Global CompensationEmpirical Evidences!

!By:

Gualdi Miriam, Raduan muhi Samar,

Sbarra Stefano, Tolkacheva Irina,

Vagin Andrey !

12th March 2014

In MNCs managerial compensation strategy there is a conflicting pressures for adaptation to local norms and institutions and for congruence with international corporate strategy - strategic alignment

Getting a competitive advantage

Source: Anthony Ferner and Phil Almond, Performance and reward practices in foreign multinational in the UK Human Resource Management Journal, Vol 23, no 3, 2013, pages 241–261 !2

Different Local Approaches

Pay IncentivesIndividualistic

• low application

• it should not comprise too much of the total pay

Collectivistic

• higher application

• it should not comprise too much of the total pay

Source: Kevin B. Lowe, John Milliman, Helen De Cieri,and Peter J. Dowling, International (2002)Compensation practices: a ten country comparative analysis; Human Resource Management, Vol. 41, No. 1, Pp. 45–66 !4

China, Indonesia, Japan, Korea,Mexico, Taiwan, Latin America

Australia, Canada, USA

Seniority

Collectivistic countries emphasize more seniority in regards to human resource decisions

Source: Kevin B. Lowe, John Milliman, Helen De Cieri,and Peter J. Dowling, International (2002)Compensation practices: a ten country comparative analysis; Human Resource Management, Vol. 41, No. 1, Pp. 45–66 !5

Long Term Focus in Pay

Individualistic

• short term results

• pay system with less futuristic orientation

Collectivistic

• long term results

• pay system with higher futuristic orientation

Source: Kevin B. Lowe, John Milliman, Helen De Cieri,and Peter J. Dowling, International (2002)Compensation practices: a ten country comparative analysis; Human Resource Management, Vol. 41, No. 1, Pp. 45–66 !6

Trade Unions• trade Unions have only

minor impact on performance based payments

• collective bargaining decreases the influence of pay and performance management system

• with trade unions less support of variable pay

Source: Anthony Ferner and Phil Almond, Performance and reward practices in foreign multinational in the UK Human Resource Management Journal, Vol 23, no 3, 2013, pages 241–261 !7

Implicationsethnocentric exportation of compensation practices by enhancing understanding of best practices in other countries

understanding what employees want rather than what they have in compensation policies; it may help motivate employees to engage high performance behaviors that are consistent with business direction and goals

Source: Kevin B. Lowe, John Milliman, Helen De Cieri,and Peter J. Dowling, International (2002)Compensation practices: a ten country comparative analysis; Human Resource Management, Vol. 41, No. 1, Pp. 45–66 !8

Ethnocentric Approach

Expatriate Compensation!

wages & salaries

incentives (e.g. bonuses)

benefits (e.g. retirements)

InequitySource: Ashish Mahajan, Host country national’s reations to expatriate pay policies: making a case for a cultural alignment pay model; The International Journal of Human Resource Management, Vol. 22, No. 1, January 2011, 121–137 !10

Feedback from HCNs Managers

refuse social and technical support towards expatriate

perceive belonging to a low-status group

hold back local knowledge

show lack of cooperation with expatriate

make adjustment of expatriate in local environment difficult

Source: Ashish Mahajan, Host country national’s reations to expatriate pay policies: making a case for a cultural alignment pay model; The International Journal of Human Resource Management, Vol. 22, No. 1, January 2011, 121–137 !11

Outcomes

• anger

• dissatisfaction

• absence from work

• stealing

• quitting work

Source: Ashish Mahajan, Host country national’s reations to expatriate pay policies: making a case for a cultural alignment pay model; The International Journal of Human Resource Management, Vol. 22, No. 1, January 2011, 121–137 !12

Cultural Alignment Pay Model

Perception of fairness and social equity

Source: Ashish Mahajan, Host country national’s reations to expatriate pay policies: making a case for a cultural alignment pay model; The International Journal of Human Resource Management, Vol. 22, No. 1, January 2011, 121–137 !13

HCNs Managers

more motivated to be cooperative and share knowledge with expatriates

do not perceive status differentials and perceives more similarities between local managers and expatriates

are psychologically more healthy

Source: Ashish Mahajan, Host country national’s reations to expatriate pay policies: making a case for a cultural alignment pay model; The International Journal of Human Resource Management, Vol. 22, No. 1, January 2011, 121–137 !14

Implications

Ethnocentric compensation

Geocentric compensation

Short-termorientation

Long-termorientation

Source: Ashish Mahajan, Host country national’s reations to expatriate pay policies: making a case for a cultural alignment pay model; The International Journal of Human Resource Management, Vol. 22, No. 1, January 2011, 121–137 !15

Balancing between Localization and Strategic Alignment

The Logic of Compensation

Localization Strategic alignment

large differences in salaries across subsidiaries

small differences across subsidiaries

supports a local business strategy, operates unique local context

supports a global business strategy, operates global context

consider local cultural norms and labor market conditions

may violate local cultural norms or labor market conditions

good fit between organization compensation systems and host countries’ local contexts leads to improved organization performance

good fit between organization compensation systems and business strategy leads to improved organization performance

local labor market, national institutions (employment and labor laws, tax laws), national culture 

global strategy, internal labour market

Source: Yoshio Yanadori, Paying both globally and locally: an examination of the compensation management of a US multinational finance firm in the Asia Pacific Region; The international Journal of Human Resource Management, Vol. 22, No 18, November 2011, 3867-3887 !17

Compensation in Subsidiaries

pay level differs systematically across subsidiaries

• differences in pay mix across subsidiaries varies

• cash bonus: different across subsidiaries

• stock bonus: highly consistent across subsidiaries

greater differences in pay level than in pay mix

Source: Yoshio Yanadori, Paying both globally and locally: an examination of the compensation management of a US multinational finance firm in the Asia Pacific Region; The international Journal of Human Resource Management, Vol. 22, No 18, November 2011, 3867-3887 !18

Implications

optimal balance between localization or alignment

managerial positions

non-managerial positions localization

HR manager

strategic alignment

consider cultural and institutional peculiarities

Source: Yoshio Yanadori, Paying both globally and locally: an examination of the compensation management of a US multinational finance firm in the Asia Pacific Region; The international Journal of Human Resource Management, Vol. 22, No 18, November 2011, 3867-3887 !19

Imagine you are a Swiss manager (high-income country) being send to Vietnam (low-income country) for a leading manager position. Will you be motivated to take

this position in case of a localized compensation system?

ReferencesAnthony Ferner and Phil Almond, Performance and reward practices in foreign multinational in the UK, Human Resource Management Journal, Vol 23, no 3, 2013, pages 241–261

!

Kevin B. Lowe, John Milliman, Helen De Cieri,and Peter J. Dowling, International (2002)Compensation practices: a ten country comparative analysis; Human Resource Management, Vol. 41, No. 1, Pp. 45–66

!

Ashish Mahajan, Host country national’s reations to expatriate pay policies: making a case for a cultural alignment pay model; The International Journal of Human Resource Management, Vol. 22, No. 1, January 2011, 121–137

!

Yoshio Yanadori, Paying both globally and locally: an examination of the compensation management of a US multinational finance firm in the Asia Pacific Region; The international Journal of Human Resource Management, Vol. 22, No 18, November 2011, 3867-3887