The effects of cultural orientations on preferred compensation policies

Hamid Yeganeh
a
* and Zhan Su
b
a
Department of Business Administration, College of Business, Winona State University, Winona,
MN, USA;
b
Department of Management, Laval University, Quebec City, QC, Canada
This study aims at examining the relationship between cultural orientations and
preferences for compensation policies. The study involves two concepts: culture
and compensation. In the rst part of this article, these concepts are framed; and in the
second part, after direct measurement of both cultural traits and compensation
preferences, their relationships are tested and discussed. Our ndings suggest that while
culture represents an important factor in human resource management, its effects on
compensation preferences should be viewed as partial and moderate. Further analysis
reveals that the effects of culture on preferred compensations may vary from one
orientation to another. While some cultural orientations are more likely to affect pay
policies, others seem to be of lesser importance. Similarly, it is found that
compensation policies are not affected equally by cultural orientations. By analyzing
the extent and direction of cultural effects, the study provides some insights into
designing compensation policies and points out the managerial implications.
Keywords: compensation; culture; human resource management; international
management; Iran; Middle East
Introduction
Culture has become an important factor in explaining all aspects of organizational
behavior (Laurent 1986; Hampden-Turner and Trompenaars 1993; Whitley 2000; Hickson
and Pugh 2001; Hofstede 2001; Mangaliso 2001). Despite this interest, the majority of
studies on culture have focused on the national level of analysis, in that they have
compared aggregated scales of cultural values across countries (Hofstede 1980; Schwartz
1992; Cohen 2007). Considering that culture is a broad, fuzzy, and multidimensional
concept, a very fundamental question in cultural management research is to look at the
effects of cultural orientations on organizational behavior. This research agenda seems
legitimate, because individuals both within and across societies hold different cultural
values that inuence their attitudes and behaviors (Schwartz, Sagiv and Boehnke 2000).
Accordingly, in this study we are not interested in cross-national variations, but we focus
on the cultural values within one society and their implications for compensation policies.
In our view, these cultural values inuence how people perceive and interpret a given
situation, and consequently how they behave (Schwartz et al. 2000). More specically, in
this study, we intend to examine some possible relationships between cultural values and
preferred compensation policies. This objective seems appealing, because among all
human resource management (HRM) functions, compensation is a fundamental one that
may inuence all aspects of organizational behavior and ultimately its performance
ISSN 0958-5192 print/ISSN 1466-4399 online
q 2011 Taylor & Francis
DOI: 10.1080/09585192.2011.588036
http://www.informaworld.com
*Corresponding author. Email: hyeganeh@winona.edu
The International Journal of Human Resource Management,
Vol. 22, No. 12, July 2011, 26092628
(Bonache and Fernandez 1997). Moreover, compensation has been dominated
traditionally by a microlevel perspective focusing solely on intra-organizational settings
(Gomez-Mejia and Welbourne 1988, 1994). The current study involves direct
measurement of both cultural values and compensation preferences held by Iranian
managers in order to test their possible relationships. While most of the empirical studies
are devoted to developed countries of Western Europe or North America (Hiltrop 1993;
Brewster and Hegewisch 1994; Brewster 1995; Sparrow and Hiltrop 1997; Sparrow and
Wu 1998), testing HRM hypotheses in a developing country such as Iran might have
signicant theoretical and managerial implications.
The remainder of this article has been organized into three major parts. First, the
concepts of culture and compensation are framed. Then, by relying on an integrative
conceptual framework, the data are collected and analyzed. At the end, ndings are
described, theoretical/managerial implications are discussed, research limitations are
mentioned, and some avenues for future studies are pointed out.
Culture and cultural orientations
Kroeber and Kluckhohn (1952) suggested a very comprehensive denition of culture as
follows: culture consists of patterns, explicit and implicit of and for behavior acquired and
transmitted by symbols, constituting the distinctive achievements of human groups,
including their embodiment in artifacts; the essential core of culture consists of traditional
ideas and especially their attached values . . . . For the purpose of this study, we dene
culture as the collective programming of the mind, which distinguishes the members of
one group or category from another (Hofstede 1980). Since culture is a complex concept,
a practical approach would be to identify/study several of its major dimensions (Yeganeh
and Su 2006). The cross-cultural literature provides us with several conceptual
frameworks based on various dimensions along which cultural traits can be analyzed and
compared (Kluckhohn and Strodtbeck 1961; Hall 1976; Hofstede 1980; Schwartz 1992;
Trompenaars 1993; Hampden-Turner and Trompenaars 1994). Among them, Kluckhohn
and Strodtbecks framework (1961) seems to be a very comprehensive and convenient
framework to be applied in organizational research (Maznevski, Gomez, DiStefano,
Noorderhaven and Wu 2002; Yeganeh, Su and Sauers 2009). Kluckhohn and Strodtbeck
(1961) identied six major orientations:
(1) Relationship to Nature: dominance, subjugation, or harmony.
(2) Relationships among People: individualism, collectivism, or hierarchical
structure.
(3) Time Orientation: focus on the present, past, or future.
(4) Human Activity: focus on being, doing, or thinking.
(5) Human Nature: good, bad, or a combination of both.
(6) Conception of Space: private, public, or a mixture of both.
