EFFECTS OF HUMAN RESOURCE MANAGEMENT PRACTICES ON

FINANCIAL PERFORMANCE:- A CASE OF NEPALESE COMMERICIAL

BANKS

Graduate Research Project

Submitted To:

MBA(Finance) Program in Management

Office of the Dean, Faculty of Management

Pokhara University

Submitted By:

Sneha Malla

Exam Roll No: ………

P.U. Registration No: ……….

In partial Fulfillment of the requirements for the degree of

Master of Business Administration (Finance)

Kathmandu, Nepal

March, 2014

CHAPTER I

INTRODUCTION
1.1 Background of the study

Human resource management is the philosophy, policies, procedures, and practices

related to the management of people within an organization (Beardwell and Tim, 2007).
Human resource management is a combination of people-centered management practices
that recognizes employees as assets and geared to creating and maintaining skillful and
committed workforce for achieving financial goals.

Human Resource Management (HRM) can be defined as the process of the following
elements: traditional personnel administration (staffing, rewarding, work design);
personnel development; a specific management philosophy that values labor as the major
assets of an organization and that regards human beings as being able and willing to grow
and develop; and the integration of the personnel functions into strategic management
(Pieper, 1990).

Human resource management practices have been changed dramatically during last two
decades owing to globalization, privatization, and technological advancements. These
highly turbulent environmental have forced organizations to adopt new workplace
practices that enhance sustained level of high performance. Human resource management
practice underlines the importance of satisfaction of employees. The relationship between
appropriate human resource management practice and positive employee attitudes
including financial performance, loyalty and productivity has been widely analyzed. It is
also suggested that treating employees as a valuable asset improves their commitment
and loyalty which leads to higher performance and quality (Silvestro, 2002).

Human resource management (HRM) is the new version of personnel management in the
age of neo-liberalism and market economy. It is concerned with the “people” dimension
in management (Decenzo and Robbins, 1993). It is the strategic and operational
management of activities focusing on the human resources in an organization (Mathis and
Jackson, 1991). The emerging global competition, customer focus and the speed and
flexibility have created challenges in all types of organization in modern market
economy. Whether an organization is service-oriented or manufacturing, it is important to
respect and use its human resource in order to achieve this advantage in these times of
increasing challenges and opportunities in external environment. HRM is the most
important assets. Effective development and deployment of the HRM system and its
practices offers distinctive and non-imitable characteristics for a specific firm, which is
termed as the sustainable competitive advantage (Guest, 2002).

The study of human resource management practices has been an important and critical
area in management and financial performance from last several years especially in the
banking industry. Influence of human resource management practices on financial
performance has been an important area of research in past 25 years indicating positive
relationship between HR practices and financial performance (Quershi et al., 2007).

In the process of managing people in organizations a great deal of change has witnessed
in the last two decades. One of the fundamental changes is that the traditional personnel
management which largely devoted to the “compliance of rules and regulations”
transforming into “employees’ commitment” toward work (Edgar and Alan, 2005). This
kind of shift is based on the perspective that people represent the important asset of
organizations and difficult to manage and engage themselves at work (Becker and Barry,
1996).

The bottom line of managing human resources is to increase financial performance. This
is largely determined by how an organization is successful in making strategic decisions
on recruitment and selections, training and development, performance evaluation and
reward practices so as to enhance financial performance. Over the last few years
significant steps forward have been made in identifying the HRM performance
relationship. However, serious gaps in our understanding still remain with respect to the
casual ordering of the variables involved in the HRM-performance relationship (Purcell
et al., 2003; Wright et al., 2005).

There are two major fundamental approaches to study the relationship between human
resource management and financial performance. The ‘best-practice’ approach claims
that HRM practices are universalistic and thus any organization can obtain enhanced
financial performance by adopting the HRM best practices for managing people in any
financial context (Boxall & Purcell, 2000). On the other hand the ‘best-fit’ approach
argues for a ‘vertical fit’ whereby the HRM systems are integrated with the corporate
strategy of the organization for obtaining improved financial performance within a
specific financial context (Boselie et al., 2003). Between these two approaches, the ‘best-
practice’ approach is considered to be superior by HRM professionals and researchers for
examining the impact of HRM practices on financial performance (Hoque, 1999).

HRM is a distinctive approach to employment management which seeks to achieve

competitive advantage through the strategic development of a highly committed and
capable workforce using an integrated array of cultural and personal techniques (Storey,
2001). HRM is about valuing the contribution people make to success of an organization,
and the term ‘human capital’ describes the contributions made by human skills and
knowledge to the productions of goods and services (Huselid, 1995). Human resource
management practices are inevitable factor in determining the growth and prospects of
any organization so, it is necessary to retain skilled workers in the organization by
efficient HRM practices.

Human resources play an integral role in achieving an innovative and high-quality

products/service. If the employees of an organization are satisfied with their jobs, the
organization can achieve its goals very straightforwardly. In any organization HRM
practices focuses on optimal utilization and management of their human resource
effectively in order to achieve maximum output (Jeet, 2014). Sarker and Afroze (2014)
revealed that in energetic business atmosphere, there is a need of an approach to achieve
better performance, to originate and implement HRM practices. In considerable and
insubstantial extent the organizations need to invest in such practices to get a competitive
advantage.

The HRM practices, system or strategies have often referred to as high involvement or
high performance work practices. Sharma and Singh (2012) define a system as “a set of
distinct but interrelated activities, functions, and processes that are directed at attracting,
developing, and maintain of a firm’s human resources”. Thus, a good HRM system
consists of a coherent set of practices that enhance employee’s skills and abilities,
provide information, empowerment and participation in decision making, and motivation
(Chang, 2005).

HRM practices impact on the outcomes such as financial performance, commitment,

employee retention, and employee presence, social climate between workers and
management, employee involvement, employee trust, employee loyalty, financial fairness
(Tiwari and Karunesh, 2012). So these outcomes and HRM practices can lead to firm
performance such as profits, market value of the company, market share, increase in
sales, productivity, product service quality, customer satisfaction, development of
products/services and future investments (Delery, 1998).

Human resource management for an organization is an essential asset. Today the time has
changed when managing HR practices was the responsibility of HR departments.
Nowadays, performance enhancement is the responsibility of every manager in an
organization. Therefore, while making strategic decisions on HR practices, it is
imperative to involve line managers. In fact, the line managers are the real HR managers
who are the most responsible for performance enhancement. HR departments heads and
experts working in the departments have to understand this message to cooperate with the
line management in the management of this valued resource to raise financial
performance (Adhikari, 2009).

In the present context some of Nepalese organizations are in the competitive sector where
performance-based systems are implemented to gain competitive advantages in the
market (Adhikari, 2000). Most of these are the joint venture banks employing educated
and trained employees. The research carried out by Adhikari and Muller (2001) analyzed
that managers and policy makers in Nepal are generally not convinced about the link
between HR practices and the firm’s performance. Therefore organizations are reluctant
to invest in human resources. To this regards present study attempts to assess the
situation of HRM practices i.e. communication, skill and knowledge, performance
evaluation and reward, recruitment and selection, and work environment and climate and
the performance especially HR outcomes i.e. financial outcomes and employees
satisfaction based on the survey conducted in the banking industry in Nepal.

In Nepal, human resource development in most organization is still managed in a

traditional manner. The financial institutions have become more conscious about human
capital. They have started establishing human resource departments to carry out all
human resource management functions. They also have started emphasizing on
organizing training and development programs for employees, in addition for providing
congenial work environment (Baniya, 2004).
This study deals with analyzing the impact of human resource management practices on
financial performance. This study is of greater significance in Nepalese commercial
banks.

1.2 Statement of the Problem

A firm’s human resource management practices have an economically and statistically

significant impact on the performance of the organization. It has significant impact on the
financial performance, financial commitment, ROA, ROE, EPS etc. Though there are
growing evidence showing an association between human resource management
practices and firm performance (Becker and Gehart, 1996), with very few exceptions, the
prior industry studies focus only on the manufacturing sector. Despite the fact that, most
employees work in service producing industries (Bartel, 2004), the HRM environment
can be even more important determinant of productivity in service sector than the
manufacturing sector in today’s scenario. In regard to this, the study finds the impact of
HRM practices on the financial performance in the Nepalese commercial bank. The
research analyzed the relationship between satisfaction with workplace training and
overall job satisfaction. The result found a significant relationship between them.
Hussein-Ali and Opatha studied in Sri Lanka and found a significant and positive
relationship between performance appraisal and perceived degree of business
performance. However in Nepalese content this may be invalid. Hence this study tries to
find out the relationship between performance appraisal and performance of Nepalese
commercial banks Schmidt (2007).

Organizations may not obtain the maximum utility from their employees because the
employees are not contributing to their fullest potential. It was argued that organizations,
through the effects of their HRM practices could maximize the knowledge, skills, and
abilities of employees. The main concern of managing people in organizations is to raise
performance of employees and subsequently performance of the organization. It is
believed that the bottom line result of managing human resource is the performance
(Deshopande and Golhar, 1994).There is very limited research carried out on the impact
of HRM practices on financial performance in context of Nepal and the developing
countries.
There are not sufficient study carried out to analyze the relationship between HRM
practices and the financial performance in context of Nepal using the recent data. To find
out the relationship between HRM practices and financial performance most of the
studies have been conducted in the west such as on the domestic operation of US firms,
with a smaller number of studies carried out in developing countries (Guest and Hoque,
1992). Numerous studies for e.g. (Singh, 2004), (Rathnawere, 2010), (Mudashiru et al.,
2013) etc have shown the positive relationship between the HRM practices and the
financial performance. However some studies (Guest, 1997) showed that it is important
to examine HRM practices on financial performance in a developing country. Previous
studies in Nepal are quite limited in investigating HRM issues in banks. Furthermore,
despite the abundance of the studies in the west which revealed the positive relationship
between HRM practices and financial performance (Drogr and Vickery, 1999) so far
there is no consistent agreement on what to measure in regards to financial performance
(Becker and Gehart, 1996). This study seeks to find the issues of HRM practices that
affect the financial performance in Nepalese banking industry.

The different theoretical investigation and empirical studies have been conducted to
analysis the impact of human resources practices on financial performance in banking
sector. Several theories have been proposed to explain the variables for human resource
practices but there has no universal agreement. In Nepal, personal management is still
believed to be pre-occupied with record keeping and operational issues rather than
managerial ones (Adhikari, 2010). In order to achieve performance related objectives it is
essential to deal with issue relating to commitment and compliance. Although there are
number of new HR practices emerging in the form of the new mandate, in the lack of
support from inside and outside organization it is difficult to implement it to realize
bottom-line goal of the organization (Shrestha, 2012).

The study investigated that human resource management practices such as recruitment
and selection, training and development, promotion, incentives, benefits, compensation,
health and safety is positively related to financial performance. The researcher study
involved 178 Greek manufacturing firms. According to Koch and McGrath (1996), there
exists a positive relationship between HR recruitment and selection and labor
productivity. However in context of Nepal such result may not be valid because there are
some firms which have low financial performance despite of HRM practices of
recruitment and selection Katou and Budhwar (2006).

The study carried in Chinese state-owned banking industry, employees’ perception of

justice had a positive relationship to their overall satisfaction with both the performance
appraisal process and its outcomes stated Zhang (2009). However, statistically significant
differences were found in relation to whether employees had received training in
performance appraisal or not. Thus in Nepalese banking industry the component
Performance appraisal system should be studied as HR practices bundle. Although there
is relationship between performance appraisal and bank performance there is no such
research has been undertaken till now so the study is significance in Nepal.

The study investigated on employees in Nepalese banks still perceive a significant

positive relationship among the components such as personal benefits, career benefits and
job-related benefits of training and components of commitment. In concern to this result
the researcher also concluded that this study also examines the relationship among HRM
practices variable Panday (2008).

In today’s scenario there is the need of including recruitment and selection, training and
development, performance appraisal, compensation, promotion as the HR practices
bundle. There is no sufficient research carried out on the impact of HRM practices on
financial performance using the recent data. Hence this study has been using the recent
data to analyze the impact of HRM practices on financial performance. A rapidly
changing economic environment, characterized by such phenomena as the globalization
and deregulation of markets, changing customer and investor demands, and ever
increasing product market competition has become the norm for most of the
organizations. Every organization is set up with a mission of its own. Such a mission is
expressed through its objectives or goals. Organizations employ people to work to
achieve these objectives and goals. People working in organizations are human resources,
also referred as the ‘most valuable resource’ because of their talents and energies which
can contribute to the creation and achievement of their organization’s mission, vision,
strategy and goals (Adhikari, 2009).

The impact of human resource practices on performance of employees is also related with
the response of employee towards HR practices. Because employees have their own
perception regarding the human resource practices and there are number of human
resource practices which are related with employee performance. The effective human
resource management is argued to be the main success factor for an organization. The
organization’s performance including organization flexibility, employee’s productivity
and product quality is improved by the human resource practices of business performance
named as human resource planning, development and training, employee security,
teamwork inventive/compensation and performance appraisal (Cecil and Chan, 2002).

The study carried on human resource management and financial performance in Nepalese
banking industry, it was analyzed that performance evaluation and reward system had
positive correlation with ROE (Shrestha, 2006). The study also concluded that ROE is
significantly and positively correlated with effective and continuous commitment and
financial performance is closely related with all the HR practices. In context of Nepal the
result found may be invalid. Thus this study analyzes the impact of HRM practices on
financial performance. The study also analyzes the importance of HR outcomes and firm
performance measured by the proxy ROE on Nepalese banking sector. In order to
identify the impact of HRM practices on financial performance the following research
questions have been derived based on the above statement.

