Human resource management systems, employee well‐being, and firm performance from the mutual gains and critical perspectives: The well‐being paradox

• Date: 01 May 2020
• Author: Hoang Ho,Bård Kuvaas
• DOI: http://doi.org/10.1002/hrm.21990
• Published date: 01 May 2020

ORIGINAL ARTICLE

Human resource management systems, employee well-being,

and firm performance from the mutual gains and critical

perspectives: The well-being paradox

Hoang Ho | Bård Kuvaas

BI Norwegian Business School, Oslo, Norway

Correspondence

Hoang Ho, Department of Leadership and

Organizational Behaviour BI Norwegian

Business School, Oslo N-0484, Norway.

Email: hoang.cbs@gmail.com

Abstract

In this study, we explored the additive, interactive, and nonlinear relationships among

human resource management (HRM) systems, employee well-being, and firm perfor-

mance. Based on a sample of 14,384 employees nested within 1,347 firms, we

obtained three main findings. First, HRM systems yield a performance effect that

exceeds the effect of single practice, suggesting positive synergies among HRM prac-

tices. Second, the opportunity bundle has a positive impact on firm performance, but

when integrating it with skills and motivation bundles, the result becomes negative,

indicating dis-synergy of interactions among HRM bundles. Third, at moderate levels

of adoption, HRM practices are positively correlated with employee well-being and

higher levels of commitment, job satisfaction, and management relations, as well as

lower levels of anxiety. However, at high levels, the relationship is less positive and

even turns negative with lower levels of job satisfaction and management relations.

To close, we present research implications and future directions after discussing our

results.

KEYWORDS

employee well-being, firm performance, HRM systems

1|INTRODUCTION

Concern for employee well-being was first voiced in the early human

resource management (HRM) literature; for example, Beer, Spector,

Lawrence, Mills and Walton (1984) suggested that employee well-

being should be the long-term consequence considered when design-

ing an HRM system, and Legge (1998) argued that HRM may result in

morally problematic issues in cases where it leads to the exploitation

of workers. However, following these early concerns, employee well-

being has not become a central research agenda within the field, as

HRM scholars have mainly focused on the link between HRM and

performance, often known as the HRM–performance paradigm

(Boselie, Dietz, & Boon, 2005).

More recently, there has been heated debate regarding the impact

of HRM systems on employee health or well-being (Boxall & MacKy,

2009; Guest, 2017; Van De Voorde, Paauwe, & Van Veldhoven,

2012), as HRM scholars have increasingly recognized that taking care

of employee well-being is important from an ethical perspective

(Guest, 2017) and that there is empirical evidence suggesting that

employee well-being may have positive implications for firm perfor-

mance (Daniels & Harris, 2000).

Two competing views have emerged. The proponents of one view

argue that HRM systems benefit both employers and employees

(e.g., Kochan & Osterman,1994; Levine, 1995; Pfeffer, 1998), denoted

by labels such as “shared capitalism”(Kruse,Blasi, & Park, 2010), “high-

involvement”(Lawler, 1992), “mutual gains”(Kochan & Osterman,

1994), or “high commitment”(Walton, 1985). Following Kochan and

Osterman (1994), we label this view “the mutual gains perspective,”as

it conveys the key message thatboth employers and employees bene-

fit from HRM systems. Proponentsof the other view argue that HRM

DOI: 10.1002/hrm.21990

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systems benefit employers but not employees (Delbridge & Turnbull,

1992; Godard, 2001; Legge, 2005). We label this view “the critical

perspective.”

Unfortunately, the nature of the relationship between HRM sys-

tems and well-being is not accurately demarcated by existing empiri-

cal evidence, because such evidence has not conclusively confirmed

or ruled out either the mutual gains perspective or the critical per-

spective (Harley, Sargent, & Allen, 2010). On the one hand, some

studies have documented positive associations with employee experi-

ence of work (Appelbaum, Bailey, Berg, & Kalleberg, 2000; Butts, Van-

denberg, DeJoy, Schaffer, & Wilson, 2009; Castanheira & Chambel,

2010; Guest, 2002; Harley, Allen, & Sargent, 2007; Macky & Boxall,

2007). On the other hand, some have revealed negative associations

(Godard, 2001; Jensen, Patel, & Messersmith, 2011; Kroon, Voorde, &

Veldhoven, 2009; Landsbergis, Cahill, & Schnall, 1999). In addition,

some studies have indicated a mix of both positive and negative con-

sequences (e.g., Berg, Appelbraum, Bailey, & Kalleberg, 1996; Ramsay,

Scholarios, & Harley, 2000).

