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chapter 11

International Reward Management

C H A P T E R OBJECTIVES
At the end of this chapter you should understand and be able to explain the
following:
l

l

l

The current context multinational employers encounter influencing their aims and
choices in determining employee reward across international operations
...

The use of theory and knowledge derived from empirical research in weighing
opportunities and problems in rewarding employees in an international context
...

Assist in preparing an employee reward policy statement and the process for its continuous
review
...

Advise on the management of change when introducing or modifying elements of the reward
system
...

The factors affecting reward philosophies, strategies and policies, and their potential for
supporting change when integrated with organisation and personnel strategies and policies
...


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Employee Reward

in t r oduc tio n
To gain a sense of the significance of international organisation and the
consequences of transnational organisational activity for employment and reward
management, one need only turn to the 2007 World Investment Report (UNCTD,
2007)
...
During 2006, UNCTD
(2007) reports growth in foreign direct investment (FDI) inflows occurring
in all three groups of economies: developed countries, developing countries
and the transition economies of South-East Europe and the Commonwealth
of Independent States
...
306bn
...

While this context implies plenty of scope for policy and practice work, human
resource specialists’ ‘critical responsibility’ for the design and maintenance of
employee reward systems becomes ‘much more complex and difficult’ when set in
the context of ‘the conduct of international business’ (Briscoe and Schuler, 2004:
305)
...
While it may represent ‘a
compensation manager’s nightmare
...


r e w a r ding expatriation – rewarding multi-local
talent
The HR specialist faces problems to be solved, first, in supporting a
multinational’s wish to employ ‘parent country nationals’ (PCNs) not only in the
organisation’s country of origin, drawing from domestic employment sources
...
And these transfers may be more than an
isolated ‘out-return’ cycle but require multiple assignments over time as the
multinational and its strategy-structure arrangements evolve
...

Secondly, there is the question of employing individuals sourced from the ‘host’
country where the multinational sets up operations, to support the enterprise
in that jurisdiction
...
Or do other considerations apply?

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International Reward Management

359

Thirdly, as multinationals increase their presence, and develop confidence in
the potential of talented employees in countries around the world to transfer
corporate practice embedded in their experience and knowledge beyond their
country of origin, corporate management may choose to widen the source from
which to assign managers and specialists transnationally
...
But if they are expected to contribute
to corporate performance, working transnationally, in the same way as PCNs,
again, is there a case that their reward should be synchronised with that of the
PCNs?

c on ve rg e nt transnatio n al capit al power –
d iv erg e nt b usine ss syst ems
By way of context for addressing such issues, as discussed in Chapter 1, prevailing
wisdom may be to theorise a convergence between employment systems
worldwide – even if this involves two capitalist ‘varieties’ (Hall and Soskice,
2001): a deregulated ‘liberal market’-oriented variant, on the one hand, and a
more politically ‘co-ordinated’ type, on the other hand
...

In co-ordinated (sometimes ‘social’) market economies, stock markets may
be balanced by direct engagement in business governance by banks and other
long-term-oriented financial interests
...
Typical examples cited include Germany, Japan and
the Scandinavian countries (albeit with variation between them, just as there are
between the UK and USA, in terms of detailed business system characteristics –
eg in Japan, industrial relations tends to be highly decentralised)
...

From the point of view of the multinational management wishing simply to
follow a common recipe for rewarding workforce members irrespective of
the operating environment, however, as Brookes et al (2005) argue, diverse
‘business systems constitute mechanisms and structures for regulating market
relations
...
The
multinational’s dispositional advantage as the source of FDI capital may suggest
potential on the part of the inward investor to mobilise coercive power
...
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Observable underlying cultural and institutional factors continue
to vary (Sparrow, 1999; 2000), reflecting differences in tax and social insurance
regulations, as well as social considerations affecting work orientations that, in
practice, enable and constrain reward management choices in the multinational
organisation (Bloom et al, 2003)
...
Such organisations also operate across a variety
of international locations, and compete for talented people to run them – both
indigenous and expatriate
...
While people may be perceived as joining voluntary or regulatory
organisations for reasons different from those attributed to people recruited to
business firms, it is easy for these assumptions to cloud the universal problem
of getting scarce people resources into place – when often those places not only
demand highly skilful capabilities; they may also represent especially challenging
environments in which to deploy people
...

