renaissance in rewards: a historical preface and...
TRANSCRIPT
1
Renaissance in Rewards: A Historical Preface and Comparative Analysis
Of Contemporary Pay Practices
by
Allen D. Engle, Sr.*
011 Business and Technology Center Building Eastern Kentucky University
521 Lancaster Avenue Richmond, Kentucky 40475-3102
+1 859 622 6549
+1 859 622 2359 Fax
*Contact Author
Marion Festing
Professor of Human Resource Management and Intercultural Leadership ESCP-EAP European School of Management
Heubnerweg 6 14059 Berlin
Germany [email protected]
Peter J. Dowling
Victoria University of Wellington Level 11
Rutherford House Wellington, New Zealand [email protected]
Ihar Sahakiants
Research Assistant Chair of Human Resource Management and Intercultural Leadership
ESCP-EAP European School of Management Heubnerweg 6 14059 Berlin
Germany [email protected]
2
OVERVIEW
Contemporary reward practices may be described as complex, diverse and in a state of
dynamic change (Dowling et al., 2008). Any analysis of the broad range of rewards practiced
by firms in Europe (and around the world) will require a certain level of reductionism. In
order to present a meaningful but parsimonious analysis, we present our paper in two sections.
First, a tri-part, historical sketch of dominant themes in European pay practices is outlined.
The first element of the preface emphasizes the closed, closely held, institutionally prescribed
set of pay practices characterizing the post WWII period until the mid 1970s. Second, we
present a period of dynamic change in pay practices from the 1980s until the year 2000 or so.
This second period is characterized by the spread of a set of universalistic, often US based set
of “best practices” of pay – emphasizing standardizing pay across regions and industry,
individualistic, hierarchical pay models with competitive, outcome based pay logic. Finally,
we outline a third period, a synthesis of the two previous forms, beginning in the early 1990s
and continuing to characterize many contemporary practices. These three stages overlap, as
criticisms of the dominant reward philosophy of the moment may extend over a decade and
the dominant philosophy will not change overnight.
This brief “historical preface” sets the stage for a contemporary analysis of total
rewards and a proposed analytical framework to support further developments of research into
comparative rewards. The contemporary analysis draws heavily from extant empirical
research.
PART ONE: A Historical Preface
I “A Closed Arcadia”
Pay practices across Europe (and around the world) between 1945 and the mid to late
1970s may be characterized by the imagery of the forest. Closed (lacking transparency),
complex, historically grown, organic and often idiosyncratic pay forms vary tremendously
across national borders, across industries and across firms. Strong local institutional contexts
3
dictate pay practices. Pay decisions may be delimited by legislation, long-term national or
industrial level contracts, or by the inflexibility of dominant unions and the viable threat of
crippling industrial action. Tariffs and treaties may also contribute to effectively create
national product and labour markets. This is the specific reward context that Bartlett, Ghoshal
and Beamish (2008) might relate to an emphasis on “local customization” – the idea that local
institutional contexts make appropriate reward practices for each firm or industry more or less
unique. These deep, dark “forests” are closed, in that a limited number of institutional leaders
in business and government privately coordinate these institutional processes to determine the
allocation of rewards.
From the mid 1960s until the early 1980s two forces combined to challenge this
dominant approach to rewards. First, US based multinational enterprises (MNEs) and
consulting firms brought their own Tayloristic “logic” to European operations. US based pay
practices were the focus of conversations in boardrooms, universities and the halls of
government. The argument was made that the expanding American economic engine was
fuelled partly by the “best practices” of strategically linked, competitively flexible, cost
sensitive, individually centred and production based “total rewards” (Balkin and Gomez-
Mejia, 1987; Dooher and Marquis, 1950; Mahoney, 1979). Simultaneous to this growing
chorus we see cracks in the closed institutionalist order. An increasing awareness of the
toughness of global competition and the dismantling of many tariffs and legislative
boundaries (first within Western Europe and then around the world) combined with very
public failures by planned economies (West and East) to meet economic and social targets,
productivity declines, crippling industrial action and declining standards of living.
Paradoxically, these conflicting forces also triggered two very different reactions; many firms
and governments began to look favourably at adopting US based pay practices, while at the
same time, stimulating the development of a stronger European Union to act as an alternative
to US hegemony (Costin, 1996; Gauron, 2000).
4
II “The Dogma”
Accelerating with the “Thatcherite” revolution of 1979 in the U.K and Reagan’s
increasingly strident and public argument that government is the problem and not the solution
in terms of economic growth, many countries set about “liberalizing” their institutions and
reduced or softened protectionist legislation and regulatory processes. In the mid 1980s
socialist planned economies teetered on the brink of economic and philosophical bankruptcy
and in 1989 the political reconstitution of Central and Eastern Europe (CEE) was seen by
some free market zealots as the final word of the “scientific truth” of the superiority of free
markets and unfettered capitalism.
What forms of reward practices are better suited to this new globally competitive
environment than those “best practices” that have so long been practiced by the “winners” of
the Cold War? This fundamentalist dogma of standardized, universally applicable rewards
may be seen in the imagery of uniformed ranked rows of a single crop. The Arcadian forest
of localized pay practices is to be swept away and replaced by planting standardized rows in
open fields; rewards are to consist of individually focused, competitively/strategically linked,
total rewards. Only these systems will be able to maximize the economic motivation for
actors in the economy and optimize the firm’s global position. Philosophies, systems,
practices and forms may be imported wholesale into all of Europe. This is the specific reward
context that Bartlett, Ghoshal and Beamish (2008) might associate with “global
standardization”.
Once again, dominance triggers dissent. Globally standardized rows of best pay
practices were being planted across all of Eastern and Western Europe in the 1990s while
forces of opposition were heard and articulation of the concerns were developed. Pan
European codifications from the Single European Act (SEA) of 1987 and the Maastricht
Treaty of 1992 triggered a widespread discussion of what comprises a “Euro-manager”.
(Barham and Oates, 1991). The unfettered promises of rapid economic development and
5
utopian standards of living thought to be associated with the dogma of free markets failed to
materialize. The social costs of privatization – sweetheart deals, inflation, tax base erosion
and faltering social support networks – as well a rising nationalistic impulses and concerns for
fragile local heritage and a local identity seemingly lost in a global pursuit of “the American
dream” became apparent to social and political observers.
In the early 1990s, an academic discussion began questioning the universality of US
based HR models and practices. Researchers argued for considering the importance of
institutionally linked HR systems (Brewster and Bournois, 1991; Brewster, Mayrhofer and
Morley, 2004). This argument built as doubts crept in to the dogma of universalistic
standardization. There may be very good economic reasons for collective (as opposed to
individual) bargaining for wages, paying based on factors other than short-term market
indicator triggers, or even for the coordination of pay and reward policies across nations or
within an industry.
III “Renaissance”
Starting in the mid 1990s and continuing on until today, many firms within Europe
(and around the world) attempted to balance a concern for institutional realities with the
dynamics of free markets. These hybrid reward systems acknowledge the parameters of
national and regional institutional heritage while incorporating some elements of globally
standardized pay (Festing, Eidems, and Royer, 2007; Dowling et al. 2008) – for example a
more externally competitive focus to pay, increased transparency and accountability
connecting pay practices to firm and societal outcomes, and a movement from rewards as
wages to the broader conceptualization of “total rewards”.
The imagery of this final stage is found in a patchwork of fields, each field surrounded
by trees comprising institutional “windbreaks” to reduce the harsh effects of the
unconstrained winds of free market booms and busts on firms, industries and economies.