The study deals with the following issues:

a) What is the perception of employees regarding existing HRM practices in

Nepalese commercial banks?
b) Is there any significant association between HR practices and financial
performance?
c) How does HRM practice affects financial commitment in Nepalese
commercial banks?
d) Do HRM practices influence on performance of employee of commercial
banks in Nepal?
e) What is the relationship between HRM practices and financial performance in
Nepalese commercial banks?
f) What are the outcomes of HRM practices of commercial bank in Nepal?

1.3 Objective of the Study

The main purpose of this study is to identify the effect of human resource management
practices on the financial performance in Nepalese commercial banks. The following are
the specific objectives:

i. To identify the perception of employees and managers regarding HRM practices

in Nepalese commercial banks.
ii. To identify the views of employees of Nepalese commercial bank in context of
HR practices.
iii. To examine the relationship between HRM practices and financial performance in
Nepalese commercial banks.
iv. To find out the relationship between HRM practices and financial performance in
Nepalese commercial banks.
v. To analyze the relationship between HRM practices and financial performance.
vi. To assess the need of improving HRM practices in Nepalese commercial banks.

1.4 Significance of the Study

HRM practices play the significant role in the financial performance in an organization.
Regarding the impact of HRM practices on financial performance various studies has
provided the different data on positive and negative impact of HRM practices on
financial performance. This study has also attempted to both explicate the issues with
regard to drawing casual conclusions within this research and to provide empirical data to
explore some of these issues. The performance in an organization differs by different
perspectives. With the change in the financial environment the adaptation to the changes
becomes crucial problem. With the need of the bank the HRM practices followed in an
organization impacts the financial performance.

To all the practitioners within the banking industry, the outcome of this research could
facilitate better understanding various HRM practices affecting the financial performance
which can be used to achieve the desired goals of the organization and increase the
competitive advantages. The major research findings of this study provide the
opportunity for the individual banks to compare their performance with other banks. This
finding also helps to identify the shortcomings and strengths of their HRM practices
followed in Nepalese commercial banks. Manager can use this research to place right
people at the right place. It is greater significance to academics as the new framework and
findings are useful for future research tool to measure the financial performance in
Nepalese commercial banks.

1.5 Operational definition

Various HRM practices used for this study are:

Return on Assets (ROA):

It is the ratio of annual net income to average total assets of an organization during a
financial year. It measures the efficiency of an organization in using its assets to generate
net income. It is a profitability ratio. ROA can be calculated by dividing annual net
income by average total assets. www.wikipedia.com

Net income is the after tax income. It can be found on income statement. Average total
assets are calculated by dividing the sum of total assets at the beginning and at the end of
the financial year by 2. Total assets at the beginning and at the end of the year can be
obtained from year ending balance sheets of two consecutive financial years.

Return on Equity (ROE):

It is the ratio of net income of an organization during a year to its stockholder’s equity
that year. It is a measure of profitability of stockholders’ investments. It shows net
income as percentage of shareholder’s equity. ROE can be calculated by dividing annual
net income by average stockholder’s equity. www.wikipedia.com

Net income is the after tax income whereas average shareholder’s equity is calculated by
dividing the sum of shareholders’ equity at the beginning and at the end of the year by 2.
The net income figure is obtained from income statement and the shareholders’ equity is
found on balance sheet. Year ending balance sheet of two consecutive financial years is
needed to find average shareholders’ equity.

Independent Variable: Human resource practices

Human resource practices are taken as the independent variable in this study.
Fundamentally, the concept of human resource practices in business is vague and difficult
to define and implement it. The different dimensions of human resource practices are as
follows:

Human Resource Planning

Human resource planning refers to the process of deciding what positions the
organization will have to fill, and how to fill them (Huang, 2001). HR plan stresses
analyzing the financial objectives as well as acquiring resources required to achieve those
objectives. HR planning is the sum total of the plans formulated for all other HRPs
(Nkomo, 1988). Like all plans, financial administration builds employment plans on
basic assumptions about the future. There are three forecasts required for the
development of HR plans; one for HR requirement or need, one for the supply of outside
candidates, and one for the supply of inside candidates. Based on the objectives of this
study following hypothesis have been stated:

H1: There is a positive and significant relationship between HR practices and financial
performance.

Recruitment and selection

Recruitment and selection involves the process of attracting and selecting people to serve
in an organization. Connell and Burgess (2002) define this process as ‘searching for and
obtaining potential candidates in sufficient numbers and quality so that the organization
can select the most appropriate people to fill its job needs’. The organizations make an
inventory of the dimensions of knowledge and skills pre-requisites to be hired for the job.
Its importance is highlighted by saying that it is the top priority of institutions to select
the right person for the right job as financial performance always depends on its
employees. The better is this process; the better the performance of the organization is
expected to be. In the same way, the faulty execution of this process will result in ‘loss of
competitive advantage, impaired image and reputation, and the loss of other key staff.
Based on the objectives of this study following hypothesis have been stated:

H2: There is a positive and significant relationship between recruitment and selection and
financial performance.

Training and development

In order to transform the new recruits into effective and productive employees, they must
be integrated into the organizations. Their abilities and skills need to be expanded and
polished through activities like training and development. Training as methods that are
applied to provide the new recruits with the skills needed to perform their duties. The
term ‘development’ refers to broadening the horizon of the employees. Gilbert and
Ivancevich (2000) believe that the development activities help a person make positive
contributions to the organizations. The focus of training is the current job while the focus
of development is expansion of their current knowledge and growth. Both training and
development are the key factors in maintaining as well as expanding the performance of
individuals in an organization. Based on the objectives of this study following hypothesis
have been stated:

H3: There is a positive and significant relationship between training and development and
financial performance.

Performance appraisal

Performance appraisal is one of the most important factors of human resource

management practice. This practice aims at evaluating the current and the past
performance of the employees based on the performance standards with the view ‘to
improve performance (Latham, 1986). It ensures that the employees ‘stay focused on
effective performance’. It may be used to reward the individuals whose performance is
better than others. Thus, it evaluates the work of the employees as well as motivates them
to improve their future performance. This provides an opportunity to the employees to
identify the skills that they need to acquire in order to progress within the organization
(Cleveland and Kevin, 1992).

The employees whose performance is being assessed must be involved in the whole
process. They must have their say even in developing the system of performance
appraisal. There is strong evidence that their participation in developing appraisal system
‘leads to favorable reactions to the process and actually increase trust for top
management’ (Reinke, 2003). This sense of possession develops the satisfaction of the
subordinates with the appraisal interview, the appraisal system and motivates them to
improve their performance. Based on the objectives of this study following hypothesis
have been stated:
H4: There is a positive and significant relationship between performance appraisal and
financial performance.

Compensation

All forms of pay or rewards that institutions give to employees in exchange of their
services are referred to as compensation and benefits (Renee, 2008).Compensation is the
activity of HRM function through which employees get every type of reward in return of
performing the tasks assigned by the administration (Hackett and Donald, 1999). It is said
that the performance of the employees improves through compensation and benefits
(Tomer, 2001).

There are other advantages of compensation and benefits as well; the desire to retain the
employment, the increase in motivation and job satisfaction. If an organization pays less
to its employees in comparison with other organizations of the same nature, the
employees are likely to become dissatisfied and may leave the organization as employees
tend to compare their remuneration with that of other people in the same or similar
situation (Biddle and Karen, 2003). Based on the objectives of this study following
hypothesis have been stated:

H5: There is a positive and significant relationship between compensation and financial
performance.

1.6 Organization of the study

The proposed study is organized into five chapters. The first chapter deals with the
background of the study, statement of the problem, objectives of the study, research
hypothesis, significance of the study and operational definitions and assumptions. The
second chapter literature survey and theoretical framework deals with the review of the
conceptual framework of the study. The third chapter describes about research
methodology which deals with how the study is conducted, source of data, data selection
procedures. The result and discussion is illustrated in chapter four. And lastly the fifth
chapter consists of summary and conclusions of the paper.
 CHAPTER II

LITERATURE SURVEY AND THEORETICAL

FRAMEWORK

This chapter provides conceptual framework of the study and deals with review of empirical
studies associated with the impact of HRM practices on financial performance of Nepalese
commercial banks. It is divided into three sections. First section presents a review of related
studies. The second section presents conceptual framework in which overall study will be based.
The third section presents concluding remarks.

2.1. Review of related literature

This section includes review of related literature. The available empirical literature is surveyed
into four categories that are review of major literatures, review of recent literatures, and review
done in context of Nepal associated with HR practices and financial performance. The review of
literature has been presented on periodical basis. Therefore the following four sections cover the
major studies undertaken:

(a) Review of major literatures

(b) Review of recent literatures

(c) Review of Nepalese studies

In the following section the major related literature surveys are briefly described based on four
sub headings as; review of major literatures, review of recent literatures, and review of major
Nepalese studies.
2.1.1. Review of major studies

The review of literature during 1990s is summarized in table 2.2. This section reviewed
major articles on the human resource management practices.

Study Major Findings

Ulrich and Six domains: Staffing, training and development, Performance appraisal, Reward
Lake (1990) system, organizational governance and communication is related to the organizational
Performance.
Arthur’s (1994)
Six types of HR systems defined by their differential use of 10 practices: pure type
cost reducers, conflicts, inducers, collective bargainers, involvers and pure
Commitment maximizes links between organizational and employee goals.
Delaney and
Huselid (1996) Progressive HRM practices including staffing, training and incentive competition are
positively related to the perceptual measures of organizational performance.
Delery and HRM practices and performance is viewed through three perspectives: Universalistic,
Doti (1996) Contingency and Configuration perspectives and high performance work practices are
Empirically related to the overall organizational performance.
Delery and Six practices are consistently considered in high performance work practices.
Doti et. al. Recruitment and Selection, Training and Development, performance appraisal system,
(1996) communication, skill and knowledge management and work environment leads to
Organization performance.

Becker Best HRM practice brings to mind very specific forms of performance appraisal or
Gehart, (1996) Team incentive system that might be benchmarked.
Results calculated through regression suggested that effective implementation of key
Wan et al. (2002) HRM practices increases organizational performance.

HRM adds significant value for organizations. In addition the value added is strongest
when HR systems are emphasized rather than individual practices, when HRM
Liu et al. (2007) decisions are tied to strategy and among manufacturing firms.

He observed that recruitment, the role of the HR department and compensation

practices seem to be significantly changing within the Indian firms in context of
Som (2008) India’s economic liberalization.

With respect to business strategies, cost strategies have a direct negative effect on HRM
policies quality and innovative strategies have positive direct effects on HRM policies
which support business strategies influence HRM policies in determining business
performance. HRM policies have a direct positive effect on HRM outcomes,
Katou (2008) organizational performance.

Affective commitment is higher among IT professionals than the other types of

commitment. Normative commitment is at the lowest level. IT professionals are
Deniz (2009) working in organizations because they want to, rather than they need to or being
compelled to by a moral obligation.
In Nepalese banking industry the component Performance appraisal system should be
studied as HR practices bundle. Although there is relationship between Performance
Appraisal and bank performance there is no sufficient research has been undertaken till
Y. Zhang now so the study is significance in Nepal.
(2009)
HRM practices differ from organization to organization as per the situation. No
commonly accepted typology exists to summarize HR services into domains. Ulrich &
Lake (1990) have defined six domains: Staffing, training and development, performance
appraisal, reward system, organizational governance and communication. Similarly
Saratoga institute has developed many of the equation regarding HR practices which
were described by the researcher. According to this institution domain of HRM practices
includes staffing, training and development, performance appraisal, safety and health,
labour relations, internal communication and diversity.

The study concentrated on the US steel industry, the sample being mini-mills. Using
cluster analysis, he identified six types of HR systems defined by their differential use of
10 practices: pure type cost reducers, conflictors, inducers, collective bargainers,
involvers and pure commitment maximizers (this is reported in depth in Arthur, 1994).
The researcher then classified these in terms of the control-commitment dichotomy, the
former – control strategy-being, in his terms, oriented towards reducing direct labor costs
and compliance with specified rules and procedures, the latter- the commitment strategy-
towards “forging psychological links between organizational and employee goals”
Arthur’s (1994).

The study examined that progressive HRM practices including staffing, training and
incentive competition are positively related to the perceptual measures of organizational
performance Delaney and Huselid (1996). The study also concluded that three HR
practices: profit sharing, result-oriented performance evaluation and employment security
have universalistic relation with the organizational performance Delaney and Doty
(1996).
The study carried by Delery and Doty (1996) investigated that there are three
perspectives which describes about the HRM practices and the organizational
performance. The researcher presented the HRM practices and performance through
three perspectives: Universalistic, Contingency and Configuration perspectives. The
Universalistic approach perspective describes the High performance work practice.
Delery and Doty (1996) explain universalistic arguments are the simplest form of the
theoretical statement because they imply that the relationship between a given
independent variables is universal across the population of the organization. Developing
the universalistic prediction requires two steps: First, important strategic HR practices
must be identified. Second is individual practices to organizational performance must be
presented. The researcher identified seven HRM practices: internal career opportunity,
formal training system, performance appraisal measures, profit sharing, employment
security, voice mechanism and job definition. These HRM practices are closely linked
with the financial performance of the organization; ROA and ROE.

