timed assessment 4hrs 1000words per question (2question, open book)

Internal Promotion

Entry Level 2

Entry Level 1

Promotion as an incentive device - tournaments

( 83 )

Tournaments

Not assessed in 2021-22

Lazear, Edward and Rosen, Sherwin (1981) ‘Rank-Order Tournaments as Optimum Labor Contracts’, Journal of Political Economy, Vol. 89, No 5, October, pp 841-864.

Lazear Rosen

Top prize CEO job

Relative performance measures

Not assessed in 2021-22

Critical:

Pfeffer rejects the Principal-Agent perspective

( "The image of workers in these models is somewhat akin to Newton's first law of motion: employees remain in a state of rest unless compelled to change that state by a stronger force impressed upon them - namely, an optimal labor contract." )

Pfeffer (1998)

Bebchuk and Fried “Pay without Performance”

Not assessed in 2021-22

· There is no arms-length relationship.

· Long-term incentives are just ‘stealth wealth’.

· A way of paying executives ‘under the radar’.

· The only thing that restrains executives is the fear of

‘outrage costs’.

· The board itself is ineffective in restraining pay.

· The board is ‘captured’.

Institutional isomorphism

Paul DiMaggio

Not assessed in 2021-22

“social cascade”

Walter Powell

Critical:

DiMaggio and Powell

Isomorphisms in organisational practice

- need for legitimacy – mimic actions of others

Duesenberry on the distinction between economics versus sociology:

“Economics is all about how people make choices. Sociology is all about why they don’t have any choices to make.”

Unit #9

Unit #9:

International Reward Management

· The current context multinational employers encounter influencing their aims and choices on employee reward.

· The various types of employees involved.

· The use of theory and empirical research in weighing opportunities and problems in rewarding employees in an international context.

Stages:

· Exporting goods.

· Licencing and Franchising overseas activities.

· Establish host country facilities (“foreign direct investment, FDI”)– promoted by low cost labour and materials.

· Transnational taps tacit knowledge embedded in its

global network.

( Unit #9 ) ( Internationalisation )

Parent Country

( Host Country B Host Country A ) ( Host Country D Host Country C )

( Unit #9 ) ( Multinational )

( Host Country B Host Country A ) ( Host Country D Parent Country Host Country C )

A and D link; B and C link; not drawn here

( Unit #9 ) ( Transnational )

· Traditionally, usual assignment 3 – 5 years

· Now more of a continuum:

Sort Term Long Term

( Unit #9 ) ( Expatriates and Reward )

ST one- off

Commuters LT

assignment

LT

permanent

Regional v Global Accompanied vs. Unaccompanied

· “Making the expatriate whole”.

· An exchange relationship.

· Less emphasis on reward as such, or on the effort-reward bargain.

· Compensation for ‘dislocation’/ ‘hardship’.

· Preserve relativities with parent company peers.

· Purchasing power parity, tax equalisation.

· Home-based /salary build-up’/ ‘balance-sheet’

(see below).

· Home leave, education costs, dual-career allowance etc..

( Unit #9 ) ( Expatriates and Reward )

Major consideration in portfolio

· COLA – cost-of-living-adjustment

· Housing Allowance

· Education Allowance

· Foreign Assignment Allowance

· Tax adjustment

· Dual Career Allowance

· Foreign Assistance Allowance (Hardship Allowance – personal safety, distance, language, culture, climate etc.)

Also, subsequent repatriation and relocation costs.

( Unit #9 ) ( Expatriates and Reward )

( Foreign assignment allowance Housing allowance Adjustment cost of living COLA on 65 % = 65% home country component = 35% home country net salary component Health Insurance Social Security TAX (+/-) )Unit #9

( Net Salary Health Insurance Social Security TAX (+/-) )Balance Sheet Approach:

Note – here the cost of living adjustment is on the 65% of net income that is generally consumed

Exercise:

Using the Economist’s BigMac Index and the data provided there, calculate how much one would have to receive in the currency of your own country to be equivalent to $100,000 (USA $):

1. Using the International Spot Exchange rate.

2. Using Purchasing Power parity as suggested by the Big Mac

Index.