We suspect that such conflicting findings, whichwe refer to as the

well-being paradox,are attributable to two main reasons. The first rea-

son is that past studieshave measured well-being as a single dimension

(Peccei, van de Voorde, & Van Veldhoven, 2013), although there is

wide scientific consensus that well-being has multiple dimensions

(Diener, 1994; Wright,2014) and that there are often tradeoffs among

these dimensions “whereby one aspect of employee well-being

improves but anotheraspect of employee well-being decreases”(Grant,

Christianson, & Price, 2007, p.51). In the current study, we examine

multiple dimensions of well-being, including the construct's aspects of

happiness, health,and social relationships. A second reasonis that past

studies assume a linear relationship among HRM systems, well-being,

and performance, whereas logic suggests that the relationship may be

nonlinear. For example,Cappelli and Neumark (2001) argued that HRM

systems have both value-creating and cost-enhancing effects. That is,

at higher levels,the positive effects of HRM systems on well-beingand

performancemay be neutralized or even diminished as the costsassoci-

ated with the adoption of these systems substantially increases. Initial

evidence indicates a nonlinear relation between HRM systems and

well-being (Godard, 2001). However, the extant literature has mostly

tested the HRM, well-being, and performance relationship in a linear

fashion, thus leadingto incorrect inferences.

Accordingly, the overall objective of this study is to contribute to

HRM research by examining the current well-being paradox. We do

this by (a) examining multiple dimensions of well-being, including hap-

piness, health, and social relationships, and (b) examining the additive,

interactive, and nonlinear relationships among HRM, well-being, and

performance.

2|DEFINING THE KEY CONCEPTS

2.1 |HRM systems

Although there is no universaldefinition of HRM systems (Datta, Guth-

rie, & Wright, 2005), most empiricaland theoretical works (e.g., Arthur,

1994; Huselid, 1995; Ichniowski, Shaw, & Prennushi, 1997; Jiang,

Lepak, Hu, & Baer, 2012; Macduffie, 1995; Subramony, 2009; Way,

2002) define HRM systems as an integrated set or cluster of HRM

practices that have the potential to achieve substantially enhanced

economic performance. Such HRM practices typicallyinclude sophisti-

cated selection procedures, developmental performance appraisals,

substantial investments in training, teamwork, extensive communica-

tion, motivating job design (e.g., autonomy, empowerment, employee

participation, and flexible work), performance-related pay/promotion,

harmonization, and employment security. These practices influence

firm performance by enhancingemployees' knowledge, skills, and abili-

ties, providing employees the opportunities to use those attributes for

organizational benefit and increasingtheir motivation to do so (Boselie

et al., 2005; Combs, Liu, Hall,& Ketchen, 2006; Huselid, 1995).

In addition, inherent in the systems perspective is the notion of

complementary resources or synergies; that is, “individual policies or

practices have limited ability to generate competitive advantage in

isolation, but in combination…they can enable a firm to realize its full

competitive advantage”(Becker & Gerhart, 1996, p. 784). Conse-

quently, to capture the synergies when HRM practices are bundled

together into a system, most studies have created “a unitary index

that contains a set (though not always the same set) of theoretically

appropriate HRM practices derived from prior work”(Becker &

Huselid, 1998, p. 63).

In this study, we defined HRM systems in terms of nine HRM

practices: selective hiring, teamwork, job autonomy, staff training,

flexible work, participatory decision-making, information sharing, sup-

portive management, and performance-related pay. The selection of

HRM practices was based on previous studies (Appelbaum et al.,

2000; Combs et al., 2006; Ichniowski et al., 1997; Way, 2002) and

particularly on those in the previous analysis of the WERS data

(Guest & Conway, 2007; Ogbonnaya et al., 2017; Ramsay et al.,

2000). Consistent with the literature, we combined these HRM prac-

tices and created an HRM system unitary index.

2.2 |Employee well-being

Employee well-being is an elastic concept meaning “any number of

things to various people”(Danna & Griffin, 1999; Wright & Huang,

2012, p. 1188). In a broad fashion, employee well-being “refers to

people's evaluations of their lives”(Diener, Suh, Lucas, & Smith, 1999,

p. 213) or “all the things that are important to how we think about

and experience our lives”(Rath & Harter, 2010, p. 137). In a narrow

fashion, employee well-being is restricted to one dimension, such as

job satisfaction (Cropanzano & Wright, 2001; Grant et al., 2007). At

the operational level, variations in conceptualization are also evident.

Earlier conceptualizations of employee well-being, particularly within

the psychological tradition (e.g., Andrews & Withey, 2012; Bradburn,

1969; Campbell, 1981; Diener, 1984), focused exclusively on pleasant

emotional experiences as a fundamental dimension of employee well-

being, often described in academic research as “subjective well-being”

(Diener, 1994) or “psychological well-being”(Wright, Cropanzano, &

Bonett, 2007). According to this view, psychological well-being is said

236 HO AND KUVAAS