The notion of best practice probably requires some classification as well. The term is
typically used in a way that connotes both the level of policy and the breadth of effect. At
the level of policy, best practice brings to mind very specific forms of performance
appraisal or team incentive system that might be benchmarked. The implicit assumption
of benchmarking is that the effects of best practice are generalizable and not firm specific
(Becker & Gehart, 1996).

A study by Patterson et al. (1997) in the UK, demonstrates the value of HRM in two
main performance indicators were used the rate of change in profitability and in
productivity. The HR practices of an organization were measured by three group of
variables: the comprehensive of the selection induction, training and appraisal systems;
the extent of skill flexibility, job responsibility, job variety and formal team working and
the use of quality improvement teams, direct communication methods harmonized terms
and conditions, incentives compensation systems and high relative pay.

Wan et al. (2002) examined the relationship between HRM practices and the firm
performance. HRM practices were creating positive effect on organizational
performance. Results calculated through regression suggested that effective
implementation of key HRM practices increases organizational performance. On the
other hand, companies interested in enhancing HR performance may emphasize the need
for empowerment and training.

The study attempted to draw a model on how environmental factors; strategic

management and HRM practices combine to influence organizational performance, by
using a European sample. Their study concludes that the part-time work is related with
organizational performance. It means, when organization can make more cost-effective
use of their labour, meeting employee needs, they are more likely to be successful. On
the other hand, training did not have a significant impact on organizational performance.
The research team reaches the conclusion that training must not only be evaluated but
also aligned with corporate strategy and the other HR practices such as performance
appraisal and compensation Cunha et al. (2003).

The study carried out by Singh (2004) concluded that there is a positive relationship
between several HRM practices like selection, performance appraisal, training,
compensation system, employee participation with firm performance. Out of these
practices only training and compensation system had positive impact on firm
performance and market performance of the firm.

Similarly the study carried by Liu et al.(2007) analyzed the value of human resource
management for organizational performance. The main purpose of the study is to discuss
the value of HRM practices and systems in the context of managerial practice. The initial
study used a technique called meta-analysis which is an important tool that researchers
use to take stock of a body of research containing seemingly disparate findings (Dalton
and Dalton, 2005). Meta-analysis statistically aggregates findings from multiple studies
in order to provide solid conclusions that are widely generalizable. In short, meta-
analysis allows researchers to draw conclusions in which there is much greater
confidence than what can be drawn from any single study. Researcher discusses the
results of a meta-analysis of 92 studies that investigate HRM’s performance implications.
The major finding of the study is based on data from over 19,000 organizations
researchers conclude that HRM adds significant value for organizations. In addition the
value added is strongest when HR systems are emphasized rather than individual
practices, when human resource management decisions are tied to strategy and among
manufacturing firms.

Som (2008) assessed the innovative HRM and corporate performance in the context of
economic liberalization in India. The researcher showed that HRM practices are
important for enhanced corporate performance but little has been reported on the effect of
HRM practices and corporate performance in the context of economic liberalization of
India in his research. This study tries to understand the role of innovative HRM practices
and specifically questions how HRM practices, such as the role of HR department,
recruitment, retaining and redeployment, performance appraisal and compensation,
enhance corporate performance during the change process. A multiple respondent survey
of 69 Indian organizations was undertaken to study the impact of innovative recruitment
and compensation practices have a positive significant relationship with the firm
performance. The survey found that the innovative recruitment and compensation
practices have a positive significant relationship with the firm performance. It was
observed that recruitment, the role of the HR department and compensation practices
seem to be significantly changing within the Indian firms in the context of India’s
economic liberalization. The synergy between innovative HRM practices was not
significant in enhancing corporate performance during the liberalization process.

The study investigated the impact of HRM on organizational performance in Greece.

Structural equation modeling methodology was used for the data analysis in the research.
Data were collected from 178 organizations using a questionnaire survey in the Greek
manufacturing sector. The variables used in the study were HRM policies, HRM
outcomes, Business Strategy, organizational performance as well control variables. The
major findings of the study were, with respect to business strategies, cost strategies have
a direct negative effect on HRM policies quality and innovative strategies have positive
direct effects on HRM policies which support business strategies influence HRM policies
in determining business performance. HRM policies have a direct positive effect on
HRM outcomes, organizational performance Katou (2008).

Deniz (2009) investigated the different aspects of organizational commitment and its
determinants for Information Technology (IT) professionals. IT dependent companies
should consider the determinants of organizational commitment and ensure that these
issues are properly addressed in their human resource strategies. The study employs

Meyer and Allen defined organizational commitment with three dimensions: Affective
commitment, continuance commitment and normative commitment. An original
questionnaire was prepared by the researchers and was applied to the IT professionals
working in 10 Turkish private banks. The results showed that affective commitment is
higher among IT professionals than the other types of commitment. Normative
commitment is at the lowest level. IT professionals are working in organizations because
they want to, rather than they need to or being compelled to by a moral obligation.

The study suggested that in Chinese state-owned banking industry, employees’

perception of justice has a positive relationship to their overall satisfaction with both the
performance appraisal process and its outcomes. However, statistically significant
differences were found in relation to whether employees had received training in
performance appraisal or not. Thus in Nepalese banking industry the component
Performance appraisal system should be studied as HR practices bundle. Although there
is relationship between Performance Appraisal and bank performance there is no such
research has been undertaken till now so the study is significance in Nepal Y. Zhang
(2009).

2.3.3 Review of major recent literature

The review of major recent literature is summarized in table 2.4. This section reviewed
the major articles on human resource management practices.

Table 2.2
The table shows the major findings of literature during recent years.
Singh et al.(2011)
The findings reveal that there is a noticeable effect of the performance appraisal
on the organization as well as on the individual. Performance appraisal helps in
assessing the capabilities of various employees and employees’ contribution
towards the organization.
Imrad and Ahmed Compensation, organizational support, training and development, career
(2012) opportunities, empowerment, organizational climate and communication have a
significant impact on the organizational commitment.
Majumder (2012) The study revealed that most of the employees are dissatisfied with compensation
package followed by reward and motivation, career growth, training and
development, management style, and job design and responsibilities .

Lamba and HRM practices such as training & development, compensation and welfare
Choudhary (2013) activities has significant effect on organizational commitment and are associated
with superior organizational performance, which help in retention of
knowledgeable and skilled employees.

Ali et al.(2014) There is significant relationship of compensation practice, promotion practice and
performance evaluation practice with job satisfaction, organizational commitment,
organizational citizenship behavior, turnover intention and employees’ perceived
performance.
Mehta (2014) There is a strong and positive relationship between compensation, working
environment and supervisory relationship and job satisfaction of employees but
performance and promotion shows that these two variables are not significant to
the job satisfaction
Singh, Sharma & Kaur (2011) conducted a research on effects of performance appraisal
on the organization and individual. The primary data was used for the study and data
were collected through the help of questionnaire filled by the samples. The study stated
that performance appraisal had been considered as the most significant tool for an
organization. The finding of the research showed that there was a noticeable effect of the
performance appraisal on the organization as well as on the Individual. The finding
showed that performance appraisal helps in evaluating and assessing the employee’s
performance in comparison to standards fixed, assessing the capabilities of various
employees and employees’ contribution towards the organization and in determining the
training needs for the employees. To conclude it can be said that performance appraisal is
an indispensable part that provides very advantages both to the individuals and the
organization.
A similar study on bank employees was conducted by Majumder (2012) to gain an
insight into the current HRM practices (recruitment and selection systems, compensation
package, job security, career growth, training and development, management style, job
design and responsibilities, reward and motivation and working environment) and its
impact on employee’s satisfaction on the private banking sector in Bangladesh. The study
revealed that most of the employees are dissatisfied with compensation package followed
by reward and motivation, career growth, training and development, management style,
and job design and responsibilities.

Lamba and Choudhary (2013) analyzed that how HRM practices provide an edge to
employee’s commitment towards an organization goal in the global competitive market.
The study concluded that HRM practices such as training & development, compensation
and welfare activities has significant effect on organizational commitment and are
associated with superior organizational performance, which help in retention of
knowledgeable and skilled employees.

The study conducted by Ali et al. (2014) analyzed the relationship between human
resource management practices and employees’ outcomes. The purpose of this study was
to investigate the impact of compensation practice, promotion practice and performance
evaluation practice on job satisfaction, organizational commitment, organizational
citizenship behavior, turnover intention and employees’ perceived performance. Data
were collected through time tested questionnaires from 224 teachers of Malakand
division of KPK, Pakistan. The result showed a significant relationship of compensation
practice, promotion practice and performance evaluation practice with job satisfaction,
organizational commitment, organizational citizenship behavior, turnover intention and
employees’ perceived performance. Performance evaluation practice was proved to be
the strongest predictor of job satisfaction followed by compensation practice and
promotion practice. Compensation practice was proved to be the strongest predictor of
organizational citizenship behavior and organizational commitment and employees’
perceived performance followed by promotion practice. Only compensation practice was
proved to be the strongest predictor of turnover intention.

The study based on a review and research agenda; impact of human resource practices on
job satisfaction of employees in foreign and local banks of Pakistan. The study focused
on impact of human resource practices like performance evaluation, promotion practices,
and compensation practices, working environment and supervisory relationship on job
satisfaction of employees in banking sector of Pakistan. The study was done on the basis
of primary data collected from branches of Bank Alfalah, Habib Bank Ltd. and NIB bank
in Lahore. By applying linear regression model, the study interpreted that there is a strong
and positive relationship between the different human resource practices and job
satisfaction of employees. The human resource practices like compensation, working
environment and supervisory relationship showing 0 values of t-test level of significance
shows that these variable have significant impact on job satisfaction of employees in
foreign and local banks of Pakistan but performance and promotion showing greater
value than 0.05 level of significance shows that these two variables are not significant to
the job satisfaction Mehta (2014).

2.3.4 Review of Nepali literature

This section consists of reviewed of literature on the Nepalese perspective. It includes

five different articles published on Nepalese journal in human resource management
practices in Nepalese organization.

Table 2.5
This table shows the Nepalese summary of literature related to Human resource management.

Study Major findings

Baniya (2004) There is a lack of systematic approach towards human resource
development in Nepalese business organizations.
Panday (2008) There is a significant positive relationship among the components as
personal benefits and job-related benefits of training and
components of commitment.
Chapagai (2011) Increased employee participation makes a positive effect on job
satisfaction of Nepalese banking employees. Participative
management and employees’ participation in strategic planning
process are positively associated with high level of job satisfaction.
The employees’ participation is also an important dimension for
improving and enhancing the employees’ job satisfaction level.
Adhikari and Gautam (2011) Examining the degree of compliance and commitment situation in
Nepalese workplaces, it seems poor status of the implementation of
hard and soft HR practices.
Majority of Nepali companies lack fairness in evaluation process.
The outcome of appraisal is linked with pay increment, promotion,
training and development and the feedback to employees for their
area of improvements. Nepali managers and/or employees are
Maharjan (2013) dissatisfied in many aspects while working.
Gautam (2012) HRM practices in Nepal are not developed like in developed
countries; Nepalese organization is realizing the significance of
people management at work and their practices in the present
dynamic environment.
The study carried out the study on human resource development practice in Nepalese
business organization. Researcher attempt had been made to study the human resource
development practices in organizations of Nepal with due focus on identifying
development opportunities provided for employees, measuring investment on them, and
examining consequences of providing such opportunities in an organization. The major
finding of the research was most of the organization neither have a personnel manager to
look after human affairs nor allocate budget in their annual program for human resource
development. There is a manifestation of low priority assigned to human resource in
organizations Baniya (2004).

The study conducted by Panday (2008) on employees in Nepalese banks still perceive a
significant positive relationship among the components such as personal benefits, career
benefits and job-related benefits of training and components of commitment. In concern
to this result the researcher also concluded that this study also examines the relationship
among HRM practices variable.

Chapagai (2011) analyzed the relationship between employee participation and job
satisfaction in Nepalese commercial banks for which four Nepalese commercial banks
were taken as a sample two each from government and private sectors. Based on primary
data the study adopted a questionnaire survey on 200 employees from the assistant to
manager levels of the sample organizations and it received response from altogether 146
respondents (73 percent). Based on explanatory research design, the study showed that
that there was positive relationship between employee participation and job satisfaction
in Nepalese banks. The findings reveal that employee participation is an important
determinant of job satisfaction. Increased employee participation makes a positive effect
on job satisfaction of Nepalese banking employees. Participative management and
employees’ participation in strategic planning process were positively associated with
high level of job satisfaction. The result of this study indicated that the employees’
participation is also an important dimension for improving and enhancing the employees’
job satisfaction level. However, the negative significant coefficient of gender in the
regression model indicated that the female perceived low level job satisfaction.
The study examined the employees’ commitment and organizational performance in
Nepal. The main focus of this study showed a number of new human resource mandates
recommended for the improvement in the situation of low degree of commitment and
compliance affecting level of performance in Nepalese workplaces. This study presented
typological framework showing compliance-commitment matrix. Based on this
framework a number of new HR mandates recommended for the improvement in the
situation of low degree of commitment and compliance affecting level of performance in
Nepalese workplaces. The descriptive cum explorative method was used for this study.
The major findings of this study were most of the information used in the study was
collected from the secondary source. Examining the degree of compliance and
commitment situation in Nepalese workplaces, it seems poor status of the implementation
of hard and soft HR practices. Organization were failed to comply given provisions of
labor legislation, business and HR strategies are not sufficiently integrated and even there
was lesser integration among the HR practices such as result of performance evaluation
and its implication for employees’ career development Adhikari and Gautam (2011).

