1.0 INTRODUCTION
Once individuals become part of the organization,
their ability to contribute effectively is usually enhanced by various
development and evaluation efforts. Such as training and periodic performance
evaluation. Compensating employees for their efforts is another important
factor in human resource management. Process, because adequate rewards are
critical not only to attracting but also to motivating and retaining valuable
employees.
1.1 HUMAN
CAPITAL
The history of human capital traced back to the 24th century B.C (Freidman,
hatch and walker 1998,p.4) Kiker (1966) described the method of measuring the
money value of human being and the motive thus two methods commonly used are
the cost of production and the capitalized earning procedures. While the motive
behind the measurement of money value of human were to demonstrate the power of
nation, to determine the economic effect
of education, health, investment and migration, for public advocacy for the
health conservation and significance of economic life for the prosperity of an
individual, for his family and country, for the support of courts in the
decision of compensation in the case of personal injuries. The impact of human
capital can be measured from individual point of view (investment in education)
as increase in individual return. From organizational point of view (investment
in general and specific training) as enhancement in the market returns and from
countries point of view (Investment in education health and migration) as
economic growth model.
World bank (1995m) study based on
the assessment of 192 countries conclude that global wealth constitute 16% of
physical capital, 20% of natural capital and 64% attributed to human and social
capital. Wactherly (2003) that today the new vision is human capital
management. Nothing happens unless human beings makes a concise decision to
act.
Johnson (2002) expressing the
importance of human capital said that all innovations are human innovations. In
the end, the economy and business are people’s systems. Therefore there is no
structural capital without intellectual capital and no intellectual capital
without human. Boxall (1998) described that the sources of superiority depends
on the quality of interest alignment and employee development in firm compared
with the industry rivals. “People are our greatest assets, yet few practice
what they preach, let alone truly believe it (Drucker, 1992).
Pfeffer (1994) is a strong
proponents of the contribution of human in strategic context. He suggested that
human resource need to be treated as permanent rather than contingent
resources. the organization must capture the benefits of any firm specific
competencies and capabilities that they develop.
Schultz
(1971, p.8, 26, 68) classified investment in human capital in five categories:
·
Schooling and
higher education
·
On the job
training
·
Migration
·
Health
·
Economic
information.
Schultz described that by investing in themselves people
can improve enlarge the range of choices available to them. It is the one way
free men can enhance their welfare through. To Becker (1962) firms are willing
to invest in human capital to develop firm specific skills that are productive
at the current firm, but not for other firms. Firms are unwilling however, to
invest in human capital to develop general skills (as they cannot recoup their
investment in general skills training because workers can simply move to new
firms if they are paid less than the marginal value product) As a result
workers themselves must bear the cost of any general skill training that they
receive, either directly or by accepting lower wages.
The emphasis on human capital in organizations
reflects the view that market value depends less on tangible resources but
rather on intangible ones particularly human resources, recruiting and
retaining the best employees, however, is only part of the equation. The
organization also has to leverage the skills and capabilities of its employees
by encouraging individual and organizational learning and creating a supportive
environment where knowledge can be created, shared and applied.
Human resource practices leads to higher firm
performance through their effects on employee based firm capabilities and
resources.
1.2 HUMAN
CAPITAL AND PERFORMANCE
The link between human capital and performance is
based on two theoretical strands. The first, is the resource-based view of the
firm. The second is the expectancy theory of motivation which is composed of
three elements. The valence or value attached to rewards, the instrumentality,
or the belief that the employee will receive the reward upon reaching a certain level of performance,
and the expectancy. The belief that the employee can actually achieve the
performance level requires. Human resource management practices that encourage
high skills and abilities eg. Careful selection and high investment in training
can be specified to make the link between human capital management and
performance.
Human capital has been central in explaining
individuals earning differences. (Nerdnum and Erikson, 2001) Employees who
invest in education and training will raise their skill level and be more
productive than those less skilled, and so can justify higher earnings as a
result of their investment in human capital. At the theoretical level HRM is an
interesting concept of that value could be used for internal management and
advocates demonstrate a valid and generalisable means for measuring human
resources value in monetary terms, we are compelled to recommend that
researches abandon further consideration of possible benefits from human
resource accounting.
A number of studies have attempted to show the link
between human resource and performance, some of which rely on the single
measure of HR practices. Bartel (1994) establishes a link between the adoption
of training programs and productivity growth. The adoption of training programmes
has also been linked to financial performance (Rlissell et al 1983) and Gerhart
and Milkovich (1990) identify the link between incentive compensation schemes
and productivity. Terpstra and Rozell (1993) examine the extensiveness of
recruiting, selection test, validation and the use of formal selection procedure
and find the positive connectivity between organizational profits and
selectivity in staffing, thereby leading to a greater extent of organizational
performance (Backer and Huselid; 1992; Schmidt et al 1979). Performance evaluation
on the linkage to compensation. Schemes has also contributes to increase in the
firms profitability. The dominant view of human resource practices “have the
limited ability to generate competitive advantage in isolation” but ‘in’
combination .. they can enable a firm to realize its full competitive advantage
(Barney, 1995:56).
A second perspective on human resources and
performance linkages is the ideal of best practices’ or ‘high performance work
practices.’ This view emphasizes the need for strong consistency among HR practices
(internal fit) in order to achieve effective performance.
Arther (1992, 1994) report that the HR practices
focusing on enhancing employee commitment (e.g decentralized decision making
comprehensive training, salaries compensation, employee participation) are
related to higher performance conversely, he finds that HR practices focusing
on control, efficiency and the reduction of employee skills and discretion are
associated with increased turnover and poorer manufacturing performance.
Similarly, in a study of the higher performance work
practices Huselid (1985) point to the fact that investment in HR activities
such as incentive compensation, selection, staffing techniques and employee
participation, result in lower turnover, greater productivity and increased
organizational performance through their impact on employee skill development
and motivation.
In sum, the more the high performance HRM practices
are used, the better the performance as indicated by productivity turnover and
financial soundness is yielded HR practices for developing human capital and
performance.
A number scholars have studied the depth and breadth
of HR practices. particularly in association with performance. High commitment
management aims to go beyond high performance management to include an
ideological component the identification of the employee with goals and value of
the firm, so inducing commitment (Walton, 1985). The work of wood and Albanese
(1995) have identified a number of common features of high commitment
management;
·
The development
of career ladders and emphasis on trainability and commitment.
·
A high level of
functional flexibility with the abandonment of potentially rigid job
description.
·
The reduction of
hierarchies and the ending of status differentials.
·
A heavy reliance
on team structure for structuring work and problem solving.
·
Exemplary job
design to promote intrinsic satisfaction.
·
A policy of no
compulsory lay-offs of redundancies.
·
A new form of
assessment and payment system and
·
A high
involvement of employees in the management of quality.
In the guests work for the institute of personnel and
development, surveying 835 organizations in the uk, endorses that there is a
strong line between HRM and performance, but that this link is indirect through
the apparent impact on employee commitment, quality and flexibility. Patterson
et al (1997) identify a positive relationship between employee attitudes,
organizational culture, HRM and company performance, and conclude that employee
commitment and a satisfied workforce are essential to improve performance.
Two highly significant area of HR practices are seen
as; the acquisition and development of employee skills (recruitment, selection,
induction and performance appraisals) and job design (skill flexibility, job
responsibility, team working).
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Journal of Economics, Finance and
Administrative Sciences ISSN 1450-2275 Issue 34 (2011) http://www.eurojournal.com.