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CARLSON,UPTON AND SEAMAN 531  Journal of Small Business Management 2006 44(4), pp. 531–543 The Impact of Human Resource Practices and  Compensation Design on Performance:  A n A na l y s i s o f F amil y - O wn e d S M E s by Dawn S. Carlson, Nancy Upton, and Samuel Seaman  A sample of 168 family-owned fast growth small and medium enterprises (SMEs) was used to empirically examine the consequences of ve human resource practices on sales growth performance. The results suggest that training and development, recruitment package, maintaining morale, use of performance appraisals, and com-  petitive compensation were more important for high sales-growth performing rms than for low sales-growth performing rms. In addition, we examined the use of incentive compensation in the form of cash, n oncash, and benets and perks for four different levels of employees in family-owned SMEs. The ndings suggest that high  sales-growth performing rms used more cash incentive compensation at ever y level in the organization. Small and medium enterprises (SMEs), the majority of which are family-owned, play an important economic and societal role in the United States (Shanker and  Astrachan 1996). Family-owned busi- nesses account for 60 percent of total U.S. employ ment, 78 per cen t of al l n ew  jobs, more than 50 percent of gross domest ic produ ct, and ab out 65 percen t of all wages paid (Family Firm Institute 2002). When asked abou t th e principal challenges facing them as they grow the ir rms, fami ly and nonfa mily SMEs alik e, point t o human re source co ncerns (Hoover and Hoover 1999; Des hpa nde and Golhar 1994) While both groups identify labor shortages a primary concern, fami ly- owned SMEs state that attracting and retaining strong nonfamily executives and dealing with insufcient Dawn Carls on is associa te profes sor of management, Hankamer School of Busi ness, Baylor University. Dr. Upton is employ ed in her family oil an d gas business as presid ent and chief operating ofcer. Dr. Seaman is professor o f decision sciences, Graziadio Schoo l of Business & Management, Pepperdine University.  Address correspondence to: Dawn Carlson, One Bear Place #98006, Department of Man- age ment, Ba ylor Univ ersi ty , W aco, TX 76798. E-ma il: Dawn_Carlson @ba ylor .edu.

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    CARLSON, UPTON, AND SEAMAN 531

    Journal of Small Business Management 2006 44(4), pp. 531543

    The Impact of Human Resource Practices andCompensation Design on Performance:

    An Analysis of Family-Owned SMEsby Dawn S. Carlson, Nancy Upton, and Samuel Seaman

    A sample of 168 family-owned fast growth small and medium enterprises (SMEs)was used to empirically examine the consequences of five human resource practices

    on sales growth performance. The results suggest that training and development,recruitment package, maintaining morale, use of performance appraisals, and com-petitive compensation were more important for high sales-growth performing firmsthan for low sales-growth performing firms. In addition, we examined the use ofincentive compensation in the form of cash, noncash, and benefits and perks for fourdifferent levels of employees in family-owned SMEs. The findings suggest that highsales-growth performing firms used more cash incentive compensation at every levelin the organization.

    Small and medium enterprises (SMEs),the majority of which are family-owned,play an important economic and societalrole in the United States (Shanker and

    Astrachan 1996). Family-owned busi-nesses account for 60 percent of totalU.S. employment, 78 percent of all new

    jobs, more than 50 percent of grossdomestic product, and about 65 percentof all wages paid (Family Firm Institute

    2002). When asked about the principalchallenges facing them as they growtheir firms, family and nonfamily SMEsalike, point to human resource concerns(Hoover and Hoover 1999; Deshpandeand Golhar 1994) While both groupsidentify labor shortages a primaryconcern, family-owned SMEs state thatattracting and retaining strong nonfamilyexecutives and dealing with insufficient

    Dawn Carlson is associate professor of management, Hankamer School of Business, Baylor

    University.

    Dr. Upton is employed in her family oil and gas business as president and chief operatingofficer.

    Dr. Seaman is professor of decision sciences, Graziadio School of Business & Management,Pepperdine University.

