National And Organisational Employees’ Compensation Culture In An International Aspect

Introduction

Organizational culture plays a core role in helping organisations to achieve competitive advantage. Briscoe et al (2012) argue that, like nations, every organisation has its own culture which distinguishes it from its rivals. For example, Apple Inc and Microsoft Corporation are known for their highly informal organisational culture (Peracleous & Papachroni, 2009). Among other things, organisational culture determines how an organisation manages its human capital (Shah et al, 2012).

The management of human capital involves many aspects such as recruitment, employee compensation, performance evaluation, training, motivation and retention. Compensation involves the regular rewarding of efforts made by employees and it subject to the prevailing national and organisational cultures (Rasool et al, 2012).

While using the example of compensation in an international context, this essay discusses Briscoe et al (2012) assertion that “just as countries develop unique patterns of values, norms, beliefs, and acceptable behaviour, so also do companies … [and] … for many firms, these organisational values take precedence over country cultures, particularly when there is a conflict between the two” (p.123). Overall, it will be argued that there should be a balance between organisational culture and national culture.

Employee Compensation

Employee compensation is a systematic approach, used to reward employees for their dedicated service to an organisation. Such reward can be in form of money or benefits. Compensation through benefits ranges from health care, pension or paid vacation. Compensating employees effectively and fairly motivates them and thus improve on their performance (Eccles et al, 2012).

Adam’s equity theory (Gerhart & Rynes, 2003), states that a fair balance, which is struck between employee’s input and employee’s output results in motivated and self-actualized employees. Inputs from employees include handwork, level of skills, enthusiasm and tolerance while employees’ output are benefits, salary, rewards, recognition and promotion. Depending on the organisation and in extension, the country in which an organisation operate sin, different policies are applied in compensating employees. These differences results to different compensation cultures. As expected, diverse compensation cultures result to different growth rates among international organisations as employees tend to be more productive if their efforts are well compensated (Gerhart & Fang, 2007).

Employees are the key resource in an organisation. As such, organisations strive to attract, reward and retain talented employees through competitive compensation packages (Eccles et al, 2012). Under the human resource department, employees’ welfare (compensation) is planned and executed as per the prevailing national and organisational cultures. Irrespective of the prevailing culture, organisations should ensure that employee’s welfare is addressed at all times through competitive compensation packages that are reflective of organisational, national and economic situations (Shah et al, 2011).

Impact of National Culture on Employees Compensation

The impact of national culture on employee compensation is better analysed using Hofstedes four dimensions of culture. According to Hofstede, nation’s culture is measured using the following indicators: power distance, individualism, masculinity, uncertainty avoidance, and masculinity. If a country scores low on these four indicators then it is referred to as culturally flexible, if it scores high on the indicators then it is referred to as culturally rigid (Gerhart & Fang, 2007). Experience shows that western economies as well as a few emerging economies such as China and India score low on Hofstedes four dimensions of national culture (Eccles et al, 2012).

The reverse is true for developing countries where the gap between the poor and the rich is large. Nevertheless, Gerhart and fang (2007) argue that countries that pursue extreme levels of capitalism tend to score high on Hofstedes four dimensions of culture. This is because no efforts are made to discourage exploitation of the poor and the marginalised by the rich. On the other hand, countries that pursue socialist ideologies are more likely to set stringent regulations that encourage equality in sharing of the national resources (Shah et al, 2011).

For example, the impact of Anglos-Saxon culture on employee compensation can be analysed into the following four aspects. There is usually very little emphasis on perquisites. In addition, there are high levels of compensation differentiation particularly along the lines of job responsibilities and job level. Nevertheless, high levels of job benefits flexibility and many options, tendency to pay according to performance, and; performance is measured in terms of its financial impacts on the organisations short term goals (Parker, 2002).

Contrastingly, the northern European approach does not subscribe to this culture. Though both value performance based compensation approach, the Northern European culture places less emphasis on individual differences. In addition, it values performance based benefits that are based on set state or regional standards. Moreover, evidence shows that Northern European culture follows a slightly hierarchical structure where perquisites are recognised even when they have no financial value to an organisation (Parker, 2002).