The cultural orientations as proposed by Kluckhohn and Strodtbeck (1961) are
straightforward and meaningful constructs and are presumed to be found in all societies
(Maznevski et al. 2002; Yeganeh et al. 2009). In contrast to some frameworks such as
Hofstedes (1980), Kluckhohn and Strodtbecks model is based on cultural orientations
that are not necessarily dichotomous. That is, a high preference for one orientation does
not necessarily mean a low preference for the other orientation. This characteristic may
allow a better understanding of cultural phenomena in the area of organizational
research (Maznevski et al. 2002). Another major advantage in applying this framework
H. Yeganeh and Z. Su 2610
is that it distinguishes between individual and aggregate levels. In that way, researchers
can make hypotheses and test them at the individual level or aggregate measures
to examine variances both within and between cultures (Maznevski et al. 2002). Thus,
we argue that the Kluckhohn and Strodtbecks framework is most applicable to the
current study.
Compensation policies
Among all HRM functions, compensation is perhaps the most fascinating because it is
related directly to money. Money is the rationale behind any business activity and the
impetus for every transaction in the society. As a matter of fact, compensation affects not
only the performance of the organization but also its very existence. For the purpose of this
research, the terms compensation, rewards, and remuneration are used interchangeably.
Geringer and Frayne (1990) have dened compensation as what includes those rewards
monetary and non-monetary, direct or indirect that an organization exchanges for the
contributions of its employees, both job performance and personal contributions.
According to the denition of American Compensation Association (1995), compensation
can be dened as cash and non cash remuneration provided by an employer for services
rendered. Compensation can include anything an employee may value and desire that an
employer is able or willing to offer in exchange for employees contribution (Henderson
1989, p. 2). Compensation can be both tangible and intangible. Tangible compensation is
nancial and may be direct or indirect. The most basic forms of direct compensation are
pay and incentives. Pay takes usually the form of a wage or salary. An incentive, on the
other hand, is a kind of compensation that rewards an employee for efforts beyond normal
performance expectation. Bonuses, commissions, and prot-sharing plans are examples of
incentives. Indirect compensation is a tangible reward, which is not received in cash.
Examples of indirect rewards are benets such as health insurance, vacation pay, or
retirement pensions given to an employee.
Compensation policies cover a wide range of issues related to reward philosophies,
pay basis, form of reward packages, design of the pay system, and administrative
frameworks. Through an extensive review of literature, Gomez-Mejia and Balkin (1992)
suggested 17 different categories of the compensation systems. These categories are
grouped in pairs of opposite and distinct choices as depicted in Table 1. Left-hand
compensation policies are labeled mechanistic as they reect formalized procedures that
are applied uniformly across organizations. By contrast, the right-hand policies are
branded organic because they are more responsive to varying conditions, contingencies,
and individual situations (Gomez-Mejia and Welbourne 1988). All these choices may be
grouped based on three main criteria: (A) basis for pay, (B) pay design, and (C)
administrative frameworks used to deliver the reward (Gomez-Mejia and Balkin 1992).
The basis for pay may include nine important policies which are used to determine
rewards: Job vs. Skills, Performance vs. Seniority, Individual vs. Group Performance,
Short- vs. Long-Term Orientation, Risk Aversion vs. Risk Taking, Corporate vs. Division
Performance, Internal vs. External Equity, Hierarchical vs. Egalitarian, and Quantitative
vs. Qualitative Measures of Performance. The design of a compensation system is related
to four major policies: Higher than Market Pay Level vs. Lower than Market Pay Level,
Fixed Pay vs. Incentives, Monetary vs. Non-monetary Rewards, and Intrinsic vs. Extrinsic
Rewards. Finally, the administrative framework of compensation may include four other
choices: Centralized vs. Decentralized Pay Policies, Open vs. Secret Pay, Participation vs.
Non-participation of Employees, and Bureaucratic vs. Flexible Pay Policies.
The International Journal of Human Resource Management 2611
Research framework
The objective of this research is to investigate the effects of cultural orientations on
preferred compensation policies. Therefore, an appropriate framework should encompass
both culture and compensation. This framework is presented in Figure 1.
The theory of Kluckhohn and Strodtbeck (1961) has been regarded as one of the most
comprehensive models for analyzing culture in organizational disciplines (Maznevski et al.
2002; Yeganeh et al. 2009). While the original cultural model consists of six orientations,
due to measurement limitations, we choose for a model of ve orientations. The sixth
orientation as proposed by Kluckhohn and Strodtbeck (1961) is related to the conception
of space. Indeed, the Cultural Perspectives Questionnaire (developed by Maznevski et al.
2002) measures only ve cultural orientations and does not include the sixth orientation.
Therefore, we include these ve orientations: Human Nature Orientation, Activity
Orientation, Relational Orientation, Man-to-Nature Orientation, and Time Orientation.
As discussed earlier, the compensation policies represent a wide range of options,
however; for the purpose of this research and in the environment of Iranian organizations,
it is necessary to choose only the policies which are contextually and practically
meaningful. The concept of HRM is essentially Western (Brewster 1995). Therefore, in
any investigation in non-Western countries, a good deal of attention should be paid to
cultural relativity of HRM (Sparrow and Wu 1998). For increasing the conceptual
equivalency, in this research we used a combination of emicetic approaches (Berry
1990). It means that we did not impose some Western concepts to a different sociocultural
context such as Iran. Rather, rst, through observation and participation, we attained emic
knowledge, and then we adopted 10 culturally meaningful etic compensation policies.
On the one hand, these compensation policies are emic constructs, because they correspond
to the local context of investigation (Iran). On the other hand, they are etic, because they
have been adopted from the Western HRM practices. Therefore, we argue that these 10
policies represent the most important compensation issues which are supposed to matter in
Table 1. Typologies of compensation policies.