    Address correspondence to: Dawn Carlson, One Bear Place #98006, Department of Man-

    agement, Baylor University, Waco, TX 76798. E-mail: [email protected].

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    or poorly trained human capital aresignificant barriers to business successand growth. Despite the importance offamily-owned SMEs to our economy andto job growth, there is little empiricalresearch to assist managers and CEOsfacing some rather daunting human

    resource challenges (Heneman, Tansky,and Camp 2000; Upton and Heck 1997).Instead, much of the work done withregard to human resource management(HRM) practices and performancefocuses on large organizations and noton the SMEs that are so prevalent inthe marketplace today. Literature on therelationship between human resourcepractices and performance in small,

    family-owned businesses is virtually non-existent (Upton and Heck 1997). There isconsiderable need then, for empirical,comparative examination of the relation-ships between determinants of perform-ance, such as human resource practices,and ownership structure (Westhead andCowling 1998). Further, Sharma, Chris-man, and Chua (1997, p. 18) suggest,. . . determinants of performance holdthe most promise for contributing to theadvancement of the [family business]field.

    This research responds to the need forempirical, comparative analysis of thefactors effecting family-owned SME per-formance. We compare HRM practices

    within a sample of high and low per-forming family-owned SMEs split based

    on sales growth. We examine the effectson performance by primary HRM prac-tices, such as recruitment package, per-formance appraisal, compensation and

    benefits, maintaining morale, and train-ing and development. First, differencesin importance placed on each of thesehuman resource areas are explored andthen their relationship to performance isdetermined. Finally, differences in the

    use of various forms of compensation(that is, cash incentives, noncash incen-tives, and benefits and perks) across fourdifferent organizational levels (CEO to

    total employees) and their effect on per-formance are explored.

    We begin by providing an overviewof HRM practices and their link toorganizational performance. Next, theimportance of the HRM issues and com-pensation design is discussed. Although

    very little research examines HRMpractices at family-controlled SMEs,the extant literature is reviewed andhypotheses are put forward. We thenempirically examine differences in HRMpractices for high and low performingfamily-owned SMEs. Next, we look atthe design of incentive compensationsystems across high and low performingfamily-owned SMEs. Finally, based on the

    results, we discuss practical implicationsfor the management of family SMEs andfor future research.

    HRM Practices andPerformance

    There are few studies that identifyHRM practices in SMEs and even fewerthat focus on the relationship betweenHRM practices and performance(Heneman, Tansky, and Camp 2000).Over the past decade, several studieshave reported the relationship betweenHRM practices and performance in largeorganizations. While there is somedebate as to the extent to which we canapply the HRM practice/performanceresults from large to small firm, these

    findings are of interest and provide thebasis for theoretical examinations of thesmaller firm (Chandler and McEvoy 2000;Deshpande and Golhar 1994).

    HRM practices such as employmentsecurity, selectivity in recruiting, high

    wages, incentive pay, employee owner-ship, participation and empowerment,promotion from within, training, andskill development are just a few of the

    practices acknowledged as having greatvalue to the organization (Pfeffer 1994).Recent research has empirically shownthe positive relationship between HRM

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    practices and important organizationaloutcomes such as productivity, turnover,and firm performance (Delaney andHuselid 1996; Huselid 1995; Arthur1994). These studies persuaded many inthe management sciences that an explicitset of HRM best practices or as Huselid

    (1995, p. 635) termed themhigh per-formance work practicesexist. Subse-quent studies seem to support the notionthat there are a bundle of HRM practicesthat can impact a firms performance(Huselid, Jackson, and Schuler 1997;Delery and Doty 1996).

    In this study, five HRM best practicesare considered: training and develop-ment, performance appraisals, recruit-

    ment package, maintaining morale, andsetting competitive compensation levels.

