal financial evaluation of HR
management initiatives is absent. Stiles and Kulvisaechana (2003) focused on the
linkage between HR and organizational performance and concluded that there are
several high-performance practices that vary in content and can influence the individual
HR activities in different ways. Bacon and Berry’s (2005) survey did not succeeded in
finding good predictors of performance measurement systems characteristics in the HR
function. Finally, Kouhy et al. (2009) examined the relation between HR, management
accounting and organizational performance, by analyzing case studies in Canada, Japan
and the UK. They concluded that HR managers and management accountants make real
progress when engaged in determining links between HR policies and organizational
performance.

3. Research design and data collection

This study aims at both analyzing the involvement of the HR department in the
budgeting process and investigating the interaction between the budgeting process
and those specific management functions performed by the HR department. The
sample of companies selected for the study was obtained from the Greek “HR Guide”.
This source is considered suitable for identifying Greek firms with developed HR
departments. Since, 260 organizations appear in this particular guide, we contacted
each organization’s HR department and explained the purposes of the study. The HR
department was selected for two reasons. First, because we are interested in explicitly
documenting HR departments’ roles within budgeting procedures, and second because
we would like to assess whether Greek companies make use of budgeting as a means to
implement significant HR functions. These functions are personnel motivation,
internal communication, performance evaluation and control. Therefore, we addressed
our questionnaire to HR managers on the grounds that we consider them to be the most
appropriate source of information for the study.
The questionnaire contains questions related to the HR department’s role
during budget preparation and implementation, together with questions concerning
motivation, vertical and horizontal communication, performance evaluation and control.
Most of the questions employ a Likert-scale, while others assume a “yes/no” form.
In total, we received 100 completed questionnaires (39 per cent response rate). Analysis
was conducted in order to determine the extent of non-response bias. All t-tests
(not reported) indicated the absence of any statistically significant differences between
early and late respondents.
 3.1 Sample characteristics Role of the
The companies that participated in the survey belong to the sectors as indicated in HR department
Table I.
The roles of the HR departments in our sample companies vary. The most in budgeting
common HR practices, though, are considered to be: personnel recruitment; selection;
training; performance evaluation; internal communication and general administration
functions (such as pensions, wages, etc.). While trying to determine the HR department’s 153
role within the sample companies, we asked respondents to rate the importance of
these functions in their companies (Table II). From the answers we received, it seems
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that the “general administrational” function is considered to be as the most important

one (mean ¼ 3.78), while the least important function turned out to be the “personnel
recruitment” function (mean ¼ 2.88). Concerning the latter, by conducting a t-test
to assess the difference from the value of 3, we found no difference from 3
( p-value ¼ 0.342).
In order to detect the general relation between the HR department and budgeting
procedures, we proceeded by asking if the HR departments participate in the budget
development process and in the budget’s implementation. It was found that from the
100 companies of the sample, only in 46 companies, the HR department participate in
budget preparation, while in the remaining 54 it does not. From the responses, it seems
that the department mostly participates in the “determination of the budgetary targets”
and in order to “communicate the decisions” inside the organization.
Moreover, in 45 companies the HR department does not participate in the budget
implementation phase, while in the remaining 55 it does. It turned out that where the
HR department participates, this is mostly done in order to “observe and explain

Sector n (%)

Manufacturing 20
Commercial 20
Banks 11
Service providing 29
Technology 14
Pharmaceuticals 6 Table I.
Total 100 Distribution of responses

1 2 3 4 5 Total Mean t-test difference from

(%) (%) (%) (%) (%) (%) value SD 3 ( p-value)

