Discuss the Challenges to Effective Compensation in Mncs and How Consistency and Equity of Compensation Can Be Achieved.

Topics: Culture, Best practice, Expatriate Pages: 8 (2439 words) Published: August 4, 2010

Royal Holloway University of London

MSc International Management

Discuss the challenges to effective compensation in MNCs and how consistency and equity of compensation can be achieved.


In today’s increasingly competitive environment, businesses are globalizing their firms in order to maximize their profitability and compete effectively. This globalization is exasperated by the availability of cheap labour, raw materials, increased market share and competitive taxation systems. This has led to an increase in Multinational Corporations (MNCs), which are enterprises that deliver services or mange production in more than one country.

With the rise of MNCs, managers have to deal with diverse challenges, some of which they are not prepared to handle. They are discovering that there is no single solution for all of these challenges and that each situation presents unique challenges and parameters that require localized solutions. These localized solutions are particularly needed in markets with different cultures and value systems. There are multiple cultural issues that mangers of MNCs need to address. Some are visible and include different dress codes, language, behaviour, art, fashion and food. However it is the non-visible cultural aspects that are posing serious challenges to MNCs. These include customers’ customs, beliefs, histories, personalities, family and national values, religion, national culture, gender, corporate culture and job functions. To illustrate the complexities that MNCs face, take the example of a corporation headquartered within the United Kingdom (U.K.) that wants to expand into Singapore. In the United Kingdom this corporation has been exposed to a business environment that is autonomous, self directed, and includes an individualistic culture (independence). However, upon expansion into Singapore, it will face a new working environment that has a collective culture-identity defined by group membership. Additionally, rewards are done by group allegiance which is a very different compensation system (Beaman & Walker 2007). Its management has several crucial decisions to make that directly influence whether or not the new subsidiary will succeed. Some include whether or not the company should import the culture of the parent company to the subsidiary, adopt entirely the culture of the new subsidiary location or a try to combine both cultures into a new one. Management will also need to teach the new subsidiary the MNCs corporate values and determine how to best incorporate them into operations. A corporation’s ultimate resource is their human capital - the employees (Shuller & Rogovsky 1998). Thus in order for the company to succeed and ensure their long-term sustainability they must invest in their staff and have good Human Resources (HR) practices in place that address hiring, training, promotions and layoffs. Schuller and Rogovsky (1998) believe that the unique challenges affecting MNCs in different countries are a direct result of the way they ordinarily do business, the laws and interactions of the local people, and the employment practices of both the corporation and the locals. As such, in order for MNCs to be successful in their new countries, they must anticipate the unique HR challenges they might face and develop ways to respond to them. If these are cautiously anticipated and the organization has a clear understanding of possible cultural-HR practice relationships, this will help the organization succeed. The organization needs to adapt their original HR policies to include localized standards within the new location. Simply put, the organisation should think globally and act locally. Additionally, management must also determine how to appropriately compensate and incentivize their employees. Compensation is viewed as anything an employee would be willing to receive in lie of services rendered to an employer. (Henderson cited in...

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