Professional Documents
Culture Documents
Habib Bank Limited Commonly Referred To As "HBL" and Head-Quartered in
Habib Bank Limited Commonly Referred To As "HBL" and Head-Quartered in
The reason we investigated the impact of HR practices (Compensation Practices, Promotion Practices and
Performance Evaluation Practices) in Habib Bank Limited in order to evaluate the performance of their
employees.
A number of researchers have established the relationship between HR practices and employee
performance but they mainly discussed developed countries. Little evidence is available about
relationship between HR practices and employee performance from developing countries like Pakistan.
This study examine the relationship between three HR practices i.e. compensation, promotion and
performance evaluation and perceived employee performance among HBL Pakistan. The result of the
study indicates a positive relationship between compensation and promotion practices and employee
perceived performance while performance evaluation practices are not significantly correlated with
perceived employee performance. HBL need to revise Performance Evaluation process and define clear
career paths to enhance the performance of employees. Subjectivity overruling objectivity and
performance quantification technique lacks in HBL.
Introduction
Habib Bank Limited commonly referred to as "HBL" and head-quartered in Habib Bank
Plaza, Karachi, Pakistan, is the largest bank in Pakistan. The bank has a network of over 1450 branches in
Pakistan and 55 branches worldwide. It has a domestic market share of over 40%. It continues to
dominate the commercial banking sector with a major market share in inward foreign remittances (55%)
and loans to small industries, traders and farmers. Overseas, it has operations in the following countries:
Afghanistan, Australia, Bahrain, Bangladesh, Belgium, Canada, China, France, Hong
Kong, Iran, Kenya, Lebanon, Maldives,Nepal, Netherlands, Nigeria, Oman, Singapore, Sri
Lanka, Tanzania, Turkey, UAE, UK & USA.
Mission
To be recognized as the leading financial institution of Pakistan and a dynamic international bank in the
emerging markets, providing our customers with a premium set of innovative products and services, and
granting superior value to our stakeholders – shareholders, customers and employees.
Services
Habib Bank offers the basic range of banking services to its customers, to include Commercial, Corporate,
Investment, and Retail Banking, Treasury, and Islamic Banking.
History
Mohammed Ali Jinnah, Pakistan's founding father, realized the importance of financial intermediation
while he was campaigning for the creation of a separate homeland for the Muslims of India. He persuaded
the Habib family to establish a commercial bank that could serve the Indian Muslim community. His
initiative resulted in the creation of Habib Bank in 1941, with HO in Bombay (now Mumbai), and fixed
capital of 25,000 rupees. The bank played an important role in mobilizing funds from the Muslim
community to finance theAll-India Muslim League's campaign for the establishment of Pakistan. Habib
Bank also
played an important role in channeling relief funds to the people hurt in the communal riots and violence
that preceded the departure of the British from India.
After Pakistan was born in 1947, Habib Bank, at the urging of Governor-General Jinnah, moved its
headquarters to Karachi, Pakistan's first capital. This gave Karachi its first commercial bank of the newly
formed Islamic Republic of Pakistan. The Habib family owned and managed the bank until the Pakistan
government nationalized it on 01 January 1974.
2002 On June 13, 2002 Pakistan's Privatization Commission announced that the Government of
Pakistan had granted the Aga Khan Fund for Economic Development (AKFED), a subsidiary of
the Aga Khan Development Network, rights to 51% of the shareholding in HBL, against an
investment of PKR 22.409 billion (USD 389 million).
HBL's UK operation came close to being shut down due to regulatory issues with the Financial
Services Authority. The issue was resolved by converting the operations to a subsidiary. Then
Habib Bank Limited and Allied Bank of Pakistan merged their operations (Habib contributed its 6
branches and Allied its 4), into a new bank, called Habib-Allied International Bank, in which
Habib Bank has a 90.5 percent shareholding, while Allied Bank has 9.5 percent. Simultaneously
with the transfer of business to the new bank, both Allied and Habib Bank close down all
independent operations in the UK.
Controversy
Habib bank has long been scrutinized by intelligence officials monitoring terrorist money flows.
On July 18, 2007, Mariane Pearl, the widow of Wall Street Journal reporter Daniel Pearl, filed a lawsuit
against Habib Bank Ltd over the 2002 abduction, torture and murder of her husband. The pending
lawsuit alleges the bank and its subsidiaries knowingly conducted financial transactions and provided
account services on behalf of Al Akhtar Trust, a Pakistani based charity trust. Al Akhtar Trust’s accounts
have been used to provide financial support to terrorists. However, HBL claims to have frozen Al Akhtar
Trust’s accounts several years before Daniel Pearl’s abduction.
