Sample Paper on Rationalization of Pay

Rationalization of differences in pay and conditions of work in multi-national companies


Our world is increasingly becoming interconnected and there is increased integration among people, businesses as well as governments, with millions of people currently living in a country that they were not born in, mainly due to globalization that has made it possible for easy migration (Herrera, 2012: 2). Globalization has brought with it problems with cultural identity and integration as hitherto isolated cultures meet and interact in the new globalized world (Cameron & Stein, 2000). Cultural identity in a rapidly globalizing world is a pertinent issue considering that a person’s attitudes, perceptions and value systems are mainly shaped by his cultural background, and translocation of an individual to an alien culture can, therefore, cause a cultural shock and completely disorient a person. Cultural shock is likely to occur when an individual moves to a culture that is diametrical to his culture especially in regard to the value system. The modern work place is a reflection of the changing world, with persons from diverse cultural backgrounds working together (Masini, 2011: 232).

Multinational enterprises (MNEs) operate across many countries, enabling formerly isolated cultures come into contact with each other, and work in the same environment. The multicultural workplace is now becoming the norm and MNEs have to look for ways to ensure that employees are accepted and can fit in the various work environments where they may be needed to work (Parrish and Linder-VanBerschot, 2010: 2). The biggest challenge facing MNEs is the development of a reward and compensation scheme that employees can consider as equitable and fair, one that is culturally contextualized and acceptable to the employees. In addition, MNEs have to deal with the challenge of employee acceptance considering that the era of monoethnic cultures is over and diversity in the workplace is the new norm. Even though there is a movement that has advocated the standardization of the pay and compensation schemes across a MNEs operations, standardizing these conditions may be inimical to the long term interests of the MNE.

Role of pay and reward in employee performance and motivation

All employees have to operate within the same job market, where competition for the best talent is intense considering that star employees are scarce, come at a premium, but have the potential to drastically the fortunes of the MNE, making them especially attractive to all employers. For a company to achieve its organizational goals, attracting and retaining the star talent is paramount and worth any cost that the company has to incur because the best talent posses the initiative that is necessary to achieve the MNE’s goals (Zingheim and Schuster, 2008: 16). The challenge of attracting the best talent is especially difficult for MNEs that are entering a new market, where the MNE does not have name recognition and hence may not be the employer of choice for the best talent. Therefore, MNEs must formulate and implement strategies that will give them a competitive advantage in the market as a means of enticing and retaining the best talent. The relationship between pay on one hand and employee performance and motivation on the other is complex and nuanced, requiring a careful application to ensure that it serves the intended purpose (Armstrong and Brown, 2006).

Of the many factors that affect employee productivity and motivation, pay is central, with the general trend being that when employees are paid well, they tend to be more motivated, have greater job satisfaction and are fully engaged in their work leading to increased productivity (Ramlall, 2004: 60). Other than pay being a means of motivating employees, it is necessary to note that pay and wages are a legal obligation between the employer and employee because employers have to pay their employees for the quantity and quality of services offered. MNEs must grapple the critical challenge of coming up with a corporate culture and pay structure that takes into cognizance the diverse cultural backgrounds of the countries they operate in, while being anchored to the core values of the parent company. To make pay commensurate to the work done, companies have employed different contingent pay systems, where the level of employee reward depends on either a subjective or objective measure of output (Pendleton, 2006: 755). The contingent pay system tends to be focused on rewarding individuals rather than the group and is effective in individualistic societies, where the individual rights are considered to be greater than that of the group. However in collectivist societies, where the individual needs and rights are subsumed by and subordinate to those of the group, such a system is likely to bring problems in the workplace.

