Paper- 401.

IHRM: INTRODUCTION: Prof S K Tripathy

Dept. of PMIR
 HRM varies according to cultural and institutional environment where it is
conducted,
 HRM is different from country to country,
 HRM is complex in organizations whose reach crosses national boundaries,
 A key task for HRM in organizations which operate across international
boundaries is to manage stresses of the drive for (a) integration (being coherent
across the world) and (b) differentiation (being adoptive to local environments)

We need to understand a “good HRM” – defined differently in different national

cultures, operate differently in different national institutional environments and the
way in which the international organizations attempt to deal with issues created by
such differences. Different cultures, different institutional and labour market
positions, different legislations applied across national boundaries (creating
institutional limitations/liberties) raise important “within-nation” and “beyond-
country” issues.

But employment laws, labour markets, trade unions, political system, economic
policies, etc. force HRM vary considerably around the world. Added with changing
institutional, cultural and technological scenario, IHRM and comparative HRM
increasing becoming more and more significant, as it attempts to manage the entire
workforce (including expatriates) across the world in the most cost-effective manner
possible and becoming a key contributor to organizational success.

KEY TRENDS:
 We are becoming more international, world is becoming one market;
 Technology, economies, communication, etc. are making it more possible;
 Global/multinational enterprises (enlarged/expanded business boundaries) are
leading the economic changes, growing number and diversity of participants,
rising complexity and uncertainty.

Key indicators in this trend are:

 Multinationals are economically dominants;
(UNCTAD in 2004 reported that 63000 transnational companies dominate world
trade (2/3rd). Top 100 corporations account for 143% of worldwide sales, 12% of
assets and 13% of employment).
 Physical location of economic value creation is difficult to ascertain;
(MNCs increasingly operate as seamless global organizations with teams of
workers based all over the world, passing projects backwards and forwards via
internet or the private intranet of the company – brings difficulty for tax
authorities to demand for economic activities and value contribution in a
particular location.)
 Consolidation through mergers and acquisitions remains a potent force for
globalization.
 Destination for business, decided by many factors, attracts FDI and changes the
scenario to be more globalized.

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 Global transfer of work – either in terms of creation of new jobs or through global
sourcing of certain parts of individual’s or unit’s work – (1 st wave) low level
manufacturing being transferred to low cost locations, (2nd wave) simple service
works being relocated and now higher-skill white-collar jobs being transferred.

US jobs to Indians with less cost, Phillip’s operations at Sanghai, and Boing
employing Russian Engineers are examples.

For all these MNEs HRM is a key to success.

 Cost of people, as the largest single item of operating cost; (60-70% of the total
operating cost);
 Capabilities and knowledge incorporated in the company’s HR; and
 The way people to be managed with differing institutional constraints are very
important.

Freer economic environment, reduction on restriction of labour movement and advent

of technology have made easy for enterprises to operate internationally – demanding
for changing role of HR managers for MNEs.
Extent of internationalization; laws, trade unions, labour market, expectations in the
other country; local cultural norms; issues of expatriates; etc. are the concerns.
These call for a different mindset and skill for HR managers.
Individual competencies to work in MNEs too matter:
 Interpersonal skills (Cultural empathy)
 Influencing & negotiating skills
 Analytical and conceptual skills and
 Strategic thinking becomes more important.
They also need broad-base of knowledge in areas like:
International Business Local labour Market
International finance Cultural differences
International labour laws International compensations/benefits

They have to manage a wide range of multiple relationships; as they need to deal with
groups as:
 Headquarters, regional and subsidiary level managers
 Headquarters and subsidiary employees
 National and international law-making/influencing bodies
 Local and regional communities.

Generally the word ‘international’ means anything outside the country. So IHRM can
be covered under three headings:
(i) Cross-cultural Management,
(ii) Comparative HRM, and
(iii) IHRM

(i) Cross-cultural Management:

It is believed that every nation has its unique sets of values and beliefs which
are reflected in the ways the society and the economy operate and also in the ways
people operate at work and are managed there.
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 Therefore, this is one of the key factors in the internationalization of
employment – the cultural differences between nations – the values and attitudes.
Different nationals have different values reflected in general attitude – work-obsessed
Americans, polite Japanese, modest Malays – at work as they affect the way people
organize, conduct and manage work.

International HR managers are therefore need to be aware of such cultural

differences while operating in the other countries. Applying standard HR practices
becomes an issue.

