International Compensation: An Examination of the Relationship Between Societal Culture and Preferred Compensation Policies

Abstract

In my thesis, I review the research literature on the influence of national culture on reward preferences and compensation practices. I first review the major models of culture used to examine reward practices and then detail the convergence and divergence debate in international management by highlighting constraining forces in the host and home business environment that lead to standardization or localization. Finally, I review the research on cultural dimensions and preferred compensation practices and propose an integrative model.I conclude that culture is one of the many macro-variables that influence international compensation decisions and argue that the adaption of compensation practices can be viewed as pragmatic experimentation and adaptive space can be used to make a decision on standardization and localization in international reward management. I classify standardization as an “ordered response” and localization as an “entrepreneurial response”.