The study analyzed on changing perspective on human resource management in Nepal.

Achieving sustainable competitive advantage depends on the formulation and
implementation of appropriate people management strategies and deployment of their
competencies effectively in dynamic and complex environment is an approach to make
decisions on the intensions and plans of organization concerning employment
relationship and its recruitment, training, development, performance appraisal, reward
and employee relations policies and practice. This study explored the present practices of
HRM like HR departments, HR policies and strategies, HR planning, recruitment,
selection and placement, training and development, performance appraisal, compensation
and benefit, employee relations and communications. It was found that though HRM
practices are not developed like developed countries, Nepalese organizations were
realizing the significance of people management at work and changing their practices in
the present dynamic environment Gautam (2012).
The study conducted by Maharjan (2013) examined the study on human resource
practices in Nepal. The study first presented the overall HRM system of Nepal and shows
how it is different than Japanese and the United States (US) HRM. The study presented
the results based on 16 qualitative case studies which were conducted in Nepali, Japanese
and US companies. The findings indicated that the US and Japanese companies in Nepal
are following a hybridized set of HR practices. The characteristics of HR department,
recruitment method, pay level and evaluation results were found to have greater local
influence while selection method, training, performance tools had greater foreign
influence. The finding emphasized that experience, potentiality, loyalty, independency,
diversity, job knowledge; market image, confidence level and sound health are used as
core values during selection. Among these, experience and job knowledge mostly
emphasized and final selection was done by the panel which includes head of department,
representative from HR and the top management.

2.2. Conceptual framework

Conceptual framework is a basic conceptual structure organized around a theory. It defines the
kinds of variables that are going to be used in the analysis. Conceptual framework is a type of
intermediate theory that attempt to connect to all aspects of inquiry with problem definition,
purpose, literature review, methodology, data collection and analysis. It can act like a map that
give coherence to empirical inquiry as the conceptual framework are potentially so close to
empirical inquiry, take different forms depending upon the research question or problem.

The conceptual framework describes the link between the HR practices and the financial performance.
In the conceptual framework for the analysis of the study and for the measurement of the financial
performance we have taken financial performance as the dependent variables and is measured through
return on asset and return on equity.
 Figure 2.1: Schematic diagram of factors influencing financial performance

This figure shows the theoretical framework of the study. All these human resource management variables
are expected to determine the financial performance.

Independent Variables Dependent Variables

HRM Practices Financial performance

Human Resource Planning

Recruitment and Selection Return on Equity

Training and Development

Performance Appraisal Return on Asset

Compensation

2.2.1. Specification of Variables

Return on Assets (ROA):

It is the ratio of annual net income to average total assets of an organization during a
financial year. It measures the efficiency of an organization in using its assets to generate
net income. It is a profitability ratio. ROA can be calculated by dividing annual net
income by average total assets. www.wikipedia.com

Net income is the after tax income. It can be found on income statement. Average total
assets are calculated by dividing the sum of total assets at the beginning and at the end of
the financial year by 2. Total assets at the beginning and at the end of the year can be
obtained from year ending balance sheets of two consecutive financial years.

Return on Equity (ROE):

It is the ratio of net income of an organization during a year to its stockholder’s equity
that year. It is a measure of profitability of stockholders’ investments. It shows net
income as percentage of shareholder’s equity. ROE can be calculated by dividing annual
net income by average stockholder’s equity. www.wikipedia.com

Net income is the after tax income whereas average shareholder’s equity is calculated by
dividing the sum of shareholders’ equity at the beginning and at the end of the year by 2.
The net income figure is obtained from income statement and the shareholders’ equity is
found on balance sheet. Year ending balance sheet of two consecutive financial years is
needed to find average shareholders’ equity.

i) Human Resource Planning

Human resource planning refers to the process of deciding what positions the organization will
have to fill, and how to fill them (Huang, 2001). HR plan stresses analyzing the financial
objectives as well as acquiring resources required to achieve those objectives. HR planning is the
sum total of the plans formulated for all other HRPs (Nkomo, 1988). Like all plans, financial
administration builds employment plans on basic assumptions about the future. There are three
forecasts required for the development of HR plans; one for HR requirement or need, one for the
supply of outside candidates, and one for the supply of inside candidates.

ii) Recruitment and selection

Recruitment and selection involves the process of attracting and selecting people to serve in an
organization. Dowling and Jiuhua (2002)define this process as ‘searching for and obtaining
potential candidates in sufficient numbers and quality so that the organization can select the most
appropriate people to fill its job needs’. The organizations make an inventory of the dimensions
of knowledge and skills pre-requisites to be hired for the job. Its importance is highlighted by
Connell and Burgess (2002) saying that it is the top priority of institutions to select the right
person for the right job as financial performance always depends on its employees. The better is
this process; the better the performance of the organization is expected to be. In the same way, the
faulty execution of this process will result in ‘loss of competitive advantage, impaired image and
reputation, and the loss of other key staff.

iii) Training and development

In order to transform the new recruits into effective and productive employees, they must be
integrated into the organizations. Their abilities and skills need to be expanded and polished
through activities like training and development. Training as methods that are applied to provide
the new recruits with the skills needed to perform their duties. The term ‘development’ refers to
broadening the horizon of the employees. Gilbert and Ivanecevich (2000) believe that the
development activities help a person make positive contributions to the organizations. The focus
of training is the current job while the focus of development is expansion of their current
knowledge and growth. Both training and development are the key factors in maintaining as well
as expanding the performance of individuals in an organization.

iv) Performance appraisal

Performance appraisal is one of the most important factors of human resource management
practice. This practice aims at evaluating the current and the past performance of the employees
based on the performance standards with the view ‘to improve performance (Latham, 1986). It
ensures that the employees ‘stay focused on effective performance’. It may be used to reward the
individuals whose performance is better than others. Thus, it evaluates the work of the employees
as well as motivates them to improve their future performance. This provides an opportunity to
the employees to identify the skills that they need to acquire in order to progress within the
organization (Cleveland and Kevin, 1992).

The employees whose performance is being assessed must be involved in the whole process.
They must have their say even in developing the system of performance appraisal. There is strong
evidence that their participation in developing appraisal system ‘leads to favorable reactions to
the process and actually increase trust for top management’ (Reinke, 2003). This sense of
possession develops the satisfaction of the subordinates with the appraisal interview, the appraisal
system and motivates them to improve their performance.

v) Compensation

All forms of pay or rewards that institutions give to employees in exchange of their services are
referred to as compensation and benefits (Renee, 2008).Compensation is the activity of HRM
function through which employees get every type of reward in return of performing the tasks
assigned by the administration (Hackett and Donald, 1999). There is precedence of various
employees being paid variably for the same job. This variance appears judicious in terms of
individual differences in experience, skills and performance as well as expectations that seniority
system has influenced wage setting.

It is said that the performance of the employees improves through compensation and benefits
(Tomer, 2001). There are other advantages of compensation and benefits as well; the desire to
retain the employment, the increase in motivation and job satisfaction. If an organization pays
less to its employees in comparison with other organizations of the same nature, the employees
are likely to become dissatisfied and may leave the organization as employees tend to compare
their remuneration with that of other people in the same or similar situation (Biddle and Karen,
2003).

2.3. Concluding remarks

The literature on HR practices has been expanded by many theoretical and empirical
contributions. While going through the literatures, the different views for employee commitment
are identified in a varying ways. Meyer and Allen (1990) employees with a strong personal
attachment and identification with the company continue in the employment. This is ‘affective
commitment’ that arises from the obligation due to social pressure constitutes continuance
commitment and both give rise to financial commitment which is strongly related to innovative
HR practices.

The different human resource management practices are identified. Pfeffer and John (1999)
proposed seven HRM practices: employment security, selective hiring of new personnel, self-
managed teams and decentralization of decision making as the basic principles of organization
design, comparatively high compensation contingent on financial performance, extensive
training, reduced status distinctions and barriers, including dress, language, office arrangements,
and wage differences across levels, extensive sharing of financial performance information
throughout the organization are characteristics of successful organizations.

Lado and Mary (1994) HRM system consists of a coherent set of practices that enhance employee
skills and abilities, provide information, empowerment and participation in decision making.It is
plausible that when employee judge the organization to be fair and supportive in their treatment
particularly with regards to the availability and frequency of promotional opportunities, adequacy
of pay and good supervision, positive feelings of well-being will be created, which is likely to
stimulate that to reciprocate by increasing their loyalty to the organization and reducing turnover.
An innovative HR practice was proposed by Kaye (1999) to enhance effectiveness in
organizations and to retain talented employees in the organization. While some HR policies may
impact on employees directly, most rely on line manager action or support, and the quality of the
relationship between employees and their immediate line managers is liable to influence
perceptions not only HR practices but of work climate , either positively or negatively.

The different theoretical investigation and empirical studies have been conducted to analysis the
impact of human resources practices on financial performance in banking sector. Several theories
have been proposed to explain the variables for human resource practices but there has no
universal agreement.

A few scholars have studied the impact of human resource management practices on the banking
industry. Very few study have addressed the human resource management practicesbanks in
Nepal and none of the study of human resource management practices has address the outcomes
of financial performance in Nepalese commercial banks.
 CHAPTER III

RESEARCH METHODOLOGY

This chapter deals with the research design and methodology. It presents the step by step process
about how the study was conducted and how the research problem was addressed. The research
followed a simplified procedure with commonly used statistical tools for analysis. This chapter
provides information about how the research was designed. It presents sources of data, population
and sampling, data collection instrument, validity and reliability test and data analysis. It clarifies
how the data was collected and measures used to check the reliability and validity of the collected
data.

3.1 Research design

This study has employed descriptive research design and causal comparative research design to
deal with issues associated with the human resource practices and financial performance of
commercial banks in the context of Nepal. The descriptive research design has been adopted for
fact finding and search adequate information about impact of human resource practices on
financial performance. The satisfaction level and perception of the employee in regarding the
human resource practices has been identified with the help of questionnaire.

Moreover, this study has employed causal comparative research design in order to observe the
direction, views and relationship between financial performance and different independent
variables. So, it helps in analyzing the cause and effect relationship among the different variables
used in this study. The basic purpose of employing causal comparative research design in this
study is to understand and examine the impact of human resource practices on financial
performance.

3.2 Description of sample

This study was designed to measure financial performance on the HRM practices of commercial
banks in Nepal. Convenience sampling was used to track the respondents for the study. The
convenience sampling was appropriate for this study because this technique is best way to reach
to the respondents; similarly due to resource constraints- time and money. This sampling
technique generally assumes a homogeneous population that means the members of the
population poses similar characteristics. The target population for this study is the entire
employee working in Nepalese commercial banks.

For qualitative research the sample of this study consists of the different level of employees of 20
commercial banks. The levels of employees taken as the respondent in this study falls under
assistant level, executive level and manager level only. For the analysis of HRM practices of
Nepalese commercial banks, questionnaires were distributed to the respondents and 150 were
collected. For data collection, one of the non-probabilistic sampling techniques, i.e. convenience
sampling has been used. No restriction has been placed on the type of survey. Convenience
sampling is one of the types of non-probability based on who they think would be appropriate for
the study. Due to the time and financial constraints, this method was the most useful method
because it is the best way to reach to the respondents. This study has totally focused Kathmandu
valley as its sample place. A set of questionnaire shown in Appendix related to HRM practices,
its impact was prepared and distributed to the employees of all the commercial banks of
Kathmandu valley. The following table 3.1.1 represents the sample taken for primary survey.

Table 3.1.1: Number of selected Nepalese commercial bank

S.N Selected Nepalese Commercial Banks No. of Respondents

1 Nepal Bank Limited 10

2 RastriyaBanijya Bank 10

3 Agriculture Development Bank 10

4 Nabil Bank Limited 10

5 Nepal Bangladesh Bank 8

6 SBI Bank 10

7 Himalayan Bank Limited 10

8 Standard Charter Bank 9

9 Everest Bank Limited 11

10 Nepal Investment Bank Ltd 5

11 Sunrise Bank Limited 9

 12 Prime Bank Limited 5

13 Siddhartha Bank Limited 5

14 Laxmi Bank Limited 5

15 Megha Bank Limited 5

16 Janata Bank Limited 5

17 Bank of Kathmandu 5

18 NIC Asia 6

19 Kumari Bank Limited 6

20 Machhapuchhre Bank Limited 6

Total 150

3.3 Instrumentation
Data were collected using the self-administered questionnaire. Questionnaires included a
set of written questions used in order to obtain and store necessary information during the
research. Questions were designed to examine important variables for the study and were
answered by respondents. After collecting data, measurement scales are used to test
qualities of data. The questionnaire that was used for this study was developed by the
researcher through identification of demographic characteristics, dependent and
independent variables from related literature review.
Questionnaire was divided into ten parts. The first part included the questions related to
demographic profiles of the respondents such as gender, marital status, education level
and average personal monthly income and designation. The rest part consists of questions
to measure the dependent and independent variables. The questionnaires were distributed
to the respondents through emails and the printed sets where applicable. The purpose of
the study was properly defined to the respondents on the questionnaire page. The
questionnaires were self-adjusted, validated and pre-tested. During the survey,
discussions with the respondents and information obtained through discussions and
interviews along with questionnaire as instruments in the Appendix. The respondents
represent employees of 20 commercial banks of Nepal.

