HR Strategy z

Third Quarter 2008

Reward Management
In Multinational Enterprises:
Global Principles;
Local Strategies

H
ow effectively and appropriately multinational
enterprises (MNEs) reward performance signifi-
cantly influences workforce effectiveness. “Going
global” presents several types of challenges including:
1 | Conforming to local laws and regulations
Robert J. Greene, Ph.D.,
2 | Adapting to local cultures GRP, GPHR, CPHRC
3 | Competing effectively in diverse labor markets Reward $ystems Inc.

4|D  eveloping strategies and programs that are consistent

with organizational culture
5 | Efficiently administering programs.
Conforming to local laws and regulations is primarily
a technical issue, with specific answers. Each organiza-
tion must identify the relevant rules in each location and
decide how it ensures that its total rewards programs do
not violate them. It must decide whether to use outside
experts or its own staff to ensure compliance. Coping
with the competitive realities faced in each local labor
market is also a technical issue, about which much has
been written. The supply/demand balance for specific
skills, the role of third parties such as unions, the cost
of living and the nature of organizations competing
in the market all influence the workings of the labor

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markets. For example, multinationals are facing challenges in China due to the
shortage of experienced management personnel. The shortage is exacerbated by
the reality that using expatriates or third-country nationals is often too expensive
or difficult because of language barriers and other impediments to effectiveness.
But global rewards professionals have tools to deal with these challenges, albeit
not without difficulty.
Cultural diversity challenges may be the most daunting of all. Effectiveness in
dealing with multiple cultures is best met by practicing the “3 Rs” of cross-cultural
management. To effectively attract, retain, motivate and satisfy a high-quality
workforce, MNEs must recognize cultural differences, respect the rights of those
with differing values and beliefs and reconcile the issues raised by these differences
(Trompenaars and Hambden-Turner 2004). Many United States-based organizations
are ethnocentric, which means they believe the culture prevailing in the U.S. is the
correct one and act accordingly. Surveys by Trompenaars and Hofstede (Hofstede
1990) show American organizations to rank low in cross-cultural integration.
This impedes efforts to turn cross-cultural challenges into opportunities.
Cultural differences within global workforces create daunting challenges for
rewards management practitioners. Concepts such as rewarding individuals based
on their performance have proven devilishly difficult to implement and to make
work effectively in some parts of the world. Perhaps it is challenging to make
pay for performance work well in some cultures, as the theories supporting
the use of this practice may not apply in all cultures. Most research that led to
formulating these theories was conducted on Western/Northern employees in
Western/Northern organizations by Western/Northern researchers. One could
therefore ask the question: “Would these research findings hold up in other
parts of the world?”
Figure 1 is based on research by Trompenaars and Hofstede, who identified
cultural differences among countries by measuring the extent to which the char-
acteristics existed in samples of the populations. Both researchers used cultural
“dimensions” to describe contrasts across national borders. The dimensions cited
in the figure can be defined as follows:
z Communitarian (group-/society-oriented) versus individualistic (self-oriented)
z Particularistic (circumstances or who is involved should impact actions) versus
universalistic (one set of rules to be applied to everyone in all situations)
z Ascriptive/ascribed status (how one is treated depends on who they are) versus
achieved status (all status is earned through achievements)
z Outer-directed (person not in control; external forces impact outcomes) versus inner-
directed (“can do” attitude caused by the belief that results follow effort and skill)
z High power difference (hierarchy and authority are prominent) versus low power
difference (less differentiation by level and more democratic processes).
No country’s culture exactly matches either of the two admittedly exaggerated
profiles in Figure 1. But differences among national cultures are significant, a fact

46 WorldatWork Journal
FIGURE 1 T
 he Contrast Between Conceptually Polar Western/Northern
and Eastern/Southern Cultural Profiles