(ii) Comparative HRM (CHRM):

Boxall (1995) described the distinction between comparative HRM and

IHRM.
CHRM explores the extent to which HRM differs between countries – or
within different regions of a country, such as North India, North-East India, South
India, West and East India. Language, economics and regional differences along with
cultural expectations force for such comparisons which lead towards differences in
HRM practices. The comparison too paves the way for knowing and adopting better
HR Practices.

(iii) IHRM:

This examines how MNEs manage HR across different national contexts. The
international context adds to the complexities when one looks beyond the national
boundaries/settings.

While considering the other country’s practices cost-effectiveness becomes a

major concern. An Indian company and its management may find it difficult to adopt
the extent of openness while operating in USA.

It is again, not the variety of practice but also the range of policy and strategy
issues. While managing people, MNEs need to look at international coherence and the
cost-effective approach, being responsive to the differences in assumptions and to
those people who work internationally.

IHRM-Expanded to more than one country (Home, Host, Third)

-PCN, HCN & TCN
-Expatriate Mgt.
-External influences – cultural, distance, socio-political-economic institutions
-Recruitment to Retirement becomes challenging
-Global leadership.

IHRM – Different levels of Globalization and HR Issues –

Globalization of industries- those who compete at different countries around the

world.
Issues –International competition, standardized norms, local responsiveness,
global learning.
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 Global industries – in which firms’ competitive position in any particular
country depends upon competitions that might exist in other countries. Level
of international trade, intensity of international competition, world-wide
product standardization and presence of international competitors.
Firms can achieve efficiency through global scale, local responsiveness and
worldwide learning.

Relative levels of internationalization – firm decides measures used to decide are:

(a)Sales at foreign countries, its share to total sales
(b) foreign assets, percentage to total assets
(c) number of foreign subsidiaries
(d) cumulative duration of managers in foreign assignments
(e) subsidiaries in cultural clusters/zones
Estimating Internationalization of the firm is an arbitrary process.
= No. of foreign subsidiaries’ sales as a percentage of total sales
= Export sales as a percentage of total sales,
= foreign assets as a percentage of total assets
=tallying the duration of top management’s international assignments, etc.
decides internationalization.

Progress of building of International capabilities within the Firms:

Internal ability of firm (system, process and management) to meet
customers’ needs and to direct both skills and efforts to achieve organizational
goals, if globalized.
Enhancing core competencies, distinctive abilities, distinctive knowledge
assets, orgn. structure(control & coordination across business units), to
develop standards to enlarge global capacity.
Concept of organizational capability focuses on the ability of a firm’s internal
processes, systems and managerial practices to meet customer needs and to direct
both skills and efforts of employees towards achieving goals of orgn.

Level of analysis emphasizes on the way how firms manage the resources that enable
them to develop core competencies and distributing capabilities.
International expansion is only possible when firms can transfer their distinctive
knowledge-assets abroad into new international markets.
Organization structures have to respond to a series of strains faced by the process of
globalization (e.g. growth, increase geographical spread, and need for improved
control and coordination across business units and increased capabilities to maintain
integrated standard remaining locally responsive.

Functional Realignment with Globalized organizations:

Coordination – developing links between geographically dispersed units of a
function, and
Control – regulating functional activities to align them with the goal.
Globalization is driven by what happens within business functions as they
seek to coordinate (among units) and control (regulate functional activities to align
them with the expectation set in the targets) their activities across borders.

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Global HRM:
When we discuss global HRM, challenges/issues of global consensus and regional
differences come to our minds:
Global consensuses are seen in challenges like (a) change management (b) Leadership
development (c) measurement of HR effectiveness.
Challenges seen at regional level are many, but dominant issues are:
(a) In Africa: Health & welfare benefits, learning and development
(b) In Asia-Pacific & North America: Succession Planning
(c) In Europe: staffing, recruitment and availability of local labour
(d) In South America: Compensation (specially cite compensation)

(Survey: World Federation of Personnel Management Association,2005)

Life-cycle Models: Theoretical frameworks in Strategic IHRM has been

influenced by three developments emerged historically.