On October 24, 2007, Pearl's lawsuit against HBL was formally dropped. Lawyers for Mariane Pearl noted
that Habib Bank Limited and the other defendants in the case had not answered the lawsuit filed in July
(although Habib Bank Limited had denied ever supporting terrorism), but they otherwise did not explain
their reason for dropping the action.[
The U.S. Federal Reserve Board and the New York State Banking Department criticized Habib Bank
Limited for failing to address deficiencies in its compliance with U.S. anti-
money laundering laws. After the U.S. Federal Reserve Board threatened formal charges, though none
were filed, Habib Bank Limited agreed to strengthen the banks compliance. More specifically, the Fed
ordered HBL to strengthen its transaction monitoring systems and the filing of "suspicious activity
reports" on transactions that do not fit the routine business patterns of the bank's customer base.
HR Practices
Compensation
Compensation is a systematic approach to providing monetary value to employees in exchange for work
performed. Compensation may achieve several purposes assisting in recruitment, job performance, and
job satisfaction.
Compensation is a tool used by management for a variety of purposes to further the existence of the
company. Compensation may be adjusted according the business needs, goals, and available resources.
Compensation may be used to:
Recruitment and retention of qualified employees is a common goal shared by many employers. To some
extent, the availability and cost of qualified applicants for open positions is determined by market factors
beyond the control of the employer. While an employer may set compensation levels for new hires and
advertize those salary ranges, it does so in the context of other employers seeking to hire from the same
applicant pool.
Morale and job satisfaction are affected by compensation. Often there is a balance (equity) that must be
reached between the monetary value the employer is willing to pay and the sentiments of worth felt be the
employee. In an attempt to save money, employers may opt to freeze salaries or salary levels at the
expense of satisfaction and morale. Conversely, an employer wishing to reduce employee turnover may
seek to increase salaries and salary levels.
Compensation may also be used as a reward for exceptional job performance. Examples of such plans
include: bonuses, commissions, stock, and profit sharing, gain sharing.
Compensation will be perceived by employees as fair if based on systematic components. Various
compensation systems have developed to determine the value of positions.
These systems utilize many similar components including job descriptions, salary ranges/structures,
and written procedures.
The components of a compensation system include:
Job Descriptions A critical component of both compensation and selection systems, job
descriptions define in writing the responsibilities, requirements, functions, duties, location,
environment, conditions, and other aspects of jobs. Descriptions may be developed for jobs
individually or for entire job families.
Job Analysis The process of analyzing jobs from which job descriptions are developed. Job
analysis techniques include the use of interviews, questionnaires, and observation.
Job Evaluation A system for comparing jobs for the purpose of determining appropriate
compensation levels for individual jobs or job elements. There are four main
techniques: Ranking, Classification, Factor Comparison, and Point Method.
Pay Structures Useful for standardizing compensation practices. Most pay structures include
several grades with each grade containing a minimum salary/wage and either step increments or
grade range. Step increments are common with union positions where the pay for each job is pre-
determined through collective bargaining.
Salary Surveys Collections of salary and market data. May include average salaries, inflation
indicators, cost of living indicators, salary budget averages. Companies may purchase results of
surveys conducted by survey vendors or may conduct their own salary surveys. When purchasing
the results of salary surveys conducted by other vendors, note that surveys may be conducted
within a specific industry or across industries as well as within one geographical region or across
different geographical regions. Know which industry or geographic location the salary results
pertain to before comparing the results to your company.
Policies and Regulations
Base Pay
Commissions
Overtime Pay
Bonuses, Profit Sharing, Merit Pay
Stock Options
Travel/Meal/Housing Allowance
Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes...
Performance appraisal
Performance appraisal, also known as employee appraisal, is a method by which the job
performance of an employee is evaluated (generally in terms of quality, quantity, cost and time).
Performance appraisal is a part of career development.
Performance appraisals are regular reviews of employee performance within organizations
Generally, the aims of a performance appraisal are to:
Management by objectives
360 degree appraisal
Behavioral Observation Scale
Behaviorally Anchored Rating Scale
Trait based systems, which rely on factors such as integrity and conscientiousness, are also commonly
used by businesses. The scientific literature on the subject provides evidence that assessing employees on
factors such as these should be avoided. The reasons for this are two-fold:
1) Because trait based systems are by definition based on personality traits, they make it difficult for a
manager to provide feedback that can cause positive change in employee performance. This is caused by
the fact that personality dimensions are for the most partstatic, and while an employee can change a
specific behavior they cannot change their
personality. For example, a person who lacks integrity may stop lying to a manager because they have
been caught, but they still have low integrity and are likely to lie again when the threat of being caught is
gone.