Eastern/Southern Cultures Western/Northern Cultures

Characteristics of cultures: Characteristics of cultures:

z Communitarian z Individualistic

z Hierarchical z Egalitarian

z Particularistic z Universalistic

z Ascribed status z Achieved status

z Person-focused z Task-focused

z External control z Internal control

z Intuitive/holistic z Analytical/reductionist

z High power difference z Low power difference

Countries with cultures that favor this profile: Countries with cultures that favor this profile:
Japan, China, Egypt, Indonesia, Turkey, Brazil, United States, United Kingdom, Canada, Australia,
Venezuela, South Korea, France, Greece, Italy, Norway, Sweden, Switzerland, Germany, Netherlands
Spain, Russia, Egypt

supported by research and experience. And these differences have been shown to
have a material impact on the success of HR strategies and programs. By contrasting
polar profiles, the full range of cultures can be appreciated, enabling HR practitio-
ners to develop robust strategies that can cope with a wide range of difference.
This paper examines whether the principles underlying reward systems that have
proven to be effective in Western/Northern (W/N)-type cultures are likely to hold
in Eastern/Southern (E/S) and other types of cultures. Hypotheses are presented
that can be used to anticipate different levels of effectiveness for various strategies
and programs. Implications for global organizations are examined, with a focus
on the overarching issue: whether one reward strategy should be implemented
globally or if local customization should be applied to strategies and programs.
It should be noted that the cultures prevailing in any single W/N organization
may well vary from the W/N profile, despite being in a country with a W/N
culture. For example, organizational cultures in many startup high-tech American
companies are person-focused rather than task-focused (what is commonly
thought of as the “Silicon Valley culture”). The reaction of employees to a
particular reward strategy/program may, in these organizations, take on many
characteristics of the E/S cultural profile. Further complicating the anticipation
of culture’s impact is the reality that units or occupational clusters within a W/N
corporate culture may have their own subcultures. For example, the research and
development function may be more E/S, a byproduct of the type of work being
done and the nature of the individuals who perform it. As a result, it is perilous
to assume a particular approach will be acceptable to all employees, even when
the organization’s overall culture fits the country’s cultural profile. Trompenaars
and Hambden-Turner (1998 and 2004) point out that there is as much variance
within a country as there is across countries. Given the way country borders are

Third Quarter | 2008 47

being adjusted (i.e., the Balkans and Eastern Europe), it may even be necessary
to define cultures for specific societies, rather than countries.

CULTURAL DIFFERENCES’ INFLUENCE

ON REWARD-SYSTEM EFFECTIVENESS
W/N cultures support individual rewards based on individual performance.
The majority of direct compensation is typically in the form of merit pay in W/N
organizations. Individual performance criteria and standards are established in
advance, and rewards are tied to results compared to these standards. Performance
appraisals and rewards based on appraisal results are a result of a cultural bias
that argues for distributing rewards differently among individuals. Also, “telling
it like it is” is common practice. Identifying where an employee succeeded and
failed is not only acceptable — it is expected of managers. But this approach is
not as acceptable in more collectivist and person-focused cultures, as it will cause
the employee to “lose face” and/or it will conflict with the belief that outcomes
are not under the control of individuals. Other more effective and more culturally
compatible methods may be needed. The anthropologist Edward T. Hall differenti-
ates between “high context” cultures (such as Japan), where intensive socialization
makes the restatement of values and expectations largely unnecessary and “low
context” cultures (such as the U.S.) where explicit communication is needed to
define what is expected (Hall 1976). In the high-context culture, it is often not
necessary to explain why rewards are administered in a particular manner or what
the expectations are for each party involved in the process. In a low-context culture,
the lack of specificity will likely be to reduce the process’ effectiveness.
The practice of basing rewards on performance at an individual level may
not fit well in the more E/S cultures. When the prevailing view is that it takes
everyone to achieve continuous improvement (for example, in Japan and several
Asian countries), the act of singling out one employee’s contributions (or lack
thereof) may not be accepted, or at least emphasized much less. As work is
generally assigned to teams, rather than individuals, it may be difficult to convince
employees that accurately measuring the relative contribution of each person is
even possible. When everyone does whatever needs to be done at the time, the
concept of measuring individuals against specific objectives or performance stan-
dards is tough to defend.
The universalistic character of W/N cultures favors the same set of rules for
everyone, with performance measured against established expectations and
rewards based on appraisals. But close personal relationships may cause poor
results to be overlooked in particularistic cultures, as the relationship must be
preserved. It is hard for Western managers to accept this particularistic point of
view, as evidenced by the negative reaction to “nepotism” experienced in the U.S.
In Asian or Latin American countries, it may be reasonable to give preference to
family members because there is an established trust and a belief that the family