3.4 Data collection procedures

This study has focused primary sources of data. The primary source of data has been used to
examine the opinion of respondents with respect to human resource practices of Nepalese
commercial banks.

3.4.1 Primary data collection

This study has been based on primary source of data. The questionnaire survey has been
conducted to know the opinions of employees regarding human resource practices of Nepalese
commercial banks. A set of questionnaire was prepared and distributed to the employees of
Nepalese commercial banks. The questionnaire reflects each bank’s human resource practices as
the survey has included the questionnaire regarding human resource practices such as human
resources planning, recruitment and selection, training and development, performance appraisal,
compensation and promotion practices. The financial performance is administered by employee
empowerment, employee commitment and employee retention. The questionnaire were
distributed to 172 respondents and total of 150 respondents replied to those questionnaire. The
questionnaire used in the survey is presented in the Appendix.

3.5 Reliability and Validity

Reliability is synonymous with the consistency of a test, survey, observation, or other measuring
device hence we cannot go further without measuring the reliability of primary data. For the
purpose of reliability test through Cronbach's Alpha, only Likert scale type questions are
considered. Reliability is concerned with estimates of the degree to which a measurement is free
of random or unstable error. Cronbach’s alpha is the common measure of internal consistency
(“reliability”). The reliability of the data used within the questionnaires regarding human resource
practices of Nepalese commercial banks was evaluated using Cronbach’s alpha.After the
collection of data through questionnaires, the reliability and validity of overall data was tested.
The result was reliable and valid with Cronbach’s alpha i.e.0.824 as shown in the following table
3.1.2. This implies that the responses consistency is good.

Table 3.1.2: Coefficient of Cronbach Alpha

Cronbach's Alpha N of Items

0.824 42

Source: Field Survey, 2015

3.6 Method of analysis

The main purpose of analysis in this study is to analyze the impact of human resource
practices. The data analysis has been carried out on the main responses derived from
questionnaire survey. The methods of data analysis consist four sections. First includes
primary data analysis which includes summary of descriptive statistics associated with
general information of the respondents like age, gender, academic qualification,
designation, and experience along with the percentage frequency distribution of the
general information of the respondents.
Second section analyze the descriptive statistics such as mean and weighted average
mean values of six dimensions human resource practices i.e. human resource planning,
recruitment and selection, training and development, performance appraisal and
compensation have been used to describe the characteristics of sample during the period.
The descriptive statistics such as mean and weighted average mean values of three
dimensions of financial performance i.e. return on asset and return on equity have been
used to describe the characteristics of sample during the period.

Third section deals with Kendal’s Tau correlation coefficients which examine the impact
on financial performance of HRM practices of Nepalese commercial banks.
The final part of data analysis describes regression analysis of primary data. A multiple
regression model has been applied to estimate the relationship between dependent
variables (financial performance proxies such as return on asset and return on equity)
with independent variable HR practices. It also describes different statistical tests of
significance for validation of model such as t-test, F-test. The collected data has been
processed with the help of SPSS Statistical package.

3.7 Model Specification

This study intends to analyze the impact of HRM practices on financial performance in Nepalese
commercial banks. Therefore, the following model equation will be employed to test the
hypothesis that is, there is positive and significant relationship between HR practices and
financial performance. The multiple regression models will be used in this study, for this purpose
the following model specifications, by taking dependent variable i.e. financial performance by
making HR practices as independent variables:

Model 1:

ROA= β0 + β1 (HRP) + β2 (RNS) + β3 (TD) + β4 (PA) + β5 (COM) + eit

Model 2:

ROE= β0 + β1 (HRP) + β2 (RNS) + β3 (TD) + β4 (PA) + β5 (COM) + eit

Dependent variables

ROE= RETURN ON EQUITY

ROA= RETURN ON ASSET

Independent variables

HRP= Human Resource Planning

RNS= Recruitment and Selection

TD= Training and development

PA= Performance Appraisal

COM= Compensation

eit= Error term/stochastic term/ Disturbance term

 CHAPTER IV

RESULT AND DISCUSSION

4.1 Presentation of result

Chapter four provides systematic presentation and analysis of primary data to deal with
HR practices of Nepalese commercial banks. The systematic presentation and analysis of
primary data is done to analyze the relationship between HR practices of Nepalese
commercial banks measured by financial performance. This chapter is divided into three
sections. First section covers the analysis of primary data and presents the results based
on questionnaire. Second section deals with the presentation and analysis primary data to
analyze the relationship between HR practices and financial performance of Nepalese
commercial banks measured by return on assets and return on equity. It is done with the
help of Pearson’s correlation coefficient analysis and regression analysis. Finally, the
third section discusses on the concluding remarks associated with findings of primary
data analysis.

4.1.1 Analysis of data

This section is concerned with the analysis of primary data and presents the results of the
survey on HRM practices in Nepal. This section attempts to analyze the primary data
where general profile of the respondents, views of respondents on HRM practices and its
impact on financial performance of Nepalese commercial banks, and the views of
employees of commercial bank of Nepal are identified. The method used in this section is
descriptive research design which deals with likert scale questions. The percentage,
frequency, mean value, weighted average mean value has been calculated to do the
proper analysis of the data.

4.1.1.1 Respondent profile

In this study, the respondents include employees of 20 selected commercial banks of
Kathmandu valley and 172 questionnaires were collected based on the gender, marital
status, academic qualification, and designation and monthly income. The respondent
profile is briefly presented in the following Table 4.1.

Table 4.1: Profile of respondents of Nepalese Commercial banks

This table reveals the profile of 150 employees of commercial banks associated with
questionnaire. The respondent’s character includes gender, age, academic qualification
and designation. Total number of responses under each categories and percentage are
included.

Respondents Character No. of responses Percentage

Gender

Male 87 58

Female 63 42

Total 150 100

Age

Below 30 59 39

30-45 79 53

Above 45 12 8

Total 150 100

Academic Qualification

Master’s Degree 100 60

Bachelor Degree 30 20

Intermediate(+2) 18 12

Above Master’s 2 1.3

Total 150 100

Designation

Assistant Level 60 40

Executive Level 50 33.33

Managerial level 40 26.67

Total 150 100

Experience

Less than 1 18 12
1-5 years 92 61.3

6-10 years 35 23.3

Above 10 years 5 3.3

Total 150 100

Source: Field survey, 2015

The above table shows the respondent’s profile information regarding the gender, age,
academic qualification, designation and years of experience. Demographic characteristics
play a vital role in understanding the employee perception and their reliability in the
organization. Thus the individual respondent perception about the financial performance
of the bank can be known through questionnaire. Out of the total respondent’s 58 percent
is male and 42 percent is female and under the age group, the majority of the respondents
(53 percent) are of age group 30-45. Likewise, 39 percent are from age group below 30.
On the basis of academic qualification, employees are categorized on the completion of
master’s, bachelor, intermediate, or above master degree. 60 percent of the respondent
completed master’s degree, 20 bachelor’s degree, 18 percent intermediate (+2) degree,
and 2 percent above master’s degree. On the basis of designation, 40 percent of the
respondent falls under assistant level, 33.33 percent executive level and 26.67 percent
managerial level. Similarly

4.1.1.2 Analysis of human resource planning

This section provides the information regarding the human resource planning. Human
resource planning refers to the process of deciding what positions the organization will
have to fill, and how to fill them. HR plan stresses analyzing the financial objectives as
well as acquiring resources required to achieve those objectives. HR planning is the sum
total of the plans formulated for all other HRPs. Like all plans, financial administration
builds employment plans on basic assumptions about the future. There are three forecasts
required for the development of human resource plans; one for HR requirement or need,
one for the supply of outside candidates, and one for the supply of inside candidates.

The respondents were asked questions regarding their view on human resource planning.
The respondent’s opinion regarding the human resource planning is presented in table
4.2.

Table 4.2: Human resources planning in the context of Nepalese commercial banks

This table shows the percentage, frequency, mean of the employee perception regarding
human resource planning of commercial banks. The statement based is measured in five
Likert scales 1 as strongly disagree (SD),2 as disagree, 3 as neutral, 4 as agree and 5 as
strongly agree(SA).

Statement Strongl Disagre Neutra Agre Strongl N Mea

y e l e y Agree n
Disagre
e

15
3 7 50 65 25 2.32
The banks F 0
mission
statement was % 1.7 4.6 33.3 43.33 16.8 10
 0

A
% 6.3 33.3 60.13

15
F 50 60 35 3 2 0

10
HR planning 33.33 40 23.33 1.7 1.3 4.02
% 0
has made the
job more A
challenging. % 73.33 23.33 3

15
F 40 50 30 20 10 0
 HR planning 3.6
10
is used as the 26.66 33.33 20 13.33 6.6
% 0
mechanism for
conflict A
management. % 60 20 19.93

15
The policy F 20 10 15 50 55 0
changes have
10
been made to 13.33 6.6 10 33.33 36.66
% 0 2.26
encourage
employee’s A
participation. % 19.93 10 69.93

The contents 15 2.01

of the HR F 3 10 30 50 57 0
planning are
% 1.7 6.6 20 33.33 38 10
always
 0

A
% 8.3 20 71.33

Weighted average mean 2.84

Source: Field Survey, 2015

The above table shows the analysis of human resource planning. The majority of the
respondents (60.13 percent) believe that the bank’s mission was communicated at the
time of joining. While, 33.3 percent of the respondents are neutral about this statement
and 6.3 percent of the respondents believe that bank’s mission was not communicated at
the time of joining.

The majority of the respondents (73.33 percent) believe that human resource planning has
not made the job more challenging. While, 23.33 percent of the respondents are neutral
about this statement and 3 percent of the respondents believe that human resource
planning has made job more challenging.

The majority of the respondents (60 percent) believe that HR planning is not used as the
mechanism for conflict management. While, 20 percent of the respondents are neutral
about this statement and 19.93 percent of the respondents believe that HR planning were
used as the mechanism for conflict management.

The majority of the respondents (69.93 percent) agree that the policy changes have been
made to encourage employee participation. While, 10 percent of the respondents are
neutral about this statement, and 19.93 percent of the respondents feel that HR planning
is not used as the mechanism for conflict management.

The majority of the respondents (71.33 percent) believe the contents of the human
resource planning are always relevant to the changing needs of the prevailing situation.
While, 20 percent of the respondents are neutral about this statement, and 8.3 percent feel
that HR planning are not always relevant to the changing needs of the prevailing
situation.

Mean value of the statement of human resource planning ranges from 2.01 to 4.02.
Among them, the most significant observations on the contents the HR planning is
always relevant to the changing needs of the prevailing situation. The most insignificant
observation on human resource planning is HR planning has made the job more
challenging. Weighted average mean value for human resources planning is 2.84 which
indicate that formulation of human resource planning by commercial banks has not been
executed properly. This shows variation exists in the perception of employee’s regarding
human resource planning.

4.1.1.3 Analysis of recruitment and selection

Recruitment and selection involves the process of attracting and selecting people to serve
in an organization. The organizations make an inventory of the dimensions of knowledge
and skills pre-requisites to be hired for the job. Its importance is highlighted saying that it
is the top priority of institutions to select the right person for the right job as financial
performance always depends on its employees. The better is this process; the better the
performance of the organization is expected to be. In the same way, the faulty execution
of this process will result in ‘loss of competitive advantage, impaired image and
reputation, and the loss of other key staff.

The respondents were asked questions regarding their view on recruitment and selection.
The respondent’s opinion regarding recruitment and selection is presented in table 4.3.

Table 4.3: Recruitment and selection of Nepalese commercial banks

This table shows the percentage, frequency, mean of the employee perception regarding
recruitment and selection of commercial banks. The statement is based on the
recruitment and selection indicators and is measured in five Likert scales 1 as strongly
disagree (SD), 2 as disagree, 3 as neutral, 4 as agree and 5 as strongly agree (SA).
Statement Strongl Disagr Neutr Agre Strongl N Mea
y ee al e y n
Disagr Agree
ee

15
F 12 15 30 60 33 0
Recruitment 1.61
10
and selection 8 10 20 40 22
% 0
is done by
the quota A
system. % 18 20 62

15
F 11 12 27 70 30 0

46.6 10 2.36
I am selected 6.4 6.9 18 20
% 6 0
on the basis
of my A
knowledge. % 13.3 18 66.66

17
 Discriminati F 10 5 30 70 35 3
on of any
46.6 10
kind is not 6.66 3.33 20 23.33 2.23
% 6 0
involved in
the selection A
process. % 10 20 70

The 15
vacancies are F 7 8 35 80 20 0
2.23
filled from
% 4.46 5.33 23.33 53.3 13.33 10
qualified
 3 0

A
% 10 23.33 66.66

15
12 11 21 87 42
Recruitment F 0
and selection
53.3 10
process is 6 4 1 26.66 2.09
% 3 0
done by the
outsourcing A
mechanism. % 10 1 80

Weighted Average Mean 2.10

Field Survey, 2015

The above table shows the analysis of recruitment and selection. The majority of the
respondents (62 percent) believe that the recruitment and selection of the bank is done by
quota system. While, 20 percent of the respondents are neutral about this statement, and
18 percent believed that recruitment and selection is not done by the quota system.

The majority of the respondents (66.66 percent) agree that they are selected on the basis
of their knowledge. While, 18 percent are neutral about the statement and 13.3 percent of
the respondents believe that they were not selected on the basis of their knowledge.

The majority of the respondents (70 percent) believe there is no discrimination in

selection process. While, 20 percent of the respondents are neutral about this statement
and 10 percent believe that there is discrimination in the selection process.