The chapter will explore the literature on employee reward in an international
context to help the HR thinking performer to understand and evaluate
approaches that might be used to advise corporate managers in relation to PCN,
HCN and TCN workforce members under three principal headings, as follows:
l
l

l

What are the problems to be addressed, adopting a strategic orientation?
How can the theories such as those discussed in Chapter 2 assist in specifying
the issues to be determined?
How can published research be used to help weigh the merits of predictions
about the outcomes from following particular international reward and
recognition approaches, bearing in mind open systems contextual influences?

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International Reward Management

361

m u l tinational contexts for employee reward
m a n ag e me nt
We begin the review with a specification of ‘context’ within which employee
reward problems may arise when organising to support corporate activity
across international boundaries
...
Revenue
streams from devolved manufacturing and/or trading across the multinational,
once limited compared with domestic country operations, have taken on
‘strategic importance’, as the UNCDT (2007) evidence cited earlier indicates
...
the establishment of host
country subsidiaries
...
Non-domestic
activities now command an increasingly large proportion of corporate resources
that all need to be deployed so that the multinational can compete profitably on a
global scale
...

The reference to networks is significant: ‘a multinational’s ability merely to enable
the flow of knowledge from its headquarters to its national subsidiary units no
longer represents a sufficient competitive advantage’ (Nohria and Ghoshal, 1997:
1–2)
...
Multinationals face other giant-sized
multinational corporations in ‘head-to-head’ competition for profitable revenues
...
This model is consistent with the shift
from an emphasis on exploiting sources of cheap labour to one of tapping tacit
knowledge, embedded in new strategic assets around the globe, such as multilocal industry districts, with the accent on what Nohria and Ghoshal (1997)
describe as ‘prolific innovation’
...
In fact, bringing our focus back to people management, what
Edwards et al (2005) describe as ‘reverse transfusion’ of employment practices
to support multi-headed organisation may be inhibited by the difficulties of
dislodging institutional structures and practices
...
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Illustrating this in practice, Perkins (2006) reports evidence at the European
regional level of a large, well-known information technology company
...
Now the US-based ‘central
hub’ exclusively undertook development of reward management programmes
and governance processes: activity in the regions had shifted to enabling the
corporately mandated framework to work effectively across the various countries
involved
...
But they felt the new strategy of
‘minimising differences’ required a ‘mindset change’ at the corporate level
...
Perkins (2006) reports evidence suggesting efforts
more generally on the part of multinational corporate reward designers to ‘reduce
differences’, contrasting with trends discernible half a decade earlier that implied
‘dispersed network’ theory was being acted on in practice (Perkins and Hendry,
2001)
...
They
specifically cite the example of businesses, like the IT case example, which started
out under the direct management of founders with a paternalistic managerial
style
...
While, as in the case outlined, a
fundamental break with legacy employment conditions may occur, necessitated
by changing commercial conditions, the institutionally embedded mindset of ‘the
way we do things around here’ may prevail among US corporate HQ members,
influencing their dealings with other parts of the multinational, undermining the
notion of a ‘networked structure’
...
you are mentally working on one model, while the Company [ie HQ in the
USA] is working another
...
This change that the Company is going
through is adjusting to that and trying to start to make the words match the
actions
...
And that kind of discrepancy between what you’re saying
and what you’re doing creates huge problems for managers, for employees, and
– from a professional point of view – for the rewards team
...
They were starting to
complain that ‘we’re saying one thing and doing another’
...
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But that business reality, which is
about cost minimisation, is not what the words were around our programmes
...
To what extent should members
of HR specialist teams working from regional offices around the world defer to HQ in the
detailed interpretation and application of reward policies and practices in support of their line
management ‘business partners’? What might be ways of sharing experience in working with
corporate reward strategies across the network? What would be the prerequisites in terms
of working relationships between line and senior corporate management and between HR
specialists possibly working to a matrix reporting line?

c h o ices for multinational management and their
r e w ard c o nse q ue nc e s
Notwithstanding sensible notes of caution not to accept idealised prescriptions
uncritically, Harvey et al (2002: 285) hold out the prospect that ‘organizations
may become unique competitively [on a global basis] if their human resources
and their system for managing human resources are efficient and effective’
...