Recruitment 17 21 32 17 13 100 2.88 1.258 0.342

Selection 8 8 31 28 25 100 3.54 1.184 0.000
Training 7 18 23 28 24 100 3.44 1.234 0.001
Evaluation 7 22 22 28 21 100 3.34 1.233 0.007
Communication 3 16 34 30 17 100 3.42 1.046 0.000
Administrational
functions 2 9 25 37 27 100 3.78 1.011 0.000
Table II.
Note: 1-5 Likert scale (1, very small significance; 5, great significance) Basic HR functions
 JHRCA the deviations” from the budget and to “keep top management informed of any
15,2 dysfunctions that may appear during the procedures”.
In Table III, the cross tabulation between the HR departments’ participation level
during budget preparation and implementation is presented. The results provide
corroborative evidence that firms choose whether to allow or not the department’s
participation in both budget development and implementation. Actually, by conducting
154 a x2-test, a significant correlation at 1 per cent statistically significance level was
revealed between the two variables (x2 ¼ 0.674; p ¼ 0.000).
A range of literature (Kaplan, 1998; Joshi et al., 2003; Kominis and Emmanuel, 2007;
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Byrne and Damon, 2008) points out that the budgeting procedure could be used to inspire
motivation among personnel, to create information flow inside an organization, to evaluate
and control performance. We asked the managers to rate, on a Likert-scale from one to
five, the importance that they accorded to the motivation, communication, performance
evaluation and control that derives from the budget preparation and implementation
processes. Their responses indicated (Table IV) that all four functions are considered to be
important, with most “control” the significant function (mean ¼ 3.42) and “communication”
the least important (mean ¼ 3.07). By conducting a t-test to view the difference from the
value of 3, it turned out that “motivation” ( p-value ¼ 0.084) and “communication”
( p-value ¼ 0.555) were no different from 3 at the significance level of 5 per cent.

3.2 Motivation
Employee motivation is significantly affected by the financial and non-financial
rewards that are linked to the achievement of results. In the case of achieving
the budgetary target, we asked whether, and to what extent, financial or non-financial
rewards are provided. First, evidence showed that 19 per cent of the sample companies

HR department
participates during
budget implementation
No Yes Total
Table III.
Cross tabulation between HR department participates during budget setting No 41 13 54
the participation of HR Yes 4 42 46
department during Total 45 55 100
budget preparation and
implementation Notes: x2 ¼ 0.674; p , 0.000

1 2 3 4 5 Total Mean t-test difference from mean

(%) (%) (%) (%) (%) (%) value SD value of 3 ( p-value)

Motivation 10 11 39 30 10 100 3.19 1.089 0.084

Communication 11 20 33 23 13 100 3.07 1.183 0.555
Performance
Table IV. evaluation 8 17 25 33 17 100 3.34 1.183 0.005
Functions that derive Control 7 9 33 37 14 100 3.42 1.078 0.000
from the budget
procedure Note: 1-5 Likert scale (1, very small significance; 5, great significance)
 do not provide any type of financial rewards to employees for meeting their budgetary Role of the
targets, while the 27 per cent of the sample companies do not provide any form of HR department
non-financial rewards. Second, in 27 per cent of the studied companies, a manager could
be laid off in case he/she did not reach the budgetary targets to a satisfactory level. in budgeting
Furthermore, the companies that provide rewards for meeting budgetary goals were
asked to specify the type of financial or non-financial rewards they offer (Table V).
It turned out that the most widely used reward type is the “bonus” reward, issued 155
by 80 per cent of the companies’ sample. A further 14 per cent of companies provide
employees with “stock options” while a 3 per cent offer “profit sharing”. It should be
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mentioned that several companies use combinations of the above types of rewards.
As for non-financial rewards, the most commonly used type is “plaudits and
recognition” which is offered by a 52 per cent of the sample, while a 29 per cent reward
employees by providing “promotions” and a 23 per cent provide “travel gifts – use of
company car”. As in the case of financial rewards, non-financial rewards in several
companies are provided in combination.
Literature advocates that the level of difficulty of budgetary goals has an important
effect on motivation. Various surveys support different levels of difficulty to be
appropriate for motivation (Kenis, 1979; Reid, 2002; Yuen, 2004; Kominis and
Emmanuel, 2007). We tested the level of difficulty of budgetary goals that concern: sales;
cost and market share (Table VI). The managers were asked to rate the level of difficulty
by distinguishing between “attainable” and “difficult” goals. Their responses indicated
that the level of difficulty of the above budgetary targets is almost equally divided
between attainability and difficulty. By conducting a t-test to view the difference from
the value of 1.5 in “cost” and “market share” difficulty levels, it was revealed that both
variables take values that do not statistically significantly deviate from the average
( p-value ¼ 0.691 and 0.110, respectively).