The majority of the respondents (66.66 percent) feel that the vacancies are filled from
qualified employees who are working in the bank. While, 23.33 percent are neutral about
this statement, and 10 percent of the respondents feel that the vacancies are not filled
from qualified employees who are working in the bank.
The majority of the respondents (80 percent) believe that that recruitment and selection is
done by the outsourcing mechanism. While, 1 percent of the respondents are neutral
about the statement and 10 percent of the respondents believe that recruitment and
selection is not done by outsourcing mechanism.

Mean value of recruitment and selection ranges from 1.61 to 2.36. Among them, the most
significant observations on recruitment and selection are recruitment and selection is
done by outsourcing mechanism. The most insignificant observation on recruitment and
selection is recruitment and selection of the bank is done by the quota system. Weighted
average mean value for recruitment and selection is 2.10 which reveal that right
recruitment and selection is necessary in banking sector. This shows that the employee’s
satisfaction from the recruitment and selection policy is higher in commercial banks of
Nepal.

4.1.1.4 Analysis of training and development

In order to transform the new recruits into effective and productive employees, they must
be integrated into the organizations. Their abilities and skills need to be expanded and
polished through activities like training and development.

The respondents were asked questions regarding their view on training and development.
The respondent’s opinion regarding the training and development is presented in table 4.4

Table 4.4: Training and development of Nepalese commercial banks

This table shows the percentage, frequency, mean of the employee perception regarding
training and development of commercial banks. The statement based is based on the
training and development is measured in five Likert scales 1 as strongly disagree (SD), 2
as disagree, 3 as neutral, 4 as agree and 5 as strongly agree (SA).
Statement Strongly Disagree Neutral Agree Strongly N Mean
Disagree Agree

F 7 10 60 51 22 150
2.52
Training is
conducted as % 4.66 6.67 40 34 14.6 100
 A% 11.33 40 48.66

Training F 12 20 40 50 28 150
helps to
% 8 13.33 26.66 33.33 18.67 100 2.58
boost up my
performance. A% 21.33 26.66 52

 I am F 5 20 45 50 30 173
satisfied
% 3.33 13.33 30 33.33 20 100
with the
training 2.46

program
organized by
A% 16.66 30 53.33
the bank.
The bank F 10 15 40 55 30 150
frequently
% 6.66 10 26.66 36.66 20 100
arranges
training to
learn new 2.46
things for
the
employee. A% 16.66 26.66 56.66

The training F 10 15 60 45 20 150

program
% 6.66 10 40 30 13.33 100 2.66
match with
my nature of
A% 16.67 40 43.33
job.
Weighted average mean 2.29
Field Survey, 2015

The above table shows the analysis of training and development. The majority of the
respondents (48.66 percent) believe that the training is conducted as the overall
requirement of the employee. While, 40 percent of the respondents are neutral about the
statement, and 11.33 percent of the respondents believe that training is not conducted as
the overall requirement of the employee.

The majority of the respondents (52 percent) agreed that training helps to boost up the
performance. While, 26.66 percent are neutral about this statement, and 21.33 percent of
the respondents don’t believe that training helps to boost up the performance.

The majority of the respondents (53.33 percent) believed that they are satisfied by the
training program organized by the bank. While, 30 percent were neutral are neutral about
this statement and 16.66 percent of the respondents feel that they are not satisfied by the
training program organized by the bank.

The majority of the respondents (56.66 percent) believe that the training program match
with the nature of job. While, 26 percent of the respondents are neutral about this
statement and 16 percent of the respondents believe that the training program is not
according to the nature of job.

The majority of the respondents (43.33 percent) believed bank frequently arranges
training to learn new things for the employee. While, 40 percent of the respondents are
neutral about this statement, and 16.67 percent of the respondents believed that bank
doesn’t frequently arranges training to learn new thing for the employee.

Mean value of training and development ranges from 2.46 to 2.66. Among them, the most
significant observations on training and development are the bank frequently arranges
training to learn new things for employee. The most insignificant observation on training
and development is the training program match with the nature of my job. Weighted
average mean value for training and development is 2.29 which indicate that employee
agree that bank should conduct training and development program. There is a need for a
continuous training program for employees.
4.1.1.5 Analysis of performance appraisal

Performance appraisal is one of the most important factors of human resource

management practice. It includes observation and judgment in the performance appraisal.
This practice aims at evaluating the current and the past performance of the employees
based on the performance standards with the view ‘to improve performance.

The respondents were asked questions regarding their view on performance appraisal.
The respondent’s opinion regarding the performance appraisal is presented in table 4.5.

Table 4.5: Performance appraisal of Nepalese commercial banks

This table shows the percentage, frequency, mean of the employee perception regarding
performance appraisal of commercial banks. The statement is based on the performance
appraisal is measured in five Likert scales 1 as strongly disagree (SD), 2 as disagree, 3
as neutral, 4 as agree and 5 as strongly agree (SA).

Statement Strongly Disagre Neutr Agre Strongl N Mea

Disagree e al e y Agree n

15
The F 5 15 20 50 60 0
performance
10
appraisal is 3.33 10 13.33 33.33 40 2.03
% 0
fairly
conducted by A
the bank. % 13.33 13.33 73.33

Performance 15 2.23
appraisal is F 10 15 20 60 45 0
done by the
% 6.66 10 13.33 40 30 10
supervisor.
0
 A
% 16.66 13.33 70

15
F 18 12 40 50 30 0
There is a
formal & 10 2.58
12 8 26.66 33.33 20
written % 0
performance
A
appraisal
% 20 26.66 53.33
system.
15
F 5 10 40 60 35 0

23.33 10
I am informed 3.33 6.66 26.66 40 2.26
% 0
that how my
performance is A
evaluated % 10 26.66 63.33

15
F 4 10 30 71 35 0

10
2.26 6.66 20 47.33 23.33
I receive % 0
feedback and
A
counseling on
% 9.33 19.7 70.7 2.18
regular basis.
Weighted average mean 2.18

Field Survey, 2015

The above table shows the analysis of performance appraisal. The majority of the
respondents (73.33 percent) believe that the performance appraisal is fairly conducted by
the bank. While, 13.33 percent of the respondents are neutral about this statement, and
13.33 percent of the respondent doesn’t believe that the performance appraisal is fairly
conducted by the bank.

The majority of the respondents (70 percent) feel performance appraisal is done by the
supervisor. While, 13.33 percent of the respondents are neutral about this statement, and
16.66 percent of the respondents believed that performance appraisal is not done by the
supervisor.

The majority of the respondents (53.33 percent) believe that that there is formal and
written performance appraisal system. While, 26.66 percent of the respondents are neutral
about the statement, and 20 percent of the respondents believe that there is no formal and
written performance appraisal system.

The majority of the respondents (63.33 percent) agree that they were informed about how
performance is evaluated. While, 26.66 percent were neutral about this statement, and 10
percent of the respondents believe that they were not informed about how performance is
evaluated.

The majority of the respondents (70.7 percent) believe that they receive feedback of
performance appraisal in regular basis. While, 19.7 percent of the respondents are neutral
about this statement and 9.33 percent of the respondents believe that they don’t receive
feedback of performance appraisal in regular basis.

Mean value of performance appraisal ranges from 2.03 to 2.58. Among them, the most
significant observations on performance appraisal are the performance appraisal is fairly
conducted by the bank. The most insignificant observation on performance appraisal is
there is formal and written performance appraisal system. Weighted average mean value
for performance appraisal is 2.18 which reveal that bank must follow effective
performance appraisal system. This shows that the employee’s satisfaction from the
performance appraisal system is higher in commercial banks of Nepal.

4.1.1.6 Analysis of compensation

All forms of pay or rewards that institutions give to employees in exchange of their
services are referred to as compensation and benefits. Compensation is the activity of
HRM function through which employees get every type of reward in return of performing
the tasks assigned by the administration. There is precedence of various employees being
paid variably for the same job.

The respondents were asked questions regarding their view on compensation. The
respondent’s opinion regarding the compensation is presented in table 4.6.

Table 4.6: Compensation of Nepalese commercial banks

This table shows the percentage, frequency, mean of the employee perception regarding
compensation of commercial banks. The statement based is based on the compensation is
measured in five Likert scales 1 as strongly disagree (SD), 2 as disagree, 3 as neutral, 4
as agree and 5 as strongly agree (SA).

Statement Strongl Disagre Neutr Agre Strongl N Mea

y e al e y Agree n
Disagre
e

15
F 4 20 53 45 28 0

10
13.33 35.33 30 18.66 2.51
% 2.66 0
Salary increases
are decided on a A
fair manner. % 16 35.33 48.66

I earn the same 15 2.44

as or more that F 10 9 40 70 21 0
other people in a
% 6.66 6 26.66 46.66 14 10
similar job.
0
 A
% 12.66 26.66 60.66

15
F 9 3 10 70 58 0

The incentives 10
6 2 6.66 46.66 38.66 2.85
provided by the % 0
bank give me a
A
sense of
% 8 6.66 85.33
accomplishment.
15
F 10 30 60 30 20 0

13.33 10
The salary is 6.66 20 40 20
% 0
satisfactory in
relation to the A
nature of my job. % 26.66 40 33.33 2.86

15
F 7 10 45 63 25 0
The basis of
payment, for 10
4.66 6.66 30 42 16.66
example % 0
overtime
A
payment is
% 11.33 30 58.67 2.40
reasonable.
Weighted average mean 2.61

Field Survey, 2015

The table shows the analysis of compensation. The majority of the respondents (48.66
percent) believe that the salary increases are decided on a fair manner. While, 35.33
percent of the respondents are neutral about this statement, and 16 percent of the
respondents don’t believe that salary increases are decided on a fair manner.

The majority of the respondents (60.66 percent) believe that they earn the same as or
more that other people in a similar job. While, 26.66 percent of the respondents were
neutral about this statement, and 12.66 percent of the respondents don’t believe that they
earn the same as other people in a similar job.

The majority of the respondents (85.33 percent) believe that they are satisfied the
incentives provided by the bank give them a sense of accomplishment. While, 6.66
percent of the respondents are neutral about this statement, and 8 percent of the
respondents are not satisfied with the incentive provided by the bank.

The majority of the respondents (26.66 percent) feel salary is satisfactory in relation to
nature of job. While, 40 percent of the respondents are neutral about this statement, and
35.33 percent of the respondents not satisfied with the salary with the nature of job.

The majority of the respondents (58.67 percent) believe that the basis of payment for
overtime is reasonable. While, 30 percent of the respondents are neutral about this
statement, and 11.33 percent of the respondents don’t believe that payment for overtime
is reasonable.

Mean value of compensation ranges from 2.40 to 2.86. Among them, the most significant
observations on compensation are the incentives provided by the bank gives the feeling
of accomplishment. The most insignificant observation on compensation is salary is
satisfactory in relation to the nature of job. Weighted average mean value for
compensation is 2.61 which reveal that compensation package is necessary for the
employee. This indicates that there exists difference in the employee’s satisfaction with
regard to the compensation.

4.1.2. Descriptive analysis

This study has employed descriptive research design. Descriptive statistics have been
used to describe the characteristics of human resource practices and its impact during the
study period. The descriptive statistics used in this study consists of mean, standard
deviation, minimum and maximum values associated with variables under considerations.
The human resource practices variables are human resource planning, recruitment and
selection, training and development, performance appraisal and compensation. The
descriptive statistics are summarized on following table 4.9.

Table 4.9: Descriptive statistics

This table summarizes the descriptive statistics of variables used in this study. It shows
descriptive statistics –mean values and standard deviation of different variables
associated with 150 sample. Independent variables consist of HRM practices: HRP as
human resource planning, RS as recruitment and selection, TD as training and
development, PA as performance appraisal and COM as compensation. Dependent
variables consist of ROA as return on assets and ROE as return on equity.

Variables Min. Max. Mean. SD

ROA 1.32 4.5 4.76 0.60
ROE 1.60 4.8 4.09 0.62
HRP 1.57 4.5 2.84 0.54
RS 1.60 4.2 2.10 0.52
TD 1.45 4.5 2.29 0.64
PA 1.50 4.7 2.18 0.60
COM 1.42 4.3 2.69 0.50
Source: SPSS results based on responses on survey questionnaire

The above table shows the number of observations, minimum, maximum, mean and
standard deviation of the variables. The sample consists of Nepalese commercial banks.
Return on assets ranges from 1.32 to 4.5, leading the average return on assets of 4.76
while return on equity ranges from 1.60 to 4.8, leading the average return on equity of
4.09. The descriptive statistics for the independent variable, human resource planning
ranges from 1.57 to 4.5, leading the average human resource planning of 2.84 while
recruitment and selection ranges from 1.60 to 4.2, leading the average recruitment and
selection of 2.10. Training and development ranges from 1.45 to 4.5, leading the average
training and development of 2.29. Likewise, performance appraisal ranges from 1.50 to
4.7, leading the average performance appraisal of 2.18 while compensation ranges from
1.42 to 4.3, leading the average compensation of 2.69.
4.1.3. Pearson’s correlation analysis

Pearson’s correlation is used to analyze the impact of HR practices on financial

performance of Nepalese commercial banks. The coefficient is often used as a test
statistic in a statistical hypothesis test to establish whether two variables may be regarded
as statistically dependent. The Pearson’s correlation analysis is summarized on following
table 4.10.

