International Pay and Reward

Cross-national Variation: Inequality

—  Issues of comparability and availability

—  Inequality between countries and inequality within countries

—  Comparisons of inequality within countries across the globe

¡  Distribution of gross earnings across national workforces i.e. Gap between those at the top and those at the bottom

¡  I.e. Ration of those in 90^th percentile (only 10% of employees earn more) and those in 10^th percentile (only 10% of employees earn less)

Pay Inequality 90/10 (approx.

—  USA: gap = 4.5

—  Canada: gap = 4.2

—  UK: gap = 3.5

—  France: gap = 3.2

—  Japan: gap = 3

—  Germany: gap = 2.9

—  Finland: gap = 2.5

—  Sweden: gap = 2.2

—  Norway: gap = 2

Pay Inequality

—  Variation is generally explained by ratio received by relatively low paid in relation to the average

—  i.e. USA = 2.1

—  i.e. Norway – 1.5

—  Strong relationship between pay inequality and trade union density

—  Strong relationship between pay inequality and government regulation

—  Vernon in Edwards and Rees, 2006)

Inequality and MNCs

—  However, value of managers compensation packages increasingly detached from other employees – influence of Anglo-Saxon models

—  Homogeneity of senior managers reward practices (even Germany and Sweden, although to lesser extent)

—  Imposition of home country standards for lower level employees i.e. McDonalds

¡  Avoidance of collective bargaining

¡  Avoid worker representation

—  Pay Systems. Types of pay

¡  Going rate for the job (including allowances etc.)

¡  Competence-based pay (assessed by skills, qualifications, experience, seniority etc.)

¡  Variable pay or PRP (including bonuses, special payments related to individual, team, departmental, organizational performance)

¡  Balance sheet – based on home country or headquarter standards

International Comparisons

—  USA

¡  Strong link between performance and pay

¡  Individualised

¡  Team, department, organisational based reward more common than in the UK (Barton and Delbridge, 2004)

—  Germany

¡  ½ private sector companies use PRP – both individual and collective

¡  Pay based on company performance limited to senior staff  (Vernon, 2006)

—  UK

¡  70% of private sector employees and 25% of public sector employees subject to PRP of some type

¡  50% 0f PRP in private sector companies is individual (compares with 25% for the Netherlands)

—  However, studies show that high uncertainty avoidance = seniority and skill-based pay (for example Latin America)

¡  Individualist Anglo-Saxon nations focus on individualised PRP

¡  Less individualist (Spain, Portugal) focus less on pay-performance link (Vernon, 2006)

—  Nigeria

¡  Minimum wage but deductions are a matter for negotiation between parties (Ovadje and Ankomah, 2001/2006)

—  Ghana

¡  Minimum wage for lower level, unskilled and semi-skilled workers

¡  Collective agreement for bargainable employees

¡  Managerial salaries subject to individual negotiation, although across the board annual increments negotiated by employees associations

—  Meaningful comparison is difficult

¡  i.e. Definitions of performance subject to cultural interpretation

¡  Statistics may be distorted i.e. Small number of large companies offering PRP

¡  Overviews of pay systems can obscure important differences

¡  Pay systems can change over time

MNCs and Reward Strategy

—  Complexities

¡  Outsourcing, decentralisation, performance, taxation and comparability, inflation etc.

—  Objectives

¡  Business strategy, recruitment and retention, cost/benefits, fairness, career advancement and repatriation

Key Components

—  Base-salary

¡  Issues of comparability, legislation (see Burnett and  Von Glinow in Harzing and Pinnington)

—  Foreign service payments for expatriates

¡  Inducements

¡  Mobility

¡  Hardship

¡  Danger compensation

—  Allowances

—  Benefits

Best Practice

—  Higher levels of earnings inequality at the top = faster productivity  growth. Supports idea of incentives

—  Lower levels of inequality at the bottom end = faster productivity growth. At odds with idea of incentives

(Rogers and Vernon 2003)

—  Culturally specific to the USA?

—  Profit orientation rather than fairness?

Conclusion

—  Differences across national environments and different responses from MNCs

—  Much room for manoeuvre on the part of MNCs

—  Strategy – standardisation

—  No agreement on the superiority of particular pay systems

—  Sceptism re best practice