    Perceived Importance ofHRM Functions

    The strategic use of human resourcesis important for the performance of theorganization. Further, the adoption ofa set of best practices for managingemployees is believed to have a positiveeffect on organizational performance(Wright and Snell 1998; Applebaum andBatt 1994; Pfeffer 1994). In a recentstudy, human resources was identifiedas an area of significant importance toan organizations success (Heneman,

    Tansky, and Camp 2000). Thus, theimportance placed on an HRM function

    in an organization might demonstratehow critical that function is to a givenorganization. We identify five strategic

    best HRM practices for this research:training and development, performanceappraisals, recruitment package, main-taining morale, and setting competitivecompensation levels.

    An overview of HRM research sug-gests that these five HRM practices have

    an influence on organizational perform-ance. Specifically, greater training hourshave been linked to higher performance(Gowen and Tallon 2003; Huang 2001;

    Huselid 1995; MacDuffie 1995). A strongpositive relationship has been found

    between performance appraisals andenhanced organizational performance(Chang and Chen 2002; Delery and Doty1996; Huselid 1995). Effective practicesfor recruiting and selection, especially

    those considering the compensationelement are related to performance (Ich-niowski and Shaw 1999; Huselid 1995).Employee motivation has been shown tohave a significant impact on productivityand performance (Gelade and Ivery2003; Huselid 1995). Finally, design ofcompensation systems including theconsideration of external equity has

    been linked with performance (Mak and

    Akhtar 2003; Youndt et al. 1996; Huselid1995).

    HRM Practices andPerformance in theFamily Firm

    Little is known concerning humanresource practices in family-owned firmsand their effect on performance (Reid etal. 2002). Anecdotal evidence suggeststhat family businesses, rife with nepo-tism, eschew human resource practices(Gersick et al. 1997). However, twonational surveys that focused on familyfirms conducted under the auspices ofMass Mutual (1993/1994), did notsupport this notion. They discovered thatabout half of the respondents reported

    that they used written job descriptions,set compensation plans, provided formaland regular employee reviews, and hada written employee manual. An in-depthanalysis of the MassMutual data by Astra-chan and Kolenko (1994) found signifi-cant differences in HRM practices forfamily versus nonfamily employees. Theyfound that employee reviews, compen-sation plans, appraisal, and personal

    development plans were used signifi-cantly more frequently in family firms fornonfamily employees than for familymembers.

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    534 JOURNAL OF SMALL BUSINESS MANAGEMENT

    Poza, Alfred, and Maheshwari (1997)studied 26 family businesses as part ofthe Discovery Research program at Case

    Western. They found that nonfamilymanagers were significantly less satisfied

    with the managements ability to handlegrowth and the extent to which the nec-

    essary processes were in place to facili-tate growth. Further, the nonfamilymanagers were significantly less satisfied

    with the fairness of the compensationsystem and more satisfied with feedbackfrom performance appraisals.

    Reid and Adams (2001) found signifi-cant differences between family and non-family SMEs in Northern Ireland. Laborcosts for the nonfamily business was

    much higher and nonfamily SMEs weremore professional in their HRM prac-tices. For example, it was significantlymore likely that a nonfamily business

    would have an HRM manager, useappraisal systems, set merit/performancerelated pay for managers, and keepdetailed HRM records. Although bothfamily and nonfamily businessesreported that employee training anddevelopment was their most importantchallenge, family businesses reportedspending significantly less on training (asa percentage of total salaries and wages)than nonfamily businesses.

    Although there is ample evidence thatHRM practices influence performance,

    within the family business literaturethere is little research which support

    these links or examine its implications.However, there persists a belief that HRMin family-owned businesses could be asignificant competitive advantage (Hab-

    bershon, Williams, and Kaye 1999). Ward(1988) proposes that family businessesmay have a unique ability to create amore family-oriented workplace, whichleads to greater employee loyalty. Astra-chan and Kolenko (1994) found a posi-

    tive correlation between HRM practicesand gross revenues in family-owned

    businesses. Similarly, Leon-Guerrero,JcCann, and Haley (1998) found a posi-

    tive relationship between family businessrevenues and the use of formal HRMpractices, such as formal employeereviews, written job descriptions, andincentive compensation plans.