2) Trait based systems, because they are vague, are more easily influenced by office politics, causing them
to be less reliable as a source of information on an employee's true performance. The vagueness of these
instruments allows managers to fill them out based on who they want to/feel should get a raise, rather
than basing scores on specific behaviors employees should/should not be engaging in. These systems are
also more likely to leave a company open to discrimination claims because a manager can
make biased decisions without having to back them up with specific behavioral information.
In the PTF Report it was claimed that “although annual Reports by ministries and departments are
obligatory, they are hardly ever prepared and submitted to government, and where they, they are scanty
and hardly confirms with any standards, either in terms of contents or format. The recommendation was
that there should be target setting by ministries where concrete and measurable achievement can be
inferred (PTF Report Section 10 Sub10.1).
A number of researchers have reported that HR practices are positively linked with organisational and
employee performances. The focus and thrust of these studies have been towards developed countries.
Little research has been done to test the HR performance link in developing countries like Pakistan.
Our study was an attempt to test the relationship between HR practices and employee performance in
Pakistan’s banking sector. The management of Habib Bank Limited is also emphasizing the growth and
development of its bankers with various initiatives.
In this situation it is important to find out the determinants which can enhance the employee
performance in Habib Bank Limited.
The objective of this study was to facilitate the decision makers in Habib Bank Limited across Pakistan to
follow the HR practices which can improve the performance of Habib Bank Limited employees.
Theoretical Framework
Review of Literature
There are number of HR practices that could be tested in connection with employee performance. A
number of research articles had already been published
e.g.,
· The Impact of Human Resource Management and Work Climate on Organizational Performance by
Garry A. Gelade and Mark Ivery[1]
· The Effect of Human Resource Management Practices on MNC Subsidiary Performance in Russia by
CARL F. FEY [2]
· The Impact of Human Resource Management Practices on Turnover, Productivity and Corporate
Financial Performance by Mark A. Huselid [3]
· How HR & Training Practices Can Boost Worker Performance (IOMA’s Report on Managing Training
and Development) [4]
· Human Resource Practices and Organisational Performance: Can the HRM-performance linkage be
explained by the cooperative behaviours of employees? By Dr. Mattijs Lambooij [5]
· The impact of HR practices on the performance of business units by Patrick M. Wright, Timothy M.
Gardner and Lisa M. Moynihan[6]
· The Impact of Human Resource Management Practices on the Performance of European Firms by Paul
Gooderham, Kristen Ringdal and Emma Parry[7]
· Human Resource Strategy to Improve Organisational Performance: A Route for British Firms by Fang
Lee Cooke[8]
· Human Resource Management, Organizational Performance and Employee Well-Being by David
Guest [9]
· Rated to exhaustion? Reaction to performance appraisal processes by Brown M. and Benson J. [10]
· Performance appraisal systems: determinants and change by Brown M and Heywood J. [11]
· Equity-based compensation for employees: firm performance and determinants by Frye M. B [12]
· The importance of HR practices and workplace trust in achieving superior performance: a study of
public-sector organizations by Gould Williams J.[13]
· Human Resource Management, Corporate Performance and Employee Wellbeing: Building the Worker
into HRM by Guest D.[14]
· Challenges and prospects of HRM in developing countries: testing the HRM-performance link in
Eritrean civil service by Teseema & Soeters[15]
HR Practices
There are number of HR practices that could be tested in connection with employee performance.
Teseema & Soeters (2006) have studied eight HR practices and their relationship with perceived
employee performance. These eight practices include recruitment and selection practices, placement
practices, training practices, compensation practices, employee performance evaluation practices,
promotion practices, grievance procedure and pension or social security. Huselid (1995) used eleven HRM
practices in his study which are personnel selection, performance appraisal, incentive compensation, job
design, grievance procedures, information sharing, attitude assessment, labor-management participation,
recruitment efforts, employee training and promotion criteria. This study examines the relationship
between three HR practices i.e. compensation, promotion and performance evaluation and perceived
employee performance. Pakistan is a developing country with very low per capita income and above three
practices which have a relatively direct impact on financial earnings and social status of an individual may
be considered the major determinants of employee’s performance. This is the reason these practices have
been selected for this study.