 Fit between HRM and the progressive stages of HQ management attitude to

international operations, product life cycles, or organizational life cycles (early
attention)
 Subsequent development of ideas about organizational design and the process
through which strategy and structure can be matched or ideal MNEs created;
 Development of integrative ‘contingency’ frameworks premised on the need to
both integrate and differentiate HRM policies.
Models reflected on need for strategic fit between HRM policies and practices and the
international evolution of the firm.
Authors identified 4 main approaches to describe how MNEs deal with the staffing
and management of their subsidiaries: (Attitude to Internationalization)
 In the ethnocentric approach:
= few foreign subsidiaries have any autonomy;
= strategic decisions are made at HQ;
= key positions at domestic and foreign operations are held by headquarters mgt.
personnel;
Subsidiaries are mostly managed by expatriates from parent country (PCNs).
 In the Polycentric approach:
= MNE treats each subsidiary as a distinct national entity with some decision-making
autonomy
= subsidiaries are usually managed by local/host country nationals (HCNs) who are
seldom promoted to positions;
= PCNs are rarely transferred to foreign subsidiary operations
In the Regiocentric approach:
= Reflects geographic strategy and structures of multinationals;
= Personnel may move outside their country but within a particular geographic area;
= Regional managers may not move to headquarters but can enjoy a degree of
regional autonomy in decision-making.
 In geocentric approach:
 Takes a worldwide stance in respect of all operations, recognizing that each part
makes a unique contribution with its overall competence;
 Accompanied by a worldwide integrated business;
 Nationality in ignored in favour of ability;

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 PCNs, HCNs, TCNs can be found in key positions anywhere including senior
management level at headquarters and even on board of directors.

Four stages of developments of organizations:

(1) Domestic
(2) International
(3) Multinational
(4) Global

The variation/development as MNE and in MNEs is linked with HRM

practices – their product life cycles and organization’s life cycle.

HR flexibility becomes important and central to effective internationalization

– it is HRM that facilitates the ability of organization to expand/change as per demand
of market.

But now-a-days many organizations are international from the start-up days. Above
models may not be very much useful today.

IHRM: Reflected in following cases

(1) Domestic company operating within national territory, employing foreign
nationals (expatriates) along with own nationals;
(2) Multinational company, having units in host countries, employs nationals of
host countries only;
(3) MNC employing host country nationals in home country’s unit(s);
(4) MNC using third country nationals in host country unit(s).
Issues arise – relating to PCN, HCN & TCN – balancing integration (coordination by
HQs) – Reducing/minimizing differentiations (policies/practices at subsidiary units)

Issues:
-Institution, legal & cultural circumstances
-environmental factors
-cost effective management system
-regional variations &HR
-change management
-leadership
-HR effectiveness

Key Framework of IHRM:

-Levels of Globalization
-Attitude of Internationalization
-Different International forms
-Quality & competitive advantages
-Structural holes & social capital

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 Developments, Issues & Challenges in IHRM
Political Risk Assessment –The Arena: Host Countries/Home Countries and MNCs.
=Basic market issues lead to Government Interventions in the practice of business:-
 Buyers suffer from imperfect information:- Information is costlier/not
available/not perfect.-Information available after major purchase
 Natural Monopolies(tend to develop): -In the areas of communication and utility
services – Market entry becomes difficult for others.
 Production Process:- Pollutes the air, water, etc. Affect6ing environment. –
Production is done at the cost of society.
 Company focuses on its own goals and efficiency – ignores health & safety-
Ignores patent & creativity
 Gross Imbalance/Inequality in the power of market participation:- Worker vrs.
Factory – consumer vrs. The firm.
 Certain products and/or services are reserved (considered as nation’s
right/necessity) –Managing water/energy – Defense – Housing

There are inherent factors that lead to conflict between firm and government.

Major Issues are: (that dominate interrelationship between Govt. and business)
 The divergence between basic goals (breeds conflict);
 Govt’s attempts to control the activities of firm;
 Issues of ethics and firm’s basic social responsibilities;
 Disruptive political events that influence the business.

International players are more affected in the process. Bribery is a recurring issue-
Bofors/helicopter

MNCs to position them internationally try to:

 Capture new markets
 Gain access to raw materials
 Reduce tax burdens
 Lower production costs
 Locate them in more hospitable business environment
 Improve its competitive position in any manner possible

Related activities they are involved are:

-Attempt to alter and shape the political and socio-economic structures to maximize
their own interest.
-Act as major source of capital, technology, expertise, etc. that promises for
maximizing government priorities like employment, economic development, import
reduction and export growth, reduction of dependencies on others, etc.
Relationship needs to be bilateral and mutual benefitting both – the host country &
MNE – brining economic and business prosperities respectively.
There should be fair and sincere relationship between parties.