    Based on these findings, we proposethat the importance placed on specific

    HRM practices by the firm will be relatedto higher performance and offer the fol-lowing hypotheses:

    H1: The importance placed on trainingand development will be positivelyrelated to performance.

    H2: The importance placed on perform-ance appraisals will be positively

    related to performance.

    H3: The importance placed on designingcompetitive compensation systems forrecruitment package will be positivelyrelated to performance.

    H4: The importance placed on main-taining morale will be positivelyrelated to performance.

    H5: The importance placed on settingcompetitive compensation levels willbe positively related to performance.

    Compensation DesignPfeffer (1994) argued that one of the

    elements of what effective firms do withpeople is the use of incentive pay. Thedesign of compensation systems in terms

    of the form of incentive compensationused is critical to the success of theorganization. In fact, empirical evidencehas found that pay mix is relatedto financial performance (Gerhart andMilkovich 1990). More specifically, inexamining human resource practices, theuse of incentive compensation is posi-tively related to organizational perform-ance (Huselid 1995; Delaney and Huselid

    1996). The theory suggests that usingincentive compensation better motivatesindividuals to perform than by simplyrelying on fixed rewards.

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    In a recent study, Stevens and Hill(2001) focused on differences in execu-tive compensation in large organizations.

    They found that low performing firmsuse higher fixed salaries and fewer incen-tives while high performing firms uselower fixed salaries and a greater percent

    of overall compensation is incentive pay.This would suggest that higher per-forming firms are using various formsof incentive compensation such as cashincentives, noncash incentives, and ben-efits and perks more than low perform-ing firms.

    Furthermore, the family business lit-erature has examined the relationship

    between pay and performance within

    the agency theory context. Gomez-Mejia,Tosi, and Hinken (1987) reported thatfamily business owners prefer pay to betied to performance. However, familyfirms are less likely to share ownership

    with employees (Stoy Hayward 1990), asthis would dilute the familys control.

    Thus, it is more likely that family firmswill use some form of incentive that doesnot give up control. This will allow forincentives to be tied to performance and

    yet still retain family control, which hasbeen associated with higher firm per-formance (McConaughy et al. 1998).

    Therefore, while little research thatfocuses on family-owned SMEs exists, thelittle evidence available would suggestthat the higher performing firms aremore likely to use some form of incen-

    tive compensation system.Based on this research, we predictthat those organizations that are highperforming are more likely to offer agreater amount of incentives in order toaddress motivation and retention issues.

    Thus, we offer the following hypothesesfor family-owned SMEs:

    H6: Cash incentives will be positively

    related to performance.

    H7: Noncash incentives will be positivelyrelated to performance.

    H8: Benefits and perks will be positivelyrelated to performance.

    MethodologySample

    Data were drawn from the 1998Survey of Innovative Practices admi-

    nistered by the Kauffman Center forEntrepreneurial Leadership at the EwingMarion Kauffman Foundation, Ernst &

    Young LLP, and the Entrepreneur of theYear Institute. The survey is completedby companies selected from the mem-bership of the Entrepreneur of the YearInstitute. Companies completing thesurvey are sales-growth-oriented, as thisis one of the judging criteria. Data gath-

    ered on the firms spanned the years 1995through 1998. Details of the data gather-ing process are detailed in Survey ofInnovative Practices (Cox and Camp1999).

    Sample Selection. There is a lack ofconsensus regarding how much owner-ship is necessary to qualify a firm as afamily business. Ward and Dolan (1998)suggest that ownership be measured by

    voting power, as it is a better indicatorof family business behavior and struc-ture than relative economic interest.Chua, Chrisman, and Sharma (1999) statethat there is no specific delineation ofhow much ownership is necessary toqualify the firm as a family business.