First, use of the term ‘international reward’, as it has appeared in the HRM
literature, may need to be revisited when considering treatment of employee
segments subject to management in the contemporary international context
(Perkins and Hendry, 2001)
...
While, on the one hand, acknowledging diversity in the
character of the multinational population, giving rise to segmented employment
administration issues, on the other hand, the emphasis in the corporate strategy
literature on transnationally networked resource management implies a
requirement for more integrated policy-making
...
the basis for developing unique competitive
strategies’ (Harvey et al, 2002: 285), reward management choices will need to
avoid consequences the actors perceive as unfair and so divisive, undermining
multi-headed team structures working to a common set of aims
...
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If the people to be employed and managed internationally are
counted as ‘strategic’ resources (thereby demanding top corporate management
attention), then it follows logically that purposeful, co-ordinated and contextsensitive employee reward policy and practice interventions will be required
...
However, the spread of activities and people to be co-ordinated –
taking into account not only geography but also diverse cultural and institutional
environments – implies that the task to be achieved will be even more complex
than that experienced in domestic operational settings
...
And even if corporate management seek to achieve a balance between
global strategy and local sensitivity the design and application of ‘employee
engagement’ approaches to facilitate profitable knowledge mobilisation does not
occur in a vacuum
...
Assuming individuals will be aware of the demand for their
particular skills and willingness to put them to work, talented people are likely
to bring expectations to the kind of employment relationship – and its terms
– on offer for their voluntary co-operation with a corporate project that also
demands accommodation within international reward design
...


stud e n t e xe rc i se
Working in groups, identify multinational organisations known to you and share ideas on what
their approach to ‘doing business abroad’ seems to be
...

How extensive do operations appear to be worldwide? Is the organisation ‘mature’ internationally
or at an earlier stage of development? What are the implications of what you find out and
synthesise in your discussion? List the top three priorities for setting terms and conditions for
employing people consequent on your conclusions
...
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However, following Harvery et al’s (2002) suggestions,
mindful of Cazurra et al’s (2007) challenge, the idea of mobilising key capabilities
to achieve organisational goals is a promising one to focus consideration
of approaches to international employee reward
...
As a first step, the types of ‘mobilisation’ involved within multinational
networks need to be identified
...
It may also assist in clarifying
what is meant by ‘international reward’ for the multinational pursuing a strategy
of purposeful knowledge mobilisation
...
As indicated above, when
addressing reward system issues multinationals are being encouraged to pay
greater attention to how they build relationships with all the people they
employ, with a strategic focus on organising them across globally integrated
networks
...

In practice, multinational reward considerations encompass the terms and
conditions applicable to the three principal employee categories referred to
earlier: HCNs, PCNs and TCNs
...

Special considerations arise in the case of expatriated PCNs and TCNs, taking
account of the fact that a prevalent approach multinationals adopt to mobilise
the knowledge capabilities they offer is by relocating employees (possibly
accompanied by family members) across national borders
...
For this reason, policies and practices specific
to expatriate mobilisation have evolved, giving rise to issues that differentiate
geographically mobile employees from those retained in the territory and
employment system where they were recruited
...
But the focus
in corporate strategy prescription on networking knowledge implies that reward
practices that have in the past isolated expatriates from co-workers, inhibiting

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Employee Reward

knowledge networking, may be part of the ‘complementary resourcing’ difficulties
implied by Cazurra et al (2007)
...
Rewards for expatriate employees are discussed next,
after which trends in international employee reward generally are reviewed
...

PCN expatriates have been defined as ‘experts and managers’ who are citizens
of the country in which the multinational’s corporate headquarters is located,
assigned to work in a foreign country, tasked with transplanting corporate
culture, competence and strategy to local units (Harris, Brewster and Sparrow,
2003; Moore, 2006; Phillips and Fox, 2003)
...
TCNs represent a ‘hybrid’ choice for managing international
subsidiaries, residing between PCNs and HCNs
...
In theory, TCNs may have more local knowledge than PCNs
and yet have less local knowledge than HCNs
...
Resourcing decisions to populate transnational operations
are therefore strategic in nature, with clear consequences for the capabilities and
likely performance outcomes being invested in
...
Calls for more
systematic management of expatriate performance imply consequences for the
ways in which this is rewarded and recognised, paying attention to issues around
incentive rewards (reviewed in Chapter 6)
...
Recent

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International Reward Management

367

Figure 11
...


survey evidence suggests that alternatives are emerging, including permanent
migration, short-term assignments, cross-border job swaps or membership of
multicultural project teams (Forster, 2000)
...
1 above
...