When using pay to motivate individuals, it is important to keep in mind that the role of money in enhancing the satisfaction and motivation of an individual is not universal and changes from culture to culture or even within subsets of the culture. Gohari et al. (2013) posit that the perception of the worth of money vis-à-vis performance and motivation depends on the demographics of the employee with elements like gender, age, position occupied in the work hierarchy and geographic location having a significant influence on the individual’s value attachment. Young employees are mainly motivate by extrinsic rewards (Oshagbemi, 1996) considering that they tend to be lower in the work hierarchy and consider money as the primary means through which they can get satisfaction. Gender also plays a significant role in the perception of the value of monetary rewards, with women getting more satisfaction from salary increase and promotion compared to men, who are motivated by other things (Santhapparaj and Alam, 2005). Employees at the top of the work chain are usually motivated by their ability to accomplish the tasks assigned to them and showing competence in their work, rather than merely from getting a lot of money for their work. Conversely, lower level employees tend to be mostly motivated through pay because these workers do not enjoy their works in addition to not having a positive feeling about themselves (Bates, 2006).

Types of reward and compensation approaches and practices

There has been an increase in the number, diversity and complexity of reward and compensation schemes that employers have come up with in the recent past in a bid to motivate employees, keep them engaged in their work and attract star talent from outside. The power relationship between the employer and employee has significantly changed in the recent past with the star employees having the power to negotiate and determine their own remuneration, a departure from the past, where the employer determined the terms of engagement. The modern employees feel that there must be a balance between their contribution to the company and the company contribution to them considering that the desirable company outcomes are only possible due to the employee’s input (Pratheepkanth, 2011: 85). A reward package must, therefore, be designed such that it engenders an attitudinal change in employees towards their work, allowing them to develop a positive attitude towards their assigned duties, which leads to better work engagement, productivity and consequently company profitability. Development of an appropriate reward scheme must be guided by the context in which the package is prepared, taking into cognizance employee attitudes to work as well as its social meaning, and the attendant compensation they expect from the work done.

The rewards in the work place can be either monetary or non-monetary depending on the material benefits that the employee accrues from the reward as well as whether the reward can be monetized. A reward and compensation scheme should be cognizant of the fact that employee motivation can be enhanced by intrinsic rewards, which are premised on the assumption that individuals will be motivated in their work if it contains tasks that are considered as rewarding to the individual (Pratheepkanth, 2011: 86), or extrinsic, which are premise on the notion that individuals are motivated by tangible rewards. Although rewards can be categorized as intrinsic or extrinsic, employees are usually motivated by a varying degree of combination of the two types of rewards because individuals cannot be generally motivated by a single set of rewards. The type of reward scheme developed should improve employee motivation because motivation is the key to increasing the productivity, satisfaction and work engagement of employees (Taylor, 2006). Intrinsic rewards are based on job design, where the employee job description is explicitly spelled out and the contribution of that job towards the achievement of the overall company objectives can be clearly discerned.

For employees to be intrinsically motivated, they must be given the sense that their work is worth the energy they expend, and that they have an opportunity to accomplish a valuable organizational goal or contribute towards the achievement of the same. Employees must have a choice in the way they accomplish their work and the order in which they take on tasks, to give them a greater sense of ownership in their work. Employees’ motivation can only be enhanced if they are assigned tasks that they are competent in, thus enhancing their sense of control and feeling that their performance meets or exceeds personal standards. in addition, there should be a sense of that there is progression both in terms of accomplishing tasks as well as career prospects within the organization. When each of these parameters is met satisfactorily, the employee is likely to be intrinsically motivated and hence will have greater work engagement. Extrinsic reward and compensation, on the other hand, is premised on the assumption that material rewards motivate employees, and hence the compensation package should be designed o give material incentives to the employees. The material incentive chosen may be in form of bonuses paid to employees either individually or as a group, commissions paid to individual employees who are top performers and are linked to the productivity of the individual, promotion that leads to better pay and status, which enhances employee standing in the eyes of the peers. Monetary rewards should be the centerpiece of extrinsic reward schemes, considering that it is the most important (Robbins, Odendaal and Roodt 2003). Despite the distinctiveness of each of this reward schemes, it is better to use a hybrid reward scheme that integrates the extrinsic and intrinsic reward schemes if the scheme is to be effective.