    Ward (1986), however, defines control

    by percent ownership of stock with 50percent ownership considered in controlfor privately held firms and 30 percentfor publicly held firms. Following thiscategorization, family ownership wasdetermined by the percent of stock that

    was held by the CEO or CEOs familymembers. Those that were greater than50 percent were included in the sample.Furthermore, in order to focus on SMEs,

    only those organizations with less than500 employees were included. Finally,the sample was split into thirds based onperformance and the middle group was

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    dropped. This resulted in a sample of 168family-owned firms.

    VariablesImportance of HR Function. In orderto determine the importance placed oneach function, the respondents were

    asked how their ability to manage thefunction impacted the growth of thefirm. This perceptual question wasreported on a five-point Likert scale withanchors of no impact (1) to big impact(5). Four items were asked to assess theimportance placed on the different HRMfunctions: training and development,appraising employee performance, main-taining morale, and setting competitive

    compensation levels. A fifth questiondealt with the recruitment package as itfocused specifically on how designingcompetitive compensation impacted thefirms ability to recruit and retain keyemployees.

    Compensation Design. The respon-dents were asked to provide the actualpercentage of compensation expense

    broken down by base salaries, cashincentives, noncash incentives, and

    benefits/perks with the total to equal 100percent. They did this a total of fourtimes, once for each of the following:total employee compensation, CEO com-pensation, key sales managers, and otherkey managers.

    Performance. Within entrepreneurshipliterature, sales growth is considered thebest growth measure because it reflectsboth short and long-term changes inthe firm, is easily obtainable, and is acommon performance indicator amongentrepreneurs themselves (Barkham etal. 1996; Hoy, McDougall, and Dsouza1992). Davidsson and Wiklund (2000)provide an in-depth analysis of growth

    measures in research and advocate salesgrowth as the performance indicator ofchoice when examining activities such asHRM. However, the traditional measure

    of growth: g = (St1 St0)/St0 is biasedtoward initial size of the firm. The biasis in favor of firms that initially had asmaller size. To overcome this bias, theSales Growth Index was used. This iscalculated by multiplying the averageannual increase in sales volume by the

    average rate of change in sales revenue.Cox and Camp (1999) note that the salesgrowth index is not biased toward eitherinitially large or small firms and repre-sent a better measure of entrepreneurialgrowth. In order to best represent dif-ferences in performance, the sample wassplit into thirds with the top third repre-senting the high performing firms, andthe bottom third representing the lowperforming firms.

    ResultsAs illustrated in Table 1, the high per-

    forming firms were about the same ageas the low performing firms, and werelarger as measured by sales and reportabout the same CEO tenure. The averageage of the firms were similar; with the

    high performing group being an averageof 23 years and the low performing 26years old. Although the average sales ofthe high performing firms is much higherthan that of the low performing firms,the use of the sales growth index mini-mizes the size differential. The tenure ofthe CEO in the high performing firms(13.5 years) was slightly shorter than thatof the low performing firms (14.9 years).

    Low performing firms pay out signifi-cantly more in base salary (p < .001) tototal employees than high performingfirms. Results for the variables of interestare reported further.

    The hypothesized relationships ofinterest were tested using LOGIT regres-sion. To testH1 throughH5, each of theHRM practices was used as an inde-pendent variable and performance was

    used as the dependent variable. Theresults for these regressions can befound in Table 2.H1, the relationship oftraining and development with perform-

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    CARLSON, UPTON, AND SEAMAN 537

    ance, was supported. Thus, high per-

    forming firms placed more importanceon training and development than didlow performing firms.H2was supportedas the relationship between the impor-tance placed on performance appraisalsand performance was significant. Therelationship of designing competitivecompensation for recruitment andperformance (H3) was supported. This

    would suggest that placing emphasis ondesigning competitive compensation inrecruiting is more common for highperforming firms.H4was supported, asthe impact of maintaining morale wassignificantly different for high and lowperforming firms. Thus, higher perform-ing firms placed more emphasis on main-taining morale in their organization thandid low performing firms. Finally, H5

    was supported, as the importance placedon setting competitive compensationlevels was greater for those organizationsthat were high performers.