(A) Basis for pay
1 Job vs. Skills
2 Seniority vs. Performance
3 Group vs. Individual Performance
4 Short- vs. Long-Term Orientation
5 Risk Aversion vs. Risk Taking
6 Corporate vs. Division Performance
7 Internal vs. External Equity
8 Hierarchical vs. Egalitarian
9 Quantitative vs. Qualitative Measures of Performance
(B) Design
10 Higher than Market Pay Level vs. Lower than Market Pay Level
11 Fixed Pay vs. Incentives
12 Monetary vs. Non-monetary Rewards
13 Intrinsic vs. Extrinsic Rewards
(C) Administrative framework
14 Centralized vs. Decentralized Pay Policies
15 Secret vs. Open Pay
16 Low Participation of Employees vs. High Participation
17 Bureaucratic vs. Flexible Pay Policies
Adopted from Gomez-Mejia and Balkin (1992).
H. Yeganeh and Z. Su 2612
the context of our investigation. The 10 pairs of compensation policies are described
in Table 2.
Hypotheses
I. Activity orientation
The Activity Orientation has three subdivisions: Doing, Being, and Thinking. The Doing
Orientation involves that people are continually engaged in activity to accomplish
tangible tasks. According to Maznevski and DiStefano (1995), this orientation
corresponds to the masculinity dimension as described by Hofstede (1980). Masculine
or Doing cultures cherish assertiveness, achievement, and material success, whereas
Being/Thinking cultures emphasize human relationships and the quality of life. Hence,
Culture Compensation
Human nature
orientation
Activity
orientation
Man-to-nature
orientation
Relational
orientation
Good-Evil
Mastery
Subjugation
Harmony
Individual
Hierarchical
Collateral
Being
Doing
Thinking
Hierarchical /Egalitarian
Fixed/Variable Pay
Time/Production
Short/long-term Pay Orientation
Seniority/Performance
Monetary /Non-monetary
Secret/Open Pay
Low/High Participation Employees
Job/Skill
Time orientation
Future
Present
Past
Individual/Group Performance
Figure 1. Research framework incorporating personal cultural orientations and compensation
policies.
The International Journal of Human Resource Management 2613
a compensation system that links reward to results and personal achievement should be
preferred by Doing cultures (Johnsona and Droegeb 2004). By the same logic, it is argued
that employees in Doing cultures are more likely to accept the increased risk inherent in
outcome-based contracts due to the emphasis they place on achievement and desire for
material rewards (Newman and Nollen 1996; Johnsona and Droegeb 2004). In other
words, Doing cultures operate more consistently with the assumptions of agency theory
and outcomes. On the contrary, Thinking/Being cultures emphasize interdependence,
relationships, service, and above all harmony (French and Weis 2000), and consequently
are more likely to prefer behavior-based compensation policies (Newman and Nollen
1996; French and Weis 2000).
In line with these arguments, it is possible to propose that:
Hypothesis 1a: Doing cultural orientation is associated with preference for Variable
Pay, Skill-based, Individual-based, Production-based, and Monetary
compensation policies.
Table 2. Description of 10 pairs of compensation policies used in the study.
1 Job-based Skill-based
The factors within the job are key
determinants of the amount of pay.
Workers are rewarded based on their
mastery and skill.
2 Group Performance Individual Performance
Group appraisal affects rewards. Individual appraisals affect rewards.
3 Fixed Pay Variable Pay
Compensation is based on membership in
the organization and employees are
rewarded the same amount on a
predictable basis.
Compensation is based on paying a
substantial portion of an employees
income on a variable basis.
4 Time-based Productivity-based
Employees are paid for the amount of
time spent on the job.
Employees are paid for the amount of
work produced.
5 Short-Term Orientation Long-Term Orientation
The compensation is based on satisfying
current needs of employees.
The compensation has a long-term
horizon and focuses on future goals.
6 Nonmonetary Monetary
Rewards are noncash and often intangible
benets such as employment security,
recognition, employee involvement in
decision making, etc.
Rewards involve a tangible cash payment
to employees in order to satisfy their
extrinsic needs.
7 Hierarchical Reward Structure Egalitarian Reward Structure
Wage gaps between top management and
frontline workers are huge.
Wage gap between top management and
frontline workers are not huge.
8 Seniority Performance
Reward and pay increase are based on
tenure and seniority of employees.
Reward and pay increase are based on
performance and results.
9 Secret Pay Open Pay
Firms keep pay information secret from
employees.
Firms have policies to disclose pay
information.
10 Low Participation of Employees High Participation of Employees
Pay decisions are made on an authoritar-
ian basis. Employees do not participate in
designing pay, and their feelings are not
valued.
Employees participate in designing pay,
and their feelings are considered.
H. Yeganeh and Z. Su 2614
Hypothesis 1b: Being and Thinking cultural orientations are associated with preference
for Fixed Pay, Job-based, Seniority-based, Non-monetary, and
Time-based compensation policies.
II. Relationships among people
Relationships among People are about Individualism, Collectivism, and Hierarchy.
Hofstede (1980) views an individualistic society as one in which beliefs and behaviors are
determined by the individual; whereas in a collectivist society, loyalty toward ones
family, job, and country tends to determine the attitudes. People in collectivistic cultures
expect members of their particular in-groups to look after their members and give them
security (Adler 1997). Individualists involvement with an organization is largely
contractual, whereas collectivists are connected to their organizations through moral
commitment. Therefore, the use of nancial incentives should be favored more in
individualistic cultures (Gomez-Mejia and Welbourne 1994). Individualism also involves
a tendency toward individual performance. Thus, individual-based performance incentives
might be more appropriate for individualist cultures (Gomez-Mejia and Welbourne 1994;
Chiang and Birtch 2006). In contrast, collectivism orientation emphasizes compensation
policies that support group harmony and cohesion (Cable and Judge 1994). Hence,
collectivists may prefer behavior-oriented reward systems that are non-competitive in
nature.
