This action might not be possible to undo. Are you sure you want to continue?
(OE) and HRM practices. Compensation research (based primarily on U.S. data) has clearly demonstrated that whether or not compensation is performance-based is only one of several relevant dimensions of compensation and reward systems. Indeed, the preponderance of research evidence is that other aspects of the compensation system and the context in which they operate influence the effects of incentives. Factors found to influence the pay-organization performance relationship include organizations’ past profitability (Abowd, 1990), ownership and governance (Werner and Tosi, 1995), financial risk (Beatty and Zajac, 1994; Bloom and Milkovich, in press) and international marginal tax rates (Bognanno and Abowd, 1992). Factors found to influence the individual pay-performance relationship include trust in the relationship (Collins, Hatcher and Ross, 1993), size of the pay increase (Mitra, Gupta and Jenkins, 1992), line of sight (Pritchard). The Significance of National Cultures for Compensation and Reward Systems The assumption that HRM systems must fit national cultures is based on the belief that "most of a country's inhabitants share a national character..." that is "...the collective programming of the mind which distinguishes one category of people from another...the category of people is the nation (Hofstede, 1993: 89).” This belief leads to a search for distinct national cultures whose influence is critical, if not the most important, for understanding international compensation systems (Earley & Erez, 1997; Hofstede, 1993; Rousseau & Tinsley, 1997). Typical of the national culture model is GomezMejia and Welbourne's (1996) work in which they caution scholars and managers about exporting theories and practices derived from U.S.-based research and experience. Their strategic model relies on national cultural attributes such as those proposed by Hofstede (1980; power distance, individualismcollectivism uncertainty avoidance, and masculinity/femininity) or Trompenaars (1994; individualism versus collectivism, achievement versus ascription, universalism versus particularism, neutral versus affective, specific versus diffuse). Luthans et al. (1997) explicate this international HRM contingency model using national cultural attributes as the dominant determinant. Accordingly, countries with high power distance scores (Malaysia and Mexico) should exhibit more hierarchical pay structures, while those manifesting low power distance (Australia and the Netherlands) would choose more egalitarian systems. In nations identified as individualistic (US, UK, Canada), compensation and rewards would support employability and individual and performance-based pay. Those in more collectivist nations (Singapore, Japan) would choose more group-based approaches, and so on (Welbourne & Gomez-Mejia, 1996). This literature on national culture models is implicitly prescriptive; it dictates that compensation and reward policies must be developed to align with and reinforce national cultural attributes. The national cultural model predicts these national level attributes will be more significant than organizational level attributes. One reaction to such thinking is that it engenders blatant stereotyping. We fear it parallels biased notions that all women desire time off because of their caring and nurturing values, while all men desire more time at work to pursue their more aggressive values.
To gain a sense of the significance of international organisation and the consequences of transnational organisational activity for employment and reward management, one need only turn to the 2007 World Investment Report (UNCTD, 2007). Here we find 78,000 transnational companies, with 780,000 foreign affiliates, employing nearly 73 million people worldwide. During 2006, UNCTD (2007) reports growth in foreign direct investment (FDI) inflows occurring in all three groups of economies: developed countries, developing countries and the transition economies of South-East Europe and the Commonwealth of Independent States. In total (in US dollars), the reported sum involved was $1.306bn. These financial investment flows are attributed to significant mergers and acquisitions activity, but also to ‘greenfield’ investment – especially in developing and transition economies. While this context implies plenty of scope for policy and practice work, human resource specialists’ ‘critical responsibility’ for the design and maintenance of employee reward systems becomes ‘much more complex and difficult’ when set in the context of ‘the conduct of international business’ (Briscoe and Schuler, 2004: 305). For one thing, practical considerations – clearly articulated by a practising
working transnationally. we can have equal compensation only when we live in an equal world’ (Krutz. in the same way as PCNs. Secondly. bearing in mind that the employee’s circumstances. or at least to preserve consistency with reward levels for the employee’s occupational group and level in their country of origin in the case of TCNS. as multinationals increase their presence. and develop confidence in the potential of talented employees in countries around the world to transfer corporate practice embedded in their experience and knowledge beyond their country of origin. it may be hypothesised that they should be subject to PCN reward management terms and conditions. is there a case that their reward should be synchronised with that of the PCNs? cThirdly. The approach aligned to this policy orientation. But if they are expected to contribute to corporate performance. are unlikely to remain static. as well as giving rise to different considerations around the effort–reward bargain. It is not merely a case of semantics to argue that this line of reasoning has downplayed the ‘reward’ aspect in favour of providing ‘compensation’ for accepting ‘changes in lifestyle. 2007). the express ambition is to maintain ‘purchasing parity’ – so that the expatriate may enjoy the same living standards as at home (Dowling. Secondly. corporate management may choose to widen the source from which to assign managers and specialists transnationally. These ‘third country nationals’ (TCNs) may have been recruited and rewarded on terms embedded in their country of origin employment system. again. but the underlying rationale appears to veer away from the tradition of an ‘effort bargain’. 2004). The assignments may vary in terms of duration. corporate management may choose to widen the source from which to assign managers and specialists transnationally. 1972: 30). 2007. drawing from domestic employment sources.’ (Perkins and Shortland. The sense of an ‘exchange relationship’ (we introduced this notion in Chapter 1) is still in focus. While it may represent ‘a compensation manager’s nightmare . But if they are expected to contribute to corporate performance. augments basic pay with a ‘foreign service premium’ (Dowling. e w a r d i n g e x p a t r i a t i o n – r e w a r dingmulti-local talent The HR specialist faces problems to be solved. as well as cash supplements to compensate for ‘hardships’ (eg working in remote or politically . enduring ‘hardship’. as multinationals increase their presence. working transnationally. like those of the organisation. Or do other considerations apply? Thirdly.HR specialist well over 30 years ago – challenge the ‘equal pay for work of equal value’ principle taken as self-evident in respect of employee reward content and administration in jurisdictions such as the UK. to support the enterprise in that jurisdiction. again. 2006: 185). in terms of pay package design intended to preserve existing relativities with PCN peers. Fenwick. . Festing and Engle. is there a case that their reward should be synchronised with that of the PCNs? cThirdly. 2004). there is the question of employing individuals sourced from the ‘host’ country where the multinational sets up operations. These ‘third country nationals’ (TCNs) may have been recruited and rewarded on terms embedded in their country of origin employment system. . is there a case that their reward should be synchronised with that of the PCNs? ca c c o u n t i n g f o r e x p a t r i a t i o n r e w a r d m a n a g e m e n t The ‘keeping the expatriate whole’ principle (Phillips and Fox. and develop confidence in the potential of talented employees in countries around the world to transfer corporate practice embedded in their experience and knowledge beyond their country of origin. again. And these transfers may be more than an isolated ‘out-return’ cycle but require multiple assignments over time as the multinational and its strategy-structure arrangements evolve. working transnationally. This change of orientation is expressed. etc. If ‘host country nationals’ (HCNs) are working alongside PCNs – possibly occupying positions of superiority in leading regional operations – according to the equal pay for work of equal value principle. 2003: 470) has governed reported thinking and practice on expatriate reward design. Festing and Engle. first. and develop confidence in the potential of talented employees in countries around the world to transfer corporate practice embedded in their experience and knowledge beyond their country of origin. These ‘third country nationals’ (TCNs) may have been recruited and rewarded on terms embedded in their country of origin employment system. as multinationals increase their presence. or ‘balance sheet’ (ORC. known as the ‘home-based/salary build-up’. in the same way as PCNs. PCNs may be expatriated to work in other countries to resource business development and operations there. corporate management may choose to widen the source from which to assign managers and specialists transnationally. in the same way as PCNs. in supporting a multinational’s wish to employ ‘parent country nationals’ (PCNs) not only in the organisation’s country of origin. first. But if they are expected to contribute to corporate performance.
The cost-of-living allowance (COLA) has been reported as a source of dissatisfaction among expatriates (Suutari and Tornikoski. Perkins and Shortland. or those with limited social infrastructure). ‘tax equalisation’ generally accompanies balance sheet expatriate compensation. is designed to balance differences in cost of living between the home country and percentage corresponds to a statistical value of the typical proportion of income required for daily expenses. sourced from a German multinational. A tax and social insurance ‘grossing-up’ is undertaken and the host organisation unit pays the taxes and social insurance in the host country. Allowances and premiums are then added to that amount. The total salary payable in the host country is built up from the net salary that would have been payable for the same job in the individual’s home country. out of which actual housing costs are paid. spouse assistance/dual career allowances and so on (Fenwick. is set out in Figure 11. Housing and children’s education costs are reimbursed. multinationals may use the services of consultants who specialise in providing COLA information on a global basis. The net ‘home country salary’ serves as the comparative base line for calculating the expatriate salary. not accounted for in the COLA payment. 2004. 2001). differences in cost of living. formal policies become more necessary and efficient’ (Dowling. where individuals and family members experience a lifestyle different from that enjoyed in the home country. consistent with the kept-whole principle. subject to an annual exchange rate adjustment converting between home and host currency values. 2007). to their clients (Festing and Perkins. relocation. supplying company-pro vided housing. An illustrative example of such an expatriate compensation scheme.2 above. Adding complexity to expatriate ‘compensation’ administration.unstable locations. which the expatriate receives in the expatriate salary calculation. language. the employee is guaranteed the calculated net expatriate salary. Festing and Engle. but as a firm internationalizes. 2006). . The housing allowance means that the host organisation either settles rental costs directly or authorises a host rental budget. regularly updated. The cost-of-living adjustment. In return. In the case of the illustrative organisation. accompanying this traditional ‘build-up’ plan. In other cases a fixed allowance for accommodation may be paid or an assessment made based on a portion of income. In that calculation. cultural and climatic differences. an amount equivalent to the normal housing cost in the home country may be deducted as part of the expatriate salary calculation. What this means is that the value of tax and social insurance contributions the employee would hypothetically have paid at home is deducted from the home base pay to arrive at a ‘net’ salary. Issues intentionally covered by what may be termed a ‘hardship’ payment. the organisation may own a ‘township’ associated with operational facilities. such as personal safety. and the organisation pays any tax falling due within host jurisdiction on the compensation package total amount. ‘Housing issues are often addressed on a case-by-case basis. In addition to salary adjustments to neutralise cost of living differences. economic conditions as well as the political and social environment are included in this element. distance. undertaken based on a home country ‘basket’of items and the currency exchange rate used for the salary calculation. and may also recognise intangible difficulties as well as material hardships. extending the ‘kept whole’ principle to the employee’s family members. for example in developing countries where infrastructure is not in line with western expectations. other allowances may include home leave. To determine a rate regarded as independent. The foreign assignment allowance is an incentive for an employee to accept assignment requiring international mobility. living standards and housing standards are taken into account. In some cases. 2008).
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.