NBS

Global compensation schemes - an application of incentive theory to international businesses

  • School: Nottingham Business School
  • Funding: UK student / EU student (non-UK) / International student (non-EU) / Self-funded

Overview

International assignments have increased over the decades. Organizations have more structured international assignment programs that put emphasis on shortened assignments, hiring locally and eliminating nonessential benefits to manage costs effectively (Hansen, 2010). The current compensation approaches show few changes, some use a host country national approach which saves costs and with the move to low-paying countries this approach cannot be applied and thus there exists a need for more differentiation in policies. It becomes clear that Multinational Enterprises (MNEs) are obsessed with aligning their pay with the market, since there is significant pay dispersion in China which means that an employee in one company can earn three times what another one gets for doing the same job in another company. The effect is that there is a spiraling wage bill with no corresponding return on investment. The way to break this cycle is to design pay schemes that reward performance, which are seen to be fair. An intriguing finding is that MNEs do not differentiate sufficiently regarding base salary increases when it comes to China, for instance. Many authors have asked for changes in the current way of compensating across cultures after finding out the differences in motivation, performance and rewards in MNEs (Baeten, 2010; Gross and Wingerup, 1999; Hansen, 2010; Jeffrey and Shaffer, 2007).

Prior research stressed the relevance of motivation and compensation packages and, in particular, the incentive component of compensation (Devoe and Ivengar, 2004; Kunz and Pfaff, 2002). Compensations in multinational firms are a sensitive subject when it comes to cultural differences and explanations. Tosi and Greckhamer (2004) investigated and integrated the theory of agency and human capital in which tournaments are used to explain CEO compensation. These authors together with Jansen et al. (2009) found that US agency models are not applicable in other cultural contexts. In this regard, DeVoe and Iyengar (2004) emphasized that American managers tend to attribute the motivation of their subordinates exclusively to work-related incentives (e.g. salaries). Whereas, Latin American and Chinese managers are more likely to believe that social incentives (e.g. belonging to a group, building harmonious relationships) are more important sources of motivation for their employees. Dowling (2014) stresses that global rewards are part of integrating globally what is usually seen in local contexts and aligning this as integration tools across MNEs. He highlights the globally and regionally aligned bonuses and benefits such as international sales incentive plans regional sales commission plans, expatriate medical plans, international severance pay plans, global profit-sharing plans, cross-border variable compensation/pay-for-performance plans, cross-border equity/stock plans and many more examples. Besides the reward strategies, efforts and performance are aligned to these bonuses and incentives. This leaves us now to ask whether, in the light of relevant global challenges: Is there a way to combine the different cultural value systems of cultural theory regarding performance-orientation and motivation with incentive theory for MNE compensation analysis?
Methodology: Dependent on the research questions, all methodological approaches can be considered. The IBSD team is open and able to supervise qualitative and quantitative approaches to answer the questions.

References

Baeten, X. 2010. Global Compensation and Benefits Management: The need for communication and coordination. Compensation & Benefits Review; 42: 392-402.

DeVoe, S.E., Iyengar, S.S. 2004. Managers’ theories of subordinates: A cross-cultural examination of manager perceptions of motivation and appraisal of performance. Organizational Behavior and Human Decision Processes, 93: 47-61.

Dowling, D.C. 2014. Avoiding these global compensation and benefits obstacles, Global HR, Society of Human Resource Management, https://www.shrm.org/resourcesandtools/hr-topics/global-hr/pages/global-compensation-benefits-plans.aspx, accessed January, 6th, 2019.

Gross, S.E., Wingerup, P.L. 1999. Global Pay? Maybe Not Yet! Compensation & Benefits Review, 31: 25-34.

Hansen, F. 2010. Currents in compensation and benefits. Compensation & Benefits Review, 42: 435-449.

Jansen, E.P., Merchant, K.A., Van der Stede, W.A. 2009. National differences in incentive compensation practices: The differing roles of financial performance measurement in the United States and the Netherlands. Accounting, Organizations and Society, 34: 58-84.

Jeffrey, S.A., Shaffer, V. 2007. Motivational properties of tangible incentives. Compensation & Benefits Review, 39: 44-50.
Kunz, A.H., Pfaff, D. 2002. Agency theory, performance evaluation and the hypothetical construct of intrinsic motivation. Accounting, Organizations and Society, 27: 275-295.

Tosi, H.L., Greckhamer, T. 2004. Culture and CEO compensation. Organization Science, 15: 657-670.

Supervisor

Professor Ursula F. Ott

Entry qualifications

For more information please visit the NTU Doctoral School – Research Degrees webpages.

How to apply

For more information about our PhD programme, and how to apply, please visit research degrees in business.

Please email the university's Doctoral School for an application pack.

For informal enquiries about this project, please email Linzhi Tan.

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Ursula Ott