Yes No
n (%) n (%)

Financial rewards
Bonus 80 20
Stock options 14 86
Profit sharing 3 97
Non-financial rewards
Promotions 29 71
Plaudits-recognition 52 48 Table V.
Travel gift-company car 23 77 Rewarding types

Budgetary goals difficulty 1 2 Total Mean t-test difference from

level concerning (%) (%) (%) value SD mean value of 1.5 ( p-value)

Sales 37 63 100 1.63 0.485 0.009

Cost 48 52 100 1.52 0.502 0.691
Market share 42 58 100 1.58 0.496 0.110 Table VI.
Budgetary goal
Notes: 1, attainable; 2, difficult difficulty level
 JHRCA 3.3 Communication
15,2 Budgets are also supposed to create and facilitate internal communication (Simons,
1995; Emsley, 2001; Parker and Kyj, 2006). We analyzed whether our sample
organizations take advantage of this budget characteristic in order to receive more
realistic information and to develop cooperation and coordination among departments.
From the empirical findings, it can be seen that in 43 per cent of the sample companies,
156 employees and management are often involved in discussions concerning their
budgetary goals during the budget setting. Moreover, the HR managers perceive the
vertical communication, both “upward communication” and “downward
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communication” that is created by the budget processes as moderately important

(mean ¼ 3.20), while the horizontal communication (coordination among departments)
is considered to be less important both during “budget preparation” (mean ¼ 2.92) and
“budget implementation” (mean ¼ 3.03). However, by conducting a t-test to view the
difference from the value 3, it turned out that all four variables are not statistically
different from 3 (Table VII) at the 5 per cent significance level.
Another very important communication factor that is vital for the smooth function
of an organization is the level of feedback provided concerning the employees’
performance. In 66 per cent of the sample companies, it was evident that the company
provides employees with a satisfactory level of feedback, in relation to their efforts to
meet budgetary goals. Nevertheless, there is a further 28 per cent that state that the
feedback provided is limited.

3.4 Performance evaluation

The budget is considered to be a vital tool in the hands of management that can be
effectively used in performance evaluation (Merchant, 1998; Lau and Buckland, 2001;
Joshi et al., 2003). The HR managers were asked to rate the level in which several
performance criteria are taken into consideration during the employees’ performance
evaluation (Table VIII). These criteria are: “quality of work”; “quantity of work”; “meeting
deadlines”; “Personal development”; “meeting the budget” and “Development of new
ideas”. The purpose of these questions was to assess whether the level of budget
achievement is regarded as a performance evaluation instrument. The results showed that
“Quality of work” is considered to be the most important performance criterion

t-test difference from

1 2 3 4 5 Total Mean mean value of 3
(%) (%) (%) (%) (%) (%) value SD ( p-value)

Upward communication
during budgeting process 6 17 37 31 9 100 3.20 1.025 0.054
Downward communication
during budgeting process 6 18 38 26 12 100 3.20 1.064 0.063
Horizontal communication
during budgeting setting 10 26 34 22 8 100 2.92 1.098 0.468
Horizontal communication
during budgeting
implementation 8 21 41 20 10 100 3.03 1.068 0.779
Table VII.
Communication variables Note: 1-5 Likert-scale (1, very small significance; 5, great significance)
 (mean ¼ 4.23) while the least important one is that of “Meeting the budget” (mean ¼ 3.75). Role of the
Nevertheless, “Meeting the budget” attained a mean value well above the average HR department
value of 3. These answers indicate that performance assessment is a multifaceted issue
that takes into account both quantitative and qualitative aspects. Therefore, meeting in budgeting
the budget is an important parameter albeit not the only or the primary one.
In addition, we asked questions that intended to evaluate how the attainability of
the level of budgetary goals affects employees’ performance. We asked the HR 157
managers to rate the importance of several factors that are expected to increase or
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decrease performance (Table IX).

As for the factors that affect performance positively, results showed that the most
important one is the “Adequacy of human and material resources” (mean ¼ 3.45),
while the “attainability of the budgetary targets” is considered to be of high importance
too (mean ¼ 3.32). Regarding the factors that affect performance negatively, the
“inadequate personnel training and development” is considered to be the most
important (mean ¼ 3.06), while the “difficulty of the budgetary targets” is considered

Performance evaluation criteria 1 (%) 2 (%) 3 (%) 4 (%) 5 (%) Total (%) Mean value SD

Quality of work 1 1 11 48 39 100 4.23 0.763

Quantity of work 1 4 30 48 17 100 3.76 0.818
Meeting deadlines 2 4 18 49 27 100 3.95 0.892
Personal development 1 5 24 46 24 100 3.87 0.872
Meeting the budget 1 4 36 37 22 100 3.75 0.880
Development of new ideas 0 6 19 40 35 100 4.04 0.887 Table VIII.
Performance evaluation
Note: 1-5 Likert-scale (1, very small significance; 5, great significance) criteria

t-test difference from

1 2 3 4 5 Total Mean mean value of 3
(%) (%) (%) (%) (%) (%) value SD ( p-value)