The Japanese culture also pursues the performance based compensation. However, this is usually benchmarked against the organisations overall success and how such performance affects the organisations long term plans. Even so, the Japanese culture does not value differentiation as does, the Anglo-Saxon culture. Here, differentiation is blurred especially because of age factor as the retirement age in Japan is high than that of the Anglo-Saxon region. Normally, compensation differentiation is tied to certain age escalator and therefore, benefits may seem stagnant especially if the age escalator is rigid. Though perquisites are utilised in determining compensation, their impact is much less when compared to the European situation (Parker, 2002). Nevertheless, Japanese culture is slowly moving towards the incentive based compensation schemes so as to compete well with their European and American counterparts.

Multinational companies face challenges when operating in countries with different economic growth, different legal systems and political systems as well as varied organisational and national cultures. For instance, labour force in different countries has different levels of skills, motivations, values and expectations. To this effect, international organisations need to adapt both institution and cultural practices of the country in which they operate. Evans and Lindsay (2008) explain that the application of international human resource management by an organisation, which meets both employees’ expectations and cultural demands, would aid the organisation in achieving competitive advantage.

Compensation practices impact on employees’ motivation. Compensation practices also cause great political, social and economic sensitivity and require a global approach geared towards strategic alignment and adaptation to national cultural context. In order for multinational companies to have effective compensation systems, they should adjust such systems to fit the national culture (Shah et al, 2011).

The globalization of economies, a process which is clearly leaving its mark on today’sworld, has lead to many changes such as the disappearance of trade barriers, theinterdependence of economies, greater mobility of people and the progressivehomogenization of culture. These factors, together with the increase in internationalcompetition, have modified the way in which organizations are managed. The mainconsequence has been the rise of the international company. Transnational businessescame onto the scene in the 1950s, when there was an intensification of internationalexchange and a subsequent increase in the number of firms selling their products on newmarkets and setting up filial companies abroad.One may, therefore, state that the internationalization processes of companies haveinfluenced globalization and have been encouraged by it. What challenges arise from globalization and the increase of competition in terms of managing organizations? In thefirst place, there are those emerging from having to trade in different countries withdifferent levels of economic development, different legal and political systems, variednational and organizational cultures, with workers of different skills, expectations, values and motivations. Such internationalized organizations need, on the one hand, to attempt to adapt to the cultural and institutional contexts of the countries in which they areoperating and, on the other, to set up a more global and homogenized organization which aligns and harmonizes its management structures throughout its offices, be they at home or abroad. One of the basic pillars of success of international organizations is a correct adaptation of human resource management (HRM). If an organization is able to apply internationalmanagement of human resources which can be adapted to the cultural demands and theexpectations of all the employees, while at the same time configuring a global strategy,then it is more likely to achieve a competitive advantage (Scullion and Starkey, 2000).Thus, HRM practices should adopt a global view so that the organization is able to select, promote, reward and train its employees fittingly so that they, in turn, may contribute toovercoming the challenges presented by internationalization. (See Chapters 10 and 11 for more on this issue.)In such a scenario compensation assumes a highly relevant role. Management of compensation practices in the sphere of global business is subject to the same adaptation

The state occupies a salient role in the interchange of labour at the international stage. Different people in different countries have different beliefs and expectations and therefore when designing compensation systems, managers should understand the social contract that exists in that country (Gerhart & Fang, 2007). Modification of compensation systems means changing the expectations of the parties in the social contract. In Spain for instance, collective agreements between employees and employers cover approximately 90 percent of employees. Employees’ trade unions may have effect on how organisations make decisions and actions on compensation systems (Eccles et al, 2012).

Heavy regulation affects employee compensation. The organisations lack the freedom to choose its compensation standards that mostly depend on the cost of doing business. Moreover, compensation systems depend on the organisation’s strategies and goals. Labour costs influence on compensation systems, which depend on organisation’s culture. Ownership and financial structures are different in organisations operating in different countries. Prior understanding of the structures is important as it aids in designing compensation systems in an international context. According to Gerhart and Rynes (2003), the access to capital in United States is less concentrated compared to other countries like South Korea.