It is possible to nd a similarity between Kluckhohn and Strodtbecks Hierarchy and
Hofstedes Power Distance (Maznevski et al. 2002). Hierarchy and Power Distance are
related to the inequality that exists within the society. In high Power Distance cultures,
organizations are marked by centralization, concentration of authority, and tall pyramids
(Hofstede 1980). In high Power Distance cultures, wage and salary are based on the
subjective and behavior-oriented evaluations of managers who reserve the right to assign
differential salaries to employees recruited for the same job (Aycan 2005). As a result of their
respect for authority and loyalty, reward systems that are based on seniority are more
appreciated in high Power Distance cultures (Child and Markoczy 1993; Hui and Luk 1997).
Consequently, it is possible to assume that
Hypothesis 2a: Collectivism cultural orientation is associated with preference for
Job-based, Group Performance, Fixed Pay, Hierarchical, Time, and
Seniority-based compensation policies.
Hypothesis 2b: Individualism cultural orientation is associated with preference for
Skill-based, Individual Performance, Variable Pay, Production-based,
Egalitarian, and Performance-based compensation policies.
Hypothesis 2c: Hierarchy cultural orientation is associated with preference for
Job-based, Fixed Pay, Hierarchical, Seniority-based, and Low
participation compensation policies.
III. Relationship to nature
Relationship to Nature has three subdivisions: Mastery, Harmony, and Subjugation.
Mastery implies that people try to control, change, or exploit the environment. By contrast,
a harmonious relationship with nature involves maintaining balance and status quo
(Maznevski and DiStefano 1995). Subjugation to nature is the opposite of Mastery and
The International Journal of Human Resource Management 2615
means that people are passive toward the environment and its forces. Mastery Orientation
is reected in the goal-setting and motivational practices characterized by high degrees of
individuals internal locus of control (Locke, Latham and Erez 1988). Individuals with a
strong internal locus of control are more likely to pursue their goals and may be inclined to
outcome-oriented rewards like pay for performance and variable pays. In contrast,
Harmony and Subjugation orientations involve a predisposition toward an external locus
of control (Gopalan and Stahl 1998), which can be related to behavior-oriented
compensations such as xed-pay and ascription-based rewards.
Therefore, it is plausible to propose the following hypotheses:
Hypothesis 3a: Mastery cultural orientation is associated with preference for
Skill-based, Individual Performance, Variable Pay, Production-based,
Egalitarian, and Performance-based compensation policies.
Hypothesis 3b: Harmony and Subjugation cultural orientation are associated with
preference for Job-based, Group Performance, Fixed Pay, Time-based,
Hierarchical, and Seniority-based compensation policies.
IV. Time orientation
According to Kluckhohn and Strodtbeck (1961), people can take a past-, present-, or future
orientation toward time. For example, it has been suggested that Americans are oriented
toward the future and consequently are not inclined to uphold the status quo (Gopalan and
Stahl 1998). By contrast, most of the traditional cultures are past-oriented and attach
importance to maintaining their traditions. These traditional cultures are characterized by
social order, respect for tradition, family security, and wisdom (Schwartz 1992). In such
cultures, the personis viewedas embeddedina group, and emphasis is put onthe maintenance
of the status quo, modesty, and restraint of actions or inclinations that might disrupt the
solidarity or the traditional order (Schwartz 1992). Accordingly, it seems plausible to put
forward that Past cultural orientation embraces behavior-oriented compensations which favor
the status quo and harmony. By the same logic, Present and Future cultural orientations may
be associatedwith result-orientedcompensations. Therefore, it is possible to hypothesize that:
Hypothesis 4a: Past cultural orientation is associated with preference for Job-based,
Group Performance, Fixed Pay, Time-based, Hierarchical, and
Seniority-based compensation policies.
Hypothesis 4b: Future and Present cultural orientations are associated with preference
for Skill-based, Individual Performance, Incentives, Egalitarian, and
Performance-based compensation policies.
V. Human nature
On the basis of Kluckhohn and Strodtbeck model (1961), people may perceive human
nature as good, bad, or a mixture of both. Good Orientation entails that people are
trustworthy. By contrast, Evil Orientation implies that individuals cannot be trusted to do
the right thing. Taking human nature as bad implies mistrust in the workplace and tighter
control mechanisms (McGregor 1960). In the same way, thinking that human beings are
good may lead to at organizations with more participation and less formal control
mechanisms (McGregor 1960). Therefore, the following hypothesis is suggested:
H. Yeganeh and Z. Su 2616
Hypothesis 5: Good and Evil cultural orientations are, respectively, associated with
preference for High and Low participation of employees in designing
compensation system.
Instrumentation
Cultural orientations
For measuring cultural orientations, we used CPQ developed by Maznevski et al. (2002).
This instrument measures 13 subdivisions of ve cultural orientations and has shown an
acceptable degree of psychometric equivalence and reliability (Maznevski et al. 2002).
The CPQ consists of 89 Likert-type questions, scaled from 1 to 7, which are randomly
distributed in the questionnaire to minimize the errors due to acquiescence. The average
priorities attributed to different values by societal members reect their shared culture
(Schwartz 1994). Hence, the average scores point to the underlying, common cultural
values (Schwartz 1992). Building on this logic, rst the scores for every individual were
calculated, and then these scores were aggregated to obtain shared cultural values. Internal
reliabilities of cultural orientations were veried by calculating Cronbachs alphas.
