Remuneration: Lifting the curtain on HR’s dark art (part 4)

The four and final part of Sheshaya Surtani journey into remuneration.  More of Sheshaya’s writing can be found here.

If you’re just joining us, please take a look at parts one through three of this series

Remuneration (part 1)

Remuneration (part 2)

Remuneration (part 3)

Part 4: Conclusion: The bottom line about the compensation arena

Taking account of all the key issues discussed in the previous blog series part 1-3, let us now widen our perspective considering the bottom line about compensation:

  • The primary issue an organisation needs to consider in relation to thinking about compensation: how much it wants to rely on direct, short term economic incentives Vs. longer term economic rewards. I.e. should we promote, provide stock ownership or rely on non-monetary forms of motivation?
  • In many contexts, PFP is too narrow a concept. We need to think more broadly in terms of rewards for performance (considering the full portfolio of rewards that the organisation can provide to its employees). Moreover it is important to bear in mind the basic question: to what extent do you want employees focusing on pay as their main source of job motivation?
  • As an essential takeaway: managers must be urged not to lose sight of the powerful social and psychological forces that motivate people and influence their reactions to any reward system. This has led to strong emphasis on the process by which performance is evaluated and rewards are distributed in an organisation, which are likely to have a profound impact on the perception of organisational distributive and procedural justice. (C.f. Greenberg).
Advertisements

Remuneration: Lifting the curtain on HR’s dark art (part 3)

Sheshaya Surtani has been informing us on the dark art of HR, remuneration.  This is Sheshaya’s third post in her series of four.  More of Sheshaya’s writing can be found here.

Part 3: Show should we pay? Option 2: Pay related to performance (PRP)

As a starting point, we must bear in mind that PRP is a rather delicate set of motivational tools that can be powerfully effective in one setting and dysfunctional in another. This post provides key theories and empirical evidence on PRP. It provides background information on PRP, its plus points as a payment measure along with its key drawbacks in implementation.

  • Defining PRP: key considerations 
    • What is being assessed? ( e.g. individual, group or organisation performance)
    • How is it being assessed? ( e.g. subjective evaluation or concrete result)
    • How is it being rewarded? (e.g. incorporate into the base salary or re-earned every year)
  • What is the goal of PRP? It affects organisations through two main channels: 
    • Sorting effect( i.e. identify and attract the most competent employees
    • Incentive effect (i.e. elicit greater levels of effort , correct attitude and higher job performance)
  •  When to implement PRP?

Ideally, PRP should be implemented when the benefits outweigh the costs. It is highly applicable when:

  • Input/effort monitoring is costly and difficult
  • Output is easily measured
  • Tasks are clear/repetitive
  • Team production is considered relatively unimportant
  • Low levels of intrinsic motivation
  • Individualist organisation culture
  • Limited trade union influence

Job types which fit into this category are: factory workers, call centre staff, post officers and sales persons. Jobs in which PRP poses adverse reactions and risks are: teaching, doctors, nurses, CEO’s and investment bankers.

  •  Why might PRP be beneficial?

Important theories from psychology to bear in mind in relation to this topic:

-Reinforcement Theory (Skinner)
both positive and negative reinforcement have the effect on increasing the probability that a particular behaviour will be learnt and repeated.

Agency theory
the interests of principal (the superior) and the agent (the subordinate) are said to diverge. PRP incentivises agents and is believe to align interests with the principal. Management must make sure the employee doesn’t shirk by close monitoring and offering incentive pay.

Vroom’s Expectancy theory
Motivation is a function of valence, instrumentality and expectancy

-Valence (i.e. personal goals- relative to pay): How much you value the rewards

-Instrumentality
(i.e. performance- reward relative to pay): The belief that a person will receive reward if performance expectations are met. Key factors associated are trust, control and work related policies.

-Expectancy (i.e. effort- performance relative to pay): The belief that one’s effort will result in desired performance. It is based on skills, self-efficacy, and past experience.

Goal setting theory (Latham and Loche)
(Goals should be SMART. note they should be well defined, as these lead to higher performance. Simply stating “do your best” will not work to elicit specific forms of behaviour- it is important that the person knows what exactly is expected of them.

Empirical evidence:  Study on USA logging industry among 3 types of supervisors. Results found productivity was superior for the supervisor who sets specific production goals.

 

  • Empirical evidence of the effects of PRP on performance

There is not much evidence to prove that PRP enhances individual performance per say, yet lots of evidence has been found on whether workplaces that use PRP often perform better than those who don’t.