Each national, industrial or regional field is more open to efficiencies or some standardization,
6
but the local competitive and historical terrain is taken into account when determining the
most locally appropriate mix of reward practices. Sustainability – the long-term social,
political, ecological and economic development of the region – is at least as important a short-
term market efficiency.
Note this renaissance is not a wholesale return to Arcadia, no more than the 15th
century renaissance was a return to the classical world of Greece and Rome. Rather the pay
system is a new and vibrant combination and synthesis of the two previous forms. It is this
form we now describe in the following section.
PART TWO: An Analytical Comparison
Despite the importance of the field of compensation and rewards, the topic of
international or comparative rewards is still an underdeveloped area. It is part of comparative
management research, an objective of which is to “identify aspects of organizations which are
similar and aspects which are different in cultures around the world” (Adler, 1984: 32).
An objective of this contribution is to build on this knowledge and to draw a holistic
picture of comparative rewards considering the various practices, the prevalent theoretical
explanations and methodological approaches as well as the limited empirical evidence. Main
research questions include: What are the differences in approaches to compensation in
international contexts, how can these differences be explained and what are the limits for the
international best practices in certain national contexts or what is the space for global
standardisation of compensation practices? For a descriptive analysis illustrating our results
we will use selected data so kindly provided by Hewitt Associates.
Understanding Total Rewards
Recently, there has been an increased attention to the total compensation approach in
the international context in the academic (Milkovich and Bloom, 1998; Milkovich and
Newman, 2008) – as well as in the practitioner literature (Hewitt Associates, 1991; Milkovich
7
and Newman, 2008; White, 2005). In fact, Hewitt Associates (1991) have already used the
total compensation approach in an international context in 1991. Manas and Graham (2003)
define total compensation as a part of total rewards, which includes extrinsic and quantifiable
elements of total rewards: fixed and variable pay, benefits and perquisites (see Figure 1).
INSERT FIGURE ONE ABOUT HERE
The importance of nonmonetary compensation elements in national and international
contexts could be presented by their relative weight in the total remuneration package. For
example, according to the assessment of the Institute of German Economy, the compensation
for hours worked in Germany (including variable pay) accounts for about 76% of total cash
compensation package, excluding employers’ social security contributions and training costs
(Figure 2).
INSERT FIGURE TWO ABOUT HERE
The figure shows that compensation for time not worked accounts for nearly 17% of the total
pay. Performance neutral bonuses (for example the Christmas bonus or the 13th salary) are
often a part of the employment contract and account for about 7% of total pay.
A strong argument in favour of using the total compensation approach for international
comparisons of the pay structures is the substitutive effect between the monetary (wages or
salaries, incentives) and non-monetary (benefits and perquisites) elements of pay, which may
vary significantly between different countries and cultures. This broader conceptualization of
total compensation ensures more objective comparisons of compensation packages. For,
example, in multinational enterprises (MNE) it can be used as an important instrument to
benchmark pay systems around the globe, either to install external competitiveness or to
promote internal consistency. Furthermore, the total compensation approach can be
instrumental in ensuring strategic flexibility necessary to operate in multiple institutional
environments (Gross and Wingerup, 1999; Milkovich and Bloom, 1998; White, 2005).
However, although intrinsic rewards constitute an important part of employment relations and
8
play an important role as motivators, it is very difficult to express these factors in monetary
terms other than merely pointing out the employers’ costs (e.g., for training). Given this
definition of total rewards, we will concentrate on the total remuneration concept in the
remaining part of the paper (further referred to as total compensation).
The National Context as a Major Determinant of Pay Practices
Research on the determinants of pay practices is rich. Milkovich and Newman (2008)
have identified four groups of factors explaining the variations in compensation designs:
institutional, economic, organizational and employee pressures (see also Gerhart, 2008).
These four groups of factors can be summarised in three levels of analysis featuring
individual (employee), organizational and environmental (economic and institutional) factors.
Figure 3 presents examples of the parameters included in each level. While we will briefly
discuss how individual and organizational factors influence compensation decisions the focus
clearly is on the impact of the environmental factors, as these issues matter most in
comparative rewards. However, taking this simplifying approach, we do not deny the
interrelationships between the mediation of national effects for example through
organisational practices and thus multi-level effects (Bowen and Ostroff, 2004; Brewster,
Sparrow and Vernon, 2007).
INSERT FIGURE THREE ABOUT HERE
The first level of analysis deals with individual preferences and expectations of
employees that influence compensation decisions. According to Milkovich and Newman
(2008), negative perceptions of pay-related organisational fairness result in absence and
turnover of employees. This points to the relative nature of the justice perception of pay
(Milkovich and Newman, 2008). The pay levels and structures are compared to those of the
social referents chosen by an individual. For instance, Kulik and Ambrose (1992) have
identified a variety of personal characteristics that determine the process of referent selection:
9
gender, race, age, position and professionalism. Furthermore, situational factors such as job
facet comparison, changes in allocation procedures and physical proximity (Kulik and
Ambrose, 1992) may deliver additional insights about the perception of justice in international
context.
In today’s globalised economy, supported by sophisticated information and
communication devices, individuals can theoretically compare their pay conditions with
anyone around the globe with the same demographic features and holding comparable
positions. Apparently in most cases the limits of physical proximity seem to hamper selection
of referents outside the national borders. Moreover, individual differences do not only have an
impact on the selection of referents but also on pay preferences themselves, including
elements of monetary and non-monetary rewards. A study by Churchill Jr., Ford and Walker
Jr. (1979) suggested that in the USA, older workers have expressed higher preference for
extrinsic rewards than their younger counterparts, while Frey (1997) presents empirical
studies from Europe and the US supporting his contention that explicit rewards “crowd out”
intrinsic rewards across a wide range of employee groups. Milkovich and Newman (2008)
show preferences of pension plans among older workers or health insurance among
employees with dependants.
The second level of analysis presented in Figure 3 concerns the impact of
organisational features on compensation decisions. Here, an important influence factor is the
corporate strategy (Boudreau and Ramstad, 2007). In the case of remuneration this was
confirmed by an early empirical study by Balkin and Gomez-Mejia (1987). However,
especially in large international and diversified corporations other contingencies such as the
functional area matter as well. For instance, in their analysis of factors influencing
compensation strategies in foreign subsidiaries in Finland, Björkman and Furu (2000) have
noted a higher incidence of pay-for-performance (PfP) schemes in sales companies than in
production and R&D units. Similar results were found by Hannon, Milkovich, Gerhart and
10
Friedrich (1990). They found that organizations adopting research and development intensive
strategies differ in the pattern of their pay practices from other firms. The impact of
ownership structures not only on CEO compensation but also on the pay of all employees
(Werner, Tosi and Gomez-Mejia, 2005) is another example of the matter of contingencies. In
international comparisons they become crucial due to significant variations in ownership and
control schemes around the globe (Whitley, 1999).
The third level of analysis deals with the external contextual factors, which according
to Hofer (1975) include economic conditions, demographic trends, socio-cultural trends,
political, legal and other environmental factors. The explicit consideration of environmental
factors in the study of comparative human resource management reflects a contextual rather
than a universalistic paradigm (Brewster, 2007). This points to two major explanations in the
variation of HRM practices including compensation: The institutional approach and the
cultural perspective (Sánchez Marín, 2008a, 2008b; Sparrow, 2008).
