Previous research on Human Resource Management (HRM) has focused extensively on the potential relationships between the use of HRM practices and organizational performance. Extant research in HRM has been based on the underlying assumption that HRM practices can enhance organizational performance through their impact on positive employee attitudes and performance, that is, employee reactions to HRM. At the current state of research however, it remains unclear how employees come to perceive and react to HRM practices and to what extent employees in organizations, units and teams react to such practices in similar or widely different ways. In fact, recent HRM studies indicate that employee reactions to HRM may be far less homogeneous than assumed. This raises the question of whether or not the linkage between HRM and organizational outcomes can be explained by employee reactions in terms of attitudes and performance, if these reactions are largely idiosyncratic. Accordingly, this thesis aims to shed light on the processes that shape individuals’ reactions to HRM practices and how these processes may influence the variance or sharedness in such reactions among employees in organizations, units and teams. By theoretically developing and empirically examining the effects of employee perceptions of HRM practices from the perspective of ‘HRM as signaling’ and psychological contract theory, the main contributions of this thesis focus on the following research questions: i) How employee perceptions of the HRM practices relate to individual and collective employee attitudes and performance. ii) How employee perceptions of HRM practices relates to variance in employee attitudes and performance. iii) How collective employee performance mediates the relationship between employee perceptions of HRM practices and organizational performance. Regarding the first research questions the findings indicate that individuals do respond positively to HRM practices by adjusting their felt obligations towards the employer. This finding is in line with the idea of HRM as a signaling device where each HRM practice, implicitly or explicitly, sends signals to employees about promised rewards (inducements) and behaviors (obligations) expected in return. The relationship was also confirmed at the group level of analysis. What is more, variance was found to play an important role in that employee groups with more similar perceptions about the HRM system displayed a stronger relationship between HRM and employee obligations. Concerning the second question the findings were somewhat contradictory in that a strong HRM system was found negatively related to variance in employee performance but not employee obligations. Regarding the third question, the findings confirmed linkages between the HRM system and organizational performance at the group level and the HRM system and employee performance at the individual level. Also, the entire chain of links from the HRM system through variance in employee performance, and further through the level of employee performance to organizational performance was significant.