It is often difficult to obtain a pure measure of performance (i.e. one that relates to the specific individual only, and is not affected by external factors. For instance tying in the pay of CEO’s to share prices will entice more effort and align interests, but share prices are also affected by many other external factors beyond the control of the CEO and it is thus problematic and difficult to measure.

Fernie and Metcalf- study on computer telephony and PRP on jockeys in Britain
There are many possibilities for moral hazard in horse racing. This can be overcome either by monitoring or incentive pay. The study compares jockeys who receive PRP vs those that get a large retainer not related to performance. Results find that huge retainer fees don’t work as well as PRP contracts. It is not what you pay, it is how you pay it and that is what gets the result.

Lazear Safelite study
the study is based on a windshield company which switched from hourly wages to a piece pay rate (i.e.  The number of coin shields installed), combined with minimum hour wage guarantee. Results found that productivity was enhanced by 44%. The study shows significant accountability for the incentive effect and sorting effect. Moving to the piece rate pay structure improved recruitment and retention of high quality workers.
However, in the same case note that it was very difficult to obtain pure performance measures.

Important evaluation:
PRP should be used in conjunction with the “five factor analysis” used in performance management systems. This payment system worked compatibly with Safelite because the five factors (i.e. strategy, technology, culture, workforce and environment) fit very well together. In evaluating this study as a whole, noting the extent to which organisations face differing five factors in their respective contexts, we should treat the success of the Safelite with a pinch of salt. The implementation of a PRP structure worked well because it fit in smoothly with the conditions of “when to implement PRP”. In reality any other company of a different context, could expect very different (sometimes adverse) consequences of adopting a scheme like that of Safelite.

  • Why might PRP be problematic? / Why does PRP fail?

Key theories to consider in this context:

Herzberg’s two factor theory
Motivation factors (certain factors lead to positive satisfaction)
Hygiene factors (if absent, leads to demotivation).This theory suggests that psychological incentives reap much higher benefits than pay.

-Adam’s Equity Theory
Employees seek to maintain equity between the inputs that they bring to a job and the outcomes they receive comparing against perceived inputs and outputs of others.- i.e. employees believe that they ought to be paid according to their contribution to the organisation.

Self Determination Theory
Relates to the importance of intrinsic motivation in driving human behaviour. The presence of extrinsic rewards “crowds out” intrinsic motivation. Performance can increase with payments, but motivation cannot. One must bear in mind that if incentives are perceived too strongly it can lead to “cheating” i.e. excessive risk taking by financiers in the lead up to the financial crisis. According to Stiglitz, “incentive pay in the financial industry, rewards short-term gains, but protects managers from the pain of longer-term negative profits, since the consequences of excessive leverage often become apparent only over extended time periods. Moreover, incentive compensation spurs predatory behaviour, hinders innovation, results in the deterioration of product quality and encourages deceptive accounting procedures.”

In conclusion: PRP does not truly aim at motivation. Companies must design payment systems depending on budget formulation. The use of merit pay increases grid guidelines. Institutional isomorphism in turn suggests that we must use a “contingency approach” and align this with key business strategies.

– Historically, empirical evidence showed a significant relationship between PRP and productivity. It is critical to note that this has not always been the case. The work of Lawler has found the weak link between pay and performance. The link between variable pay and productivity and performance is unclear a priori.

-Firstly the employer incurs costs through the introduction and maintenance of variable pay which might outweigh its potential benefits (Freeman and Kleiner, 2005; Levine and Tyson, 1990).

-Second, variable pay has the potential to demotivate workers. (Brown and Nolan, 1988). Employees may perceive the pay/performance link to be unfair if, for instance, performance is measured with error or employees have not been consulted about the criteria governing the scheme (Marsden, 2004).

-The issue with PRP systems is that they incentivise the wrong behaviour (e.g. individual risk taking). Most jobs nowadays are service-based and focus on the knowledge economy. The degree of physical outputs measured in sectors like manufacturing and call centres, has greatly reduced.

-PRP emphasises work performed by individuals, and consequently lacks focus on teamwork. Most jobs now require interdependence and teamwork based environments
-Empirical evidence: focus on employees individual contributions of individual employees can be destructive in cases where individuals are unfairly penalised for deficiencies in the system, rather than behaviour that they can control. It undermines team work and cooperation thus acting as a disincentive. (Deming). Note that even in the case of group based pay plans, employers have to deal with the “free rider problem” in relation to shirking.

So should we reward top performers with PRP and low performers with others? –What about equity concerns in this context? This poses a trade-off as cooperation and teamwork without ability do not work!

