Abstract This paper examines the impact of HR practices on employee performance in Habib Bank Limited. 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 mainlydiscussed 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 smallindustries, traders and farmers. Overseas, it has operations in the following countries: yAfghanistan, 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. HistoryMohammed 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 ofIndia. 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
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Abstract
This paper examines the impact of HR practices on employee performance in Habib Bank Limited.
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 smallindustries, traders and farmers. Overseas, it has operations in the following countries:
y 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
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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 the All-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.
y 1951 HBL opened the first of 3 branches in Sri Lanka.
y 1952 HBL established Habib Bank (Overseas).
y 1956 HBL opened first of 5 branches in Kenya.
y 1957 or 1958 HBL opened a branch in Aden.
y 1961 HBL opened the first of what would become 6 branches in the UK.
y 1964 HBL opened the first of 4 branches in Mauritius and a branch in Beirut.
y 1966 HBL opened the first of 8 branches in the UAE.
y 1969 HBL opened first of 3 branches and an OBU in Bahrain. However, HB¶s branch in Aden is nationalized.
y 1971 HBL opened an OBU in Singapore and a branch in New York .
y 1972 HBL opened the first of 11 branches in Oman. HBL constructed Habib Bank Plaza in Karachi to commemorate the
bank¶s 25th Anniversary.
y 1974 The government of Pakistan nationalized HBL and HBL merged with Habib Bank (Overseas).
y 1975 HBL opened a branch in Belgium. HBL also merged with Standard Bank, a Pakistani bank.
y 1976 HBL opened a branch in the Seychelles, the first of two branches in Bangladesh, and a branch in the Maldives.
y 1979 HBL opened a branch in the Netherlands.
y 1980 HBL opened a branch in Paris and another in Hong Kong.
y 1981 HBL established Nigeria Habib Bank with 40% ownership. HBL also opened a representative office in Teheran.
y 1982 HBL opened a branch in Khartoum.
y 1983 HBL opened branch in the Karachi EPZ and a branch in Istanbul.
y 1984 HBL established Habib American Bank in New York with a branch each in Manhattan andQueens, and a US
International Banking Facility. HBL also opened a branch in California.
y 1987 HBL opened in Australia.
y 1991 The Habib Group established a separate private bank, the Bank AL Habib, after private banking was re-established in
Pakistan. HBL opened a branch in the Fiji Islands, and took over the Paksistani branches of failed bank, BCCI.
y 1992 In Nepal HBL acquired 20% of Himalayan Bank.
y 1995 HBL established a representative office in Cairo.
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y 1990s HBL established Habib Finance (Australia), and Habib Finance International Limited, Hong Kong.
y 2000 HBL established Habib Canadian Bank.
y 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 theAga Khan Development Network , rights to
51% of the shareholding in HBL, against an investment of PKR 22.409 billion (USD 389 million).
y 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.
y 2003 HBL received permission to open a branch in Afghanistan.
y 2004 On February 26, the Government of Pakistan handed over management control of Habib Bank to AKFED. The
Board of Directors was reconstituted to have four AKFED nominees, including the Chairman and the President/CEO and
three Government of Pakistan nominees.
y 2006 HBL sold the operations that it had established in Fiji in 1991 to Bank of South Pacific.
y 2009 HBL was granted permission to open Remnibi accounts in China. It already has training and shareholding
arrangements with Urumqi Commercial Bank.
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-
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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:
y Recruit and retain qualified employees.
y Increase or maintain morale/satisfaction.
y Reward and encourage peak performance.
y Achieve internal and external equity.
y Reduce turnover and encourage company loyalty.
y Modify (through negotiations) practices of unions.
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:
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y 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.
y Job Analysis The process of analyzing jobs from which job descriptions are developed. Job analysis techniques include
the use of interviews, questionnaires, and observation.
y 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.
y 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.
y 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.
y Policies and Regulations
Different types of compensation include:
y Base Pay
y Commissions
y Overtime Pay
y Bonuses, Profit Sharing, Merit Pay
y Stock Options
y Travel/Meal/Housing Allowance
y Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes...
Performance appraisal
Perf ormance 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:
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y Give feedback on performance to employees.
y Identify employee training needs.
y Document criteria used to allocate organizational rewards.
y Form a basis for personnel decisions: salary increases, promotions, disciplinary actions, etc.
y Provide the opportunity for organizational diagnosis and development.
y Facilitate communication between employee and administration
y Validate selection techniques and human resource policies to meet federal Equal Employment Opportunity requirements.
A common approach to assessing performance is to use a numerical or scalar rating system whereby managers are asked to score an
individual against a number of objectives/attributes. In some companies, employees receive assessments from their manager, peers,
subordinates and customers while also performing a self assessment. This is known as 360° appraisal forms good communication
patterns
The most popular methods that are being used as performance appraisal process are:
y Management by objectives
y 360 degree appraisal
y Behavioral Observation Scale
y 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
part static, 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 biaseddecisions without having to back them up with specific behavioral information.
In the PTF Report it was claimed that ³although 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
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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.