The institutionalism perspective (DiMaggio and Powell, 1983; Whitley, 1992)
highlights the importance of exogenous factors and recognizes that contextual institutional
pressures may be powerful influences on pay strategy (De Cieri and Dowling 1999; Wächter,
Peters, Tempel and Müller-Camen, 2003). Whitley, promoting an institutional reasoning,
noted that differences in business practices and organizational structures along the globe “are
important features of distinctive business systems which are linked to the institutional
environments in which they develop and emphasise the contextual nature of ‘firms’ as
economic agents” (1992: 7). These environmental factors become of primary importance
especially for MNE that operate in multiple institutional contexts and are confronted with the
need to promote internal consistency and at the same time face the local isomorphic pressures
(Festing et al., 2007; Rosenzweig and Nohria, 1994). Empirical studies have delivered
evidence about the impact of institutional factors on compensation designs (see, for example,
Wächter et al., 2003). For example, trade unions, which are part of the national institutional
11
environment may play an important role in the collective determination of wages and salaries
(Parboteeah and Cullen, 2003; Traxler et al., 2008) and may oppose the diffusion of
compensation practices (Grund, 2005; Kurdelbusch, 2002). However, according to Brewster,
Sparrow and Vernon (2007), the empirically tested correlation between union density and the
incidence of PfP practices is far from being obvious. The key role of industrial action
organisations and legal regulations seems to concern working hours. For example, the latest
Economic Policy Reforms Report by OECD (2008a) indicates that the high union density
accounts for lower hours actually worked by men and higher hours actually worked by
women.
However, no other elements of rewards seem to be as much affected by national
institutions as benefits. Here, mainly tax reasons account for the differences. As Brewster et
al. (2007: 122) point out “in China, but also in Japan and Korea, employees value benefits
increases and bonuses above basic pay increases, partly because tax is levied on basic pay.”
The same is true in the USA while in Europe benefits are less common.
In the tradition of the contextual paradigm researchers have also extensively explored
the impact of cultural variables on the national compensation designs (Gomez-Mejia and
Welbourne, 1991; Newman and Nollen, 1996; Tosi and Greckhamer, 2004; Townsend, Scott
and Markham, 1990) either by applying Hofstede’s dimensions (Hofstede, 1980) directly or
using such similar cultural factors as “individualism/collectivism” as reference points (Lowe
et al., 2002). The significance of national culture is based on Hofstede’s statement, that most
inhabitants of a country share the same mental program (Hofstede and Bond, 1988).
Following the national culture approach means that “national culture can play a significant
part in the evolution of pay systems and the effectiveness of compensation strategies”
(Gomez-Mejia and Welbourne, 1991: 39). Respective hypotheses are, for example, outlined
by Gerhart (2008). Since Hofstede’s research (1980) many other academics have recognized
the importance of culture and its impacts on human resources or compensation issues
12
(Rogovsky, Schuler and Reynolds 2000). Sparrow (2004) has identified cultural influences on
reward behaviour. For example, he states that “different expectations of the manager-
subordinate relationship and their impact on performance management and motivational
processes influence the perceived validity and attractiveness of performance-related pay
systems” (Sparrow 2004: 105).
Some researchers have pointed out deficiencies of cultural typologies and their
application to the comparative studies of remuneration designs (Milkovich and Bloom, 1998;
Milkovich and Newman, 2008). Vernon states: “Assertions about the nature of a particular
nation’s culture are sometimes ill-based and simplistic, evidence of a particular pay system is
sketchy, and the claim that there is some link between the two is left unsubstantiated by any
contrast with the situation in other nations” (2006: 225). To conclude the discussion of the
national contexts on compensation decisions, it should be mentioned that even though the
arguments based on the institutional point of view seem to be much more robust, the
importance of research based on the cultural perspective should not be underestimated. Thus,
some researchers call for a richer theoretical framework which allows for the explicit
inclusion and further development of cultural and institutional arguments (see, for example
Sánchez Marín, 2008a, 2008b).
It should be borne in mind, that due to the large number of contingency factors
effecting the compensation strategy (Balkin and Gomez-Mejia, 1987) and the wide choice of
benefit programmes that could potentially be offered to the employees, even a nation-wide
comparison of total compensation is extremely difficult. An international comparison of total
compensation is even more complex in the view of different regulatory environments, in the
first place with respect to taxation, social security systems and work time regulations.
However, a number of features characteristic for each country or region could be identified
with respect to the elements and structure of pay, which will be analysed below.
13
Empirical Evidence for Nation-based Differences in Total Compensation: Analysing
Elements of Total Rewards
There are considerable pay level and pay mix variations across nations (Dowling,
Engle, Festing and Müller, 2005). First of all, compensation levels differ due to varying
economic conditions in low and high pay countries. This is confirmed by such macro-
economic indicators as gross domestic product (GDP) per capita levels calculated by
purchasing power parity (PPP) (UNDP, 2007). These variations have been extensively studied
by a number of national and international organisations that carry out regular surveys on
international pay (e.g., the Organisation for Economic Cooperation and Development or
European Foundation for the Improvement of Living and Working Conditions). The
information provided by these agencies along with the data from the national or supranational
organisations, like the Bureau of Labor Statistics of the US Department of Labor or
International Labour Organisation, are rich but sometimes limited in their comparability due
to aggregation problems. In the next paragraphs we will summarise core results on different
elements of total compensation from these sources.
Evidence on Working Hours and Paid Leave
Working hours and paid leave deliver important additional information when
analysing the pay level in a comparative way. Those two elements represent examples how
the institutional context influences total compensation packages. There are different sources
of information on working hours and paid leave. However, while the comparison of statutory
minimum vacation can give a good picture of the differences in regulatory environments
around the globe, there are substantial differences in some countries between the mandatory
minimum and customary length of the paid time off. For instance, the statutory minimum
vacation in Germany (legislatively mandated at 24 days) is far less than a very common
practice of 30 days paid vacation. In Germany, this is the result of the influence of trade
unions that stipulate in collective agreements the duration of the paid time off, which
14
normally exceeds the statutory minimum. Even though nearly 62 % of German enterprises
were not bound by any collective agreement in 2006, a significant number of these companies
(26%) used collective agreements as a guide to arrange employment conditions (Institut der
deutschen Wirtschaft, 2008).
A second way to compare working time internationally is to measure the hours worked
per year in different countries. However, the evidence delivered by this approach, used for
example by OECD (2008c), is also limited because the statistics do not only include full-time
positions but also part-time labour. Thirdly, the differences in working arrangement can be
presented by comparing collectively agreed working hours and paid days off. Figure 4 starts
from the last category and presents the data for workers in manufacturing (BDA, 2005).
INSERT FIGURE FOUR ABOUT HERE
To outline the importance of this figure it is pointed out that, for example, a customary
vacation of 30 days and 9 paid holidays in Germany may account for about 17% of total cash
compensation (see Figure 2). In contrast, Martocchio, quotes 2005 data from the U.S.
Department of Labor, Bureau of Labor Statistics, noting “paid leave benefits (vacations,
holidays, sick leave, and other leave) average $1.72 [per hour] (6.6 percent)” (2007: 147).
Thus, an orientation at the base pay market rate alone does not make compensation at
different locations comparable.
While research on the perceived value of paid days off from the part of employees
both in national and international contexts is scarce, the importance of comparative data on
vacations cannot be underestimated. Agreements of vacation time for international transferees
have become an indispensable part of transfer planning (Poe, 2001). Employees on
international assignments often have a choice between a longer vacation and its monetary
equivalent. According to Oechsler, Trautwein and Schwab (2008), BASF, one of the world
largest chemical companies, offers its transferees a choice between taking a vacation
15
according to the home country regulations or an additional allowance to compensate for the
shorter annual leave in the host country.
