Why might the effectiveness of different reward systems vary from country to country?

International HRM involves managing an international workforce including local staff, expats, cross-cultural teams, commuters, specialists in knowledge transfer, across borders and within them.

National culture provides as important explanation for the variance in the utilization of different compensation practices in different countries.

There is no one best way for HR functions to operate in international firms.

The central issues for MNC’s is not to identify the best international policy, but rather to find the best fit between the organization’s environment, its overall strategy, its subsidiaries’ strategies, in HRM and in its implementation.

-->Factors the firms should consider (as these could influence incentives for local workforce):

-          Sociocultural (customs, norms, values, language, literacy rate, religious beliefs, status symbols, demographics, life expectancies)

-          Economic (economic development, per capita income, climate, GNP trends, monetary and fiscal policy, unemployment rates)

-          Technological (regulation on technology, energy availability and cost, natural resource availability, patent and trademark protection, transport links)

-          Political-legal (form and nature of government, tax laws, government stability, trade regulations, foreign policies, legal systems)

Culture is very important in reward distribution. 5 dimensions of national culture(Hofstede):

1      Power-distance e.g. hierarchical vs. more demographic

2      Uncertainty avoidance e.g. high rules, bureaucracy and stability vs. encouraging diverse views

3      Individualism e.g. high domain concern vs. low domain concern

4      Masculinity e.g. preference for more masculine traits vs. low preference

5      Long-term orientation e.g. preference for longer term results vs. quick results

Payment and reward system implication of cultural factors mentioned above:

-          Individual performance related pay has a positive correlation with masculinity and negative correlation with uncertainty avoidance.

-          Group performance related pay has a positive correlation with individualism and a negative correlation with power distance.

Legal factors also vary from country to country in terms of benefits ad rights available. This makes one fit policy impossible as legal factors affect policy implementation, and reward systems would have to be altered to be in line with local legal regulations.

What MNC’s Could Do?

-First, they suggest that MNCs operating in countries with high levels of Uncertainty Avoidance may be advised to offer more certainty in compensation systems, for example, seniority-based or skill- based compensation.        

-Second, as MNCs strive for greater productivity through the use of individual incentive compensation, a country's culture should be taken into account. More specifically, the results of the pay-for-performance study suggest that individual incentive compensation practices have a better fit in countries with higher levels of Individualism.



-Third, MNCs should consider country culture in the use of social benefits and social programs. social programs.



-Fourth, as North American MNCs expand abroad, they need to consider country culture in their use of share options and stock-ownership plans. The results suggest that share options and stock-ownership plans may be more congruent in countries with higher levels of Individualism, and lower levels of Uncertainty Avoidance and Power Distance. In addition to cultural constraints on the use of options and owner- ship plans, however, there are also legal prohibitions on the use of these forms of compensation in many countries.

It may be that certain HR practices are closely related to other HR practices, and that these inter- relationships are constant across cultures and companies. For example, it could be argued that MNCs that put heavy emphasis on hiring locally are always more concerned with professional training of their employees, while MNCs that transfer parent company nationals to the foreign affiliates are always more concerned with cross-cultural training of their personnel.

For MNCs that strive to operate as one firm, these results might suggest that they develop broad-based general HR policies, such as recognition of performance contributions in remuneration schemes, and then allow their foreign affiliates to establish more specific HR practices, for example, individual remuneration based on performance, rather than team remuneration based on performance. Impacting these considerations, of course, is the degree to which culture changes and the relative impact of culture in relation to other factors, such as national laws, economic conditions, and social customs.

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