What are the challenges of implementing a compensation strategy and

practices in multinational organizations?

Laura Pickard, Michael Cunningham, Theresa Hillis, Ernest Mistica
October 23, 2014

Multinational Organization

Companies that have an international presence, but

are headquartered to a particular home country

Transnational: borderless

Compensation Strategy

Compensation of employees in order to enhance

motivation and growth while at the same time
aligning their efforts with the objectives, philosophies,
and culture of the organization

Compensation Strategy Importance

For managers

For employees

Compensation Components
Pay

Benefits

Career

Base pay
Overtime Pay
Short Term Incentives
Lump Sum Payments
Cash Profit Sharing
Long Term Incentives
Performance Plans
Equity Plans

Retirement
Health
Paid Time Off
Income Protection
Death Benefits
Work/life Balance
Other Benefit Policies

Skill Enhancement
Leadership Development
Career Advancement
Promotion Process
Employment Stability
Nature of Work
Rotation
Job Enrichment

Fundamental Compensation Strategies

1.

Competitive

2.

Performance Differentiation

3.

Egalitarian

4.

Mission Based

5.

Cost of Compensation

6.

Unstructured

Strategies to Drive Performance

1.

Define desired performance in tangible goals and

actionable items.

2.

Measure the right things and use the right

measurements.

3.

Reward the right measures with the right rewards.

I.
II.

Visibility
Timing

Compensation Factors

External
Labour Market
Conditions
Area Wage Rates
Cost of Living
Collective Bargaining

Internal
Compensation
Strategy
Job Worth
Employees Relative
Worth
Employers Ability to
Pay
8

Economic

Economic forces effect the compensation strategy

Supply and demand of products and labour have a

direct impact on the internal organization
Global pay differentiation
Interest rates/taxes
Labour Market
Inflation

Global Pay Differences

Interest Rates/Taxes

Labour Market

Labour Market

Inflation
Global Inflation Rate

Legal Challenges

Employment standards and laws vary across countries

International standards exist but still allow for

differentiation within and between nations

International Labour Organization

United Nations Agency

Ratified Conventions

Compliance Reports

Example: Minimum Wage

Is it logical to have a uniform minimum wage?
1970 Wage Fixing Convention

Varying Employment Standards and

Labour Laws

Comparing Canada, the US, China, India

Minimum wage
Severance
Vacation
Standard Workday
Overtime pay

Employers need to have an extensive knowledge of

these standards and laws for each country in which
they are active

Minimum Hourly Wage

Canada: $10-$11 CAD

The US: $7.25-$9.32 USD

Equivalent of $8.18-$10.51 CAD

China: 9.00- 17.00 CNY

Equivalent of $1.66-$3.13 CAD

India: Average of 17.21 INR

Equivalent of $0.32 CAD

Standard Workday

Canada: 8 hours

The US: 8 hours

China: 8 hours

India: 8 hours

Overtime Pay

Canada: Time and a half

The US: Time and a half

China: Time and a half

India: Double time

Severance Pay

Canada: One week of pay for every year worked, to a

maximum of 26 weeks

The US: N/A

China: One month of pay for every year worked, no

maximum

India: Two weeks of pay for every year worked, no

maximum

Vacation Entitlement

Canada: 10 days

The US: N/A

China: 5 10 days

India: 12 days

Social Issues Regarding Compensation

Strategies in MNCs

Theoretical Framework: Orientalism

Orientalism can be discussed and analyzed as the

corporate institution for dealing with the Orientdealing with it by making statements about it,
authorizing views of it, describing it, by teaching it
settling it, ruling over it: in short, Orientalism is a
Western style for dominating, restructuring, and
having authority over the Orient (Said 1978: 11).

Standards as Social Constructs

Standards for compensation vary from state to state

They are culturally dependent

Respecting cultural dynamism can give companies a

competitive advantage

Important not to exploit this difference

Culture Defined

as the mental programming shared by a group of

people which is based on a set of common values,
beliefs and assumptions

deeply rooted in day to day livinghighly

resistant to change

Dimensions of Cultural Difference

1. Power distance
2. Uncertainty avoidance
3. Individualism vs. collectivism
4. Masculinity vs. femininity

(1) Power Distance

The amount of power variation between superiors and

subordinates which people are willing to accept

What does this mean for compensation strategies?

1. High Power Difference: Hierarchical

compensation (eg. Mexico, Arab League Nations)
2. Low Power Difference: egalitarian; shared
incentives/profit sharing (eg. Netherlands, Sweden)

Power Distance: Example

Global vs. Local Employees

Global employees are those that leave their home

country to work for their company abroad (expatriates)

Usually, they are compensated based on idea that they

should be able to maintain the standard of living of
their home country

This tends to result in large compensation inequalities

between local and global employees

(2) Uncertainty Avoidance

The amount of risk individuals in society are willing to tolerate

Compensation strategies should seek to minimize employee

stress levels

What does this mean for compensation strategies?

1. High uncertainty avoidance: fixed pay systems; centralization,

internal equity
2. Low uncertainty avoidance: variable pay;
decentralization; flexibility; external equity

(3) Individualism vs. Collectivism

Interprets the extent to which people in specific societies

prefer independence versus belonging to a group
What does this mean for compensation strategies?

1. Individualist: personal performance/

achievements; extrinsic rewards; external equity (e.g.
Canada, U.S.A.)
2. Collectivist: group performance; extrinsic/intrinsic
rewards; internal equity (e.g. Japan, South Korea)

(4) Masculinity vs. Femininity

Characterizes the degree to which society values more

positively and promotes characteristics of masculine and
feminine behaviour
What does this mean for compensation strategies?

1. Masculine: inequalities relating to gender; reward masculine

characteristics/stereotypes (e.g. Canada, U.S.A., Germany)
2. Feminine: egalitarian; less sexual discrimination (e.g.
Norway, Netherlands)

Pay Equity

Equal pay for work of equal or comparable value

Gender issue :institutionalized sex discrimination

These issues become amplified across borders

Case Study: Apple in China

Wuxi, China (near Shanghai)

Plant owned by Florida based American company
Jabil Circuit
Study based on interviews with 90 employees and
the experience of undercover investigator
12 hour shifts, 6 days a week; only two 30 minute
breaks
Average 69 hours per week; Apple self-imposed
limit is only 60 hours

Case Study: Apple in China

30,000 employees at this one plant

2-year contracts; pay fees for ID papers, bank
accounts and intrusive medical exams (eg.
pregnancy tests)
Crammed dormitory accommodation: 8 to a room
in some cases; day and night staff share rooms
Base wage : 1,500 RMB or $204.42 per month; half
the average monthly wage in Wuxi; 100 hours of
overtime to match average

Compensation Strategies
to motivation employees
Benefits
Offer

packages

Employee
Work

Assistance Program (EAP)

Conditions

Increase

break time

Improve

Living conditions

Career

Opportunities

Reward
Greivance
Double

performance

Process

audit procedure

Training

and development