A survey of policies for employees on short-term expatriate assignments, typically
lasting between three and 12 months, indicates that short-term assignments
are becoming more popular
...
The same survey findings
contrast short-term expatriate assignments with ‘commuter assignments’, popular
where home and host location are close
...
One reason offered for why
the variety of expatriate assignments has been widening is reluctance on the
part of individuals to accept assignments over the traditional duration in view of
dual-career commitments where both partners are following professional careers,

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368

Employee Reward

or when children’s schooling or eldercare mean that long-term absences from the
country where an employee has social ties would be unacceptable (ORC, 2004)
...
There may,
however, be hidden costs beyond the provision of serviced accommodation and
supplemental travel and subsistence reimbursements, where the transnational
commuter experiences even more barriers to becoming embedded in the local
business environment, reinforcing the ‘outsider’ stereotype with attendant
barriers to integrated performance referred to earlier
...

Notwithstanding these trends in use of alternatives, the most common reported
form of expatriation worldwide is ‘a one-time assignment with a planned
repatriation’ (ORC, 2004: 8)
...
It is not
merely a case of semantics to argue that this line of reasoning has downplayed the
‘reward’ aspect in favour of providing ‘compensation’ for accepting ‘changes in
lifestyle, enduring ‘hardship’, etc
...
The sense
of an ‘exchange relationship’ (we introduced this notion in Chapter 1) is still in

Figure 11
...
2, p
...

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This change of orientation is expressed, first, in terms of pay package design
intended to preserve existing relativities with PCN peers, or at least to preserve
consistency with reward levels for the employee’s occupational group and level in
their country of origin in the case of TCNS
...

The approach aligned to this policy orientation, known as the ‘home-based/
salary build-up’, or ‘balance sheet’ (ORC, 2004), augments basic pay with a
‘foreign service premium’ (Dowling, Festing and Engle, 2007), as well as cash
supplements to compensate for ‘hardships’ (eg working in remote or politically
unstable locations, or those with limited social infrastructure)
...
In addition to salary adjustments to neutralise
cost of living differences, other allowances may include home leave, relocation,
spouse assistance/dual career allowances and so on (Fenwick, 2004; Perkins and
Shortland, 2006)
...

What this means is that the value of tax and social insurance contributions
the employee would hypothetically have paid at home is deducted from the
home base pay to arrive at a ‘net’ salary
...

An illustrative example of such an expatriate compensation scheme, sourced from
a German multinational, is set out in Figure 11
...
The total salary payable
in the host country is built up from the net salary that would have been payable
for the same job in the individual’s home country
...
In that
calculation, differences in cost of living, living standards and housing standards
are taken into account
...
A tax and social
insurance ‘grossing-up’ is undertaken and the host organisation unit pays the
taxes and social insurance in the host country
...
The intention of applying this cost-of-living index is to allow
the consumption of goods and services of the same type, quality and amount
as would apply in the host country
...
This

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370

Employee Reward

percentage corresponds to a statistical value of the typical proportion of income
required for daily expenses
...
To determine a
rate regarded as independent, multinationals may use the services of consultants
who specialise in providing COLA information on a global basis, regularly
updated, to their clients (Festing and Perkins, 2008)
...
In return, an amount equivalent to the normal
housing cost in the home country may be deducted as part of the expatriate
salary calculation
...
In other cases a fixed allowance for accommodation may be paid or an
assessment made based on a portion of income, out of which actual housing costs
are paid
...

The foreign assignment allowance is an incentive for an employee to accept
assignment requiring international mobility, and may also recognise intangible
difficulties as well as material hardships, where individuals and family members
experience a lifestyle different from that enjoyed in the home country, not
accounted for in the COLA payment
...


prevalence of the expatriate balance sheet
According to one large-scale survey, some 70 per cent of European multinationals
continue to favour the balance sheet approach to expatriate compensation; in
the USA and Japan the percentage rises to 85–95 per cent (ORC, 2002)
...

Those experimenting with movement away from ‘topping up’ home-based
compensation without any reference to local market conditions may attempt
destination-based expatriate reward planning, using host country market
benchmarks instead
...

Among a newer generation of globally mobile professionals, even in the latter
territories a more ‘bare-bones’ approach may be tried, especially where there is
agreement between the parties that the assignment has a more ‘developmental’
focus, as part of longer-term career management for corporate executives

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International Reward Management

371

(Perkins and Shortland, 2006)
...
Although this approach
may be used for permanent transfers (so-called ‘localisation’), on the whole the
use of pure host-based approaches is rare
...
net to net comparisons need to be calculated to determine the feasibility
of this approach and the rationale for the assignment needs to be considered
carefully
...