Preferred compensation policies
In order to measure preferred compensation policies, an instrument was designed based
on 10 pairs of classications presented in the research framework (see Figure 1).
The instrument consisted of Likert-type questions scaled from 1 to 7. We asked
respondents to rate their preference on this scale from 1 to 7, where number 1 showed the
strongest degree of preference for the left-hand orientation and number seven pointed to
the strongest preference for the right-hand orientation of the item. Number 4 was
interpreted as an equal degree of preference for both orientations.
Sampling and data
The samples consisted of three levels of managers (supervisor, middle, and top
management) working in large Iranian organizations operating in the service sector (see
Appendix 1 for an overview of the Iranian context). As a result of their size and structure,
these organizations seemmore appropriate for conducting a study on compensation policies.
Due to lack of the reliable lists and other operational difculties, the researchers had to rely
on opportunistic samples (Sekaran 1983). It is of paramount importance to mention that this
study is a one-country analysis that intends to examine the relationship between cultural
orientations and compensation policies. To this end, the research design seems appropriate,
as the study is not concerned with samples representativeness or cross-national variations.
Regulations for collecting data in Iranian organizations are very tight; therefore, the
researchers had to rely on a network of inuential people to overcome hurdles and obtain
approval. Every questionnaire was accompanied by a cover letter written by managing
directors and explaining the purpose of the investigation. All semantic questionnaires
were translated into Persian (Farsi) through back-translation. In addition to cultural
orientations and preferred compensation policies, another questionnaire was designed to
investigate the respondents proles. In this questionnaire, issues such as age, sex, and
educational/professional background were investigated. The anonymous auto-administered
questionnaires and supporting instructions were mailed and after follow-up (2 months), 153
usable questionnaires were received, representing 46% rate of response. The results are
The International Journal of Human Resource Management 2617
shown in three tables: respondents proles (Table 3), cultural orientations (Table 4), and
preferences for compensation policies (Table 5).
Cultural orientations and the Iranian culture
Table 4 depicts means, internal reliability, and standard deviation for 13 cultural
orientations. The scores of cultural orientations seem appealing as they shed light on some
facets of Iranian culture.
Collectivism
As shown in Table 4, the means for two relational orientations, Individualism and
Collectivism, are (X 4.30) and (X 6.02), respectively, suggesting that Iranian
respondents are characterized by a high degree of collectivistic orientation. These results
are very similar to those of Hofstede (1980) that ranked Iran as a highly collectivistic
country. In collectivistic societies, private life is invaded by groups interests, and the society
tends to operate on the basis of inter-personal relationships among individuals, rather than on
the basis of impersonal institutions. The antecedents and manifestations of collectivism may
be found in many aspects of Iranian society such as history, literature, economic and political
systems, family structure, language, communication patterns, and management practices.
For instance, inter-personal connections and informal channels seem more practical,
whereas formal systems, ofcial institutions, and procedures are considered less efcient.
Table 3. Respondents prole.
Characteristic Value Frequency %
Country of birth Iran 153 100
Other 0 0
Missing 0 0
Have you always lived in the country of birth? Yes 147 96
No 6 4
Missing 0
Sex Male 127 83
Female 16 10
Missing 10 7
Age group 3034 18 11.8
3539 27 17.6
4044 48 31.4
4549 41 26.8
5054 8 5.2
5055 4 2.6
Missing 7 4.58
Education Bachelor 72 47
Master 67 44
Doctor 3 2
Missing 11 7.1
Job level Supervisor 51 33.3
Middle manager 70 45.8
Top manager 13 8.5
Missing 19 12.4
Which factor is more important in shaping your culture Country of birth 72 47
Religion 66 43
Missing 15 9.8
H. Yeganeh and Z. Su 2618
Hierarchy
Hierarchy Orientation has a big mean (X 5.83) reecting the high degree of hierarchical
distance among Iranian managers (see Table 4). This result is in accord with previous
investigations in Iranian organizations such as Hofstedes study (1980). The antecedents
of high hierarchical distance are deeply rooted in many aspects of Iranian mythology,
history, politics, religion, and family structure.
Past orientation
For the temporal orientation, Present got a small alpha coefcient (a 0.24) indicating a
very low level of internal reliability of the scale. The data for two other orientations
suggest that, with a mean (X 6.10) for Past, Iranian managers tend to be past-oriented
rather than future-oriented. These results are consistent with the GLOBE project that
found future orientation receives very low emphasis in Iran.
Activity orientation: thinking, being, and doing
As shown in Table 4, as of Activity Orientation, respondents get a high score for Thinking
(X 6.22), a moderate score for Being (X 4.78), and a relatively low score for Doing
Table 4. Cultural orientations.
Cultural orientations Alpha Mean Standard deviation
Activity 1 Thinking 0.75 6.22 0.54
2 Being 0.55 4.78 0.65
3 Doing 0.70 4.30 0.83
Time 4 Future 0.55 4.69 1.03
5 Present 0.24 3.45 1.00
6 Past 0.69 6.10 0.55
Relation with others 7 Hierarchy 0.56 5.83 0.50
8 Individualism 0.60 4.30 0.78
9 Collectivism 0.61 6.02 0.51
Relation with environment 10 Harmony 0.68 5.60 0.62
11 Subjugation 0.65 3.90 0.70
12 Mastery 0.65 5.53 0.68
Human nature 13 Evil 0.60 4.56 0.74
Table 5. Preferences for compensation policies.