-Other issues associated with PRP:

  • The subjective nature of PM can lead to favouritism and adverse effects on employees fairness perceptions. C.f Organisational Justice Theory (Greenberg)
  • Hay group results have found that less than half of the managers/ professionals believe that high performers are rewarded more than the low performers.
  • Weakens employee’s perception on the link between performance and rewards.
  • Adverse effect on instrumentality component of expectancy theory.

Finally, coming back to the starting point of this post, “PRP is a rather delicate set of motivational tools that can be powerfully effective in one setting and dysfunctional in another.”- I hope that by this point, you have gained a greater understanding of why this is the case. To sum up take a look at the final part of this blog series: “Conclusion-the bottom line about the compensation arena”.

Remuneration: Lifting the curtain on HR’s dark art (part 2)

Regular reading of The HR Coffee Pot will recall from Sheshaya Surtani her previous contribution ‘Making rewards rewarding’ part one of this four part post, this time Sheshaya has delivered the second part of her four part article on remuneration. More of Sheshaya’s writing can be found here.

This post focuses on base pay rates as a means by which firms compensate their employees. In setting base pay, an HR manager has to consider many things such as the form of pay (wages vs. salary) and the basis upon which pay is based ( i.e. skills/knowledge, task, seniority, status, credentials, and/or job worth).

  • Pay by salary or wages?
    What is the distinction between wages and salaries?
  • Wages –expressed as an hourly rate, and employees whose time on the job is closely monitored.
  • Salaries- expressed per month/year. It is paid to employees who manage their own time.
  • Basis upon which base pay is determined:Key Question:

    What factors would an HR manager have to take into consideration when designing a base pay structure?What is base pay?

ü  Fixed part of the compensation package

ü  Guaranteed and contractual

ü  Represents the minimum compensation expected for carrying out a particular job.

ü  Generally ignores differences attributable to individual employees.

ü  Can be:

  • Hourly basic pay rate (often expressed as a weekly wage)
  • Annual salary

The main factors to take into account: The individual, the organisation, the external environment

  1. 1.      The individual
  • Education
    • Match between an employees’ education and what is required for the job
    • Quality of education. For instance the average starting salary for an LSE graduate in 2009 was £29,707 six months after graduation, which was significantly above the UK average of £27000.
    • Level of skills
      A worker entering employment is given a base pay that will be increased gradually as the worker demonstrates the ability to carry out certain tasks. For instance teachers and other professionals experience a pay increase if they acquire off-the-job study training programmes.

      • Industries such as aerospace, pharmaceuticals, high technology, and others where specialized expertise is a competitive necessity, pay more.
      • Professionals who took IT or business-related training over the past year earned an average of nearly $3,400 more than those who did not. In particular, professionals who had earned an IT or project management certification during the past five years earned an average of $2,720 more than their counterparts (2011 IT Skills and Salary Report – Global Knowledge & TechRepublic)

Why promote this pay rationale? High commitment HR firms are strong advocates of skills or knowledge based pay, because they want to give employees the incentive to be able to do more, thus be more flexible and understand the workings of the firm better.
àPromote employee retention, providing them with an opportunity to grow on the job
àEmployees motivated to obtain additional skills and knowledge
àEmployees and more flexible and trainable
àConfer status on being more skilled and knowledgeable.
àAcquisition of new skills and knowledge is a source of intrinsic motivation.

Empirical evidence:
Murray and Gerhart conducted research on an assembly facility within a large American manufacturing company that adopted a skills based pay plan. The found that after adoption of the skills based pay system, the facility experienced significantly higher productivity. i.e. lower labour costs per unit, superior quality outcomes, etc. However, issues were also noted: workers can “top out” fairly quickly. This meant that after a few years in the organisation, all the skills have been learnt and the motivation and excitement that come with progressing is gone. Workers tend to get distracted by the money that comes with the acquisition and use of new competencies, which can be a source of substantial intrinsic motivation (yet it is objectified where the object is money).In order to deal with this issue, employers increase the list of competencies for which it is willing to pay, by adding capabilities that will (sometimes) be seldom used by the worker, leading to an overqualified and overpaid workforce.

  • · Status (age, knowledge)
    There are some jobs e.g. professional athletes and surgery there it is viewed as legitimate to pay a nominal subordinate more than his or her nominal supervisor. No one quibbles with paying a top athlete more than his coach or a star surgeon more than the director of the hospital. (This legitimacy is market based/market excused). However with exceptions noted above, superiors are generally paid more than their subordinates. This promotes status consistency. 