    To test H6 through H8, LOGIT wasalso used with the same dependent vari-able of performance. However, in thiscase, each hypothesis was tested fourtimes, one for each particular set ofemployees that was examined. Thus, the

    impact of percentage of incentives onperformance was examined four times:(1) CEO, (2) sales managers, (3) otherkey managers, and (4) total employees.

    This was repeated for cash incentives,

    noncash incentives, and benefits/perks.The results can be found in Table 3.H6,which examined cash incentives, wassupported across all four groups. Thus,the use of cash incentives for all levelsof the organization was significantlyrelated to higher performing firms. H7and H8, the examination of noncashincentives and benefits and perks withperformance, was not supported. Acrossall four sets of employees the use of bothnoncash incentives (H7) and benefitsand perks (H8) was not significantlyrelated to performance.

    DiscussionBased on previous human resource

    research, we hypothesized that fivecritical human resource practices would

    be positively related to performancein family-owned firms. Our findingsrevealed that importance placed on eachof these five human resource issuestraining and development, performanceappraisals, recruitment package, main-taining morale, and setting competitivecompensation levelswere all areas in

    which high performing family firmsplaced significantly greater importance

    than low performing family firms. Thesefindings suggest that these humanresource activities do in fact have apositive impact on performance.

    Table 1Descriptive and Summary Statistics

    Variable Low Performing High Performing

    Mean S.D. Mean S.D.

    Age of Firm (Years) 25.89 17.54 23.34 17.56

    Tenure of CEO (Years) 14.91 10.18 13.52 9.53

    Sales ($) 12,841,627 19,299,011 52,054,709 53,898,578

    Sales Growth Index ($) 2,410,194 21,688,954 59,378,824 389,158,093

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    538 JOURNAL OF SMALL BUSINESS MANAGEMENT

    These findings are consistent withexisting research of several nationalsurveys in which family firms identifiedrecruiting and training and developmentas two HRM areas of critical importanceto business success (Hoover and Hoover1999). High performing family firms aresignificantly more likely to recognize andprioritize these areas. Further, this is

    consistent with research of large organi-zations, which has shown that thesehuman resource practices are critical toorganizational success (Huselid 1995).

    This research extends previous researchby demonstrating that these previousfindings hold for family-owned SMEs.

    The second aspect of our study exam-ined the design of compensation struc-tures and their impact on performance

    for family-owned SMEs. Across four dif-ferent levels of the organization (CEO,key managers, sales managers, and totalemployees) the results supported the

    importance of using cash incentive-basedforms of compensation. However, theresults did not support the use ofnoncash incentives, and benefits andperks. Thus, this research would suggestthat in family-owned SMEs, cash incen-tives in compensation across all levelsof employees might well lead to higherperformance.

    While nonfamily firms may use equityto recruit, retain and motivate employ-ees, family businesses are prone to keepstock within the family. Therefore, theymust devise other ways to reward high-performing managers. According to thisresearch, high performing family firmsare effectively rewarding employees withcash incentives.

    The current research provides a

    number of contributions to the existingresearch relating human resources andfamily-owned firms. First, the clear needto address human resource issues in

    Table 2Logit Regressions to Determine If Human Resource

    Management Practice Impact Performance

    Intercept 1.39** 1.28*** 1.09* 1.35* 1.44**

    Training and 0.34**Development (0.0471)

    Performance 0.36**Appraisals (0.0129)

    Recruitment 0.28*Package (0.0812)

    Maintain Morale 0.31*(0.0910)

    Competitive 0.36**Compensation (0.0478)

    aEstimated coefficients are listed first; p-values below in parentheses.*indicates significance at the ten-percent level.**indicates significance at the five-percent level.***indicates significance at the one-percent level.