Table 4.10: Pearson’s correlations coefficient of human resource management

practices on financial performance of Nepalese commercial banks

This table reveals the Pearson’s correlation coefficient between human resource
management and financial performance of commercial banks. Independent variables
consist of HRM practices: HRP as human resource planning, RS as recruitment and
selection, TD as training and development, PA as performance appraisal and COM as
compensation. Dependent variables consist of ROA as return on assets.

  ROA HRP RS TD PA COM

ROA 1          

HRP 0.072** 1        

RS 0.359** 0.220** 1      

TD 0.568** 0.130** 0.017** 1    

PA 0.542** 0.130** 0.267 ** 0.300** 1  

COM 0.586** 0.035** 0.320 0.570** 0.237** 1

Source: SPSS results based on responses on survey questionnaire

Notes:

1. *sign indicates that correlation is significant at 1 percent level.

 2. ** indicate that correlation is significant at 5 percent significant level

The above table reveals the correlation coefficient among the dependent and independent
variables. The above result believes that there is positive correlation between human
resources planning and return on assets which means that higher the human resource
planning, higher would be return on assets of commercial banks.

Recruitment and selection has positive correlation with return on assets indicating that
higher the recruitment and selection, higher would be return on assets. There is a positive
correlation between training and development and return on assets of Nepalese
commercial banks. It means that higher the training and development of the employees,
higher would be return on assets.

There is a positive correlation between performance appraisal and return on assets. It

means that higher the performance appraisal of employees, higher would be return on
assets. The result also shows that there is positive correlation between compensation and
return on assets which indicates that higher the compensation, higher would return on
assets. The person’s correlation of human resource planning on financial commitment is
presented in following table 4.11.

Table 4.11: Pearson’s correlations coefficient of human resource management

practices on financial performance of Nepalese commercial banks

This table reveals the Pearson’s correlation coefficient between human resource
management practices and financial performance of commercial banks. Human resource
management practices consists HRP as human resources planning, RS as recruitment
and selection, TD as training and development, PA as performance appraisal and Com
as compensation.

  ROE HRP RS TD PA COM

ROE 1

HRP 0.280** 1
 RS 0.540* 0.220** 1

TD 0.280** 0.140** 0.130 1

PA 0.310** 0.130** 0.160** 0.319** 1

COM 0.490** 0.040 0.470 0.570** 0.330** 1

Source: SPSS results based on responses on survey questionnaire

Notes:

1. *sign indicates that correlation is significant at 1 percent level.

2. ** indicate that correlation is significant at 5 percent significant level.

The above table reveals the correlation coefficient among the dependent and independent
variables. There is positive correlation between human resources planning and return on
equity which means that higher the human resource planning higher would be return on
equity of commercial banks. Recruitment and selection has positive correlation with
return on equity indicating that higher the recruitment and selection of employee, higher
would be return on equity. There is a positive correlation between training and
development of employee and return on equity of Nepalese commercial banks. It means
that higher the training and development of employee, higher would be return on equity.
There is a positive correlation between performance appraisal and return on equity. It
means that higher the performance appraisal, higher would be return on equity.

The correlation coefficient between compensation and return on equity is positively

significant which indicates that higher the compensation, higher would be return on
equity.

4.1.4 Regression analysis

The regression of human resource planning, recruitment and selection, training and
development, performance appraisal, compensation, promotion practices on employee
retention is summarized on following Table 4.12.
 Table 4.12: Regression of human resource planning, recruitment and selection,
training and development, performance appraisal, compensation on financial
performance

The results are based on 150 observations for the period 2014/15 by using linear
regression model. The model is ROA= β0 + β1 (HRP) + β2 (RNS) + β3 (TD) + β4 (PA) + β5
(COM) + eit. Where, ROA=Return on assets, HRP=human resources planning,
RS=recruitment and selection, TD=training and development, PA=performance
appraisal and COM=compensation.

Intercep Regression Coefficient of ROA

Model t HRP RS TD PA COM R-bar² SEE F
3.359 0.07  
(1.85)*  
1 (1.23)** *       0.244 0.592 56.6**
2.1 0.275  
(2.35)*  
2 (1.52)**   *     0.3 0.137 55.0**
2.56 0.055  
(1.48)*  
3 (1.12)**     *   0.45 0.56 90.07**
1.67 0.152   103.88*
4 (1.83)**       (1.1)**   0.37 0.46 *
2.26 0.45
(1.84**) (1.20)** 130.09*
5             0.5 0.55 *
1.399 0.44 0.422
(2.99** 120.19*
6 (1.08*)   ) (2.10*)     0.6 0.38 *
1.5 0.28   0.345 0.18 0.53 20.72
(4.45** (4.95**)
7 (2.5**)     )        
8 1.14   0.394 0.44   0.15 0.22 0.52 17.16
 (2.31** (7.63** (2.43**)
(2.40**)   ) )
0.806 0.14 0.09 0.39 0.12
(2.57)* (1.90)*
9 (2.62)*   (2.09)* (1.69)* * 0.4 0.45 30.67
0.95 0.91 0.16 0.118 0.39 0.12
(1.31)* (2.56)* (1.81)*
10 (2.94)* * (2.37)* (1.96)* * 0.411 0.454 25.04
Notes:

(1) Figures in parenthesis are t-values.

(2) * denotes that the results are significant at 1% level of significance.
(3) ** denotes that the results are significant at 5% level of significance.
(4) ROA as dependent variable.

The above table represents the regression of human resources on return on assets. The
regression of human resource practices variables on return on assets shows that beta
coefficient for human resource planning is positive with return on assets. The results
hence indicate that higher the human resource planning, higher would be return on assets
of commercial banks. However, the coefficient is significant at 1 percent level of
significance. The beta coefficient for recruitment and selection is positive with return on
assets. The coefficients are significant for recruitment and selection. The results hence
indicate that higher the recruitment and selection of the bank, higher would be the return
on assets.

The beta coefficient for training and development is positive with return on assets. The
coefficients are significant for training and development. The results hence indicate the
higher the training and development, higher would be the return on assets of commercial
banks. The beta coefficient for performance appraisal is positive with return on assets.
The coefficients are significant for performance appraisal. The results hence indicate that
higher the performance appraisal, higher would be return on assets of commercial banks.
The beta coefficient for compensation is positive with return on assets. The coefficients
are significant for compensation. The results hence indicate that higher the compensation,
higher would be the return on assets of commercial banks.

From the table, it can be concluded that the relationship between human resource
practices measured by human resource planning, recruitment and selection, training and
development, performance appraisal and compensation have positive and significant
relationship with financial performance. So, from the study, it can be concluded that there
is positive and significant relationship between human resource practices and return on
assets. Therefore, the alternative hypothesis which states that there is a positive and
significant relationship between human resource practices and return on assets is
accepted. The Regression of human resource planning, recruitment and selection, training
and development, performance appraisal, compensation, promotion practices on return on
equity is presented in table 4.13.

Table 4.13: Regression of human resource planning, recruitment and selection,

training and development, performance appraisal, compensation, promotion
practices on return on equity

The results are based on 150 observations for the period 2014/15 by using linear
regression model. The model is ROE= β0 + β1 (HRP) + β2 (RNS) + β3 (TD) + β4 (PA) + β5
(COM)+ β6 (PP). Where, ROE=return on equity, HRP=human resources planning,
RS=recruitment and selection, TD=training and development, PA=performance
appraisal and COM=compensation.

Mod Interce Regression Coefficient of ROE A R-

el pt HRP RS TD PA COM bar² SEE F
3.359 0.325  
(13.2)*   156.6*
1 * 2.34       0.244 0.592 *
2 2.1   0.908       0.4 0.507 25.0**
(7.52)* (2.123)  
 * **
2.56 0.503  
(11.1)* (2.258)   85.07*
3 *     **   0.50 0.559 *
1.608 0.550  
(8.83)* (2.152)   43.88*
4 *       ** 0.25 0.45 *
1.608 0.45
(2.259* (2.20)
*) ** 130.09
5             0.527 0.472 **
0.876 0.880 0.376
(2.259* (2.866* (2.212* 80.39*
6 )   *) )     0.526 0.471 *
 0.694 0.359 0.411 0.525 50.073
(2.148) 65 *
0.336 *
(2.518
(0.892*
)*
7 *)          
0.908   0.702 0.298 0.552 0.458 62.167
 0.312
(2.195) (2.983) 66 *
(3.077)
* *
8 (2.588)   *
0.306 0.092 0.688 0.284 0.410 0.526 35.498
(0.806) (2.787) (2.062) (2.043) 34 *
* **
9  
1.213 0.698 0.146 0.263 0.267 0.276 0.564 0.452 49.127
(3.244 (3.452) (2.577) (2.226) (2.435 57 *
(3.126)
)* ** ** )*
10 *

Notes:
 (1) Figures in parantheses are t-values.
(2) * denotes that the results are significant at 1% level of significance.
(3) ** denotes that the results are significant at 5% level of significance.
(4) ROE as dependent variable.

The above table presents regression result of human resource practice variables return on
equity. The regression of human resource practices variables on return on equity shows
that beta coefficient for human resource planning represented by is positive. The results
hence indicate that higher the human resource planning, higher would be return on
equity.

The beta coefficient for recruitment and selection is positive with return on equity. The
coefficients are significant for recruitment and selection. The results hence indicate that
higher the recruitment and selection of the bank, higher would be the return on equity.
The beta coefficient for training and development is positive with return on equity. The
coefficients are significant for training and development. The results hence indicate that
higher in training and development, higher would be return on equity of commercial
banks.

The beta coefficient for performance appraisal is positive with return on equity. The
coefficients are significant for performance appraisal. The results hence indicate that
higher the performance appraisal of the bank, higher would be the return on equity of
commercial banks. The beta coefficient for compensation is positive with return on
equity. The coefficients are significant for compensation. The results hence indicate that
higher the compensation, higher would be the return on equity of commercial banks.

From the table, it can be concluded that the relationship between human resource
practices measured by human resource planning, recruitment and selection, training and
development, performance appraisal and compensation have positive and significant
relationship with return on equity. So, from the study, it can be concluded that there is
positive and significant relationship between human resource practices and return on
equity. Therefore, the alternative hypothesis which states that there is a positive and
significant relationship between human resource practices and return on equity is
accepted.

4.3 Concluding remarks

This study has mainly focused on impact of human resource practices in Nepalese
context. This study has used HR practices components, the major components of human
resource practices are human resource planning, recruitment and selection, training and
development, performance appraisal and compensation.

The formulation of human resource planning by commercial banks has not been executed
properly. This shows variation exists in the perception of employee’s regarding human
resource planning. The study reveals that respondent agrees with each statement of
recruitment and selection and bank should follow proper and right recruitment and
selection mechanism. This shows that the employee’s satisfaction from the recruitment
and selection policy is higher in commercial banks of Nepal.

While analyzing the components of human resource practices, study concludes that
employees shows their strong agreement with each statement of training and
development and feels that it is necessary for banks to conduct training and development
program. There is a need for a continuous training program for employees. The study
concludes that employees are in favor with each statement of performance appraisal and
feels that it is necessary for commercial banks to follow performance appraisal system.
This shows that the employee’s satisfaction from the performance appraisal system is
higher in commercial banks of Nepal.

The study revealed that employees of the commercial banks feel that compensation
package is necessary in order to enhance the performance of the employees and to
increase productivity.

This study finds positive and significant relationship between HR practices and financial
performance. The study conducted by Meyer and Allen (1990) found that employees
with a strong personal attachment and identification with the company continue in the
employment. This is ‘affective commitment’ that arises from the obligation due to social
pressure constitutes continuance commitment and both give rise to financial performance
which is strongly related to innovative HR practices

This study finds positive and significant relationship with HR practices and financial
performance. This is similar with the view of Barney (1992) human resources can
provide a source of sustained competitive advantage when four basic requirements are
met, that is, through valuable, rare, inimitable and well organized human resources. As a
result, it is important that a firm adopts human resource management practice that makes
best use of its employees.
 CHAPTER V

SUMMARY AND CONCLUSION

This chapter deals with the brief summary of the entire study. It also highlights the major
findings of the study. In addition, the major conclusions are discussed in separate section
of this chapter. Likewise recommendations regarding the study are also presented in
separate section of this chapter. Lastly, the chapter ends with the discussion of scope for
the future study in the same field.

5.1 Summary

Why name human resource management? Human refer to the skilled workforce in
organization. Resource refers to limited availability or scarce. Management refers to
maximize or proper utilization and make best use of limited and a scarce resources.
Altogether, human resource, management is the process of proper and maximum
utilization of available limited skilled workforce. The concept of Human Resource
Management is the improved version of the term Personnel Management. Its emerging
concept emphasizes the integration of both the strategic and operational activities to
achieve the desired goals. It is the financial function that deals with the issues related to
the people such as hiring, training, motivating and communicating the employees. HRM
practices as recruitment and selection, training and development, compensation practices
and performance appraisal are essential to achieve these results. Human resources are the
valuable assets of an organization. If they are managed and treated properly, they help to
increase the financial productivity through their full commitment and capability and
enable the firm to compete worldwide. Human resources in an organization are the most
valuable resources because of their talents and energies that can contribute towards the
achievement of the organization’s mission, vision, strategy and goals. Human resource
management practices have an economically and statistically significant impact on both
intermediate employee outcomes and short and long term measure of corporate financial
performance (Huselid, 1995). Therefore this study attempted to explore human resource
practices followed in Nepalese commercial banks and includes the issues regarding HRM
outcomes and financial performance as ROA and ROE of Nepalese commercial banks.