Total Cash Compensation
The data presented in this and some of the following sections below have been
provided by Hewitt Associates. These data provide details with respect to specific positions
and allows for greater comparability than the publicly available aggregated data. We present
the results of the total compensation survey for the positions of the General Manager, Head of
Human Resources and Junior Human Resources Specialist for 2007. The data presented
relates to 15 countries and is based on the survey of 784 companies for the position of General
Manager, 820 companies for the position of Head of HR and 284 companies for the position
of Junior HR Specialist. The data is based on median values for all companies ranked by sales
volumes and positions. Figure 5 shows the total cash compensation levels for both positions
in 15 countries, which includes base pay and short-term variable compensation.
INSERT FIGURE 5 ABOUT HERE
The comparison of total cash compensation levels for two executive and one generalist
position shows the following features:
- Levels of executive total cash compensation in the USA significantly exceed the levels
in other countries, which has been confirmed by the recent studies on executive
compensation in the global perspective (e.g. Berrone and Otten, 2008)
- While the USA, Western European countries and Mexico lead with respect to pay
levels for all positions, in several countries (Brazil in our sample) senior executives,
unlike lower management and generalist positions, enjoy far more lucrative total cash
compensation packages than their Eastern European and Asian counterparts.
Share of Target Variable Pay
16
An analysis of the share of variable pay allows us to observe further differences
between the countries surveyed with respect to the pay structure.
INSERT FIGURE 6 ABOUT HERE
Figure 6 shows comparable shares of variable compensation for executives in all countries
presented with the exception of the USA, where companies traditionally increasingly promote
PfP schemes. While this result was expected by the CRANET researchers as well, researchers
could not confirm that PfP-schemes were indeed more prevalent in the USA than in other
countries (Brewster et al., 2007: 133). Possibly the further differentiation with respect to
positions can help to shed light on this result. While the Hewitt data clearly indicates that for
lower management positions the spread of PfP-schemes does not vary very much, this
changes on higher hierarchical levels. One immediately notices the relatively high level of
variable pay in India. This fact is explained by the existence of cash allowances paid on top of
the base salary, including lunch, house, travel, medical and other allowances.
In their study on the cultural influences of CEO compensation Tosi and Greckhamer
(2004) find evidence that the ratio of variable pay to total pay is influenced by Hofstede’s
dimension of individualism. At least for the US, the data presented here may confirm this. On
the other hand, Balkin showed that in addition to “cultural norms that emphasize
individualism” the high US CEO pay with respect to CEO remuneration levels in companies
of comparable size in other industrial economies could be explained by such institutional
factors as: “(1) the system of corporate governance; (2) regulations that require CEO pay
disclosure; (3) regulations that facilitate the early adoption of stock options; (4) decentralized
rules of incorporation; (5) mega-stock option grants diffused as a CEO pay practice” (2008:
202-203).
Here we may be seeing the complex interaction between a pattern of cultural values
and assumptions interacting with historically derived, yet dynamic institutional and contextual
artefacts codified into laws and operating on a national level. The difficulty is that all national
17
pay systems probably result from this complex web of cultural-historical-institutional and
regulatory elements (Berrone, Makri and Gomez-Mejia, 2008). Recent institutional concerns
over the dysfunctional consequences of executive pay programs may yet result in even more
explicit and transparent systems in North America (Makri and Gomez-Mejia, 2007). Under
this complex model it may be “that reward preferences might not be conditioned solely by
cultural influences (cultural determinism) but also by other contextual factors (e.g. economic
conditions). How culture interacts with other contextual variables to influence reward
preferences warrants future research.” (Chaing, 2005: 1559)
Increased applications of more formalized performance management systems as a
“best practice” across cultures may provide a more standardized, explicit platform for
justifying (or “selling” if you will) PfP-practices for a range of employee groups (DeNisi,
Varma and Budhwar, 2008: 254-258). At the same time, an adequate conceptualization of a
performance management system that “travels well” across cultures continues to elude
practitioner and researcher alike (Brody, Lin and Salter, 2006; Engle, Dowling and Festing,
2008). In the absence of such a compelling, flexible system local and regional traditions are
likely to remain robust. The exact nature of the targets and systems operationalized as triggers
to performance based payouts vary significantly amongst firms that emphasize variable pay
(Hope and Fraser, 2003).
Other Elements of Total Remuneration
An international comparison of other elements of total remuneration is far more
difficult. Varying local social security and taxation laws as well as the specifics of local
financial markets make it impossible to make a comparable international evaluation of both
long-term incentives, benefits and perquisites. Instead, a comparison of the prevalence of
certain remuneration elements could give an idea of differences with respect to the total pay
18
structures over the globe. For instance, Figures 7 and 8 show the prevalence of stock option
schemes and company-owned cars in the countries surveyed.
Pendleton, Poutsma, Brewster and van Ommeren (2001) researching financial
participation in the European Union have found, that “the incidence of . . . profit sharing and
share ownership differed considerably among Member States, and that this correlated broadly
with the extent of differences in legislative and fiscal support for them” (p. 21). Research by
Festing, Groening, Kabst and Weber (1999) has confirmed these findings. They argue that the
complexity of German law and the formalized German workplace industrial relations relates
to the empirical finding that financial participation schemes are not very common in
Germany. Another important external influencing factor identified by these authors is the
government’s attitude to financial participation. While in Britain the government supports the
existence of profit sharing, the German government seems to be more conservative in this
regard. Thus, the government’s legislation can also be a determinant of major importance here
(Festing et al., 1999). Country level factors, i.e. external factors in the sense of the suggested
framework, strongly influence the incidence of financial participation in Europe and their
impact even exceeds the importance of many internal influencing factors in global pay
systems (Pendleton, Poutsma, van Ommeren and Brewster 2001).
Another good example of the influence of environmental factors on compensation
decisions may be found in the prevalence of stock options plans. On the one hand, there are
significant differences in national regulations pertaining to taxation of employee stock options
even within OECD member states (OECD, 2005), which could account for the incidence of
employee stock option plans (ESOP) in general. Bloom and Milkovich (1999) confirm this for
the specific case of stock options in Germany and in the United States.
INSERT FIGURE 7 ABOUT HERE
The statistics on the prevalence of stock options plans presented in Figure 7 are
consistent with data related to management positions provided by the CRANET survey
19
(Brewster et al., 2007). This study reports an extensive use of stock options plans over the
globe. However, country-specific variations between the incidence of long-term incentives
(e.g. little prevalence of stock options for CEOs in Singapore or for all positions in the Czech
Republic) require further study of cultural and institutional influences (Bruce, Buck and Main,
2005).
On the other hand, there are variations with respect to the exercise patterns across
cultures (Balsam and Gifford, 2006), which could be attributed to the variations in such
cultural values as uncertainty avoidance. However, a study conducted by Balsam and Gifford
(2006) among Fortune 100 multinational corporations showed that the wish to exercise stocks
early correlated inversely with national income. The same profit from the stock options will
be perceived differently in the USA and in Mexico due to significant differences in basic pay
levels. A payout of US$ 1,000 can constitute only a 20 % additional monthly income for an
employee in a high-wage country, while the same amount may constitute far more than a 100
% wealth increase for an employee in a low-wage economy. According to this study, other
variables - particularly the age of the employees (individual level of analysis) and tax rates
(environmental factor) - do more to explain differences in stock exercise behaviour.
Conclusions: Evidences of Convergence and Divergence in Pay
The conclusion addresses possible convergences and divergences in pay systems,
implications for the compensation management in MNEs and draws implications for future
research. In his recent work, Fay (2008) reviewed the theoretical arguments for and against
convergence of compensation practices. He has pointed out the limits of such convergence at
the international level in the view of considerable variations of the compensation levels and
practices even within single nations, due to the contingency factors and regional differences.