48 WorldatWork Journal
members would not do anything to damage the family reputation or their standing
within the family, thus making them a better risk than a stranger.
Many E/S cultures believe that who is being evaluated and rewarded should be
a consideration. For example, in an ascriptive culture, if a graduate of a highly
respected university is contributing little to the organization, it might be assumed
that circumstances caused this. An ascriptive culture focuses on who the person is
and their status. As the person’s quality has already been ascribed to the person
by the status of that school’s graduates, it is difficult for evaluators to attribute
poor performance to the person. Therefore, the conclusion may be that the person
should not be penalized for poor results.
Another dominant belief in W/N cultures is that people are typically in control
of their destiny and should be held accountable (the “can do” culture). However,
a significant portion of the world’s population believes that fortune and external
forces determine outcomes much more than individual effort. For people holding
that belief, it is difficult to establish causation for good or poor performance
or to sell people on tying rewards to a measure of individual contribution.
This is particularly true when/if an employee extends his/her best effort. The top
HR executive of a major corporation in the Middle East once asked the author,
“How do you motivate someone who believes that no matter what they do, the
result is determined by Allah’s will?” Tough question.
W. Edwards Deming’s tenets of quality management posit that individuals should
not be held responsible for outcomes determined by the “system.” Companies in
W/N cultures often try to limit accountability to those things believed to be deter-
mined by individual effort. But job-related results are still viewed as the primary
basis for determining career/compensation consequences in the West/North. In a
collective culture, the tendency is to focus efforts on creating a consensus about
the best way to do something and then to attribute successes and failures to the
overall system, which includes everyone. This would argue for an egalitarian
distribution of rewards.

HYPOTHESES ABOUT THE IMPACT OF CULTURE

ON REWARD MANAGEMENT
The aforementioned contrasts between polar cultures can be compressed into test-
able hypotheses, which are related to the research of Trompenaars and Hofstede.

Hypothesis Number 1
Measuring individual performance and basing rewards on the appraisal will be
more acceptable in cultures that are individualistic than in cultures that are
collectivist. Employees from countries such as the U.S., the United Kingdom,
Canada, Denmark, the Netherlands and Australia tend to be more individualistic
in their orientation than employees from Egypt, Mexico, India, Japan, France and

Third Quarter | 2008 49

Venezuela, who will be more likely to prefer performance be measured and
rewarded at an aggregated level, as they believe results require collective effort.

Hypothesis Number 2
Rewarding the individual for meeting performance standards will be more accept-
able in cultures that believe in internal control than in cultures that believe in
external control. Employees from countries with “can do” mind-sets, such as the
U.S., the U.K., France and the Netherlands, will more readily accept personal
responsibility for results than will employees from countries such as Venezuela,
China, Russia, Kuwait, Egypt, Saudi Arabia and India, who will be more likely to
believe outcomes are due to forces at least partially outside their control.

Hypothesis Number 3
Rewarding individuals based on what they accomplish rather than who they are
will be more acceptable in cultures that are achievement-oriented than in cultures
that are ascription-oriented. Employees from countries such as the U.S., Australia,
Canada, the U.K. and the Netherlands will tend to accept rewards based on what
people have accomplished more than will employees from countries such as Egypt,
Japan, China, Russia, Mexico and France, who will be more likely to believe the
individual’s status/qualifications should be considered.

Hypothesis Number 4
Employees from universalistic cultures will believe that the same policies, methods,
processes and standards should apply to rewarding all employees, as opposed
to those from particularistic cultures. Employees from countries such as Canada,
the U.S., Sweden, the U.K., Australia, the Netherlands and Germany will tend to
believe in one set of rules applying to everyone under all circumstances more than
employees from Venezuela, Russia, China, India, Japan and France, who accept
that the person’s identity and the circumstances should be considered.