Factors affecting positively

Attainability of budgetary
targets 6 10 40 34 10 100 3.32 0.994 0.002
Adequate personnel’s
training and development 11 10 28 42 9 100 3.28 1.120 0.014
Adequacy of human and
material resources 5 10 33 39 13 100 3.45 1.009 0.000
Other external factors 12 21 41 22 4 100 2.85 1.029 0.148
Factors affecting negatively
Difficulty of budgetary
targets 17 22 29 26 6 100 2.82 1.175 0.129
Inadequate training and
development 13 13 39 25 10 100 3.06 1.144 0.601
Inadequacy of human and
material resources 12 23 24 31 10 100 3.04 1.197 0.739
Other external factors 18 19 33 18 12 100 2.87 1.253 0.302 Table IX.
Factors affecting
Note: 1-5 Likert-scale (1, very small significance; 5, great significance) performance
 JHRCA to be the least important factor for decreased performance (mean ¼ 2.82). On the basis
15,2 of the p-values derived from the t-tests, it can be inferred that all factors identified as
exerting a negative effect as of moderate significance as their mean value was not
statistically different from the value of 3 at 5 per cent significance level.
Apart from the budgetary target’s attainability level, another significant factor that
affects performance is the clarity level of the budgetary goals. The HR managers were
158 asked to rate the clarity level of the budgetary goals that concern sales, cost and market
share (Table X). It appears that budgetary targets are considered to be adequately clear
(mean values above 3.5). Therefore, our results do not present strong evidence that there
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is a noticeable differentiation in budgetary goal clarity depending on whether the goals

refer to cost or revenues (sales and market share).

3.5 Control
Budgets also offer a way to control the organization’s development in order to keep it
within the desired parameters. However, it has been evidenced (van der Stede, 2001;
Bisbe and Otley, 2004) that pressure to achieve the budget might lead to results opposite
to those that are intended. Consequently, we tried to detect the pressure level in the
companies of our sample, by asking the HR managers to rate it. The responses showed
that the pressure level to achieve budget is considered to be adequately high
(mean ¼ 3.49).
In general, budgetary control is considered to offer congruence between the personal
goals of the managers and the organizational goals and also to offer the opportunity to
detect if this desired outcome is realized. However, tight budgetary control could also
lead to dysfunctional employee behavior. We proceeded by asking the managers to rate
their agreement or disagreement on the statements reported in Table XI. From these
responses, it was very apparent that HR managers believe that budgets contribute to
the congruence of personal and organizational objectives (mean ¼ 3.73) and that top
management is able, through the budgetary process, to control whether personal
objectives work towards the achievement of the objectives of the organization
(mean ¼ 3.73). However, contrary to what expected, they do not share the opinion that
tight budgetary control negatively affects employees’ behavior and performance
(mean ¼ 2.71).

3.6 Size effects

Finally, we searched for any differences that might exist among the perceptions of the
HR managers in the sample companies, due to size differences. The sample in terms of
size could be categorized by the total number of employees and by the number of
employees occupied in the HR department (Table XII). We tested for the existence
of differences between the extreme groups of our sample: large companies vs

1 2 3 4 5 Total
Budgetary goals clarity level concerning (%) (%) (%) (%) (%) (%) Mean value SD

Sales 2 6 31 34 27 100 3.78 0.980

Cost 2 8 34 38 18 100 3.62 0.940
Table X. Market share 3 14 32 26 25 100 3.56 1.104
Budgetary goals
level of clarity Note: 1-5 Likert-scale (1, very small clarity; 5, absolute clarity)
 Role of the
1 2 3 4 5 Total Mean
(%) (%) (%) (%) (%) (%) value SD HR department
The pressure level to achieve budget is
in budgeting
considered to be high 4 19 26 26 25 100 3.49 1.176
Budgets contribute to the congruence of
personal and organizational objectives 0 6 27 55 12 100 3.73 0.750 159
Top management is able through
budgeting procedures, to control whether
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personal objectives work towards the

achievement of the objectives of the
organization 0 8 23 57 12 100 3.73 0.777
Tight budget control negatively affects
employees’ behavior and performance 4 43 32 20 1 100 2.71 0.868
Table XI.
Note: 1-5 Likert-scale (1, totally disagree; 5, totally agree) Budgetary control