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Major concerns of Host country:

Sovereignty Size & Equity Information disclosure

(Ex-African Union& China)

Visibility Regulation& Competition

Concerns
Taxation Balance of payments

Employment Technology

Legal Context of IHRM

Due to emerging/existing body of law, employers’ treatment to workers/employees.
(a)Laws on: (i) Employment Relations (ii) Health & Safety (iii) Compensation &
benefits (iv) Rights from home to host country.
(b) Issues & regulations on(i) Equity and equal opportunities (employment &
conditions) (ii) Discriminations (sex, religion, origin, PH)
Unlawful discriminations not to be allowed.

Unlawful Employment Practices:

-Recruitment & Selection: (1) disproportionate representation (2) employee referrals
(3) irrational job advertisements(4) language/culture/origin biases
-Compensation: (1) Equal pay for equal work (2) Equal employment opportunities (3)
discrimination on the basis of sex/age
-Upward mobility: (1) career progression/promotion (2) Transfer (3) Seniority (4)
Training opportunities
-Termination: (1) Lay-off (2) Retrenchment (3) VRS (4) CRS

Benefits must be same for all.

Other issues relating to
PCN –Parent Country Nationals
HCN- Host Country Nationals
TCN- Third Country Nationals

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 IHRM – Comparative HRM – REWARD

It is a fact that people work for money. It is also a fact that they also work to find a
meaning and a sense of identity.
It is another recognized fact that extrinsic reward erodes intrinsic interest.
Therefore pay and pay systems are always discussed when management talks about
commitment, involvement or performance.
A good deal of discussion around reward now centres on motivation and
incentivisation. Expectancy Theory suggests that motivation and performance are
shaped by the links between efforts and rewards and by the significance or’valence’
of the reward to the person in question.
Now interest in ‘incentivisation’ via ‘pay package’ has increased and is a matter of
discussion from top to bottom in an organization.
Our discussion looks at various bases for constructing pay-packages, understanding
cross-national comparative variation in pay-practices, various forms of pay for
performance, the strategic space for reward, etc.

Reward and Bases of Pay:

Total reward is not confined to only pay but includes perquisites (perks) and benefits,
to autonomy at work, learning and development opportunities, the quality of work
life, and nature of company’s culture. But our discussion focuses on pay in cash and
kind.
Strategic use of pay is the focus, because whether it takes care of employees in case of
sickness, exigencies, retirement, etc. is important.
In countries like China, Japan and Korea benefits (bonus, etc.) increase and become
major part of pay than basic pay. Tax is levied from basic pay not from these.
In USA, also many benefits are out of tax range. In Western countries child care
provision is generously provided. In France and some other countries employees
prefer the pay and reward package to be taken in cash, as they can spend it as per their
wish/freedom of spending money.
When we discuss on pay, it is found that basic pay which is attached to the grade,
nature of job, job description and specification is almost common, baring a few
companies where it varies as per qualification, experience, seniority, etc.
But, when we talk about qualification, developing human capital and competence
ladder, etc. the focus of attention falls beyond basic pay (pay beyond the base. The
strategic use of pay draws attention to incentivization via pay for performance or
variable pay.

Now, group performance has also been covered when we discuss about pay/reward.
The traditional concept of limiting the reward into promotion is added with
performance based pay and promotion.
However, there are some general trends that seen to be spreading across the world, but
also some significant differences in the way that each country tends to compensate its
workers for their time and commitment that they bring to work.
Generic Processes Across Culture:
There is a generic cross cultural process of pay satisfaction and its influence on work
behavior.
Pay has four meanings; (1) Carrie4s motivational properties; (2) signals relative
position; (in terms of achievement of tasks and in relation to performance in
comparison to others) (3) carries meaning in relation to the relative control an

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individual has (autonomy at work); (4) carries meaning in terms of utility it creates
the easy or difficulty with which it can be spent.
The Structure of Pay; (1) elements of pay, (2) form of payment (3) climate of payment
(secrecy or participation) can determine the meaning of it to the individual.
Of course, from above four meanings ‘relative position’ seems to be the most
powerful to enhance motivation.

Agency Theory: an influential perspective from which issues could be considered.

It talks about the existence of a ’principal’ who engages an ‘agent’ to manage

on his behalf, but it is accepted that the agent has different set of interest which
sometimes bring difficulties for the principal, in monitoring agent. An appropriate
framework needs to be developed where agent will act to the best interest of the
principal.