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    CARLSON, UPTON, AND SEAMAN 539

    T

    able3

    L

    ogitRegressions

    toDetermineIfC

    ompensationDesignImpactsPerformance

    A.Cash

    Incentives

    Intercept

    0.4

    6**

    0.2

    3

    0.4

    6*

    0.4

    3*

    CEO

    0

    .02

    (0.0

    104)**

    KeyMan

    agers

    0

    .02

    (0.0

    648)*

    OtherManagers

    0

    .04(0

    .007

    6)***

    Tota

    lEm

    ployees

    0

    .04(0

    .0065)***

    B.NoncashIncentives

    Intercept

    0.0

    8

    0.0

    3

    0.0

    6

    0.0

    4

    CEO

    0.0

    0(0

    .87

    43

    )

    KeyMan

    agers

    0

    .09(0

    .142

    4)

    OtherManagers

    0.0

    0(0

    .9433

    )

    Tota

    lEm

    ployees

    0

    .04(0

    .4508)

    C.Benefi

    tsandPerks

    Intercept

    0

    .08

    0.0

    0

    0

    .23

    0.0

    8

    CEO

    0.0

    1(0

    .201

    6)

    KeyMan

    agers

    0

    .01

    (0.4

    437

    )

    OtherManagers

    0.0

    2(0

    .3022

    )

    Tota

    lEm

    ployees

    0

    .01

    (0.6

    058)

    aEst

    imate

    dcoe

    ffic

    ientsare

    liste

    dfi

    rst;p-v

    alues

    inparentheses.

    *in

    dicatess

    ign

    ificanceattheten-p

    ercent

    leve

    l.

    **indicate

    ss

    ign

    ificanceatthe

    five-p

    ercent

    leve

    l.

    ***in

    dicatessign

    ificanceattheone-p

    ercent

    leve

    l.

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    family firms is addressed by providing anempirical examination of these issues onperformance (Upton and Heck 1997).Second, a range of human resourcefunctions is considered providing a richperspective of the relationship of HRMpractices and performance in family-

    owned firms. Finally, by looking at threedifferent forms of incentive pay andacross four different levels of the organ-ization, we get a broad picture of theextent to which the use of cash incen-tives is critical for company success.

    As with all research there are alsosome limitations of the current study.First, we used single item measures ofthe HRM practices which may not have

    captured the many facets involved ineach of the practices. Second, the sampleis one of convenience: fast-growth SMEs.

    As such, the findings may not be gener-alized to all family firms or all SMEs.However, for those SMEs that hold fastgrowth as a strategic goal, these findingsmay be of some benefit. Third, familyfirms may pursue different goals thannonfamily firms (Greenwald and Asso-ciates 1993/1995). However, in thissample, all the firms are sales-growth-oriented. These findings may not gener-alize to family firms that are pursingother growth goals.

    Future ResearchFuture research needs to focus on

    determining what specific activities are

    associated with the HRM areas identifiedand how those specific activities impactperformance. Reid and Adams (2001)reported that although nonfamily andfamily businesses believe training anddevelopment is their most importantchallenge, family businesses spent lesson this. It would be interesting to see iftraining and development expendituresare significantly different between high

    and low performing family businessesas previous research has found a link

    between development expenditures andperformance, influenced by ownership

    structure (Hill and Snell 1989). Further,development of higher-order variables orclusters of human resource variables,

    which may serve as discriminatorsbetween high and low performing organ-izations, warrant future attention.

    Another avenue for future research is

    to examine how high performing familyfirms disburse base salary as comparedto cash incentives. We do not know ifthere is a family effect going on in

    which lower base salaries and highercash incentives are distributed. In other

    words, are low performing firms payingfamily members differently than highperforming firms? If so, what effect is thishaving on performance?

    In conclusion, human resource man-agement is a complex set of activitiesthat are enacted within the organizationto support overall corporate strategies.Our study is focused on a sample of highand low performing family SMEs. While

    we examine several HRM practices, itmay be that some are more effective thanothers within certain industries or cor-porate strategies. That said, by placingimportance on the human resourceaspect of the firm, a family-owned SMEmight be able to effectively use HRMsuch that it has a positive impact onperformance.

    ReferencesApplebaum, E., and R. Batt (1994). The

    New American Workplace: Transform-

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