ORGANIZATIONAL PERFORMANCE THROUGH STRATEGIC HUMAN RESOURCE PRACTICES AND EMPLOYEE ENGAGEMENT IN FINANCIAL INSTITUTIONS

Abstract

This study investigates the impact of Human Resource Management (HRM) practices on Islamic banking performance in Malaysia, focusing on the moderating role of employee engagement. A questionnaire survey with 300 employees was conducted, followed by interviews with 15-20 HR managers and senior executives of Islamic banks in Malaysia. Based on the quantitative analysis, all five HRM practices have a significant positive relationship with organizational performance. Training and development were identified as the most influential variable in the study (ß=0.28, P<0.001). The results indicate that employee engagement mediates the relationship between HRM practices and organizational performance (β=0.14, p=0.004). Employee engagement has a regression coefficient of 0.14, statistically significant at 0.004. The qualitative evidence also underlines Shariah-based HRM best practices, comprehensive Training and development initiatives, and values-led performance appraisal systems in Islamic banks. There is also a need to put much-concentrated effort into achieving comprehensive Training and development for the people working in the Islamic banks, to create and maintain an excellent organizational culture that embraces the Islamic banking standards, and find ways and means of improving staff commitment. It is essential to facilitate tradition and innovation to overcome stagnation but within the guidelines of Shariah. The following research question will guide this paper: This paper aims to evaluate the effect of HRM practices in Islamic banking institutions to explain how employee engagement may moderate the performance of the targeted organizations. It gives a clearer insight into the various challenges and opportunities for human resource management in the Islamic banking industry in Malaysia.