Compensation Practices
Frye (2004) examined the relationship between equity based compensation and firm performance and
found positive relationship between the two. He argued that for human capital intensive firms
compensation plays a crucial role in ‘attracting and retaining highly skilled employees’. As banks are
capital intensive organizations, compensation practices of a bank can be of great help in hiring and
keeping hold of highly skilled and competent bankers. Incentive pay plans positively and substantially
affect performance of workers if combined with innovative work practices like ‘flexible job design,
employee participation in problem-solving teams, training to provide workers with multiple skills,
extensive screening and communication and employment security’ (Ichniowski et al., 1997). High
performance work practices (including compensation) have a statistically significant relationship with
employee outcomes and corporate financial performance (Huselid, 1995). Significantly positive
correlation has been reported between compensation practices and perceived employee performance by
Teseema & Soeters (2006). On the basis of above mentioned literature and arguments it can be safely
assumed that compensation practices are correlated with the performance of employees. However the
relationship needs to be tested in banks of Pakistan.
H1: Compensation practices are significantly and positively related with perceived performance of banks
in Pakistan.
Promotion Practices
Financially successful companies like HP (Hewlett-Packard) ‘promote and develop from within’ (Truss,
2001). Teseema & Soeters (2006) found significantly positive correlation between promotion practices
and perceived employee performance, however HR outcomes was used as mediating variable. HR
practices including ‘vacancies filled from within’ have been found positively correlated with work
satisfaction and life satisfaction with values 0.24 (P=<0.001) and 0.15 (P=<0.001) respectively (Guest,
2002). Synergetic systems of HR practices (including merit promotion decisions) lead to higher
performance of an organization (Park et al., 2003).
On the basis of above mentioned literature and arguments it can be safely assumed that promotion
practices are correlated with the performance of employees. However the relationship needs to be tested
in banks of Pakistan.
H2: Promotion practices are significantly and positively related with perceived performance of banks in
Pakistan.
Performance Evaluation Practices
‘Performance appraisal represents, in part, a formalized process of worker monitoring and is intended to
be a management tool to improve the performance and productivity of workers’ (Brown and Heywood,
2005). Employee commitment and productivity can be improved with performance appraisal systems
(Brown and Benson, 2003). Appropriate explanation and supervision of performance lead to higher job
satisfaction and professional commitment amongst teachers. This is also true when performance
appraisal is low. Commitment to teaching is a function of teacher’s attitude towards performance
appraisal system. (Rahman, 2006). Possibility of performance appraisal is enhanced by complementary
human resource management practices like formal training and incentive pay and performance appraisal
leads to greater influence of productivity (Brown and Heywood, 2005). On the basis of above mentioned
literature and arguments it can be safely assumed that performance evaluation practices are correlated
with the performance of employees. However the relationship needs to be tested in banks of Pakistan.
H3: Performance evaluation practices are significantly and positively related with perceived performance
of banks in Pakistan.
Methodology
The questionnaire was based on questionnaire used by Teseema & Soeters (2006) for measuring impact of
various HR practices on employee performance. The reason for selecting this questionnaire is that it was
used to study the impact of same variables as in present study and was well tested on reliability and
validity scales. Questionnaire that was administered consisted of three HR practices which are
Compensation Practices, Promotion Practices and Performance Evaluation Practices and Perceived
Employee Performance
The questionnaire was well tested by researchers on internal consistency and other measures. According
to Teseema & Soeters (2006) alphas for Compensation Practices, Promotion Practices and Performance
Evaluation Practices and Perceived Employee Performance are .82, .74, .73 and .74 respectively. All
alphas range between .73 and .82 which is acceptable. The response was required on five point Lickert
scales (endpoints: 1 = Strongly disagree, 5 = Strongly agree).
Participants:
The participants included employee of Habib Bank Limited. A total 120 questionnaires were distributed
however 102 were received back making response rate as 85% and a sufficient sample size was collected
for analysis of results.
Findings
Demographics n=102
Description Frequency %age
Gender Male 102 100%
Age 18-25 17 16.67%
26-35 33 32.35%
36-45 25 24.50%
46-55 25 24.50%
56-65 2 1.96%
Qualification Matriculation 5 4.90%
Intermediate 18 17.64%
Bachelor 61 59.80%
Masters 18 17.64%
MS/M. Phil 1 0.98%
PhD 0 0%
Marital Status Married 75 73.52%
Un Married 27 26.47%
The demographics are not used in the present study to find out their relationship with employee
performance. The objective of Table is to show composition of respondents to have a better understanding
about their response and results for present study. The respondents are male. Majority of the respondents
hold a Bachelor degree which at present is the minimum requirement to become a banker. The martial
status of the respondents is an important demographic in the present study as having a married life and
children increase responsibility on individuals and mostly work life conflict situation arises when there is
an imbalance between work and family life.