Even the advocates of the national business systems approach admit the influence of
internationalization on local institutions, which as such could be seen as a certain
20
convergence. Whitley notes that the “national specificity of business systems is also affected
by the growth of international firms and markets which has modified the significance of
purely national institutions” (1992: 38).
There is some evidence of convergence of pay structures along the globe (White,
2005). Poutsma, Ligthart and Schouteten (2005) confirmed the key role of MNEs in
promoting share schemes for all groups of employees in Europe. Milkovich and Bloom noted:
"Even long-established, seemingly carved-in-granite cultural norms, such as lifetime
employment in Japan and industry-wide bargaining in Germany, are weakening in response to
the pressures of a global economy" (1998: 15).
It would be logical to say that the increased internationalization of the world economy
would also result in converging pay levels, at least for some groups of (mostly internationally
mobile) employees. Figure 8 shows that the average inflation-adjusted pay increases within
the period from 2002 to 2007 in new EU member states and some of BRIC (Brazil, Russia,
India and China) by far exceed those in developed industrial economies.
INSERT FIGURE 8 ABOUT HERE
This fact could be explained by the increased transparency of international labour
markets and labour force mobility (McMullen, Fitzpatrick and Ruiz, 2008). Gross and
Wingerup state that "the rise of networked organizations through telecommunications and the
Internet and intranets has increased the employee interaction, allowing an accountant in
Argentina, for example, to talk to her counterpart in Mexico and compare pay and working
conditions" (1999: 26).
An equally rapid convergence of other elements of total compensation is less likely
due to the role of the national legislation and industrial action. It is still questionable, whether
the level of integration of the world economy will force the legislators and trade unionists to
make relevant concessions. According to OECD (Economic Reform: A Mixed Scorecard,
21
2008), unlike many other measures to improve efficiency of national economies, local
governments seem to make little effort to alter the labour market regulations.
Morgan, Kelly, Sharpe, and Whitley underscore that unlike “the nationally based firm,
the multinational does not exist in a unified institutional context that reinforces and
reproduces particular practices” (2003: 389). MNEs react to this situation by trying to install a
“transnational social space … [by means of] creation of common policies and procedures and
the application of formal means of monitoring and accounting for performance” (2003: 389).
Lowe et al. note that “the traditional factors of production (capital, technology, raw
materials, and information) are increasingly fungible, with employee quality the only
sustainable source of competitive advantage to developed country multinationals” (2002: 46).
A way to maintain this competitive advantage is to promote internal consistency by means of
standardized HR practices, including rewards. The topic of international standardisation of
compensation practices has been increasingly discussed both in the academic (Festing et al.,
2007; Festing and Perkins, 2008) and practitioner literature (Gross and Wingerup, 1999;
Milkovich and Bloom, 1998; White, 2005).
Gross and Wingerup (1999) identified three groups of factors driving the globalization
of pay practices:
(1) global competition for talent due to the increased international mobility
(“organizational flexibility”), (2) growing transparency and manageability of
international pay systems owing to the development of the information and computer
technology ("effective knowledge management"), and (3) the need to promote "a strong
global culture" as a key to the organizational success.
For additional commentary on this trend, see Dowling et al., 2008: 159-161 and 219-220.
Due to significant variations of economic conditions among the countries, such
standardization of pay practices could be implemented by introducing global compensation
22
elements, including non-monetary rewards and salary level determination systems (Abosch,
Schermerhorn and Wisper, 2008).
However, such standardization strategies can be significantly hampered by the national
social, political and legal institutions, especially employment regulations in the form of
statutory minimums with respect to pay or benefits. Yet the limiting impact of such
mandatory minimums varies. On the one hand, there is evidence that the wages and salaries
offered to the employees of MNEs as a rule exceed the average country levels (OECD,
2008b) and thus minimum wages. On the other hand, such regulations or collectively agreed
customs as compulsory vacations considerably hinder the implementation of such a universal
strategy.
While local institutions are also reported to hamper the transfer of PfP-schemes, in
some countries profit-sharing programs could be mandatory. For instance, all companies in
France with over 50 employees must implement a statutory profit-sharing (participation) plan.
While Fakhfakh and Perotin (2000) report on the positive impact of voluntary profit-sharing
schemes on factor productivity in French companies, Hewitt Associates note that “[statutory]
participation is not regarded by employees as part of their compensation and is regarded as an
‘acquired right’ which has little or o motivational effect, even though it may be worth as much
as two months’ salary per year in a highly profitable organization” (Hewitt Associates, 1991:
289).
Trends and Directions for Future Research
Recently, academic literature on international compensation has increasingly
concentrated on the incidence of pay elements, notably PfP-schemes, including short-term and
long-term incentives (Antoni et al., 2005; Kurdelbusch, 2002). However, there is dearth of
comparative research on such non-monetary rewards as paid time off, pension plans or
medical insurance. A comprehensive measurement of value of benefits for employees in
23
different countries will thus support international total compensation comparisons. As
presented earlier in this paper, the operationalization and scaling of intrinsic elements such as
quality of work life, the value of institutional affiliation and career development opportunities
warrants further research (Klarsfeld and Maby, 2004).
Additional areas of transition include the future direction of hierarchical pay patterns in
executive compensation (as practiced in the US and the UK) in the light of recent stock
market “corrections” and an apparent disconnect between executive pay and long-term firm
performance, as opposed to the future of more egalitarian pay practices as seen in Europe and
parts of Asia Second, we note the continuation of an apparent trend of openness and
transparency in labour markets within the EU. There is some question as to how widely this
labour mobility goes. How far beyond entrepreneurs, executives and managerial ranks is this
transparency to be found?
This encompassing effort to capture cross cultural pay research and practice may be built
on rather flimsy empirical ground. Empirical research and publication has a North American
bias in terms of the number of articles published and the subject matter and firms surveyed.
Much of the data we have is from US based researchers, consulting firms or samples. Recent
activities by CRANET and more globally focused consulting firms have partially alleviated
this problem. There still remains the nagging concern of a weighted sample in cross cultural
reward research.
In an initial step toward building a vocabulary with which to more effectively pursue
cross cultural reward studies, we present a series of models. Milkovich and Bloom (1998)
outline a three part model of global compensation strategy, from the firm perspective (see
Figure 9).
INSERT FIGURE 9 ABOUT HERE
24
In the first element, core pay practices are standardized across all the regions and
cultures in which the firm operates; next, a crafted set of pay practices are customized to local
and regional contexts and markets; finally individual employees are given a choice of pay
practices, along the lines of flexible benefits. It is this combination of these three elements
that provides the global firm with a combination of systematic logic and responsiveness to
local and individual interests.
We present a proposed approach to comparative or cross cultural management based
on a similar composite model (see Figure 10). In the outer oval we present externally
influenced, institutionally mandated pay elements, required by legislation as well as industrial
regulation. In the centre oval we present culturally influenced norms and values, practices
influenced by historical context, local and regional supply and demand and the need for
competitive responsiveness. Finally, the centre oval represents strategically linked practices,
dependent on more internally based decisions of business intent and executive practice (for
more on the theoretical origins supporting internal as opposed to external foci for pay
systems, see Dowling, Engle, Festing and Muller, 2005).