No. of employees in the No. of No. of employees in the HR No. of

company companies department companies

1-50 33 1-5 59
50-200 26 5-10 19
200-500 13 10-15 7 Table XII.
500-1,000 10 More than 15 15 No. of employees in the
More than 1,000 18 – – company and No. of
Total 100 Total 100 employees in the HR dept

small companies. We consider as large companies those that employ more than
1,000 employees or have a HR department with more than 15 persons, and as small
ones those which employ ,50 employees or have a HR department with less than five
persons.
Initially, we compared the answers provided by the 33 companies that employ in
total , 50 employees with the answers given by the 18 companies that employ more
than 1,000 employees. By conducting an independent samples t-test (Table XIII), it
turned out that there are significant differences between the two groups concerning the
participation of the HR department in the budgeting preparation ( p-value , 0.000) and
the use of budgets for communication ( p-value ¼ 0.020), performance evaluation
( p-value ¼ 0.039), control ( p-value ¼ 0.043) and motivation ( p-value ¼ 0.013) at the
significance level of 5 per cent.
Moreover, by examining the differences in the answers provided by companies that
have a HR department with , 5 employees and companies with more than 15, it turned
out that there are statistically significant differences concerning the participation of the
HR department during the “budget preparation” ( p-value ¼ 0.001), “control”
( p-value ¼ 0.043), and “motivation” ( p-value ¼ 0.030) at the level of 5 per cent and
the use of budgets for “communication” ( p-value ¼ 0.055) and “performance
evaluation” ( p-value ¼ 0.055) at the level of 6 per cent. The results are presented in
Table XIV and suggest that the HR department in larger companies makes more
intensive use of the vast opportunities and synergies offered by budgeting.
 JHRCA
Mean value more that Mean value , 50
15,2 1,000 employees employees Mean t-value
(n ¼ 18) (n ¼ 33) difference ( p-value)

Participation of the HR department

during the budget preparationa 1.78 1.27 0.505 0.000
160 Use of budgeting for
communication 3.67 3.12 0.545 0.020
Use of budgeting for performance
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evaluation 4.39 3.82 0.571 0.039

Table XIII.
Use of budgeting for motivation 3.67 3.12 0.545 0.013
Size effects depending on
Use of budgeting for control 3.61 3.18 0.571 0.043
the total number of
employees Notes: 1-5 Likert-scale (1, totally disagree; 5, totally agree); except a1, no; 2, yes

Mean value more that Mean value , 50

1,000 employees employees Mean t-value
(n ¼ 18) (n ¼ 33) difference ( p-value)

Participation of the HR department

during the budget preparationa 1.80 1.32 0.478 0.001
Use of budgeting for
communication 3.60 3.17 0.431 0.055
Use of budgeting for performance
evaluation 4.47 3.98 0.484 0.055
Table XIV. Use of budgeting for motivation 3.60 3.22 0.480 0.030
Size effects depending on Use of budgeting for control 3.54 3.19 0.486 0.043
the number of employees
in the HR department Notes: 1-5 Likert-scale (1, totally disagree; 5, totally agree); except a1, no; 2, yes

From the above results, it seems that there are significant differences between the
bigger companies in the sample (more than 1,000 employees in total or more than 15 in
the HR department) and the smaller ones (, 50 employees in total or , 5 in the HR
department) in terms of the use of budgeting for “Communication” “performance
evaluation” “control” and “motivation” as well as in terms of the “participation of the
HR department in the budget preparation”. These results support the findings of
Papalexandris and Panayotopoulou (2005) that in Greek firms of smaller size, the HR
function has received attention only relatively recently, while in larger Greek
companies the HR function is integrated with the other business functions.

4. Conclusions and discussion

This study is the first attempt to research the HR department’s role during the budget
preparation and implementation phases in the Greek business environment.
It investigates the specific functions that are related to budgeting and that
constitute basic HR operations. More particularly, the study sought to evaluate the
ways in which the HR department makes use of budgets for functions that constitute
intrinsic parts of their role in the companies such as the motivation of the personnel,
information flow creation inside the organization, performance measurement and
control.
 All the above-mentioned parameters are of significant importance for the smooth Role of the
operation of a modern organization. Since, employees constitute the organization’s HR department
greatest asset, the competitive advantage and the resulting success of the new era
organizations are significantly dependent on the extent to which they strategically in budgeting
manage their human capital (Flamholtz et al., 2004; Chudhury and Mishra, 2010). The
strategic way to handle personnel includes, among other things, the aspects of motivation,
performance assessment, communication, coordination, job-satisfaction, participation 161
and control. Consequently, the appropriate use of budgets through the HR management
lens could have a positive influence on employees in multiple ways and could, therefore,
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play a role in creating a competitive advantage through human capital mobilization.