Hypothesis Number 5
Employees from countries with low power-difference cultures will expect to partici-
pate in setting performance standards, determining results achieved and agreeing
on an appropriate reward with the supervisor. Those from high power-difference
cultures will be less willing to accept this approach. Employees from Germany,
the Netherlands, the U.K., Australia, Canada and the U.S. are more apt to be
active in the process and challenge the supervisor when there is disagreement
on performance or rewards than will employees from countries such as Mexico,
Venezuela, France and China.
These hypotheses, if supported, should be a consideration for human-resources
practitioners when designing reward-management systems for use across diverse
cultures. Knowing how employees are likely to react when they are evaluated

50 WorldatWork Journal
and rewarded in particular ways is RESOURCES PLUS
valuable and enables HR to consider For more information related to this paper:

what to do to, if anything, to accom-

www.worldatwork.org
modate cultural differences. Type in the following search keyword on
the search line:

ONE GLOBAL REWARDS
STRATEGY OR MANY?
A global organization can adopt one
global-rewards strategy and set of
programs, use different strategies/
programs for each locale/country/
region or agree on a set of global
guiding principles and then allow
some latitude for local customization
as long as the principles are adhered
z Multinationals
www.worldatwork.org/bookstore
z The Best of Global HR:
Five Years of International Articles
from WorldatWork
z Compensating Globally Mobile Employees:
How-to Series for the HR Professional
z Global Rewards:
A collection of articles from WorldatWork
z Equity at Work:
Constructing a Broad-based
Stock Option Plan.

to. The more universal the strategy, www.worldatwork.org/education

the easier it is to align all employees z GR1: Total Rewards Management
and units with organizational values z GR7: International Remuneration —
and objectives. The more locally An Overview of Global Rewards

specific the strategies, the easier it is z GR9: Strategic Communication

in Total Rewards.
to conform to local laws, culture and
competitive practices. Organizations
attempting to use reward vehicles
such as stock options for all employees globally find that many obstacles are
presented by local realities: laws prohibiting ownership in foreign corporations,
dramatically different pay levels that make the value of the options enormous or
insignificant, data privacy laws blocking access to the information necessary to
administer the program, established local practices causing employees to view
the options differently, etc.
A global organization with a strong universal culture may wish to adhere to
the values and principles that guide behavior for all employees. However, the
factors just discussed can weigh in to force some relaxation of consistency and
to make local accommodations. Such an organization can rely more heavily on
expatriates to fill critical slots throughout all operations globally if it wishes to
ensure things are done according to corporate policy. The use of a global cadre
that is fully socialized can set the tone for operations everywhere, even when
they only occupy key management roles and work with workforces dominated
by local nationals. Although this practice has been used by MNEs headquartered
in developed countries, particularly the U.S., Britain and Japan, more developing
countries are adopting legal limitations on the use of “foreigners” and/or are
applying considerable social pressure to more quickly fill key slots with local
nationals. In October 2006, a government mandate was issued requiring all HR

Third Quarter | 2008 51

directors in a major Middle Eastern country to be nationals within a relatively
short period of time, which sent employers scrambling to find qualified people or
to invest in high-speed training. A decision like this influences reward strategy,
as expatriate remuneration packages can be largely homogeneous, with focused
variations relating to different living costs and tax structures to keep expatriates
“whole” wherever they are assigned. The homogenization becomes more difficult
when local nationals and third-country nationals replace expatriates.
For a global organization concerned about the high cost of using expatri-
ates and/or the negative reaction to a globally homogeneous strategy in some
countries, options exist. Research shows that the use of expatriates is generally
declining, replaced by more short-term project assignments and extended business
commuting. Growth in the use of inpatriate assignments allows local nationals to
be brought into headquarters for extended periods. The purpose of these inpatriate
assignments may be to socialize future managers to the organization’s culture,
provide them with management training and/or have them educate corporate
personnel about their home countries and how to successfully do business there.
Infosys recently won an award for its program that assigns graduates hired in the
U.S. to India for a six-month tour to acquaint them with the company’s way of
operating and to socialize them into the Infosys culture before sending them back
to work in the U.S.
No matter which approach is used, it is inevitable that treating people differ-
ently with respect to their reward packages will create challenges. How dramatic
the differences are and how long they will persist will impact the reactions of
incumbents. Everyone is subject to the “grass is greener” syndrome when someone
else is treated differently. However, by understanding the potential legal, economic
and cultural conflicts that may arise, an organization can craft reward strate-
gies that minimize negative reactions or uneconomic practices. When the plant
manager in one country wants to distribute an incentive pool in an egalitarian
fashion and the plant manager in a neighboring country chooses to differentiate
between individuals/units, it is wise to understand why they would choose to do
this differently before mandating consistency. There may be much more gained
in the form of employee acceptance and motivation by allowing differences than
by insisting on similarity.
The increased use of global teams consisting of members from different occu-
pations/functions, different countries and different organizational levels raises
additional issues relating to reward strategy. Some team members may be co-located
while others are in different countries and time zones, causing them to interact
asynchronously. Although it would seem those working “shoulder to shoulder”
would be more concerned about reward consistency than those who are sepa-
rated, any differences in how and how much members are rewarded can be
divisive. If a Chinese engineer receives a $1,000 USD cash incentive award
while an American colleague receives $4,000 USD for a similar contribution,