They are also likely to require some assistance with home leave to maintain
home country ties and ease repatriation
...
In addition, assignees are likely to
require assistance with taxation – from the very basics of completing tax
returns in the foreign jurisdiction to ensuring that additional tax liabilities are
met
...
Here the equity benchmark is
between the assignee and local/regional peers, with the emphasis on integration
(Watson and Singh, 2005), although if the location is in a low-pay country,
the multinational usually supplements base pay with additional benefits and
payments (Perkins and Shortland, 2006)
...

Short-term assignment terms are generally intended to be less complex,
and less expensive, than arrangements applied to long-term expatriation,
although there is evidence that militates against generalising in this regard
(Festing and Perkins, 2008)
...

Commuter assignments, which Mayerhofer et al (2004) label ‘flexpatriation’, tend
to fall outside the traditional policy categories covering expatriate reward
...

Expenditure will be less on household provisions and in situ transportation but
more on restaurant meals and home/host/home round trips
...


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Employee Reward

While simplifying international mobilisation, on the one hand, complications
in taxation (as well as visa issues) may arise in administering policies applicable
to this group of international workers (Perkins and Shortland, 2006)
...

International assignments are important investments for multinationals
...

A PriceWaterhouseCoopers (2006) study states that, on average, costs per annum
for an expatriate amount to US$311,000
...
The latter accounted for 7 per cent of the total assignment costs
(US$22,378)
...
Administrative aspects include home-based
HR support (assignment planning, selection and reward management, assignment
location- or host-based HR support, post-assignment placement costs as well as
post-assignment career tracking costs (Festing and Perkins, 2008)
...
Added to this, managing non-domestic operations through the
medium of expatriates exposes multinationals to risk attributable not only due to
direct and indirect costs associated with assignment reward packages: ‘Indirect
costs of a failed assignment may include loss of market share and damage to
international customer relationships’ (Brewster et al, 2001: 27)
...

Despite the controversy surrounding expatriate reward debates, an argument
can still be made, informed by institutional economics theory, that expatriation
remains a cost-effective solution (Bonache and Fernández, 2005)
...
And if the organisation
is pursuing a strategy that requires skill sets fully conversant with distinctive
corporate knowledge and ways of applying it beyond the country of origin,
corporate management may regard appointment of an individual long socialised
into the corporate culture as a prerequisite
...
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The time and other resources consumed in
integrating a manager recruited from one of the local economies in which
subsidiary operations are located may be incompatible with the need to achieve
early returns on the investment in subsidiary operations
...


h r ro l e : sc o pe fo r te ns ion wit h t h e lin e
Risks around expatriation-dependent multinational management may bring
corporate HR specialists and line managers into potential conflict in meeting
expectations around their respective roles (Perkins and Daste, 2007)
...
Those carrying
devolved responsibility for supervising expatriate managers unsurprisingly
are likely to wish to smooth assignment conditions so that failure risks – that
may have adverse consequences for supervisors’ own reputations as well as for
expatriates themselves – are minimised
...
We can
theorise this problem using commentary on social situations giving rise to
‘strategic contingency’ in organisations (Pfeffer and Salancik, 1977)
...
The result is that the ‘doers’ accrue power to influence the terms of
the relationship (see the parallels with the ‘agency’ and ‘power-dependency’
arguments discussed generally in Chapter 2, and, in relation to executive reward,
in Chapter 10)
...

HR specialists depend on expatriate supervisors to apply corporate policy
consistently and cost-effectively in managing expatriate managers – their
influence may be limited to guiding expatriate supervisors’ action
...
An expatriate
supervisor may be influenced to interpret corporate policy on expatriation biased
towards satisfying an expatriate manager’s expectations of a package that will
suitably ‘compensate’ their willingness to accept an assignment abroad
...
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Despite a common goal, in principle, of serving corporate interests, reflection on
the problem of expatriating managers, informed by analysis of empirical evidence
gathered among a sample of large western multinationals, leads Perkins and
Daste (2007) to predict tensions comparing influences on expatriate supervisors,
in contrast to the viewpoint corporate HR specialists project in describing their
feelings towards line management receptiveness to ‘professional’ advocacy
...
It is one with
significant implications for their credibility with expatriates, their supervisors
and corporate top management, as corporate policy quality assurance guardians
...

Nurney (2001) argues that multinationals should ‘stop negotiating individual
packages for international assignees’ when a multinational’s transnational
presence increases, and with it the diversity of nationalities (country startthrough-and-end points) becomes significant
...
The message
needs skilful communication, supported by the HR function, but underlined
by top management, so that expatriates, their supervisors and fellow workforce
members alike understand key principles surrounding mobilisation of individual
‘knowledge carriers’, requiring cross-border postings
...