Compensation policies Mean Standard deviation
1 Job/Skill 4.02 0.85
2 Individual/Group 4.21 1.14
3 Fixed/Variable Pay 3.75 1.02
4 Time/Production 4.40 1.14
5 Short-/Long-term Pay 3.54 1.48
6 Monetary/Non-monetary 4.52 0.78
7 Hierarchical/Egalitarian 3.47 0.61
8 Seniority/Performance 4.58 1.74
9 Secret/Open Pay 4.18 1.04
10 Low/High Participation 4.76 0.80
The International Journal of Human Resource Management 2619
(X 4.30). Thinking cultures are supposed to be oriented toward analysis, calculation,
and planning. Therefore, a very high score of Thinking Orientation might be interpreted as
willingness of Iranian managers for planning and anticipation; however, it seems that these
results are not in conformity with previous studies (Yeganeh and Su 2008). In Doing
cultures, people tend to view work activities as core to their existence and they attach
much importance to achievement and hard work. By contrast, in Being cultures, peace of
mind is cherished and emphasis is placed on immediate gratication. The results of our
survey suggest that Iranian managers have a weak tendency toward Being Orientation.
Good and evil
According to the instrument used in this study, Good Orientation supposes that people are
by nature good and can be trusted. By contrast, Evil Orientation holds that individuals
are basically wicked and cannot be trusted to do the right thing. As shown in Table 4, the
mean for human nature orientation corresponding to Good/Evil is relatively moderate
(X 4.56), suggesting that respondents view human beings as slightly wicked.
Subjugation, harmony, and mastery
According to Table 4, the score for Subjugation is relatively low (X 3.90), but the scores
for both Harmony (X 5.60) and Mastery (X 5.53) are high, indicating that Iranian
respondents do not seem to be subjugated. Since Iranian culture is dominated by religion
and God, we might suppose that it has a tendency toward subjugation and fatalism.
However, our results do not conrm this proposition. High levels of Mastery and Harmony
can be interpreted as an interaction between two orientations. In other words, while
Mastery Orientation implies a proactive culture, Harmony tries to keep the action in
concord with the context.
Compensation policies
Table 5 presents the means and standard deviations for 10 pairs of compensation policies.
As shown, the means for Job-/Skill-based (X 4.02), Individual/Group (X 4.21), and
Secret/Open compensation (X 4.18) are close to 4, suggesting that the respondents
prefer balanced policies between mechanic and organic approaches. As of Hierarchical/
Egalitarian (X 3.47), Short-/Long-term (X 3.54), and Fixed/Variable Pay (X 3.75),
there is a tendency toward left-hand choices. For other policies, Time/Production
(X 4.40), Monetary/Non-monetary (X 4.52), and Seniority/Performance (X 4.58),
there is a slight preference for organic pay policies.
Data analysis
First of all, coefcients between non-cultural variables such as sex, age, education, job
level, and preferences for compensation policies were calculated. The results did not
reveal any signicant relationships between age, sex, education level, and preferred
compensation policies. This issue may be explained by the fact that the respondents
consisted of a predominantly male workforce (83%) and they were very similar in terms of
age and education background (see Table 3). The results, however, showed a slight
association between job level and some preferred compensation policies. For instance, it
seems that job level is moderately related to preference for Job-based (r 0.151) and
Hierarchical Pay (r 0.173) policies.
H. Yeganeh and Z. Su 2620
Subsequently, Pearson correlation coefcients between cultural orientations and
preferred compensation policies were computed in order to verify research hypotheses.
Also, multiple regression analysis technique was used to determine to what extent every
compensation policy is linked to all the cultural orientations. This is permitted to make
sense of the overall effects of cultural orientations on every particular compensation
policy. As presented in Table 6, among Activity orientations, Thinking does not have a
signicant correlation with any preferred compensation policies, but Being has signicant
correlations with Job-based compensation (r 20.222 or a negative correlation with
Skill-based compensation), Fixed Pay (r 20.160), Short-Term (r 20.181), and
Non-monetary Reward (r 0.165). Doing orientation is related only to Egalitarian
Reward (r 0.216). Present Orientation was not taken into consideration because of the
low Cronbachs alpha (see Table 4). As of Future Orientation, we do not nd out any
signicant correlation, but Past is related to preferences for Non-monetary Reward and
Seniority-based Pay (r 0.162 and r 20.158).
Relational Orientation is concerned with Individualism, Collectivism, and Hierarchy.
According to Table 6, Individualism and Collectivism are related only to Low
Participation of Employees (r 20.185) and Fixed Pay (r 20.234). Another cultural
orientation, Hierarchy is related to Job-based compensation (r 20.205) and Fixed Pay
(r 20.159). Concerning Man-to-Nature Orientation, we do not distinguish any
signicant correlation for Subjugation, but Mastery is correlated to three compensation
policies: Skill-based (r 0.168), Fixed Pay (r 20.162), and Productivity-based
compensation (r 0.165). In the same way, Harmony is correlated with Fixed Pay
(r 20.205). Finally, Evil is related only to Monetary Reward (r 20.171). These
results support Hypothesis 1b, Hypothesis 2c, and Hypothesis 3a.
Table 7 presents R, R
2
, Adjusted R
2
, Standard error of the estimate, and F value for
each of the compensation policies which are taken as dependent variables. Based on these
results, it is understood that among all compensation policies, a Job-/Skill-based policy is
more susceptible to be affected by culture (R
2
0.196). This means that about 20% of the
variance in preference for this policy may be explained by cultural orientations. Also,
about 13% of variability in Fixed/Variable Pay, Monetary/Non-monetary Reward, and
Hierarchical/Egalitarian policies may be attributed to cultural orientations (R
2
0.125,
0.126, and 0.128). As to Short-/Long-Term Pay, Low/High Participation of Employees,
and Seniority-/Performance-based policies, about 79% of the variation may be linked to
culture. Time/Production, Secret/Open Pay, and Individual/Group-based Pay are those
policies which have the smallest R
2
and which are less susceptible to be affected by
cultural orientations (see Table 7).