3. What is the % difference (#2 as % of #1)?

( If you are from the USA, pretend you are from another country – your choice. )

( Unit #9 ) ( Which Exchange Rate ? )

Switzerland

What costs = 6.5 CHF

In the USA costs = $4.79

To be equal: (6.5/exchange rate) = 4.79

$1 has to cost: (6.5/4.79) = 1.36

On Foreign Exchange Markets $1 costs 0.95CHF

( Unit #9 ) ( Which Exchange Rate ? )

Swiss Franc overvalues = (1.36/0.95) = 1.43

 by 43%

Switzerland

· You live in USA and eat only BigMacs.

· You spend $2,000 per year on food (BigMacs).

· That (at $4.79) buys you 417.5 burgers.

· Going off to Switzerland for a year.

· Convert $2,000 at official exchange rate (0.95CHF/$).

· Get back 1,900 CHF

· Once in Switzerland find that you can only buy 292.3 burgers (=1,900/6.5).

· You paid too much for your CHF [417.5/292.3 = 1.43 ]

· The dollar appears overvalued by 43%

· If you do not recognise this your ex-patriates working in Switzerland are going to be very unhappy.

( Unit #9 ) ( Which Exchange Rate ? )

· This does not happen with traded goods.

· Otherwise would buy cheap in USA and sell at high price in Switzerland.

Bringing exchange rates into equilibrium.

· Key is that not all goods are traded.

· Purchasing Power Parity attempts to take this into account.

( Unit #9 ) ( Which Exchange Rate ? )

E.g., Japanese Employment System

· Job-related pay (“shokumukya”) still dominant.

· Recruit straight from school/University (“Shinsotsu-Ikkatsu-Saiyō”).

· Job-for-life with single (first) employer (“Syushin-Koyō”).

· External pay not considered.

· “Stock-based” approach (sum over career of individual’s performance to date

 NOT (UK-type) “flow emphasis” on current worth.

· Twice yearly bonus paid in July & December – significant profit dependent part of remuneration “(kaki shoyo”).

· Personal bonuses/incentives rare.

Note: all of this is under considerable pressure after recent decades of poor economic performance.

( Unit #9 Culture and Institutions – make a difference: )

· Attitude to what makes an ‘effective’ employee.

· Orientation to giving and receiving performance feedback.

· Career anchor preference – e.g., seniority versus performance.

· Expectation of “manager  subordinate” relationship.

· Conception of what makes ‘socially healthy’ pay distribution

between individuals and groups.

 host-country labour market benchmarks.

( Unit #9 ) ( Local Culture and Reward )

· Many consistent/ contradictory results.

· Research conducted by application of Hofstede’s (1980) questionnaire (on culture).

· Failure to adequately incorporate institutional setting.

· Formal (legal etc.).

· Informal (social, cultural, religious etc.).

· Societal values (legitimacy of effort-reward bargain etc.).

 Before transferring reward practices to host country need to understand individual’s satisfaction, preferences, and institutional impact of each aspect of the reward package.

Culture's consequences : international differences in work-related values

Geert H. Hofstede

Beverly Hills, Calif. : Sage Publications ; 1980], (and many other versions) Main Library (STANDARD LOAN) - 2nd floor GN502 Hof.

( Unit #9 ) ( National Cultures and Reward )

· Ecological fallacy – using country-level constructs to explain individual-level data)

· Protestant countries have higher suicide rates – does

being Protestant cause suicide?

· Counties with high fatty diets record higher incidence of breast cancer – does a fatty diet cause breast cancer?

· Mixes up correlation and causation.

The “Ecological fallacy” is drawing conclusions about the nature of individuals based on observations on the group to which those individuals belong. E.g., suicide rate were higher in Protestant countries (Durkheim,1897). But there are confounding factors – it is not the religion as such.

( Unit #9 ) ( National Cultures and Reward )

· “High power distance” (e.g. Latin and Asian countries, African areas and the Arab world)

· Title, rank matter

· Pay level associated with rank.

· Office / secretary important

“Low power distance” (e.g., UK, USA, Israel, ..)

· Financial reward matters more than title or rank

· Pay outcome dependent on performance

· Having office or secretary not key considerations

( Unit #9 ) ( National Cultures and Reward )

“High uncertainty avoidance” (e.g., Latin countries)

· Seniority.