Practical considerations of numbers, types, duration, as well as cost-effectiveness
of expatriate assignments need to be balanced against socio-political factors
including trust and equity considerations (Nurney, 2001)
...
while general guidelines should lead to a “fair” and constructive system,
situational factors will force companies to be inventive and flexible in setting and
managing the remuneration system across borders’
...
The social exchange involves
not only resolving issues around material considerations, but also clarifying the

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International Reward Management

375

kind of ‘psychological contract’ on offer (see Chapters 2 and 9)
...

If a more ‘transactional’ relationship is enshrined in the expatriate ‘deal’ then
specialists and line managers should not be surprised if employees adopt a more
insular and instrumental orientation to the organisation and their peers across
the multinational network
...


stud e n t e xe rcise
An international assignment policy for regional expansion
Taipei-headquartered Taiwanese multinational Hiqual-locost Automotives aims to build a
world-wide assembly manufacturing and trading presence
...
The
Frankfurt office has responsibility for contributing towards the company’s corporate performance
and people resourcing within the region
...
High-potential European managers are to be mobilised to work in the first two
regional expansions beyond Western Europe: new manufacturing plans in Bulgaria and Romania
...
In addition, as part of PCN succession arrangements some mobility
is planned between the existing European offices to fill positions requiring expertise that has
emerged concentrated in particular countries
...

The Frankfurt-based HR team has been charged with advising the HQ function on considerations
to be taken into account in designing the new pan-European assignment policy to address these
four types of international assignments
...
List and justify the individuals and groups who should be invited
to take part in the exercise
...
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The disparity is most salient in the remarkable gap between
the compensation received by the local employees of international joint
ventures in developing countries and foreign expatriates from developed
countries
...
Adding a further twist to this inequality issue, it has been reported
that international joint ventures (IJVs) pay more to locals than do domestic
enterprises in the countries where the IJVs are established, and reward may be
‘packaged’ in different ways too (Chen et al, 2002)
...
Again we turn to theory to seek
clarification
...
Judgements
are based on social referents
...
It may
also depend on factors such as age, gender, race and tenure
...
Building an understanding
of local comparators, investigating employee preferences, sensitive to culture
and industry, as Mamman et al (1996) advocate, and adopting a ‘premium’ pay
posture (an ‘efficiency wage’ orientation – see Chapter 2) relative to the market
for local recruits may, therefore, assist efforts by multinational managements to

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International Reward Management

377

build team-cohesion between locals and expatriates, even where the latter receive
higher absolute levels of reward
...
The effect was offsetting,
not just moderation of a negative effect
...
The ability
to set premium pay will depend on the level of investment (and anticipated
profitability) of the local subsidiary, and of the local human capital influence
over open market rates – dependency theory signals that employee leverage will
accrue based on managerial perceptions of how much these people are needed
...
Demonstrating a caring and sensitive attitude itself may have
positive benefits, showing local core workforce members the extent to which
corporate management are interested in their feelings and general welfare, as
valued members of the organisation seeking competitive success in local markets
and delivering returns for other stakeholders
...

The issue may go beyond horizontal alignment of HR–reward practices, however,
bearing in mind vertical influences flowing between employment relations
management and corporate strategy
...
Milkovich and Bloom (1998) argue that the
organisational goal should be to rethink international reward to develop ‘global
mindsets’ across all the workforce members, one outcome of which could be to
shrink perceived social differences between the expatriate and local population
...
stimulate social comparisons with otherwise
dissimilar co-workers when employees from diverse social backgrounds interact
with each other to perform joint tasks’ (Chen et al, 2002: 808)
...
This
raises the prospect of opportunities to use pay ‘strategically’ in multinational
organisations, or, as Gomez-Mejia (1993: 4) puts it: ‘as an essential integrating
and signalling mechanism to achieve overarching business objectives’
...
Factors applicable across multi-local settings at least
need to be systematically appraised and ‘managed’ before applying universalistic
reward ‘solutions’
...
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Referring to contexts for employment relations such as Germany, where on the
face of it managerial prerogative is constrained by institutional practice whereby,
for example, structures of employee representation are codified to a greater extent
than in, say, the UK and USA, Edwards et al (2005: 1283) argue that ‘practices
negotiated through this route may be received with less scepticism by employees
than those that are imposed’
...

