Paying both globally and locally: an examination of the compensation management of a US multinational finance firm in the Asia Pacific Region

Abstract

Using the compensation information from 10 subsidiaries of a US-based financial multinational corporation (MNC) in the Asia Pacific region, I have quantitatively explored how one MNC balanced two competing logics: localization, which allows variation across subsidiaries, and strategic alignment, which promotes standardization among subsidiaries. My empirical analysis has revealed that the way this MNC balanced the two logics varied according to the aspects of compensation management and employee groups. While this MNC incorporated local contexts when determining pay level in its foreign subsidiaries, it primarily emphasized the strategic alignment logic when determining pay mix in its subsidiaries. This MNC emphasized the strategic alignment logic to a greater extent when determining the pay level for managers than it did when determining the pay level for non-managerial employees.

Keywords:

• Asia Pacific
• compensation policies
• human resource management
• multinational corporations and enterprises
• subsidiary management

Acknowledgements

This research was funded by the HSS Small Grant from the University of British Columbia. I thank AD Finance for providing its compensation information, and George T. Milkovich, Mark Thompson and the compensation manager at AD Finance for comments on earlier versions of this article. And also thank an anonymous reviewer for raising this issue.

Notes

1. Gerhart and Milkovich (1990) calculated the increase in R-squared attributed to firm effects. According to their analysis, firm effect accounted for 13.8% of the variance in base pay and 21.4% of the variance in the ratio of bonus to base pay. Note that these figures are not comparable to the results in this study because Gerhart and Milkovich (1990) investigated the differences across firms, whereas this study examined the differences across subsidiaries within a firm.

2. While organizational characteristics information would provide this study with useful insights, it turned out that much information was difficult to obtain. For instance, the age of each subsidiary was difficult to confirm even for HR managers in AD Finance, since legal entities changed frequently (e.g. opening, closing and replacing others). Performance information for each subsidiary was not available to the author.

3. For Taiwan, the statistics from the US Federal Reserve Board were used.

4. My analysis did not include employee's educational level because AD Finance does not keep records of this.

5. See Crossland and Hambrick (2007) for a more detailed explanation.