    • Seniority and cultural values:
      Firms pay more to workers with higher experience based on their seniority, either in terms of chronological age or tenure in the job. For instance, in East Asia, age confers status. A powerful body in this arena are trade unions, who through collective bargaining favour rewarding the most politically powerful members. There is a general perception that with seniority, those who are older possess greater levels of skills and experience and are generally more stable workers (thereby conferring lower absenteeism and turnover rates).By virtue of seniority perceptions and higher wage patterns for the older, more experienced staff, this implies that those highly mobile are less likely to apply for jobs where rewards are receiver only after a long tenure. Thus organisations with these pay policies will attract an inherently more stable workforce.

Empirical evidence: In both educational institutions and industry, the possession of 30 or more years of experience, was associated with a net salary advantage of 58% over persons just beginning of a professional career (Emanuel Melichar,1968).

Nonetheless key issues still remain:

  • Outsourcing nature of work patterns.
  • The worker faces uncertainty about his or her tenure in the job. E.g. if the worker’s spouse gets a good job in another location, this makes the employee uncertain with respect to his or her compensation. Consequently this may be suboptimal in terms of risk.  Since rewards are delayed and somewhat congruent on the employer’s good will, this places employees in a very low bargaining position against their employers. Employees who appreciate either of these effects will demand higher average wages, averaged over the life of their employment to compensate.
  •  Is it really necessary to retain employees under long contracts?
  •  Skills and knowledge become obsolete quickly in some jobs. – is makes sense to promote low turnover among more senior workers, or confer status on those who are increasingly “out of it”- in such cases, giving rewards on the basis of “here-and-now for work performed here-and-now” makes more sense.
  1. 2.      The organisation
  • Profitability and performance of the company
    • Employees working for a highly profitable business have a greater chance of receiving higher pay than those working for a less profitable enterprise.
    • Job Characteristics
      • Degree of decision-making responsibility
      • Contribution to the organisation
      • Level in the organisational hierarchy
      • Complexity of the job.
      • Shift Differentials
        • Less favourable shift times are typically paid a premium due to the higher social and physical costs involved in working outside “normal work hours.”
        • Hazardous Working Conditions
          • Dangerous working conditions can be defined to include anything from handling dangerous chemicals in a research facility to coal mining.
          • Jobs that fall into this category are usually regulated by outside authorities, including labour unions and the government.
          • Compensation Philosophy
          • o order to attract and retain the very best pool of skilled workers available
          • o Decisions to lag the market/meet the market/lead the market(c.f. page 6)
  1. 3.      The external environment
  • Supply and Demand of Labour
  • Geographic Location
    • Certain areas where the cost of living is high have historically paid higher wages. For example, if you earned a salary of $40,000 in Texarkana, you would have to earn $87,885 in Honolulu to maintain the same standard of living-that represents a 120% difference in pay!
    • The consumer price index (CPI) is an example of a cost-of-living index used to measures changes in the price level of consumer goods and services purchased by households.
    • Government Policy
      • Fair compensation for work is an integral component of decent work as defined by the ILO.
      • Minimum wage rates
      • All things considered, what does the evidence say about Base pay?

Studies have found that companies with narrow “pay differentials” are often viewed by customers as having significantly improved product quality relative to competitors, particularly in sectors such as manufacturing. However, it is critical to note that on the downside, compressing wage distributions can often lead to overpaying the worst and underpaying the best performers, who may quit and join rival firms instead.

Interested in learning more? Read on to the next post based on payment by performance (PRP), as an alternative measure of how firms compensate their employees.

Remuneration: Lifting the curtain on HR’s dark art (part 1)

Regular reading of The HR Coffee Pot will recall from Sheshaya Surtani her previous contribution ‘Making rewards rewarding’, this time Sheshaya has written a fantastic four part article on remuneration. More of Sheshaya’s writings can be found here.

Pay is perhaps the most crucial HR policy. Due to its highly technical nature and non-standardised application in different contexts, it remains a “grey area” for many. This four part blog series aims to provide a detailed overview of the reward and remuneration arena:

Part 1: Introduction- How much should we pay?