Bloom et al (2003) argue that the ‘dominant logic’ for managing the reward
system adopted by multinationals may vary across a number of recognisable
types, reflecting competing pressures for consistency of approach in pursuit of
global alignment with organisational aims and local conformance pressures
...
An ‘adapter’ group, by
contrast, chooses practices designed to match as closely as possible the conditions
of the local context
...
In keeping with the
‘distributed network’ proposed by Ghoshal and Nohria (1997), policies may flow
as easily between subsidiaries and from subsidiaries to headquarters, as from
headquarters ‘down’ and outwards to operations located worldwide
...
They identify
three complementary features that may reflect or influence multinational reward
strategies under particular conditions
...

Secondly, multinational managements may identify scope to avoid or forestall
acquiescence with local conformance pressures – where the application of
regulatory and market practices is lax, for example
...
The
framework is usefully summarised as a matrix (Table 11
...


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379

Table 11
...
As Perkins (2006: 11) observes:
The insight from the analysis is that the degree of variation in contextual
factors – between and within – local host contexts rather than just the type of
host contexts (cultural norms, economic conditions, regulatory pressures, etc
...

An investigation by Lowe et al (2002), measuring the current position on various
reward management approaches in 10 countries around the world (although
notably excluding Europe), supplemented by managerial perspectives on what
practices ‘should be’ applied, indicated a degree of consistency the researchers
found surprising given the range of cultural and institutional contexts surveyed
(from China to the USA)
...
However, the mix of appropriate
compensation practices is likely to vary across these same countries
...
Managers
generally expressed a bias in favour of increasing the incidence of incentives,
benefits and long-term pay focus compared with the current practice
...
The implication is that systematic
‘due diligence’ analysis on the part of multinational corporate reward policy
architects to match reward and recognition plans for employees in countries
around the world may be a worthwhile investment, when expanding their
overseas operations
...
) Lowe et al (2002) contend that,
by enhancing understanding of ‘best practices’ in other countries, their findings
serve to challenge the extreme positions reported by Bloom et al (2003), whether

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380

Employee Reward

ethnocentric exportation of reward management designs or ‘locally responsive’
adoption of the status quo in a given locale
...

Based on the research evidence presented above regarding organisational aspirations to
achieve transnational work team cohesion, some measure of pay system standardisation and
the factors employees appear to deploy when making comparisons horizontally and vertically
about equitable reward treatment, what priorities would you emphasise in counselling a new
transnational team leader about their role?

Brown and Perkins (2007) report on recent CIPD survey findings, where
HR specialists in multinationals were asked to define the level of influence
that proactive components of the business strategy, such as increasing total
shareholder returns and customer satisfaction, actually had on reward practices
in their organisation
...

According to the results obtained, a more reactive (traditional personnel
administration-style) approach appears to feature in more of the organisations
than those claiming to be proactive
...

The inference may be one of ‘good old muddling through’ or, by reflecting
more deeply on these findings, one of sophisticated opportunity management
recognising that global–local balancing will be a constant challenge to be
addressed, requiring skilful handling
...
Using
more in-depth interview data, Perkins (2006) reports that large multinationals do
appear to be attempting to increase the degree of co-ordination in transnational
reward management
...
Some multinationals have made a significant

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381

investment in new information technology-based infrastructure to rationalise
and standardise reward management practice across the enterprise (for details,
see the Honeywell case study in Perkins, 2006: Part Three)
...

This contrasts with the issues corporate management have encountered in
the second case below, where a voluntary sector organisation has taken steps
to increase the common focus on performance by introducing a pay-related
recognition element
...


ca se stu dy

c a se study 1
Branded goods multinational Unilever
employs 234,000 people in around
100 countries
...

The new corporate strategy design is to
capitalise more effectively on corporate
brands than may have been the case
previously over Unilever’s more than 75
years in business
...

In the case of managers, however, the
orientation to employee reward has
shifted
...


Accenting transnational integration,
the HR function itself has been
reorganised, combining reward
management policy-making within a
single corporate unit with activities
focused also on ‘talent management’,
‘organisational effectiveness’ and
‘learning’
...

The reward system architecture is not
being altered as such under the new
regime: instead, the emphasis is on
improving its execution, aligned with
the new corporate strategic priorities
...
On the one hand,
helping the company to benefit from
emerging market growth opportunities
has to be recognised without inflating
results, taking account of fluctuation
in currency values
...