In case of MNCs, it seems as a crude representative of the problem of

motivating top managers or other employees.
There is relevance of cross-national movements of personnel and international
networks as informal means of monitoring and transferring practices across national
borders.
Moreover, the dangers of incentive systems which reward top managers for
favorable movements in share prices which have been increasingly obvious since the
collapse of Enron and the WorldCom.
By now, it is expected that some generic trends with some country-specific
models to compensate its workers for their time and commitment are established.
But this is less evident in case of non-managerial workforces and the external
labour pool than the top managerial personnel or to internationally mobile elites.

Linking to culture and Employee Behavior:

Reward practices can be linked to national culture and institutional factors, but
this cannot be same as in case of other HR practices like Recruitment and Selection
because these are required to produce specific outcomes with individuals in form of
performance, identification with organization, commitment to and engagement with a
goal.

But utility of pay and the process of pay satisfaction is similar across cultures
when it comes to engineering complex organizational behaviors, we have to
understand subtle way in the way culture affects associated behaviors.

Therefore, the design of HR practice-and its impact on individual employees

living in different countries –has to be informed by a theory or model of how HR
practices produce important performance –related outcomes within individuals.
There is need for clear specification of the generic human functioning and link
between the key variables.
= We need to understand the process through which organizational culture and
practices mediate national culture effects – national culture affects work attitude and
behavior through organizational practices.
= We must develop a more complete functional model that elicits the constructs that
are involved in the organizational culture-HR practice- effectiveness chain.

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 Before we can make sense of the different impacts that national culture has on
the various constituent elements – HRM practices, leadership, psychological contract,
commitment and so forth – we must be clear how these elements generally relate to
and influence each other.
Reward is an important outcome from an effective employment relationship,
but within any given cultural context (that influences the variables at organizational
and individual levels) firms that are pursuing globalization strategies (may be
identified as cross-broader alliances), there is a specific HRM architecture.
This may be seen in terms of the bundles of HRM practices, the technical
effectiveness of the practices within national context and professional HRM
capabilities of HR function.
National Culture level of Analysis. (Organizational functioning Model: Cause-
effect links within an embedded cultural context)
Organizational level of Analysis

Globalization strategy of the Organizational Culture HRM Architecture &

firm System-sanctioned Capabilities
Cross-boarder alliance behavior Strategic HRM
International employee Group-perceptions of Practices
adjustments ways of thinking Professional HRM
Organizational competence Leadership Styles capabilities
Changing balance of human, Espoused Mgt. Styles Business-related
social, political capital capabilities

Individual work Goals Person-organization-

& Values fit process
Individual Work motivators
Level Analysis Work goals
Work centrality

The Psychological Contract

Salient OB Exchange Mental-Emotional Attitudinal

Contextual performance Relationship States
Citizenship behaviours Expectations Fairness/justice Trust/support
Task-performance Obligations Identification
Productivity costs of Zone of negotiability Commitment
Employee behaviors Orgnal. performance Metrics
Job Satisfaction/involvement
Job/Role output Net sale per employee
Lab. Mkt cost of Gross rate of return on assets
11 Management value added
perceived culture
Costs of key employee Productivity
behavior- Profitability
absenteeism/turnover
Factors that Create Distinctive National Reward Systems: Within individuals
there is a very complex set of links that exist between the way that they perceive a
specific HR practice and the behavior and organizational outcomes that might be
expected.

Much of researches on comparative national and international HRM emphasizes on

the relevance of national cultures to rewards. It is reported that in national societies
individuals hold particular attitudes which differentiate them from other national
societies indeed it is very difficult for them to appreciate their specificity.

Bento & Ferriera (1992) analyzing earlier works offered a series of dualities in
culture, together considered as ‘cultural lens’ through which to view the underlying
attitudes or assumptions of workforces regarding reward:
=equality – inequality
=certainty – uncertainty
=controllability – uncontrollability
= individualism – collectivism
= materialist foregrounding – personal foregrounding

Equality-inequality: This is related to power-distance and the national acceptance of

rigid hierarchies featuring levels of status and reward differ significantly.

In the sphere of reward the key contrast is between a focus on the incentives offered
by high pay differentials and a focus on the benefit of low ‘socially healthy’
differentials.
It also involves elements of perceived fairness or justice, within HRM system.