  • How employees are compensated is crucial to how they perform. Pay can be used to incentivise employees to act in ways that are beneficial to the organisation. When analysing the returns that people receive from work, this can be broken down into cash compensation, benefits and relational returns.
  • Cash compensation consists of any one or more of the following:
    -Base ( i.e. Minimum pay)
    -Merit (i.e. additional to base pay with recognition of past work behaviour)
    -Short term incentives ( i.e. variable pay to influence future behaviour)
    -Long term incentives (i.e. stock ownership, options)
  • Benefits consists of any one or more of the following:
    -Income protection ( i.e. health insurance, pension)
    -Women( i.e. maternity leave,child care,flexible work arrangements)
    -Allowances (i.e. housing,transport,mobile phone)
    -Paid time off, holidays, family/sick leave
    -Insurance (i.e. accident,medical, dental care)
    -Retirement (i.e. profit sharing, stock ownership,pension)
  • Relational Returns consists of any one or more of the following:
    -Recognition and status
    -Employment security
    -Challenging work environment
    -Learning opportunities
  • The scientific approach to wage setting involves job analysis and evaluation. This consists of a systematic process to determine the relative value or worth of a job within an organisation, involving an evaluation of “job size”. Job evaluation assesses and grades the job rather than the person, to develop hierarchies of jobs and pay structures and to establish internal relativities.
  • It is useful to contrast the Neo Classic Economist against the Modern Economics view of wage setting, in this context. 
    • The Neo Classic Economist is a very simplistic model whereby, wages are set where supply of labour meets the demand for labour i.e. wage=MPL. It assumes that markets constrain what you can pay for (thus if markets are competitive, workers should be paid equivalently).
    • The Modern Economics view on the other hand, suggests that wage setting is a more complex process (as no market is perfectly competitive). In reality, the majority of the firms in the world operate in oligopolistic/ monopolistic conditions i.e. imperfect competition. As such it is no surprise that we find variation in pay within skill categories of the same industry.
  • Reasons for variation in pay rates:
  • Collective bargaining (i.e. trade union support)
  • Efficiency wages
  • Internal labour markets
  • Gender pay gap
    • The full-time gender pay gap between women and men is 14.9 per cent
    • The pay gap varies across sectors and regions, rising to up to 55% in the finance sector and up to 33.3% in the City of London.
    • Reasons accounting for this: recession, worth undervalued, discrimination, motherhood penalty, greater work in part-time jobs (Fawcett Report)
  • Specific factors alluding to the firm:
    • Supply and demand of the kind of candidate the firm wishes to attract
  • What is our budget? In some industries, particularly labour intensive ones, labour accounts for a significant proportion of a firm’s cost. Thus it is important to ask the question “What are the costs vs. projected productivity of the employee?”
  • The extent of  information transparency on compensation:
  1. How much differentiation should exist in pay?
  2. How much importance  is attached to pay vs other non-economic rewards
  3. How openness is valued in general within the enterprise?

Managers have to decide on points 1-3. Bear in mind here that openness with salary is likely to be sensitive with cultural issues. Employees may not understand how their pay differentials are determined due to lack of information transparency issues in certain contexts.

  • Other organisation contingency factors to consider: business strategy, HR strategy, product market, technology, firm size, degree of interdependence (team work), and diversity of the workforce.

The way in which firms chose to pay and incentivise their employees will lead to evident variation in pay rates. This is forms the basis of the rest of this blog series. Read on here:
-Base Pay (Part 2)
-Pay related to performance (Part 3)

Managing difficult or problem staff members: The measure of a manager

In this guest blog , Nick Pearce a team change and improvement specialist from Hamilton, New Zealand joins us to discuss the importance of managers facing up to conflict issues with problem staff. Nick is currently developing a team building and culture change programme with The Devil’s Advocate, using remedial methods based around constructive conflict and focal conflict theory.

Anyone can do that…

The true test of a manager is not how well they manage their good staff, but how well they manage the bad. The difficult, the troubled, the misguided or the just plain lost. Managers are employed to get the best out of all their people for the good of the organisation and managing the tough ones is where they earn their money. Managing the good ones is easy. Anyone can do that.

On the job studies conducted by myself and HR colleagues have tended to show that in small to medium enterprises (SME’s), nearly 0.5% (1 in every 200) staff are in a personal or professional space that suggests they need to be exited from the organisation. Staff who can not only de-stabilise teams but scare their colleagues, or pose a very real reputational threat to the organisation, or are corrupt or breaking the law in some way. We pussyfoot around this too much. Usually, there were opportunities to prevent things from getting this bad earlier, but a manager or managers somewhere along the way failed to act as they should.

There really are no easy ways to turn a difficult or problem staff member around. You have to be prepared for hard work, hard times and a hard nose. And an external change agent or influence can help. But all of the truly effective managers I have worked with have been proactive in identifying staff issues or problems and dealing with them with speed, integrity and honesty. Above all, the manager needs to be honest with themselves and confident in dealing with, and using, constructive conflict to get where they need to go.

It is worth learning everything you can about the dynamics of conflict – interpersonal conflict and intrapersonal (inner) conflict. It is a fear or lack of confidence in this area that in my view most holds managers back from doing the right thing with their staff. If you use the devil’s advocate role in team discussions, programme time for functional (goal and value focused) conflict in your meetings, you should find that constructive conflict, well managed, can lead to new levels of creativity, performance, and harmony in your teams.

Going Global? How to make your Rewards Rewarding

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.