INSERT FIGURE 10 ABOUT HERE
Given this framework, researchers can distinguish between “demanding
contexts” characterized by prescribed legislation and /or strongly held values and preferences
effecting major reward system decisions, and more “permissive contexts” characterized by
limited legislative or institutional frameworks and/or more indifferent social norms or values
related to employment exchange and rewards. More demanding social or institutional contexts
are associated with pay systems that emphasize local customization and an external focus to
the rewards system. More permissive contexts are thought to be associated with global (or
firm level) standardization and an internal focus to the reward system. How these two
roughly outlined contexts relate to specific pay practices (e.g. Base Cash, Short-Term
25
Variable, Long- Term Variable, Benefits, Perquisites and Other Noncash Rewards, as per
Figure 10 above) is a starting point for a more systematic approach to a very complex topic
area.
Distinguishing between when a given pay practice is an independent variable, varying
over a wide range; an independent variable, ranging over a narrower or prescribed range, or is
a constant, prescribed and given, is a critical first step in this challenging and complex subject
area. This admittedly primitive metric may be useful in describing and mapping the
“Renaissance” composite of selected institutional barriers (wherein little discretion in pay
decision making is allowed) in combination with reward elements providing a transparent and
open, market-based latitude for decision making. It is this combination that describes
contemporary European reward practices.
References
Abosch, K., Schermerhorn, J., and Wisper, L., 2008, “Broad-based variable pay goes global”.
Workspan, 5(8): 56-62.
Adler, N. J., 1984, "Understanding the ways of understanding: Cross-cultural management
methodology reviewed". Advances in International Comparative Management, 1: 37-
67.
26
Antoni, C. H., Berger, A., Baeten, X., Verbruggen, A., Emans, B., Hulkko, K., et al., 2005,
Wages and working conditions in the European Union. Dublin: European Foundation
for the Improvement of Living and Working Conditions.
Balkin, D. B., 2008, "Explaining high US CEO pay in a global context". In L. Gomez-Mejia,
and S. Werner, (ed.). Global compensation. Foundations and perspectives. London:
Routledge
Balkin, D. B. and Gomez-Mejia, L. R., 1987, "Toward a contingency theory of compensation
strategy". Strategic Management Journal, 8(2): 169-182.
Balsam, S. and Gifford, R., 2006, "Employee stock option exercises - An international
analysis". Corporate Ownership & Control, 3(3): 49-54.
Barham, K and Oates, D., 1991, The international manager. London: Business Books.
Bartlett, C., Ghoshal, S. and Beamish, P., 2008, Transnational management: Text, cases and
readings in cross-border management. New York: McGraw-Hill/Irwin.
BDA, 2005, "Internationaler vergleich der tariflichen jahressollarbeitszeit für arbeiter im
verarbeitenden gewerbe zum 01.11.2004". Retrieved September 8, 2008, from
http://www.bda-
online.de/www/bdaonline.nsf/id/D48C14CE4021B61AC1256FEE0029696A/$file/Int
ernAZV.pdf
Berrone, P., Makri, M., and Gomez-Mejia, L.R., 2008, "Executive compensation in North
American high-technology firms: A contextual approach". The International Journal
of Human Resource Management, 19(8):1534-1552
Berrone, P. and Otten, J., 2008, "A global perspective on executive compensation". In L.
Gomez-Mejia, and SA. Werner, (eds.), Global Compensation. Foundations and
Perspectives. London: Routledge
27
Björkman, I. and Furu, P., 2000, "Determinants of variable pay for top managers of foreign
subsidiaries in Finland". International Journal of Human Resource Management,
11(4): 698-713.
Bloom, M. and Milkovich, G.T., 1999, "A SHRM perspective on international compensation
and reward systems". In P.Wright, L. Dyer, J.W. Boudreau and G.T. Milkovich (eds.)
Research in personnel and human resource management, supplement 4, Stamford,
Conn.: JAI Press, pp. 283-303.
Boudreau, J. and Ramstad, P., 2007, Beyond HR: The new science of human Capital.
Boston: Harvard Business School Press.
Bowen, D. E. and Ostroff, C., 2004, "Understanding HRM-firm performance linkages: The
role of the 'strength' of the HRM system". Academy of Management Review, 29(2):
203-221.
Brewster, C., 2007, "Comparative HRM: European views and perspectives". International
Journal of Human Resource Management, 18(5): 769-787.
Brewster, C. and Bournois, F., 1991, "A European perspective on human resource
management". Personnel Review, 20 (6): 4-13.
Brewster, C., Mayrhofer, W. and Morley, M., 2004, Human resource management in Europe:
Evidence of convergence? Oxford: Elsevier Pub.
Brewster, C., Sparrow, P. and Vernon, G., 2007, "Comparative HRM: Reward". In C.
Brewster, P. Sparrow, and g. Vernon, (eds.), International humanrResource
management, 2nd ed. London: Charted Institute of Personnel and Development
Brody, R. G., Lin, S., and Salter, S. B., 2006, "Merit pay, responsibility, and national values:
A U.S.-Taiwan comparison". Journal of International Accounting Research, 5(2):63-
79
Bruce, A., Buck, T., and Main, B., 2005, "Top executive remuneration: A view from Europe".
Journal of Management Studies, 42(7): 1493-1506.
28
Chiang, F., 2005, "A critical examination of Hofstede's thesis and its application to
international reward management". International Journal of Human Resource
Management, 16 (9): 1545-4563.
Churchill Jr, G., Ford, N. and Walker Jr, O., 1979, "Personal characteristics of salespeople
and the attractiveness of alternative rewards". Journal of Business Research, 7(1): 25-
50.
Costin, H., 1996, Managing the global economy: The European Union. Fort Worth, TX:
Dryden Press.
De Cieri, H. and Dowling, P.J., 1999, "Strategic human resource management in
multinational enterprises: Theoretical and empirical developments." In P. Wright, L.
Dyer, J. Boudreau and G.T. Milkovich (eds.) Research in personnel and human
resource management, supplement 4. Stamford, Conn. and London: JAI Press, pp.
305-327.
Denisi, A., Varma, A., and Budhwar, P., 2008, "Performance management around the globe:
What have we learned?" In A. Varma, P. Budhwar and A. DeNisi, (eds.),
Performance management system: A global perspective. Oxford: Routledge, pp. 254-
261.
DiMaggio, P. and Powell, W.,1983, "The iron cage revisited: Institutional isomorphism and
collective rationality in organizational fields". American Sociological Review, 48(2):
147-160.
Dooher, M. and Marquis, V., 1950, The AMA handbook of wage and salary administration.
New York: The American Management Association.
Dowling, P., Festing, M. and Engle, A., 2008, International Human Resource Management,
5th Ed. London: Thomson Learning.
29
Dowling, P., Engle, A., Festing, M. and Müller, B., 2005, "Complexity in global pay - A meta-
framework". Paper presented at the 8th Conference on International Human Resource
Management, June, Cairns, Australia.
Engle, A., Dowling, P. and Festing, M., 2008, "State of origin: Research in global
performance management, a proposed research domain and emerging implications".
European Journal of International Management, 2 (2): 153-169.
"Economic reform: A mixed scorecard". 2008, OECD Observer, 266: 25-26.
Fakhfakh, F. and Perotin, V., 2000, "The effects of profit-sharing schemes on enterprise
performance in France". Economic Analysis: A Journal of Enterprise & Participation,
3 (2): 93-111.
Fay, C. H., 2008, "The global convergence of compensation practices". In L. Gomez-Mejia,
and S. Werner, (eds.), Global compensation. Oxford: Routledge, pp. 131-141.
Festing, M., Eidems, J. and Royer, S., 2007, "Strategic issues and local constraints in
transnational compensation strategies: An analysis of cultural, institutional and
political influences". European Management Journal, 25(2): 118-131.