EP PP CP PEP Mean
Agree 133 61 122 143 2.25
Disagree 31 122 51 41 1.36
Neutral 6 21 31 20 0.33
EP PP CP PEP Mean
Agree 65% 30% 60% 70% -
Disagree 31% 60% 25% 20% -
Neutral 4% 10% 15% 10% -
SD= standard Deviation, EP= Employee Performance, CP= Compensation Practices, PP= Promotion
Practices, PEP= Performance Evaluation Practices
Conclusion
The impact of HR practices (Compensation Practice, Promotion Practice, and Performance Evaluation
System) on the employee of HBL, have given us a chance to conclude that;
1. The criteria of performance quantification lacks skills & techniques which is effecting the
performance of employee in HBL
2. The pay difference between the different hierarchical levels is a frustrated factor among
the employees of HBL
3. The presence of bureaucracy system is effecting the performance of employee
4. Career path is not properly defined
5. Job security is a major factor of dissatisfaction
6. Job timing hours increase turnover
7. At regional level responsibilities are given instead of authority, which is affecting
promotion policies and performance evaluation practice.
8. Delegation of authority lacks which promotes subjectivity instead of objectivity
9. HR department lacks professionals
10. The low morale of upper management affecting the overall efficiency of the employees of
HBL
11. Compensation Discrimination was observed
Recommendations
— The delegation of authority should be adopt in HBL
— Objectivity should be promoted instead of Subjectivity
— Performance quantification methods should be improved and should and includes better techniques
and skills
— Better Career Paths should be defined to the employee of HBL
— There should be less Pay Scale difference between the different Hierarchical level in HBL
— Promotion Policy should be revised and should include less hierarchical level.
— Specialized HR Specialist should be hired at top level
— HBL needs a separate HR department at regional level as well.
— There should be a less span of control.
— Compensation Discrimination should be avoided it will provide motivated employees to HBL
— Eid bonuses, hospital allowances and Petrol Ceiling should be separated from monthly Pays
References
1. www.sirim.my/techinfo/p1/management/jan-feb05
2. www.leeds.ac.uk/esrcfutureofwork/downloads/workingpaperdownloads/paper9.pdf
3. www.chrs.rutgers.edu/pub-documents/huselid_12.pdf
4. www.academic- journals.org/cmr/cmr%20papers/(vol%2003%20no%2003)3%20pages/20233-
253.pdf
5. www.enap.gov.br/mesa_redonda/download/daley_vasu.mpsa02-ppm.pdf
6. www.blackwellpublishing.com/pdf/wrightetal.pdf
7. www.ukcbs.dk/content/download/48791/703547/file/gooderhamdringdalparry.pdf
8. www.business_analytic.co.uk/article-hrm.pdf
9. www.ibam.com/pubs/jbam/articles/vol10/no1/jbam_10_1_6.pdf
10. www.ferrykoster.nl/pdf/managementrevue.pdf
11. www.hec.ca/gresi/document/cahier0101.pdf
12. www.bc.edu/~jonese1/articles/rynes_AME_2002.pdf
13. www.Swoba.hhs.se/hastba/papers/hastba2000-006.pdf
14. www.bc.edu/~jonese1/articles/sttc_PRC_2004.pdf
15. www.blackwellpublishing.com/pdf/articles/httc/tel.pdf
Questionnaire
Section 1
Please tick the appropriate answer or fill in the box
1. What is your Designation?
Matriculation
Intermediate
Bachelor
Masters
M.Phil/MS
Doctoral
4. What is your native language?
Urdu
English
Punjabi
Sindhi
Pushto
Balochi
Sairiki
Others
5. What is your Martial Status?
Married
Un-married
5a. What is your Gender?
Male
Female
Section: 2
E mployee performance
7. I am satisfied with my existing Job
Strongly Disagree Disagree Neutral Agree Strongly agree
1 2 3 4 5
8. The working environment is comfortable
Strongly Disagree Disagree Neutral Agree Strongly agree
1 2 3 4 5
Section: 3
Compensation practices
9. Compensation system communicate your output
Strongly Disagree Disagree Neutral Agree Strongly agree
1 2 3 4 5
10. Compensation system is enough to meet basic needs
Strongly Disagree Disagree Neutral Agree Strongly agree
1 2 3 4 5