· Skills weighting.

· Less focus on individual performance-related pay.

“Low uncertainty avoidance” (e.g., protestant/ anglo-saxon countries).

· Less on seniority.

· Less on skills weighting.

· More focus on individual performance-related pay.

( Unit #9 ) ( National Cultures and Reward )

High “Individualism” (e.g., USA, UK, Australia)

· Focus on performance-related pay in general.

· More focus on individual performance-related pay.

Low “Individualism” (e.g., Spanish/Portuguese speaking)

· Less performance-related pay.

· Collectivists keen to consolidate performance pay into base salary.

And so on ……….

( Unit #9 ) ( National Cultures and Reward )

Alternative approaches:

· Use ‘Topping-up’ home-based pay (Balance Sheet Approach)

versus

· Use host-country labour market benchmarks, especially in

developed countries  ‘local-plus’

versus

· Permanent transfers ~ ‘localisation’

( Unit #9 ) ( core ) ( E xpatriates and Reward )

· Gaps in economic development

 Gaps between local pay and expatriate

pay in that country.

Recall: Equity Theory [Adams (1965) - OB lectures]:

· Judgement on equity relative to own outcome.

· Judgements based on social referents

(“significant others”).

· Pay attention to treatment in other local transnationals

“(efficiency wage premium”).

· Expatriates themselves may be ‘too different’ to create any problem.

( Unit #9 ) ( T he Expatriate  Local interface ) ( core )

Unit #1 – Introduction

· Lawler (1995) ‘The New Pay: a strategic approach’

· Yellen (1984) Efficiency wages

· Hilde Behrend (1957)

· Pfeffer (1994)

· Gomez-Mejia (2010)

· Smith (1776);

Unit #2 - The Legal, Employment Relations and Market Context

· EHRC (2013) [Equality and Human Rights Commission How to

Conduct a Pay Review]

· Hall and Soskice (2001);

· Freeman & Medoff (1984);

· Hirschman (1970); Gary Becker (1975);

· Mincer & Polachek (1974).

( Some standard references to draw on )

Unit # 3 - Base Pay Structures and Relationships; Pay Setting, Composition and Progression

· Doeringer & Piore (1971)

· Thompson, M. (2000), “Salary progression systems

· Lazear & Rosen (1981) – deferred compensation etc.

( Some standard references to draw on )

Unit # 4 - Variable Pay Schemes

· Fama (1980) settling-up + career concerns

· Lawler (1995) ‘The New Pay: a strategic approach’/Schuster & Zingheim (1992)

· Lazear (2000) – Safelite Glass

· Pfeffer & Sutton (2006);

· Victor Vroom (1964);

· Locke and Latham (2006);

· Adams (1965);

· Jensen & Meckling (1976);

· Gomez-Mejia et al. (2010);

· Kohn (1993); Pfeffer (2006);

· Yellen (1984);

· Smith (1776).

( Some standard references to draw on )

Unit # 5 - Benefits and Pensions

· Lazear (1979)

· Thaler & Sunstein (2009)

· Turner (2006)

· Herzberg (1987); Maslow (1954)

· Legge (1995);

Unit # 6 - Non-Financial Reward

· Daniel Pink [TED]

· Pfeffer & Sutton. (2006)

· Kohn, Alfie (1993) /Pink (2009);

· McGregor/ Maslow/ Herzberg

· Lawler(1995);

· Michaels (2001);

· Maslow (1954); Herzberg’s (1987); McGregor (1960);

( Some standard references to draw on )

Unit # 7 - Rewarding Directors and Executives

Jensen & Murphy (1990)

( Some standard references to draw on )

· Conyon et al. (2012)

· Main et al. (2008)

· Gregory-Smith & Main (2014)

· Rosen (1981);

· Michaels (2001);

· Edmans & Gabaix (2008) ;

· Vroom (1964);

· Holmstrom (1979);

· Pfeffer (1998);

· Bebchuk & Fried (2002);

· Fama (1980);

· Lazear and Rosen (1981);

· Milgrom and Roberts (1988);

· DiMaggio and Powell (1983).

Not assessed in 2021-22

Some standard references to draw on

Unit # 9 - International Reward Management

· all the above.

· Geert Hofstede (1980 +)