Festing, M., Groening, Y., Kabst, R. and Weber, W., 1999, "Financial participation in
Europe--determinants and outcomes". Economic & Industrial Democracy, 20(2): 295-
329.
Festing, M. and Perkins, S., 2008, Global reward systems". In P. Sparrow, M. Dickmann and
C. Brewster, (eds.), International HRM: Contemporary issues in Europe. London:
Routledge, pp. 147-166.
Frey, B., 1997, Not just for the money: An economic theory of personal motivation.Edward
Cheltenham, UK: Elgar Publishing.
Gerhart, B., 2008, "Compensation and national culture". In L. Gomez-Mejia, and S. Werner.
Global compensation. Foundations and perspectives. London: Routledge
30
Gomez-Mejia, L. R. and Welbourne, T., 1991, "Compensation strategies in a global context".
Human Resource Planning, 14(1): 29-41.
Gross, S. E. and Wingerup, P. L., 1999, "Global pay? Maybe not yet!" Compensation &
Benefits Review, 31(4): 25.
Grund, C., 2005, "The wage policy of firms: Comparative evidence for the US and Germany
from personnel data". International Journal of Human Resource Management, 16 (1):
104-119.
Gauron, A., 2000, European misunderstanding. New York: Algora Pub.
Hannon, J., Milkovich, G. T., Gerhart, B. and Friedrich, T., 1990, The Effects of research and
development intensity on managerial compensation in large organization"s. August,
Paper presented at the annual meeting of the Academy of Management.
Hewitt Associates, 1991, Total compensation management. Reward managementsStrategies
for the 1990s. Oxford: Basil Blackwell.
Hofer, C., 1975, "Toward a contingency theory of business strategy". Academy of
Management Journal, 18 (4): 784-810.
Hofstede, G., 1980, Culture’s consequences: International differences in work-related values.
London: Sage Publications.
Hofstede, G. and Bond, M., 1988, "The Confucius connection: From cultural roots to
economic growth". Organizational Dynamics, 16 (4): 5-21.
Hope, J. and Fraser, R., 2003, "New ways of setting rewards: Beyond the budgeting model".
California Management Review, 45 (4): 104-119
Institut der deutschen Wirtschaft, 2008, Deutschland in zahlen 2008. Köln: Deutscher
Instituts-Verlag GmbH.
Klarsfeld, A. and Mabey, C., 2004, "Management development in Europe: Do national
models persist?" European Management Journal, 22 (6): 649-658.
31
Kulik, C. and Ambrose, M., 1992, "Personal and situational determinants of referent choice".
Academy of Management Review, 17 (2): 212-237.
Kurdelbusch, A., 2002, "Multinationals and the rise of variable pay in Germany". European
Journal of Industrial Relations, 8 (3): 325-349.
Lowe, K., Milliman, J., De Cieri, H. and Dowling, P., 2002, "International compensation
practices: A ten-country comparative analysis". Human Resource Management, 41
(1): 45-66.
Mahoney, T., 1979, Compensation and reward perspectives. Homewood, Ill.: Richard D.
Irwin.
Makri, M. and Gomez-Mejia, L., 2007, "Executive compensation: Something old, something
new". In S. Werner (ed.), Managing human resources in North America. Oxford:
Routledge, pp.158-171.
Martocchio, J.J., 2007, "The cost of employee benefits". In S. Werner (ed.), Managing human
resources in North America. Oxford: Routledge, pp. 143-157.
Manas, T. and Graham, M., 2003, Creating a total rewards strategy: A toolkit for designing
business-based plans. New York: AMACOM.
McMullen, T., Fitzpatrick, I., and Ruiz, R., 2008, "How emerging economies are winning at
pay". Workspan, 3 (8): 38-42.
Milkovich, G. T. and Bloom, M., 1998, "Rethinking international compensation".
Compensation & Benefits Review, 30 (1): 15-23.
Milkovich, G. T. and Newman, J., 2008, Compensation (9th International ed.), Boston:
McGraw-Hill.
Morgan, G., Kelly, B., Sharpe, D. and Whitley, R., 2003, "Global managers and Japanese
multinationals: internationalization and management in Japanese financial
institutions". International Journal of Human Resource Management, 14 (3): 389-407.
32
Newman, K. and Nollen, S., 1996, "Culture and congruence: The fit between management
practices and national culture". Journal of International Business Studies, 27 (4): 753-
779.
OECD, 2005, The Taxation of Employee Stock Options.
OECD, 2008a, Economic Policy Reforms: Going for Growth.
OECD, 2008b, Employment Outlook.
OECD, 2008c, "Explaining differences in hours worked across OECD countries". In OECD
Going for Growth 2008, Economic Policy Reforms
Oechsler, W., Trautwein, G. and Schwab, M., 2008, "Internationales personalmanagement -
transfer von mitarbeiterinnen und mitarbeitern". In J. Zentes and B. Swoboda (eds.)
Fallstudien zum internationalen management: Grundlagen - praxiserfahrungen -
perspektiven (3. ed.). Wiesbaden, Germany: Gabler
Parboteeah, K. and Cullen, J., 2003, "Social institutions and work centrality: Explorations
beyond national culture". Organization Science, 14 (2): 137-148.
Pendleton, A., Poutsma, E., van Ommeren, J. and Brewster, C., 2001, Employee share
ownership and profit-sharing in the European Union. Luxembourg: Office for
Official Publications of the European Communities.
Pendleton, A., Poutsma, E., Van Ommeren, J. and Brewster, C., 2003, ‘The incidence and
determinants of employee share ownership and profit sharing in Europe" In T. Kato
and J. Pliskin (eds.) The determinants of the incidence and effects of participatory
organizations. Advances in the economic analysis of participatory and labor market,
volume 7, Greenwich CT: JAI Press.
Poe, A. C., 2001, "When in Rome. . . Determining vacation time for International
transferees". Retrieved September 2, 2008, from www.shrm.org
Poutsma, E., Ligthart, P. and Schouteten, R., 2005, "Employee share schemes in Europe. The
influence of US multinationals". Management Revue, 16 (1): 99-122.
33
Rogovsky, N., Schuler, R. and Reynolds, C., 2000, "How can national culture affect
compensation practices of MNCs?", Global Focus, 12 (4): 35-42.
Rosenzweig, P. and Nohria, N., 1994, "Influences on human resource management practices
in multinational corporations". Journal of International Business Studies, 25 (2): 229-
251.
Sánchez Marín, G., 2008a, "The influence of institutional and cultural factors on
compensation practices around the world". In L. Gomez-Mejia, and S. Werner (eds.)
Global compensation. foundations and perspectives. London: Routledge
Sánchez Marín, G., 2008b, "National differences in compensation: The influence of the
institutional and cultural context". In L. Gomez-Mejia and S. Werner, (eds.) Global
compensation. foundations and perspectives. London: Routledge
Schröder, C., 2008, "Die struktur der arbeitskosten in der deutschen wirtschaft". IW-Trends 2.
Sparrow, P., 2004, "International rewards systems: To converge or not to converge?" In C.
Brewster and H. Harris (eds.) International HRM: Contemporary issues in Europe,
London: Routledge, pp. 102-119.
Sparrow, P., 2008, "International reward management". In G. White and J. Drucker, (eds.),
Reward management: A critical text. London: Routledge, (in print)
Tosi, H. and Greckhamer, T., 2004, "Culture and CEO compensation". Organization Science,
15 (6): 657-670.