The return on asset and return on equity is one of the important variables to measure the
financial performance in Nepalese commercial banks. It is imperative for the
management to reduce, to the minimum, the frequency at which employees, particularly
those that are crucial to its operations leave the organization (Samuel and Chipunza,
2009). There are no sufficient studies carried on by linking the HRM practices on
financial performance. It can be assumed that there are structural differences in the
planning, implementation and evaluation system of HR practices in between the
ownership status of the bank as there are private, private with joint venture and
Government banks in Nepal. In today’s scenario there is the need of including human
resource planning, training and development, performance appraisal, compensation,
performance appraisal as the HR practices bundle. There is very limited research carried
out on the impact of HRM practices on financial performance in context of Nepal and the
developing countries using the recent data. Hence this study has been undertaken to
analyze the impact of HRM practices on financial performance using the recent data.

This study basically aims with the objective of identifying the HRM practice, assessing
the perception of employees on the existing HRM practice, examining the impact of
HRM practices on the financial performance, identifying the relationship between HRM
practices and financial performance and assessing the need of improving HRM practices
in Nepalese banking sectors. To achieve the main objective the specific objectives are to
identify HR practices in Nepalese commercial banks. To assess the impact of HRM
practices on financial performance, it is needed to analyze the impact of recruitment and
selection practices in financial performance in Nepalese banking sector. Likewise it is
also needed to evaluate the effect of training and development practices in financial
performance in Nepalese commercial banks. It is also essential to examine the effect of
compensation practices in financial performance in Nepalese commercial banks.
Similarly it is also needed to determine the effect of performance appraisal in financial
performance in Nepalese banking sectors.
This study includes both the primary and the secondary data. The primary data have been
collected through the questionnaire distributed to the employees of 20 commercial banks.
150 samples are undertaken for these studies who are the employees in Nepalese
commercial banks. Likewise for the secondary data the annual reports of 20 sample
commercial banks is included. The current data regarding ROA and ROE has been taken.
Data is also tested which is valid with Cronbach’s Alpha i.e. 0.824.

Major Findings

1) The majority of the respondents (60.13 percent) believe that the bank’s mission
was communicated at the time of joining. While, 33.3 percent of the respondents
are neutral about this statement and 6.3 percent of the respondents believe that
bank’s mission was not communicated at the time of joining.
2) The majority of the respondents (73.33 percent) believe that human resource
planning has not made the job more challenging. While, 23.33 percent of the
respondents are neutral about this statement and 3 percent of the respondents
believe that human resource planning has made job more challenging.
3) The majority of the respondents (69.93 percent) agree that the policy changes
have been made to encourage employee participation. While, 10 percent of the
respondents are neutral about this statement, and 19.93 percent of the respondents
feel that HR planning is not used as the mechanism for conflict management.
4) The majority of the respondents (62 percent) believe that the recruitment and
selection of the bank is done by quota system. While, 20 percent of the
respondents are neutral about this statement, and 18 percent believed that
recruitment and selection is not done by the quota system.
5) The majority of the respondents (48.66 percent) believe that the training is
conducted as the overall requirement of the employee. While, 40 percent of the
respondents are neutral about the statement, and 11.33 percent of the respondents
believe that training is not conducted as the overall requirement of the employee.
6) Weighted average mean value for training and development is 2.29 which indicate
that employee agree that bank should conduct training and development program.
There is a need for a continuous training program for employees.
7) Weighted average mean value for performance appraisal is 2.18 which reveal that
bank must follow effective performance appraisal system. This shows that the
employee’s satisfaction from the performance appraisal system is higher in
commercial banks of Nepal.
8) Weighted average mean value for compensation is 2.61 which reveal that
compensation package is necessary for the employee. This indicates that there
exists difference in the employee’s satisfaction with regard to the compensation.
9) The correlation coefficient between human resource planning and return on asset
positively significant. It means that higher the human resource planning higher
would be return on assets of commercial banks.
10) The result showed that recruitment and selection has positive correlation with
return on assets indicating that higher the recruitment and selection, higher would
be return on assets.
11) The result showed that there is a positive correlation between training and
development and return on assets of Nepalese commercial banks. It means that
higher the training and development of the employees, higher would be return on
assets.
12) The result found that there is a positive correlation between performance appraisal
and return on assets. It means that higher the performance appraisal of employees,
higher would be return on assets.
13) . The result also shows that there is positive correlation between compensation
and return on assets which indicates that higher the compensation, higher would
return on assets.
14) The result revealed that there is positive correlation between human resources
planning and return on equity which means that higher the human resource
planning higher would be return on equity of commercial banks.
15) The result revealed that recruitment and selection has positive correlation with
return on equity indicating that higher the recruitment and selection of employee,
higher would be return on equity.
16) The result showed that there is a positive correlation between training and
development of employee and return on equity of Nepalese commercial banks. It
 means that higher the training and development of employee, higher would be
return on equity.
17) The result showed that beta coefficient for human resource planning is positive
with return on assets. The results hence indicate that higher the human resource
planning higher would be return on assets of commercial banks.
18) The result revealed that the beta coefficient for recruitment and selection is
positive with return on assets. The coefficients are significant for recruitment and
selection. The results hence indicate that higher the recruitment and selection of
the bank, higher would be the return on assets.
19) The beta coefficient for training and development is positive with return on
assets. The coefficients are significant for training and development. The results
hence indicate the higher the training and development, higher would be the
return on assets of commercial banks.
20) The beta coefficient for performance appraisal is positive with return on assets.
The coefficients are significant for performance appraisal. The results hence
indicate that higher the performance appraisal, higher would be return on assets of
commercial banks.
21) The beta coefficient for compensation is positive with return on assets. The
coefficients are significant for compensation. The results hence indicate that
higher the compensation, higher would be the return on assets of commercial
banks.
22) The regression of human resource practices variables on return on equity shows
that beta coefficient for human resource planning represented by is positive. The
results hence indicate that higher the human resource planning higher would be
return on equity.
23) The result revealed that the beta coefficient for recruitment and selection is
positive with return on equity. The coefficients are significant for recruitment and
selection. The results hence indicate that higher the recruitment and selection of
the bank, higher would be the return on equity.
24) The result found that the beta coefficient for training and development is positive
with return on equity. The coefficients are significant for training and
 development. The results hence indicate that higher in training and development,
higher would be return on equity of commercial banks.
25) The result concluded that the beta coefficient for performance appraisal is positive
with return on equity. The coefficients are significant for performance appraisal.
The results hence indicate that higher the performance appraisal of the bank,
higher would be the return on equity of commercial banks.
26) The result revealed that the relationship between human resource practices
measured by human resource planning, recruitment and selection, training and
development, performance appraisal and compensation have positive and
significant relationship with return on equity. So, from the study, it can be
concluded that there is positive and significant relationship between human
resource practices and return on equity

5.2. Conclusion

The major conclusion of the study is that human resource practices play a prominent role in
determination of financial performance. Employee of the commercial bank gives highest ranking
to human resource practices such as recruitment and selection, training and development,
performance appraisal and compensation whereas formulation of human resource planning by
commercial banks has not been executed properly. This shows variation exists in the perception
of employee’s regarding human resource planning.

The study concludes that the sound and rational human resource management practices are
essential for the success of any of the organization. There has to be fair and consistent
implementation of human resource management policies. Human resource management
departments should have sufficient authority in order to ensure that human resource management
policies will be implemented without discrimination, ethically, fairly and objectively.

5.3. Recommendations
Based on the findings of the study, the following recommendations are made for further
improvement on the human resources management of Nepalese commercial bank.

1. There is a positive correlation between recruitment and selection and financial

performance. The banks should focus more on recruitment and selection. Banks
 should have a well, apparent and concise recruitment and selection policy in
place, for effective and efficient execution to acquire the best talent human
resource.
2. There is a positive correlation between training and development and financial
performance, the training program has to shift from mere knowledge development
to more of skill enhancement and creating an attitude for service and increase the
performance level of banks.
3. The study identified positive correlation between performance appraisal and
financial performance. It is suggested that bank should introduce open appraisal
system, so that banks would know weak areas of performance and try to develop
them and perform well.
4. There is a positive correlation between compensation and financial performance.
The banks willing to retain more employees should focus more on commission,
profit sharing, medical and pension facilities.
5. The study indicates positive relationship between human resource planning and
financial performance. The bank willing to improve financial performance should
focus more on human resource planning.

5.4. Scope for future research

a) This study has taken only primary data as sample. Academicians are suggested to
take, secondary data as a sample for more convenient result.
b) The proxies used for financial performance in this study are return on asset and
return on equity. However, there are other proxies for financial performance like
per share (EPS). So, it is recommended to use other proxies of financial
performance for future academic purpose.
c) This study has taken 20 commercial banks of Kathmandu Valley and study is
focused on Nepalese commercial banks as their sample. Hence, academicians are
suggested to take other form of financial sectors such as development banks,
financial companies in their sample.
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 Impact of Human Resource Management Practices on Employees
Satisfaction of Nepalese commercial Bank.

Dear Respondent,

I am doing research on impact of human resource management practices and their impact on
financial performance of Nepalese Commercial bank. These questions pertain to your experience
in your current job and organization. I will be grateful if you provide me your valuable time to
respond my questions appearing in the enclosed questionnaire. The answers will be kept strictly
confidential and will only be used for this research purpose.

Thank you for your co-operation.

…………………..

Sneha Malla

MBA (Finance)

Uniglobe College, Kathmandu, Nepal

Section 1: Respondent Personal Detail

1. Please mention your gender. (Please make the tick ( ) mark)

Male
Female
Other’s
 2. Please mention your age. (Please make the tick ( ) mark)
Below 30
30-35
Above 45

3. Please mention your academic qualification. (Please make the tick ( ) mark)
Intermediate degree(+2)
Bachelor’s degree
Master’s degree
Above Master’s degree

4. Please mention the designation in which you belong to. (Please make the tick (
) mark)
Assistant level

Executive level

Manager Level

5. Please mention the year of Experience. (Please make the tick ( ) mark)
Less than 1

1-5 years

6-10 years

Above 10 years
Section 2: Human Resource Planning

Please tick mark ( ) in one of the best option of the following questions.

S. Statement Strongl Agre Neutra Disagre Strongly

N y e l e Disagre
Agree e
2.1 The organization mission statement was
. clearly communicated at the time of joining.

2.2 HR planning has made the job more

. challenging.
2.3 HR planning is used as the mechanism for
. conflict management.
2.4 The policy changes have been made to
. encourage employee’s participation in
management process.
2.5 The contents of the HR planning are always
. relevant to the changing needs of the
prevailing situation.

Section 3: Recruitment and Selection

Please tick mark ( ) in one of the best option of the following questions.

S.N Statement Strongly Agre Neutral Disagre Strongly

Agree e e Disagre
e
3.1. Recruitment and selection is done by the
quota system.
3.2. I am selected on the basis of my knowledge.

3.3. Discrimination of any kind is not involved in

the selection process.
3.4. The vacancies are filled from qualified
Employees' who are working in the bank.
3.5. Recruitment and selection process is also
done by the outsourcing mechanism.

Section 4: Training and Development

Please tick mark ( ) in one of the best option of the following questions.

S. Statement Strongl Agre Neutra Disagre Strongly

N y e l e Disagre
Agree e
4.1 Training is conducted as the overall
. requirement of the employee.
4.2 Training helps to boost up my performance.
.
4.3 I am satisfied with the training program
. organized by the bank.

4.4 The bank frequently arranges training to learn

. new things for the employee.
4.5 The training program match with my nature of
. job.

Section 5: Performance Appraisal

Please tick mark ( ) in one of the best option of the following questions.

S. Statement Strongl Agre Neutra Disagre Strongly

N y e l e Disagre
Agree e
5.1 The performance appraisal system is fairly
. conducted by the bank.
5.2 Performance appraisal is done by the
. supervisor.
5.3 There is a formal & written performance
. appraisal system.
5.4 I am informed that how my performance is
. evaluated.
5.5 I receive feedback of performance appraisal
. on regular basis in order to keep me update
about the particular matters.

Section 6: Compensation

Please tick mark ( ) in one of the best option of the following questions.

S.N Statement Strongly Agre Neutral Disagree Strongly

Agree e Disagre
e
6.1. Salary increases are decided on a fair
manner.

6.2. I earn the same as or more that other people

in a similar job.
6.3. The incentives provided by the bank give
me a sense of accomplishment.
6.4. The salary is satisfactory in relation to the
nature of my job.
6.5. The basis of payment, for example overtime
payment is reasonable

Section 7: Financial Commitment

Please tick mark ( ) in one of the best option of the following questions

S.N Statement Strongly Agre Neutra Disagre Strongly

Agree e l e Disagre
e
7.1. I have a sense of belongingness to bank
7.2. I am emotionally attached with my job.
7.3. I feel a sense of pride in working for my
bank.
7.4. I feel proud to tell others that I am part of
this organization
7.5 I do not have any intension to resign from the
bank.

Section 8: Employee Participation

Please tick mark ( ) in one of the best option of the following questions

S.N Statement Strongly Agre Neutra Disagre Strongly

Agree e l e Disagre
e
8.1. I am not fed up with working in this bank.

8.2. I talk about this bank to my friends as a great

platform to work.

8.3. I do not have any intention to resign from the

bank.

8.4. I feel loyalty towards this bank.

Thank you very much for completing the questionnaire, your participation is highly
appreciated!!!!!!!!!