But it is told that assessment of distributive justice can be linked to cultural factors,
and studies focus the impact of distributive justice on important performance-related
attitudes.
Studies of distributive-justice concern themselves with rules and standards by which
decisions about the allocation of resources are made and perceived to be fair.
Allocation problem are resolved by restoring a series of decision-rules that determine
the entitlement of recipients. In practice, these rules reflect the familiar normative
rules of society that relate issues of social and industrial justice. They are also seen to
embody decision logics and the value position of individuals and their motives. The
logic and value positions are linked to national culture.
Several rules have been identified the fairest way to share rewards. Two most
important and potent rules that distinguish between meritocracy and egalitarianism are
based on principles of:
 Equity: whereby entitlements are based on relative contributions and differential
reward is legitimate as long as it is based on an equitable way of differentiating
performance. (Dominant in US, UK, Canada, Australia, etc.)
 Parity and Equality: in which allocation resource are insensitive to input
differences and call for resources to be distributed equally to all regardless of
relative productivity. (Applicable to collectivity culture Japan, China and a great
part of India). Where team achieves, reward given to team without analyzing
contributions of individuals.

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But countries following equality-based policy face the challenge by equity-based.

Certainty-uncertainty:
Where certainty is valued employees seek rules, standards and clear procedures, they
are uneasy about returns from work subject to risk, most especially where the basis of
variability of reward is not explicitly detailed.
The reverse is employees’ expectations in case of uncertainty. The reward determined
in case of uncertainty is implicit and ambiguous.
Controllability-uncontrollability:
In highly controllable cultures, the organization is perceived as having the potential to
significantly shape or create the organizational context, so is seen largely responsible
for the situation faced by the employees.
In case of uncontrollability predictability more depends on environment than
organization.
Individualism- collectivism: Relevant to the motivation of employees, and to their
assignments or responsibility for good or bad outcomes to an individual or to a group.
Individualism favours individual achievements and rewards where as collectivism loo

Materialistic ks at group. foregrounding – personal foregrounding:

Where the culture is one of materialistic foregrounding, symbols of action and success
are important.
Whereas under personal foregrounding engagement between individuals, nurturing
and development are valued in their own right.

National cultures and pay practices are related. But it has disadvantages:
(1)Acceptance nationally, a single system, is still a little patchy.
(2)Autonomous influences of social actors and of institutions on pay structures and
practices are undermined.

Role of Unions, Employers’ Association & Collective Bargaining:

Statutory pay minimums are visible in case of many countries but less visible in large
companies.
Sphere of collective bargaining and joint regulation, the role of above actors are now
important for pay arrangements.

Pay for Performance:

Assessment of individual performance, of team or group performance, of depttal
performance or the performance of subsidiary/group may make unlimited forms.
Multifaceted/multilayered bonuses are created on the bases mentioned above.
Variable pay in Germany/Performance-related pay in UK and Finland are the
instances.

Significance to employees of Pay for Performance:

Employees’ view on PfP is not available, even in UK which has a great deal of
information on PfP.
Data available are least indicative of the trend, acceptance, etc.
In many cases employees are not aware of this component in their pay-
packages.

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 However, some reporting’s, negligible are available in UK (11%), Belgium
(9%), Germany (12%), Sweden (15%). On the whole 23% are subject to some form of
PfP as reported in European Survey of Working Conditions (2007).

Managing Pay: Procedural Issues:

Proper management of PfP is tremendously costly in forms of mgt. training
and time. Even many a times people involved in administration of this are not
convinced of its benefits complexities in communicating the nature and purpose of
initiatives, achieving meaningful objective setting, eliciting employee acceptance of
the criteria and eventual distribution of rewards, and avoiding the obscuring
developmental packages of performance management have made the procedure
difficult.

Pay for Performance (PfP): Organizations may reward performance on a number of

bases.
May be made assessing individual, team or group performances. It can also be
a department or a subsidiary.
Such bases are many and considerations are either one of them or many of
them, mostly for manual employees.
Countries differ in PfP using different forms of it. Sometimes the term also
used as Performance Related Pay (PRP).
USA is the pioneer of PRP and continental Europe makes most extensive use
of such individualized performance-related-pay.
Slovakia is a head of all forms of PfP not only in case of individual payment,
but also adopts payment for performance for groups and whole organizational
employees.
Italy is ahead of all countries for group payment and paying to all employees
of organization for performance.
Switzerland follows Slovakia for individual payment and Italy for group
payment.
However, in almost all Western countries including practice of PfP is common
for manual employees.
When it is the issue of profit-sharing among employees of organizations
France is ahead of all those countries followed by Finland, Germany and Switzerland.
In case of use of Employee Ownership Scheme France, Denmark and UK are
ahead of other countries.
It is a fact that common practice of PfP does not exist. Country specific
practices, collective bargaining and conditions (financial) of the company, etc.
decides the mode of payment.
Unions rather demand for more transparency and are uneasy about vague
promises, victimization and favoritism by managers.
However, the competitive world demands for competence and capabilities.
Hence competence-related pay has become gradually important for organization and
managers are expected to develop best practices on this.
Comparative Evidence on Best Practice in Reward
10- Nation Study in 2005, focus on ‘modern forms of variable pay’- consisting reward
based on team or department performance, profit-sharing schemes and ESOP
(excluding traditional piece-rate or PRP).