Discussion
The current study aimed at examining the effects of cultural orientations on preferred
compensation policies. We used an instrument based on the original theory of Kluckhohn
and Strodtbeck (1961) to analyze culture along ve major orientations: Relationship to
Nature, Relationships among People, Hierarchical Structure, Time Orientation, and
Human Activity. We argued that these cultural orientations and, their subdivisions are
straightforward constructs which correspond to the hardcore of culture and therefore,
are presumed to be meaningful in the context of our investigation in Iran. Also, keeping in
mind that the very concept of HRM is essentially Western, we used a combined emicetic
approach to identify 10 conceptually and culturally meaningful compensation policies in
the Iranian organizations. Accordingly, we built a conceptual framework (see Figure 1),
The International Journal of Human Resource Management 2621
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H. Yeganeh and Z. Su 2622
developed hypotheses, and, nally, collected/analyzed data. Since this study focused on a
single country, we were not concerned about either the sample representativeness or the
variations of cultural orientations across borders. Rather we were interested in
the variations of each cultural orientation and its possible effects on preferred
compensation policies.
The results of this study support some of our hypotheses and conrm partial
associations between cultural orientations and preferred compensation policies. Among all
cultural orientations, Being and Mastery are found to be more important in shaping
preferences for compensation choices as they are related, respectively, to four and three
policies (see Table 6). Two other cultural orientations that seem to have important
implications are Past Orientation and Hierarchical Relation. For instance, Past Orientation
is related to Non-monetary and Seniority-based compensation policies, and Hierarchical
Relation has a positive association with Job-based, Fixed Pay preferences. According to
Table 6, Individualism, Collectivism, and Doing are not related to many compensation
policies. For instance, Individualism and Collectivism are related to Low Participation of
Employees and Fixed Pay policies, respectively, and Doing is associated only with
Egalitarian compensation preferences. This issue seems counterintuitive, especially
because Individualism and Collectivism are considered as the important cultural
orientations (Greeneld 2000; Oyserman, Coon and Kemmelmeier 2002). Also, it is
possible to consider that three cultural orientations such as Thinking, Future, and
Subjugation are not related to any compensation policies. On the basis of these results, we
may suggest that cultural orientations have dissimilar and uneven implications for
compensation preferences. While some of them are very likely to affect compensation,
others might have moderate and even scant implications. Theoretically, this issue is very
important, because the cross-cultural research usually considers all cultural orientations/
dimensions of the equal importance (Yeganeh and Su 2006).
In the same way, the extent to which compensation polices are affected by culture
may vary from one policy to another. For instance, the regression analysis showed
that a good deal of variation in Job-/Skill-based (about 20%) can be attributed to 12 cultural
orientations. However, in the case of Time-/Production-based pay, the cultural orientations
can explain only 6% of the variation (see Table 7). In the case of Fixed/Variable pay,
Monetary/Non-monetary, and Hierarchical/Egalitarian, the attributed variation to culture is
Table 7. Multiple regression analysis personal cultural orientations (independent variables),
preferences for compensation policies (dependent variables).
Dependent variables R R
2
Adjusted R
2
Standard error
of the estimate F
1. Job/Skill 0.442(a) 0.196 0.128 0.793 2.877
2. Individual/Group Performance 0.266(a) 0.071 20.006 0.141 0.925
3. Fixed/Variable Pay 0.354(a) 0.125 0.053 0.988 1.728
4. Time/Production 0.250(a) 0.062 20.013 0.152 0.825
5. Short-/Long-Term Pay 0.328(a) 0.107 0.034 0.461 1.454
6. Monetary/Non-monetary 0.355(a) 0.126 0.054 0.756 1.758
7. Hierarchical/Egalitarian 0.357(a) 0.128 0.056 0.533 1.783
8. Seniority/Performance 0.293(a) 0.086 0.009 0.669 1.119
9. Secret/Open Pay 0.271(a) 0.073 20.002 0.041 0.968
10. Low/High Participation 0.302(a) 0.091 0.017 0.729 1.233
Note: Using enter method, p , 0.001.
The International Journal of Human Resource Management 2623
around 13%. Thus, it is possible to suggest that pay policies are not affected
equally by culture, but they may be inuenced highly, moderately, or scantly by cultural
orientations.
On the basis of our results (Tables 6 and 7), it is possible to suggest that the cultures
characterized by higher degrees of Being Orientation are likely to cherish Job-based, Fixed
Pay, Short-Term, and Non-monetary compensation policies. This result is consistent with
Hypothesis 1b, because Being Orientation implies cultural values such as gratication,
peace of mind, and quality of life (Kluckhohn and Strodtbeck 1961; Maznevski and
DiStefano 1995). Similarly, it is found that Mastery Orientation is associated with Skills,
Fixed Pay, and Productivity-based compensations. This nding partially corroborates
Hypothesis 3a. Since Mastery Orientation involves high degrees of individuals internal
locus of control (Locke et al. 1988), it should correspond to policies such as Skills and
Productivity-based compensations that require employees effort and excellence.
As understood from Table 6, Past Orientation is associated with Non-monetary and
Seniority-based compensations. This nding partially supports Hypothesis 4a.