Traxler, F., Arrowsmith, J., Nergaard, K. and López-Rodó, J., 2008, "Variable pay and
collective bargaining: A cross-national comparison of the banking sector". Economic
and Industrial Democracy, 29 (3): 406-431.
Vernon, G., 2006, "International pay and rewards". In T. Edwards and C. Rees, (eds.),
International human resource management. London: FT/Prentice Hall
34
Wächter, H., Peters, R., Tempel, A. and Müller-Camen, M., 2003, "The cCountry-of-origin
effect' in the cross-national management of human resources. Munich: Rainer Hampp
Verlag.
Werner, S., Tosi, H. L. and Gomez-Mejia, L., 2005, "Organizational governance and
employee pay: How ownership structure affects the firm's compensation strategy".
Strategic Management Journal, 26 (4): 377-384.
White, R., 2005, "A strategic approach to building a consistent global rewards program".
Compensation and Benefits Review, 37 (4): 23-40.
Whitley, R., 1992, "Societies, firms and markets: The social structuring of business systems".
In R. Whitley, (ed.) European business systems. Firms and markets in their national
contexts. London: SAGE Publications, pp. 105-124.
Whitley, R. 1999, Divergent capitalisms. The social structuring and change of business
systems. New York: Oxford University Press.
Zhou, P., 2008, "China and total rewards: A look at workforce issues and business strategy".
WorldatWork Journal, 17 (3): 65-72.
35
Figure 1: Total Rewards
Common examples
Reward Elements
Definition
• Quality of Work & Life • Affiliation • Development
Other Noncash Rewards TOTAL
Extrinsic:
All things onto which
we can assign a
dollar value
• Cars • Clubs • Counselling • Contracts
Perquisites
TOTAL R E M U N E R A T I O N
REWARDS
• Retirement • Health & Welfare • Time Off w/Pay • Statutory Programs
Benefits
• Stock/Equity • Cash • Incentive (Long-Term)
Long-Term Variable TOTAL D
I C R A E S C H T
• Incentive (Short-Term) • Bonus/Spot Awards • Contract
Short-Term Variable
T O C T A A S L H
• Base Salary • Hourly Wage Base Cash
Source: Manas and Graham (2003: 2).
Figure 2: Labour Costs in Germany Manufacturing industry, in percent to gross wages and salaries1) Remuneration elements 2004 2007 Compensation for hours worked (direct pay)2)3) 75.8 76.1 + Pay for time not worked4) 16.6 16.6 + Bonuses 7.6 7.3 = total cash compensation 100.0 100 + Social security contributions 26,1 25.7 + Other additional personnel expenses5) 4.5 4.3 = Total labour costs 130.6 130.0 1) Compensation for hours worked; 2) Including additional payments for performance; 3) Calendar adjusted; 4) Including vacation, paid sick leave, paid days off; 5) Less refunds; Source: Adapted from Schröder (2008: 4)
Figure 3: Factors Influencing Compensation Decisions
Intrinsic
36
Levels of Analysis Factors Individual • Age
• Job tenure • Marital status • Family size • Education (Churchill Jr, Ford and Walker Jr, 1979; Huddleston, Good and Frazier, 2002)
Organizational • Stage in the product life cycle • Size of the firm • Industry traits • Ownership structure • Organizational culture • Profitability (Balkin and Gomez-Mejia, 1987)
Environmental • Employer federations • Trade unions • Social contract • Culture/politics • Competitive dynamics/markets • Taxes (Milkovich and Newman, 2008)
Figure 4: Collectively Agreed Annual Working Time of Workers in Manufacturing,
2004
A. Weekly Hours
Ger
man
y
Fran
ce
UK
USA
Finl
and
Pola
nd
Japa
n
30
32
34
36
38
40
Hours B. Annual paid leave
Ger
man
y
Fran
ce
UK
USA
Finl
and
Pola
nd
Japa
n
0
5
10
15
20
25
30Days
Field Code Changed
Field Code Changed
37
C. Annual working hours
Ger
man
y
Fran
ce
UK
USA
Finl
and
Pola
nd
Japa
n
1400
1500
1600
1700
1800
1900
Hours
Source: (BDA, 2005; Institut der deutschen Wirtschaft, 2008).
Figure 5: International Comparison of Total Cash Compensation Levels 2007.
Total Cash Compensation, in EUR
0,0050000,00
100000,00150000,00200000,00250000,00300000,00350000,00400000,00
Cze
ch R
epub
lic
Bra
zil
Hun
gary
Indi
a
Arg
entin
a
Pol
and
Swed
en
Sing
apor
e
Fran
ce
Spa
in
Bel
gium
Ger
man
y
Mex
ico
UK
US
A
Head of HR HR Specialist Junior
Field Code Changed
38
Total Cash Compensation, in EUR
0,00200000,00400000,00600000,00800000,00
1000000,001200000,001400000,001600000,00
Cze
ch R
epub
lic
Braz
il
Hun
gary
Indi
a
Arge
ntin
a
Pola
nd
Swed
en
Sin
gapo
re
Fran
ce
Spai
n
Belg
ium
Ger
man
y
Mex
ico
UK
USA
General Manager
Source: Hewitt Global TCM Cash and Prevalence Reports, 2007
Figure 6: Share of Target Variable Pay, 2007.
Target Variable Pay as % of Base Salary
0
20
40
60
80
100
Cze
chR
epub
licB
razi
l
Hun
gary
Indi
a
Arg
entin
a
Pol
and
Sw
eden
Sin
gapo
re
Fran
ce
Spa
in
Bel
gium
Ger
man
y
Mex
ico
UK
US
A
Head of HRHR Specialist JuniorGeneral Manager
Source: Hewitt Global TCM Cash and Prevalence Reports, 2007
Figure 7: Prevalence of Stock Option Schemes*, 2007
39
Prevalance of Stock Option Plans, %
0,0010,0020,0030,0040,0050,0060,0070,00
Cze
ch R
epub
lic
Bra
zil
Hun
gary
Indi
a
Arg
entin
a
Pol
and
Sw
eden
Sin
gapo
re
Fran
ce
Spa
in
Bel
gium
Ger
man
y
Mex
ico
UK
US
A
Head of HRHR Specialist JuniorGeneral Manager
* For USA the data on nonqualified stock options only is available. In UK, there is statistics on both approved
and nonapproved stock options (the prevalence of both types is nearly the same for all the companies surveyed).
In order to maintain comparability of the data with the prevalence of nonqualified stock options in the USA, the
UK statistics is limited to nonapproved stock options.
Source: Hewitt Global TCM Cash and Prevalence Reports, 2007
Figure 8: Average Annual Pay Increases in Selected Countries, 2002-2007
Country Actual Average Pay
Increase* Average Pay Increases
over Inflation**
Europe Spain 4,07% 0,93% Belgium 3,50% 1,55% Germany 3,18% 1,59% Switzerland 2,45% 1,61% Netherlands 3,48% 1,63% United Kingdom 3,83% 2,06% Poland 5,12% 3,14% Czech Republic 5,28% 3,26%
40
North America United States 3,55% 0,88%
BRIC States Brazil 8,75% 1,34% China 7,93% 5,88% India 13,03% 8,32% * Based on the annual reports for 2002-2007 by Hewitt Associated ** Based on OECD statistics on consumer price indexes (CPI) growth rates for 2002-2007 (stats.oecd.org)
Figure 9: Elements of Global Pay
Source: Adapted from Milkovich and Bloom (1998: 22)
CORE
CRAFTED
CHOICE
41
Figure 10: Institutional, Cultural and Strategic Discretion in
Pay
Strategically Linked
Culturally
Institutionally
Influenced