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 Companies report significant improvement from group delegation initiatives in
two respects – with regard to reduction of number of managers and increase in output,
when the work (decisions and deliveries) are more delegated to group.
But in some countries like Sweden it seems to be negative.
However, modern forms variable pay in conjunction with intensive delegation
to groups appears to be a substitute for product innovation strategy.
Comparative IHRM – The Role of HR Dept. – change & challenges

HRM is a term with widely disputed definition, sources of variations arises

from national differences.
HRM and personnel management go parallel when we see European
Association Personnel Management and World Federation of Personnel Management
Associations. But gradual shifting is seen from PM to HRM and USA took the
initiative.
USA argued that the focus of HRM is on well being of the organization.
Others eroticize it with a view that HRM is less committed to shareholders’ interests.
As the peoples’ department covers lot many in different countries scope of
HRM is not understood uniformly because Swedish colleagues search for the
relationship of organization to natural environment, German colleagues wanted more
on works councils, French colleagues search more on the social environment when
Japanese look more into employment conditions and work-life situations, as they find
those in HR role being practiced in their own country.
Even different national institutes, country-based, justify perceptual differences
and different practices in this which does not allow a commonality in approach.

Role of the HR Dept.: Meaning of HRM is disputed, so also the role. However, 5
major roles of the department are:
 Employee advocate,
 Human Capital developer
 Functional expert
 Strategic Partner
 HR leader

Human
Capital
Developer
Employee Strategic
Advocate HR Leader Partner

Functional
expert

1. Employee Advocate, focuses on today’s employees

2. Human Capital developer focuses on preparing employees to be successful for
future
3. Functional Expert – looks at administrative practices that are central to HR value,
policies, interventions

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4. Strategic Partner: has multiple dimensions – business expert, change agent,
strategic HR planner, knowledge manager and consultant;
5. HR Leader – required to function in each of the above four roles. He needs to lead
the HR function, collaborating with other functions, setting and enhancing the
standards for strategic thinking, and ensuring corporate governance.
Though HR manager play important strategic roles very rarely they are seen
occupying the highest position at company and so also in many organizations they do
not have credibility to play strategic role.
However, the role is gradually changing, due to changing native of HRM

Changing Nature of HRM: Role is ambiguous and dynamic, as this is constantly

challenged to meet the competing aims: to be cost-effective reducing costs of services
and headcounts (the operational driver), to improve their services to meet the
increasing demands of the managers and employees (the relational driver), and to
address the strategic objectives of the organizations (the transformational driver)
To meet these challenges HR Depts. needed to turn to supply chain management and
organizational restructuring processes, including:
 Allocating mere responsibility to line managers
 Outsourcing transactional activities
 Developing shared service models
 Greater use of electronic HRM
 Downsizing the function
Here, theoretical pressure is more than the extent of change in practice – and these
pressures vary from country to country.
Line Management in IHRM:
Key issue in HRM – that is said to differentiate it from ‘personnel
administration’ – is the responsibility placed to line managers for management of their
people. This varies widely around the world.
They perform it while carrying day-today responsibility for organizing the
work and the progress of subordinates.
Though there is conflict between two groups in the context of specialist
services and generalist services, some arguments look at distribution of
responsibilities to line managers.

Line managers do manage subordinates on day-to-day basis and HR

managers’ advice and support the system due to the need a synergy between human
finance.
For line managers, allocating time, money and energy to management and
developing subordinate staff is not only an investment for success but a necessary
precondition. There responsibility cannot be taken by HR, except they playing the role
of catalyst for the activities of the line managers.
There are five overlapping reasons why the assignment of HR functions to line
manager has become important:
 There has been trend towards managing organizations through development of
cost-centre or profit-centre based approach.
 Line managers are always responsible for performance of employees.
 There is growing service industry which are customer-focused.
 Staffing decisions are made in ‘real time’ and there is a widespread movement
towards reducing the number in ‘overhead’ departments such as HRM. Here
the role of line managers is considered on ‘internalizing shift’.
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  Evidences are there that there is more allocation of HR functions to line
managers.
In some countries companies increasing management responsibilities of line managers
and functions like recruitment & selection, health and safety and the expansion and
reduction of workforce are being more often assigned to line managers where IR,
T&D are there with HR function.
Of course there is variations among and within countries on the above.
Reasons are there why the assignment of HR responsibilities to the line has not gone
further –
 Line managers are often not enthusiastic about taking responsibility for HRM
for people of their area.
 They give it low priority, as ignorant about law, trade union agreements,
specialized practices.
 They have no formal trg./nor they develop interests.
 There may be policy vacuum, while going for cost-cutting.

