External influences on compensation systems in multinational enterprises : some comparisons of subsidiaries and companies in Australia and Singapore

Accompanying the world-wide growth of multinational national enterprises (MNEs) has been an increasing interest in the broad issues of international human resource management (IHRM) and the management of people in MNEs. The uniqueness of managing human resources in an MNE is the need for the organisation to operate in more than one national context, possibly with three different categories of employees ‚ÄövÑvÆ host country, parent country, and third country nationals. Taking into account the unique elements of the external environment in each country of operation presents particular challenges for the design of human resources policies and practices, including compensation (remuneration) systems. This thesis focuses on the compensation systems of MNE subsidiaries, and uses the guiding question: 'How does the external environment of an MNE subsidiary influence the design of its compensation system?' Adopting a case study methodology, the thesis examines the compensation systems of five MNEs (over the period 1992-95) by studying pairs of subsidiaries and companies based in Australia and Singapore. Two of the MNEs were European owned, and three Australian owned. The Summary Profile of Experiential and Algorithmic Compensation Patterns of Gomez-Mejia and Balkin (1992) is applied to each pay system, and the similarities and differences analysed. Possible key external environmental differences and some internal characteristics that might have caused those similarities and differences in compensation design are then suggested for each MNE. In addition, the roles of the corporate and national head offices in the compensation design of their subsidiaries are explored. While not usually included as an external influence on human resource management of MNEs, the MNE head office does form part of the integrated organisational network within which MNEs operate. The external factors receiving specific attention for their impact on subsidiary compensation design are employment legislation, industrial relations systems, economy and incomes policies, and national culture. While the thesis analyses these attributes separately for simplicity, it is recognised that they are largely interdependent (Jackson & Schuler, 1995), and that it is impossible to rigorously determine the impact of each variable and its interaction with others. The main outcome of the thesis is, therefore, a discussion leading to an explanatory framework on the influence of the external environment and the MNE head office on MNE subsidiary compensation systems, together with some propositions grounded in the existing literature and case study findings. The thesis concludes with a consideration of the implications of the findings for strategic IHRM theory and practice, and further research.