52 WorldatWork Journal
it may make little difference that the award is the same percentage of base salary
for both. If they shop together in San Francisco to celebrate the project’s success,
the difference in award size will be apparent. And if the team leader awards some
individuals more because their contribution is thought to be greater, the cooperative
fabric of the team could unravel. Such differentiation is apt to be viewed as inap-
propriate by members from collectivist cultures, even though they acknowledge
the value of the contributions of those rewarded more richly.

EVALUATING THE EFFECTIVENESS OF REWARD STRATEGIES

Evaluation of strategies and programs is typically done as an “after the fact” exer-
cise, often when things have deteriorated to an intolerable level. This is unfortunate,
as it is often too late to do anything but damage control. It is possible to perform
evaluations of why strategies and programs seem to work in some contexts and
whether other contexts are sufficiently similar to project success in those loca-
tions. This enables the organization to anticipate problems in transferring practices
across locations and cultures before they become a reality. For example, Lincoln
Electric prospered for decades in the U.S. with a reward strategy that consisted of
“output-based” rewards (a.k.a., piecework) for individuals and a gainsharing plan
that rewarded everyone for overall success. This highly successful strategy worked
reasonably well when it was implemented in the company’s new operations in
England and Mexico, but failed to gain acceptance in parts of Europe and in Japan.
The failure was largely due to cultural conflicts, which seemingly could have been
anticipated if in-depth research on the characteristics of each culture had been
done before attempting implementation.

CONCLUSION
Managing rewards globally requires an understanding of context, especially cultural
context. A strategy or program producing outstanding results in one place may be
ineffective somewhere else due to cultural differences. Every organization should
attempt to recognize, respect and reconcile those differences. By analyzing the
cultural diversity within its workforce, an organization can anticipate potential
problems and decide how to formulate strategy and solutions. z

Third Quarter | 2008 53

AUTHOR

Robert J. Greene, Ph.D., GRP, GPHR, CPHRC, is
the CEO of Reward $ystems Inc. in Glenview, Ill.
He has published more than 80 articles and book
chapters and was awarded the first Keystone Award
for attaining the highest level of excellence in the field
by the American Compensation Association (now
WorldatWork). He has designed and taught certification
courses and seminars for numerous professional
associations around the world. Dr. Greene serves
on the faculty for DePaul University in its master of
business administration and master of science in
human-resource management programs in the U.S.,
Europe and the Middle East.

References

Hall, Edward T. 1976. Beyond Culture. New York: Anchor Books.

Hofstede, Geert. 1990. Cultures and Organizations. New York: McGraw-Hill.

Trompenaars, Fons and Charles Hambden-Turner. 1998. Riding The Waves of Culture: Understanding Diversity
in Global Business. 2d Ed., Nicholas Brealy. New York: McGraw-Hill.

Trompenaars, Fons and Charles Hambden-Turner. 2004. Managing People Across Cultures. Hoboken, N.J.:
John Wiley & Sons.

54 WorldatWork Journal