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International and Comparative HRM

Lecture 9: Reward

Alhajie Saidy Khan (alhajie.saidykhan@anglia.ac.uk)


Lord Ashcroft International Business School
Learning Outcomes

Understand the commonalities and differences of the national


environments faced by multinational companies in terms of reward
structures

Understand the key drivers of cross national variation in these


structures

Discuss the approaches of multinational companies to reward in


this context

appreciate the extent to which the differences across countries in


reward practice are linked to cross-national variation in the cultural
and institutional context
Reward in international context: some
underlying assumptions

Reward is important because People are the largest single operating cost item of most
businesses and there is also a need motivation to engender their active commitment or
engagement (Brewster et al., 2011, p. 211)

Less susceptible to local variation, because independence of MNCs affords an


opportunity to move beyond common presumptions of particular nation (Vernon, 2011,
p. 213)

However, expectancy theory (Vroom, 1964) suggests that motivation and performance are
shaped by the links between effort and reward and by the significance or valence of the
reward to the person in question.

Cross-cultural theory (e.g. Hofstede, 1980, 2001) suggests that socio-cultural contexts
influences valence

Therefore, unthinking universalism and local conformity could both be unwise


Pay strategies of MNCs

There has always been an assumption that an attractive pay package


is a necessary condition for attracting star senior managers and
executives, but recently growing interest in extending this incentive
beyond these groups, and beyond managerial hierarchies.

However, there appear to greater homogeneity in the pay strategy and


practice relating to senior management and managerial cadre in
general, greater divergence between pay calculation for managerial
and non-managerial staff

These reward strategies and practices reflect the increasing diffusion of


Anglo-Saxon paradigms by MNCs of Anglo-American origin

Vernon Chap 11 in Edwards and Rees; Brewster et al, chap. 10


Convergence/divergence practice

There is some evidence of convergence across MNCs regardless of


country of origins in relation to pay systems (determination of incentive
packages) for senior managers and international cadre

IndividualPRP is significant determinant for middle management,


while, subsidiary or corporate performance (especially in terms of
share value) are significant for senior management pay.

This is evident, albeit to a lesser extent, even in insider business


systems like Germany and the Nordic countries

This doesnt, however, suggest total convergence and homogeneity, as


there is evidence that Country origin and differences in institutional and
socio-cultural orientations influence the extent and manner MNCs
apply these practices
Bjorkman and Furu (2000 in Vernon, 2011)
Cross-national variation pay systems

Three approaches to pay determination


Variable pay or pay for performance
Rate for the job
Competence based pay
Cross-national comparisons in pay
determination for non-managerial workers (1)
Individual PRP for manual workers

Source Cranet data (2010), in Brewster, et al (2011)


Cross-national comparisons in pay
determination for non-managerial workers (2)
Individual PRP for Clerical workers

Source Cranet data (2010), in Brewster, et al (2011)


Cross-national comparisons in pay
determination for non-managerial workers (3)
Group based PRP For Manual workers

Source Cranet data (2010), in Brewster, et al (2011)


Cross-national comparisons in pay
determination for non-managerial workers (4)
Use of share ownership schemes for Manual employees

Source Cranet data (2010), in Brewster, et al (2011)


Cross-national comparisons in pay
determination for non-managerial workers (5)
Use of profit sharing for Manual employees

Source Cranet data (2010), in Brewster, et al (2011)


Cross-national comparisons in pay
determination for non-managerial workers (6)
Use of stock options for Managerial employees

Source Cranet data (2010), in Brewster, et al (2011)


Cross-cultural explanations of variations in pay
determination (reference to Hofstede)
Cultural dualities in relation to reward
Equality inequality (ref Hofstedes power distance dimension)
Contrast between focus on incentives derived from high pay differentials and the benefits of low,
socially healthy differentials

Certainty uncertainty (Hofstedes Uncertainty avoidance dimension)


Contrast between uneasy about uncertainty of reward for work (lack detailed and explicit explanation
of variability of reward) and tolerance of the idea that the outcome of work could be uncertain (more
tolerant and acceptance of PRP)

Controllability uncontrollability (ref. Hofstedes Uncertainty dimension)


Contrasts between extend of attribution of undesirable unpredictable reward to organisational actors
(top management) and whether uncertainty is tolerated and reward outcomes are attributed factors
beyond control of organisational actors.

Individualism collectivism (ref to Hofstede) reward based on individual or group


contribution

Materialist foregrounding personal foregrounding (ref to Masculinity/Femininity


dimension) the extent of focus of reward and motivation on the economic as oppose the social
Source: Bento & Ferreria (1992 in Brewster et al., 2011)
Cross-cultural explanations of variations in pay
determination (reference to Hofstede)

Power distance: greater power distance, less focus on employee


share options or ownership. Less power distance: Greater focus on
employee share options or ownership

Uncertainty avoidance: higher the avoidance, more rewards based on


seniority, relative skills/education and less PRP. The low uncertainty
avoidance, more tendency towards individual PRP

Individualism/collectivism dimension: Higher individualism, more rewards


are related to individual performance. The higher collectivism, more work
is view collective endeavour and pay related to group

Masculinity/Femininity: Higher masculinity more PRP and individual


bonuses. Higher Femininity, less PRP, especially for non-managerial staff
Source: Schuler & Rogovsky (1998)
Is Culture sufficient explanation for variations?

Institutional labour market theories


Trade unions, employers association and joint
regulation and pay determination

Balkanization: strong trade unions or other forms of


employee associations determining pay be restricting
labour market access

State intervention (e.g. National minimum pay)


Summary of Key points

Despite some evidence of convergence, reward practices, and perceptions of


good reward practice, vary considerably across countries,

National cultures, laws and institutional arrangements are important influences


on reward practice and, therefore, account for variations

Therefore, MNCs must be aware of these differences when they determine their
policies and practices in reward as in other areas.

Differences in conceptions of pay/effort bargaining and the valence of rewards


means that reward policy and objective soon become immersed in national
culture or expectations.

Though strategic space (Vernon, 2005; Vernon, 2010) for innovation in pay
practices is great, indications of patterns of international best practice in reward
are only starting to emerge and, crucially, they are not consistent with simple,
universalist idea about motivation.
See Brewster et al, 2011, Chap 10, Edwards and Rees, 2011, chap. 11
Some useful readings

Brewster, C., Sparrow, P., Vernon, G. and Houldsworth, E. (2011) International HRM,
3rd Edition, London: CIPD (Chapter 10)

Vernon, G. (2011) International and comparative pay and reward in T. Edwards and
C. Rees (eds.) International HRM: Globalization, National systems and Multinational
Companies, 2nd Edition, London: FT Prentice Hall (pp. 206-228)

Schuler, R. S. and Rogovsky, N. (1998), Understanding compensation practice


variations across firms: the impact of national culture, Journal of International
Business Studies, vol. 29(1), pp. 159-177.

Logger, E., Vinke, R. and Kluytmans, F. (2011) Compensation and appraisal in an


International perspective in A-W. Harzing and Ruysseveldt, J. V. (eds.) International
HRM, 3RD Edition, London: Sage (pp. 144-155)