Impact of Organisational Culture on Employee Compensation

Organsiational culture is a system of shared values held by members of an organization that differntiate the organsiation from others. These values determine how the organisation undertake its core opeartions. Specifically, Shah et al (2011) believe that organisational culture comprises of acivities that result into outcome orientation, team orientation, peopel orination, innovationa orientation, and attention to detail (p. 848).

Organizational culture plays the greatest part in determining employee compensation. According to Rasool et al (2012), this is so because it is organisational culture and not national culture that helps a company build internal strengths through a strong workforce that understands the organisation’s strategic direction – mission, vision, goals, expectations, behaviours, and attitudes. In most cases and as Briscoe et al (2012) argue, when there is a clash between national and organisational culture, it is the organisational culture that takes precedence over national culture. Arguably and according to Hofstede’s four dimensions of culture, this could be attributed to the fact that most countries have adopted liberal cultures – have low power distance, individualism, masculinity, and uncertainty avoidance scores (Hofstede, 1990).

Highly autonomous organisational culture takes precedence overall national culture in making employee compensations decisions. There is an inverse relationship between the level of autonomy and the degree to which the compensation systems are concentrated (Rigby, 2001). Greater freedom in decision making and action in multinational companies’ compensation systems is enjoyed by companies in the US compared to European countries. The great freedom allows organisations to design and modify compensation systems according to changes in economy, cost of living and the rate at which the organisation is growing (Rasool, 2012). Organisations in European countries experience high government intervention in designing their compensation systems. In addition, trade unions pressure in European countries reduces the freedom by the organisations to modify the compensation systems.

Multinational organisations with closed organisational cultures have immense influence on what all their international workers earn. In a multinational company, decisions on compensation made from the head office and transferred to the subsidiary companies (Scullion, 1995). By doing so, a multinational company will be able to achieve uniformity in its sub-branches. The compensation strategies in such organisations are aligned in accordance to the group’s corporate strategy and not on socio-cultural context of the subsidiaries. This is in tandem with Barney and Hesterly (1996) postulation that organisations are systems that incorporate regulating processes and symbols, which determine the social behaviour of employees. Organisations seek to adopt processes and structures that fit to the beliefs, values and standards within the organisation’s environment.

Organisational culture determines what future employee compensation plans. An organisations management team have moral obligation of informing the employees on situations, which may affect their investment with the company (Hofstede, 1991). Factors that may affect the growth of company are well understood by the management. The management also holds the company’s strategic plan and forecasts. Therefore, organisations have a bigger role in designing of compensation strategies than the government legislation and intervention. It is the organisation that should take precedence in designing and modifying compensation systems.

According to Briscoe et al. (2012), organisations have a moral obligation to ensure decisions on compensation systems apply to managers and to rank-and-file employees. Success of an organisation should also be shared among all employees. Success in business is first known by the organisations’ management and therefore, it is the role of the organisation to inform the employees. In their book, Schuler et al. (1993: 419) posit that success in business may result from improved performance by the employees. Therefore, the organisation should modify the compensation system in order to reward the employees.

Conclusion

This essay has presented evidence that disagree with Briscoe et al (2012) assertion that organisational culture takes precedence over national culture when the two clash. It has been argued that both cultures are important and they should be considered when making compensation decisions. National culture shapes the economic climate within which multinational companies operate in while on the other hand, organisational cultures help an organisation to stay focused on its set goals. It is true that national culture that takes the form of high power distance, masculinity, uncertainty avoidance and individualism may have positive and negative impacts on an organisation and on the economy as a whole. Nevertheless, there should be a balance on the extent which these four culture dimensions are applied. Similarly, organisational autonomy, standardisation and need to take a direct role in shaping long term competitive advantage should be balanced with the national socio-cultural needs so as to create strong socio-economic entities that can stand market shocks. It is true that multinational companies operating in foreign countries with different cultures may find it difficult to carry out their activities within an “external” culture, however, that does not mean they abandon national cultures.

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