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Employee Reward

A ‘talent management listing process’
intended to integrate the identification
of high-potential employees has been
implemented with actions to increase
what the system architects refer to
as ‘performance accountability’
...
Instead,
the plan is ‘to ensure at least some of
our money goes to where it is supposed
to’, according to the head of reward who
participated in the new scheme design
...
Initiatives have been launched
to address unnecessary ‘complexity
and intellectualism’ that risks resource
inefficiencies through duplication of

effort across business operations (eg
in managing product development or
marketing activity)
...
On the
other hand, there is an attempt to
make people management more
than reading-off detailed rules from
functionally policed templates
...

This is perceived as a culture change
accompanying the new accountability,
requiring local managerial judgement
within the performance-oriented
corporate principles
...

Source: Adapted/extended from
Perkins (2006)
Reproduced by kind permission of CIPD
...
The charity HelpAge
International is a very diverse
organisation, with ‘over 70 nationalities
employed right up to senior
management level’, according to the
head of HR interviewed for the CIPD
international reward and recognition
research
...
There
is an emphasis on building up local
capacity, employing people from the
regions concerned, reducing a reliance

on expatriates and keeping the London
head office slim
...
Modest changes have
been made to the reward system but
have been the subject of ‘hot debate’
among management decision-makers
...
In addition to
the across-the-board inflation-linked
salary increases, two additional
employee assessment categories have
been introduced to determine increase

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International Reward Management

levels for ‘good’ and ‘exceptional’
contributors
...
It is a (retrospective)
recognition arrangement, intended to
signal acknowledgement of particular
contribution levels (see Chapter 6)
...

While top management’s intention
has been to communicate a positive

383

message, there has been some negative
reaction
...

Source: Adapted/extended from
Perkins (2006)
Reproduced by kind permission of CIPD
...
If Ghoshal and Bartlett’s (1998)
‘transnational solution’ to multinational business strategy is adopted, reward
may be viewed as an important managerial resource for profitable knowledge
mobilisation supported by an effort to encourage a shared ‘global mindset’ across
the workforce (Milkovich and Bloom, 1998)
...

Consistent with our open systems conceptual framework, we have considered
rewards for the international workforce segmented between expatriates and
others, on the one hand, in order that nuances of expatriate ‘compensation’
administration may be appreciated
...

With a reported accent on standardisation to support a performance orientation,
reward architects in the multinational also need to draw on theoretical and
empirical knowledge of practices that may be discovered in the generic reward
literature, which commentators such as Lowe et al (2002) suggest managers
are reflecting on rather than reading from a template or at least, as argued by
Bloom et al (2003), and Brown and Perkins (2007), are approaching ‘strategically’,
accounting for in-country as well as transnational enablers and constraints to
‘best practice’
...
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The
perennial issue is balancing corporate ambition to conjoin knowledge where it produces
profitable outcomes – however ‘profitable’ may be defined, depending on the sector involved
...
What are the opportunities
and risks for multinationals, and how may the latter be minimised?

The competitive context has amplified the problems for multinationals, but
reward system design may still be usefully informed by some overriding
principles articulated a decade and a half ago (Carey and Howes, 1993), which we
have interpreted and slightly extended, in summary form, below:
l

l

l

l

l

l

As companies establish themselves globally, corporate strategies are called for
that can accommodate both unity and diversity: this surfaces issues such as
how to allocate rewards and to tie reward outcomes to corporate goals
...
Flexibility not
only regarding the quantum but also in terms of how employees receive their
material rewards may be increasingly expected
...
On the other hand, where socioeconomic infrastructure remains limited, some guarantees may remain a
priority expectation
...

Reward comparator groups may need to comprise a combination of both other
multinationals in the same industrial sector and other industry groupings
...

When creating a global reward regime, the total pay and benefits mix in
various countries requires measured evaluation: decisions are required here as
to the role allocated to salaries, short-term bonuses, long-term incentives and
other material benefits, and to whether these should be measured in pre-tax or
post-tax terms
...

While enabling choice may appear contrary to standardisation and unifying

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385

N

W
S

explo re fu rt her

E

initiatives through reward management, allowing choice when migrating from
multi-local to a more globally integrated system may support communication,
education and understanding-building among workforce members, as well as
facilitating acceptance and ownership of new corporately branded frameworks
...
and Perkins,
S
...
(2008) ‘Rewards for internationally mobile employees’, in Brewster, C
...
and Dickmann, M
...
London, Routledge
...
J
...
(2007) ‘Pluralistic tensions in expatriating managers’,
Journal of European Industrial Training 31(7): 550–69
...
J
...
Research Report
...

For an economist’s perspective on pay system management internationally, see
Vernon, G
...
and Rees, C
...
London, Prentice Hall: 217–41
...
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