1. Introduction
We test whether firms that adopt certain human resource (HR) practices, such as performance pay, perform more successfully than do other firms. Recent international findings also point to the importance of a bundle of HR practices in promoting productivity (Ichniowski and Shaw, 2003). We add to this research by utilising a new and unique large-scale database: Statistics New Zealand's 2001 Business Practices Survey (BPS). The BPS is a survey of approximately 3,000 New Zealand firms, being a representative sample (having an 82% response rate) of all New Zealand firms with at least six full-time equivalent staff (FTEs) (Statistics New Zealand, 2002).
The BPS contained questions on a comprehensive range of employee practices; it also contains measures of firm performance. The survey's wide, representative coverage makes it an excellent source to shed new light on the importance of human resource policies for firm success. Fabling and Grimes (2006) use multivariate probit analysis to determine associations between a range of business practices and self-reported measures of firm success. This paper extends those results by examining whether adoption of certain employee practices have a causal impact on firm success. We examine also the types of firm that adopt certain employee practices.
Section 2 reviews recent international studies that find a link between human resource practices and firms' outcomes providing hypotheses to test with the New Zealand data. Section 3 briefly describes the data. Section 4 sets out our methodology and tests the impact of employee practices on firm success. We find evidence that adoption of a suite of modern employee practices, along with adoption of certain specific practices (relating to employee training, measurement of employee satisfaction, and performance pay), impact on firm success. In section 5 we isolate the key characteristics of firms that adopt these employee practices. Section 6 summarises our results.
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