Developing reward and compensation practices

The identification of the reward schemes for a work environment implies that a reward scheme can be easily developed that is effective and acceptable to the employees of the MNE. However, the development of a reward and compensation scheme for a MNE is beset by many challenges emanating from the fact that MNEs work across different cultural contexts, where the social meaning of work varies widely as well as attitudes to pay and motivation. Each of the countries that a MNE operates in is likely to have a different culture, legal framework and labor regulatory regime, which means that a MNE has to be cognizant of each of these country differences when developing the reward and compensation scheme. When considering reward and compensation schemes in the workplace, traditionally, it was usual for labor unions t have a say on the schemes of companies through collectively bargaining and enforcement of agreements. However, in industrialized countries, especially the US, the level of employee unionization has been in a steady decline owing mainly to the hostility of employers and minimal political support (Katz et al., 2008). Consequently, in the US, reward schemes have been mainly driven by the need to reward the individual over the group, with pay schemes often negotiated individually. The relatively apolitical nature of the American work place ensures that employers have a free hand to deal with employees as long as they observe the employment rules of the state in which they operate.

Unlike the US, Europe has had unions for a longer period and their position in society is accepted by both employees and employers. The unions have considerable political power and engage employers at the national level, signing collective bargaining agreements that are enforced downwards on all players in an industry presented by the union. Due to the strength of the unions, there is greater industrial democracy in Europe, with Germany instituting a legal framework which supports industrial democracy by compelling large companies to surrender half of the seats in the powerful supervisory board to employees who are elected by their peers, whether unionized or not. The Japanese have enterprise unions, which are relatively weak unions that represent all of the employees, whether they are blue or white collar, and unionization is automatic as new employees are enrolled to the union and contribute dues through a check-off system. The fact that nearly all the employees other than the senior managers are members of the enterprise union, Japanese reward schemes tend to be egalitarian one of the lowest rates of strikes since most labor disputes are resolved amicably. In addition the cultural background of Japan, which promotes group well being over individual needs ensures that there are limited workplace confrontations.

The protection of the right of a worker to work in a decent environment and earn a reasonable wage is one of the basic principles of employment law in developed countries and is enforced legally by a robust enforcement mechanism. Consequently, developed nations like the US, Europe and Japan tend to have higher labor costs, and better and safer working conditions for the workers because of the strict enforcement of labor laws. Developing countries, on the other hand, have a weak labor regulatory regime, which are poorly enforced exposing workers rights to abuse by MNEs and other employers. In addition, some countries where there is high levels of joblessness tend to discourage MNEs from expatriating workers to their operations in these countries as a means of securing jobs for their citizens. Therefore, MNEs should be conversant of the different cultural, social, economic and legal environments that they work in when developing a reward and compensation scheme to ensure that the scheme is culturally and contextually relevant and acceptable to employees.

Conclusion and recommendations

Pay as a reward is effective in enhancing employee motivation, especially the lower cadre blue collar employees who have little love for their jobs and themselves. For the other employees, pay is just one of the many factors that can enhance motivation and job engagement. Motivation and hence performance of employees is influenced intrinsically and extrinsically, and hence it is important that when a reward and compensation scheme is being formulated that both of these rewards be taken into consideration. A mix of intrinsic and extrinsic rewards should be used with the degree of each determined by employee level in the job hierarchy and the attitude towards work. There is an argument that MNEs should develop a universal reward and compensation scheme that can be used across all the countries that the MNE operates in because all MNE employees are engaged in comparable work with their peers in the parent company.

However, such an approach will be detrimental to the company because although employees are engaged in comparable work, they work under different contexts. MNEs operate under different contexts, employing workers from different cultural backgrounds, it is important to take cognizance of the innate differences when developing a reward and compensation scheme. Therefore, the rewards scheme should be tailored to be country-specific because this is the only way that the myriad factors and differences in employee attitudes can be taken into account when developing the scheme.



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