For the purpose of our study, we have gathered information from HR managers in
100 Greek companies with a developed HR department. Our empirical evidence shows
that the HR department does not play a key role during the budget procedures and,
therefore, it does not exploit the full potentials offered by budgeting. Nevertheless, the
use of the budgeting tool in the benefit of the HR department is positively influenced by
both the size of the company in terms of employees and the size of the HR department per
se. Both findings accord with those of Papalexandris and Panayotopoulou (2005), who
indicate the low use of HR practices in Greek firms and, particularly the smaller ones.
On the other hand, it was found that HR managers consider the motivation,
communication, performance evaluation and control uses of budgeting as important.
More specifically, of these four functions the control function is rated as the most
important one while the communication function is ranked as the least important one.
Again the size of the HR department and the size of the company in terms of employees
exert a positive effect on perception regarding the significance of budgeting in the
above dimensions.
Regarding the budgeting-rewarding linkage as a means of motivation, the sample
companies offer both financial and non-financial rewards at a satisfying level.
Apparently, the organizations in the sample use budget targets and combine them to
the full range of rewards either positive or negative. The use of both financial and
non-financial rewards at a high-level comes in accordance with Emmanuel et al. (2008),
who found that extrinsic and intrinsic rewards significantly influence motivation in
Greek companies.
As far as the perceptions of the HR managers regarding the effects of budgeting on
communication are concerned, they believe that the vertical and horizontal information
flow that is created through budgeting, is only of moderate significance. Interestingly,
although budgets are a standard against which performance can be measured, for our
sample companies their achievement is considered to be an important parameter albeit
not the only or the primary one. Our findings provide support to the notion that
performance assessment is not a unitarily defined issue but rather a multifaceted one
that takes into account both quantitative and qualitative aspects.
Finally, HR managers consider budgetary control as a means of promoting
congruence between the personal goals of individual managers and the organization
but do not support the view that tight budgetary control could lead to dysfunctional
employee behavior. It is very important that budgets are not considered by HR
managers as a strict control mechanism that could negatively impact the employees’
behavior; they are rather viewed as a tool for controlling the organization’s smooth
development.
 JHRCA In summary, these results suggest that the degree of involvement of the HR
15,2 department throughout the budgeting procedures is low, which could explain the
limited use of budgeting as a means of performance evaluation and communication
under a HR management perspective. As for motivation and control, the responses
show that budgeting is linked to rewarding, while no negative impact on employees’
behavior due to the strictness of budgetary control was revealed.
162 We believe that our findings reflect the current state of HR department and
budgeting interaction in Greek companies subject to the limitations inherent in any
study of this sort. A similar subsequent study would reveal the progress made in this
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aspect. The HR function in Greece has only recently started to receive attention and
until the past decade line managers were also in charge of personnel while only large
firms had HR departments or employed HR specialists (Papalexandris and
Panayotopoulou, 2005). It is a fact that the HR function remains at an early stage in
Greece, which means that the responsibility for HR matters is gradually evolving. We
believe that further research of the interaction between the budget procedures and the
diffusion of the HR management philosophy inside the Greek organizations is needed.
In-depth analysis through case studies could serve towards this goal.
From another point of view, the progress experienced in management information
systems and enterprise resource planning systems, as well as other wider trends in the
standardisation of processes and protocols, leads to a more homogenised set of
professional support processes (Winata and Mia, 2005; Hussain et al., 2007; Jack and
Kholeif, 2008). Therefore, issues such as budgeting may become a “contested” territory
between finance, HR and IT. Under this new era, the frontiers between the financial
department and HR department may become blurred[3]. We believe that empirical
research in this area is needed in order to enhance our understanding on the
characteristics of the interaction between HR and budgeting under these new
circumstances.

Notes
1. This could be partly explained by cultural factors that affect the organizational function of
the Greek firms. According to Koopman et al. (1999), Greece is considered to belong to the
South-East European cultural cluster, which displays lower scores on the dimensions of
performance and future orientation and higher scores on family/in-group collectivism and
power distance as opposed to the North-West European cluster.
2. Budgeting may also contribute towards achieving other objectives, such as coordination,
planning, etc. In this paper, we concentrate on those budgeting parameters that interact with
HR department functions.
3. We would like to thank one anonymous reviewer for drawing our attention to this issue.

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Corresponding author
Sandra Cohen can be contacted at: scohen@aueb.gr

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