Past-oriented cultures cherish traditional values such as family, respect for elderly
people, and the status quo (Kluckhohn and Strodtbeck 1961; Maznevski and DiStefano
1995). Accordingly, their preference for Non-monetary and Seniority-based compensation
can be justied. Another important nding is that Hierarchical Orientation is
associated with Job-based and Fixed-Pay compensation policies. This nding provides
partial support to Hypothesis 2c. Thus, in societies marked by higher degrees of
hierarchical distance, there might be a tendency toward ascription rather than productivity
and competition.
The ndings of this study may have some signicant implications at the theoretical and
managerial levels. At the theoretical level, the effects of culture divert attention from
classical perspectives such as equity paradigm and labor market theory and give way to a
new strategic perspective of compensation. This strategic perspective implies that
compensation should be adapted to external factors such as culture to enhance
organizational effectiveness (Gomez-Mejia and Welbourne 1994; Bloom and Mitra 2003).
Compensation function is at the heart of the organization and aims to attract, retain, and
motivate employees to achieve targeted objectives. Arguably, the alignment between
compensation policies and employees cultural values leads to organizational
effectiveness. On the contrary, pay polices that do not match employees values may
lead to ineffectiveness. This entails that multinational enterprises (MNEs) having
operations in different parts of the world should tailor their reward systems to the local and
cultural factors (Tregaskis and Brewster 2006). For instance, as found in this research,
Being Orientation tends to be incompatible with variable pay and, therefore, employees in
traditional cultures marked by Being Orientation may not embrace reward policies such as
pay for performance.
Another nding of this research is that while culture has important implications, it
should not be viewed as the main variable. This issue deserves particular attention because
many cross-cultural studies simply compare HRM practices across borders and attribute
their variations to culture (Yeganeh and Su 2006). In other words, the effects of cultural
factors should be interpreted in combination with other external variables such as
political, economic, and social systems surrounding the rm and also by considering the
intra-organizational settings. This nding seems in conformity with Gerhart and Fang
(2005) who emphasized the importance of organizational factors in shaping HRM
practices.
H. Yeganeh and Z. Su 2624
Conclusion
Through this study, we aimed to examine the effects of cultural orientations on preferred
compensation policies. Our ndings suggested that while culture may be held responsible
for affecting compensation, its effects should be considered partial and moderate. Further
analysis revealed that the effects of culture on compensation can vary from one orientation
to another. Some cultural orientations such as Mastery and Being are more likely to be
related to pay policies; however, some others such as Subjugation and Thinking seem less
signicant. In the same way, the extent to which compensation polices are affected by
culture may vary. In other words, some pay policies seem more culture bound than others.
For that reason, it is concluded that by understanding the effects of cultural orientations,
rms can design compensation systems which are in accordance with employees cultural
values and consequently increase organizational performance.
While this study provides valuable insights, it should be interpreted cautiously and by
considering the conceptual and methodological limitations. First of all, the ndings are
limited to a few cultural orientations and compensation typologies. Moreover, the study
has a narrow scope as it deals with preferred compensation policies which are different
from those implemented in the organization (Khilji and Wang 2006). At the
methodological level, it should be pointed out that both Pearsons coefcient and multiple
regressions are measures of linear relationships. Therefore, to have a coefcient close or
equal to zero does not mean that there is no relationship between cultural orientations and
compensation policies. In fact, the relationship may exist but it might be nonlinear. Even
when there are signicant coefcients, attention should be paid to the fact that correlation
does not imply causation. However, since culture encompasses basic values, it is plausible
to take it as an independent variable. Application of broader frameworks to incorporate
culture and compensation, designing a multiple country study, differentiating the gap
between preferred and implemented compensation policies, and verifying nonlinear
relationships are among issues that might be addressed in future studies.
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The International Journal of Human Resource Management 2627
Appendix 1. An overview of the Iranian context
Iran is located in southwest Asia. It shares borders with Armenia, Azerbaijan, Turkmenistan,
Turkey, Iraq, Afghanistan, and Pakistan. It has coastlines along the Persian Gulf and the Sea of
Oman in south, and the Caspian Sea in north. It has an area of 636,296 mile
2
(1.6 million square
kilometers) making it the 16th largest country in the world. The country is highly diverse from
every point of view, especially in topography and climate. The population of Iran is estimated at
some 70 million, 12 million of which live in the capital Tehran and its suburbs. The ofcial
language of Iran is Persian (Farsi), which is an Indo-European language and is taught and
practiced in all schools from the rst grade across the country. Other local languages that are
spoken include mainly Turkish and Kurdish. The country has one of the worlds most diverse
ethnic groups ever assembled in one country: Persian (56%), Turk (Azari) (24%), Gilaki (8%),
Kurd (8%), Lur, Baluch, Arab, and Turkaman. The religious groups are Shiite Muslim, Sunni
Muslim, Zoroastrian, Jewish, Christian, and Bahaii. The 1979 revolution transformed Iran by
abolishing the monarchy and establishing a new political system. At the present, Iran is an
Islamic republic, ruled according to a constitution providing for executive, legislative, and
judicial branches. The political system comprises both elected and unelected institutions. With a
relatively large population and the worlds largest oil and gas reserves, Iran is considered an
important regional economy. It is OPECs second largest oil producer and it has the second
largest reserves of natural gas in the world. It also possesses enormous mineral resources,
including coal, copper, iron, zinc, and gold, much of which has to be developed. Its economy is a
mixture of central planning, state ownership of oil, large enterprises, village agriculture, small-
scale private trading, and service ventures.
H. Yeganeh and Z. Su 2628
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