The Pressure to Outsource Some Transactional Activities:

This is a part of new rhetoric of HRM in many countries. Managing pay-roll, training
and development, etc. though being outsourced but core activities are still with
companies.
However, it depends on nature of company and policies to do so.

Impact of shared Services (Non Development):

When an orgn. chooses to concentrate its administrative personnel activities into a

centralized ‘back office’ function and this is separately done from HR.
Mostly ‘common provision’ is made through shared services.
The relevance of this development to IHRM is considerable.
Shared Service and the associated technology used to enhance delivery-represent a
force for a fundamental realignment of the HR functions.
It has implications for the level of centralization – decentralization and
development evidenced across countries, regions and headquarters.
Many large organizations have started this, that is leading for fundamental
changes in HRM as believed.
This is developing common technical platforms for the delivery of HR Services.

Effects of E-HRM: Shared service and outsourcing are now added with development
of IT system that gives HRM a new shape, to transform internal operations.

E-enablement of IHRM (e-HRM) is qualitatively different, which has reduced

face-to-face relationship and increased virtual relationships.
It has potential to transform nature of HRM at least translating learning to e-
learning and knowledge management, home-working (e-enabling), flexi-working
through establishment of virtual relationship.
Survey suggests (2006) that9500 companies’ world-wide use their human
capital management application, a sub-set of HR. Of course an overall contribution of
e-HR is yet to be assessed and the future will speak of their effectiveness. But the
system has made companies competitive.

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 They are yet to provide guidance in innovation, absorptive capacity,
technology acceptance and change management, which is the major hindrance in
accepting e-HR.
The focus on Downsizing: It is always debated in the context of e-HR and allocation
of responsibility to line managers, outsourcing and showing that HR Dept. needs to be
deconsized.
But there is no consensus and size seems to be unequivocal. It varies
considerably with country and the size of the organization, the nature of function,
unionism intensity, etc. have influenced the issue.

HR Issues for MNEs – The CSR

=Ethics & CSR are complex issues for MNEs.(whether non-economic goals are
important?)
=Adoption of role of a good responsible citizen is important
=Balancing between interests of share holders and other stake holders (societal) is
important.

Issues before MNE while caring for CSR are:

= Ethical Relativity: There is no universal internal rights or wrongs, as it all depends
on country’s culture, values, beliefs, laws as per the three, etc.
Ethical Relativism differs – dowry, gift.

= Ethical Absolutism: Gives priority to one’s cultural values(doing the same

everywhere as you do at home). Behavior to be tolerated in the cultural context
without compromise.

=Ethical Universalism: Believes there are fundamental principles and/or commonality

in right and wrong- which transcend cultural boundaries & MNEs must adhere to
those principles.
-Distinguishes between practices those are culturally different and morally wrong.
-Managers need to identify moral norms, and adopt those.

International Accords & Corporate Code of Conducts:

= First initiative was at Caux, Switzerland by Japanese European & American
business leaders –
Caux Round Table Principles for Business Conduct in 1994:
- A global bench mark for developing code for business & behavior of
executives.
- Formally introduced human dignity at work – as the ethical ideals.
OECD Guidelines for MNEs (1976)
ILO Tripartite Declaration of Principles Concerning MNEs & Social Policy(1977)-
describe international Code of conduct.
International Chamber of Commerce (ICC)
UNO also work in these lines to develop their regulatory codes, but enforcement
becomes an issue.

MNE, as a good citizen:

-Developing Common ethical value in spite of cultural, religious and philosophical
differences is important.
-Respect for human dignity, respect and rights are also imp.\
-Investing part of profit in host country-
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-Abiding local laws to take care of-
-Adulteration or loss of quality
-pollution
-employment of women, children, young persons
-Employment of local citizens
-R & R issues
-Fair treatment at work – wage, work-conditions, unionism
-Taxation & financial mgt.
-Activities supporting local celebration
-Respect for human rights

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