HRM, Company Performance and Employee Well-being

Abstract

This paper is dealing with the relationships between HRM, company performance and employee well-being. The relationship between S/HRM and company performance has received much attention in prior literature, while the employee perspective has been widely neglected in this research tradition. The purpose of this paper is two-fold: first, to identify and evaluate how company performance and employee well-being are related, and, secondly, to evaluate the possibilities of HR policies and practices to impact on company performance and employee well-being. The results indicate that the relationship between company performance and employee well-being is weak and difficult to grasp. And such is the direct link between HRM and employee well-being, which is better explained by typical work-related factors. Instead, HR practices are relatively good predictors of company performance. Key words: HR Practices, Longitudinal Desing, Competitive Advantage, Organizational Commitment, Organizational Effecteveness, General Satisfaction, Emotional Exhaustion Introduction The external environment of companies has encountered a radical change within the past decade. The increased international competition and globalization of businesses have posed new demands for corporate financial result, profitability and shareholder value (Huselid 1995; Decker et al. 2001; Boselie et al. 2005). The restructuring and downsizing of companies and the increasing stringency in the use of labor have in many cases resulted in a positive effect on profitability but a negative one on employees' well-being and workability (Vahtera et al. 1997; McDonough 2000; Dunham 2001). Today, the HR managers and academics have widely internalized the role of HRM in enhancing company performance. Instead, the role of HRM as a guardian of employee well-being is less favorable both among scholars and practitioners. The critical articles on the relationship between HRM and company performance (Guest 2002; Gerhart 2005; Wright/Haggerty 2005) call for building employees into the HRM - performance equation. The purpose of this paper is two-fold: first, to discuss the role of employee well-being in HRM-performance research and to identify and evaluate how company performance and employee well-being are related (or are they?), and, secondly, to evaluate the possibilities of HR policies and practices to impact on company performance and employee well-being. The study applies both company and individual-level data collected in different phases from company management and employees of the same companies in order to construct a logical causal research design, which is less common in prior research (Wright/Haggerty 2005). In addition, several empirical measures of performance and employee well-being are applied in order to triangle the basic concepts of the study. HRM and company performance The impact of HRM or HR practices on company performance has received much attention in prior literature (Huselid 1995; Becker/Gerhart 1996; Guest 1997; Guest et al. 2003; Stravrou/Brewster, 2005). In this tradition human resources are viewed as an integral part of the organizational 'architecture' thus having an impact on organizational effectiveness (Cuthrie et al. 2004). The both concepts, HRM and performance, are problematic to define and measure. There is a vast literature on 'best HR practices', so-called 'High Performance Work Practices' (HPWPs), and 'bundles' of HR practices representing different views of the role of HRM on company performance. Similarly, performance has received much attention representing a multi-level and multi-discipline concept measured at individual, company, and financial level. Prior research on the link between HR practices and business performance is generally focused on a limited number of generic human resource activities, such as recruitment and selection, training and development, without specifying what constitutes the 'best practice' (Brewster/Larsen 1992; Terpstra/Rozell 1993). …