Effects of employees' perceptions on the relationship between HR practices and firm performance for Korean firms

Abstract

PurposeThe purpose of this paper is to examine the internal process by which high performance work systems (HPWSs) affect firm performance. It attempts to show the mediating effect of employee job satisfaction in the human resource (HR)‐performance link and also to show the moderating effect of employees' perception on the effectiveness of HPWSs.Design/methodology/approachUsing a nationally representative data set from Korea (firm‐level samples: 245 firms, employee‐level samples: 6,709), this study analyses the mediating effect of job satisfaction in the relationship between HPWSs and firm performance with ordinary least squares (OLS) analysis and examines the moderating effect of employee perceptions with OLS and hierarchical linear modeling (HLM).FindingsResults show that: there are positive associations between HPWSs and firm performance and between HPWSs and job satisfaction; job satisfaction has a mediating effect in the HR‐Performance link; and employees' perceptions of the effectiveness of HR practices moderate these relationships.Research limitations/implicationsLimitations of the study are the measurement of HR practices, omitted variable problem, and generalizability of the results in this study. Scholars argue for the positive effect of HPWSs on firm performance and managers attempt to introduce HPWSs in their firms, but most of them do not fully understand what happens in the HR‐performance link. This study demonstrates that job satisfaction is a “black box” in the linkage between HPWSs and firm performance and may inform managers of appropriate policy levers that, if manipulated appropriately so that employees feel the effectiveness of HPWSs, can help the firm achieve more desirable organizational outcomes.Originality/valueMany scholars argue that research to examine the internal process in the HR‐performance link is essential for rigorous elaborations of SHRM‐related theories, but few studies have investigated this issue. This study reveals the mediating and moderating mechanisms through which the HR‐performance link exerts its influence.