In the first of our series of guest blogs, Sheshaya Surtani a final year undergraduate student from the London School of Economics and Political Science joins us to discuss some of the challenges inherit with multi national corporation, with a focus on recognition and reward. Sheshaya will be pursing a career in HRM upon completion of her degree, where she hopes to gain experience in generalist HR roles before moving onto specialist roles. You can follow more of Sheshaya’s writing here
889,416, this staggering figure depicts the number of multi national corporations (MNC) in operation globally right now. For those HR Professionals aiming for senior positions with MNC’s there are numerous areas to manage, not least of which is the impacts of operating in a different culture.
In the rewards arena alone, there are a multitude of factors that need to be taken into account when determining effective compensation and rewards for the workforce.
The local culture demands variation in the utilisation of compensation practices, indeed a central issue for MNC’s is to find the best fit between the organization’s environment, its overall strategy, its subsidiaries’ strategies, in Human Resource Management (HRM) and in its implementation. Simply applying a ‘cookie cutter’ approach to reward and recognition is a well trodden path to failure, rather the synergies between what the NNC brings and what already exists within the local culture must be found.
The following factors are essential to take into account as they could influence incentives for the local workforce:
Sociocultural factors relate to customs, norms, values, language, literacy rate, religious beliefs, status symbols, demographics, and life expectancies.
Economic factors relate to economic development, per capita income, climate, GNP trends, monetary and fiscal policy, and unemployment rates.
Technological factors relate to regulation on technology, energy availability and cost, natural resource availability, patent and trademark protection, and transport links.
Political and legal factors relate to the form and nature of government, tax laws, government stability, trade regulations, foreign policies, and the legal system.
Recalling Hofstede’s 5 dimensions of Culture can provide useful indicators as to the implications in payment and reward systems, for example:
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.
Taking account the abovementioned factors, the key question remains:
What can MNCs do?
1. MNCs operating in countries with high levels of Uncertainty Avoidance may be advised to counter this through offering more certainty in compensation systems, for example defined pathways such as seniority-based or skill-based compensation.
2. MNCs striving for greater productivity through the use of individual incentive compensation, must take the local culture into account. More specifically, the results of numerous pay-for-performance studies suggest that individual incentive compensation practices have a better fit in countries with higher levels of Individualism.
3. MNCs must consider local culture in the creation of social benefits and social programs within the specific country.
4. As MNCs continue to 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.
Overall outlook : For MNCs out there that strive to operate as one firm, these results might suggest that developing broad-based general HR policies should be implemented, such as recognition of performance contributions in remuneration schemes, and then allowance of foreign affiliates to establish more specific HR practices(e.g. 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.