This dissertation study investigates the ability of innovative compensation strategies for the retention of international managers. In studying the ability of compensation to retain and motivate managers, one should take into consideration the social comparison theory offers a different interpretation of high manager compensation. This way, together with skills in finding research evidence and changing practice as a result of research, the study would have a route to close the gap between research and practice and as such makes an essential contribution to improving compensation quality to the international mangers.
Compensation among large firms is a common strategy to attract highly deserving individuals into working in their organization. Several studies suggest a clustering of these factors rather than their occurrence as separated values. Effort was highest in organizations that reward it; and, where intrinsics are valued and effort was rewarded, individuals who worked hardest were most satisfied with pay. (Schneider and Olson, 1970) Moreover, persons who are dissatisfied with non-monetary rewards also tend to be dissatisfied with pay. (Monczka et al, 1977) Strong associations and causal relationships have been shown for merit increases, higher job performance, and higher job satisfaction. (Porter and Lawler, 1973; Katzell & Yankelovich, 1975) There was no evidence that people are productive because they are better satisfied.(Greene, 1973) Though there are conflicting empirical findings, most studies have rejected Deci's hypothesis (Deci, 1976) that expectation of reward that is contingent upon performance will decrease intrinsic motivation. (Vecchio, 1982; Schay, 1988)
Regardless of race and ethnicity (and for both public and private employees), people seek a mixture of intrinsic and extrinsic rewards in the work place. However, there is some tendency for minorities of lower socio-economic status to favor extrinsic rewards. (Bloom & Barry, 1967; O’Reilly & Roberts, 1973; Shapiro, 1977; Davis & West, 1980)
Schay (1988) determined that perceptions of equity are important if a performance-contingent pays system is to work. From her study of a government research and development laboratory, she concluded that level of pay satisfaction was basically predicted by equity perceptions. Women who are secondary wage earners with children look not only for challenging and materially rewarding work, but also jobs that do not make excessive demands (hours, overtime, travel, physical effort). (Martin and Hanson, 1985)
Similarly, the strategy for compensation among firms serves as a tool for the retention and motivation of personnel. The admonition that personnel development issues and compensation should not be discussed in the same performance appraisal meeting is contradicted by a more recent study. It was found that salary discussion had its strongest positive impacts when there was a strong need for employee development and clear communications in appraisal meetings. (Meyer, Kay, and French, 1965) Although organization theorists have long recognized that political processes can influence organizational action (Pfeiffer, 1981; Thompson, 1967), the relationships between social and political forces and compensation have not been examined fully in previous research. Of the studies incorporating behavioral variables, most have concentrated on linkages between executive pay and relatively apolitical factors. The development and testing of human capital models (Becker, 1964; Mincer, 1970) represents one research thrust. These models rely on personal attributes like age, experience, education (Deckop, 1988, Finkelstein and Hambrick, 1989; Foster, 1980), and level in the management hierarchy (Lawler and Porter, 1966; Mahoney, 1979; Rajagopalan and Prescott, 1990) to help explain compensation variation. Findings are clearly mixed, with human capital variables often explaining little or no variation in executive pay. Such factors as organizational power and politics, board member attributes and social processes, and group phenomena have not been subjected to similar scrutiny. But, the effects of social and political factors are becoming more apparent as boards of directors have more openly acknowledged the influence that individuals exert over compensation decisions.
This chapter starts with the overview of the study, a brief review the nature of problems, aims and objectives, scope of the study, methodology and limitation of the study.
Overview of the Study
This study intends to investigate the ability of innovative compensation strategies for the retention of international managers. In studying the ability of compensation to retain and motivate managers, one should take into consideration the social comparison theory offers a different interpretation of high manager compensation. Festinger (1954) proposed that individuals possess the need to evaluate their opinions, attitudes, abilities, and self-perceptions. To facilitate such evaluations, people look for others who are similar on these dimensions to serve as standards of comparison. This also is a key process in reaching conclusions regarding conditions of equity or inequity. When making comparisons, individuals usually use others for comparison that are seen as slightly more skilled or higher paid than them. Thus, an executive making self-evaluation comparisons will compare to other managers of recognized skill and expertise, and whose recognized value (compensation) is slightly better than their own (Sulls and Miller, 1977). The literature is not as clear regarding social comparisons when a person or committee is arriving at other-valuations, as contrasted to self-valuation. As noted by O'Reilly et al. (1988), however, it seems plausible that compensation committees will make at least one of these choices. They may anchor the comparison to their own salaries, or to the salaries of slightly higher paid mangers. If the salaries of the compensation committee members were higher, then they would likely recommend a higher salary for the manager. If a comparison manager, who is slightly higher, paid, serves as referent, then a higher salary for his or her own manager also is likely. The only time a compensation committee would suggest a lower manager salary is when their own salaries are lower than the managers’.
Another facet of this study is the query whether innovative compensation schemes could imbue organizational commitment among the managers. According to McGee and Ford (1987), there are two dimensions to the organizational commitment construct. The first, called "affective" commitment, represents the degree to which an employee exhibits a strong belief in, and acceptance of, the organizations' goals and values; and a willingness to exert considerable effort on behalf of the organization. The second, called "continuance" commitment represents the degree to which an employee exhibits a willingness to continue to work for the organization. (Agarwal and Ramaswami, 1993; Johnston et al., 1990; Kohli, 1989; Teas, 1981).
Statement of the Research Problem
This researcher finds the necessity for a study that specifically tackles the improvement of compensation strategies for international managers. This study also intends to explore the factors to be considered in an international firm. Therefore this study attempts to answer the primary query:
What is the impact of current compensation schemes of a certain company in motivating international managers?
Moreover, this dissertation addresses the following sub-questions:
1. What are the existing compensation schemes of the company?
2. What is the level of effectiveness of these existing compensation schemes of the company in motivating the international managers?
3. What is the level of effectiveness of these existing compensation schemes of the company in the organizational commitment of the international managers?
4. How does international managers perceive a good compensation plan?
5. What are the possible innovative compensation strategies that could be applicable to the firm?
Aims and Objectives of the Study
This dissertation attempts to find ways to help the international business industry in motivating their international managers. It also addresses the need of the international manager to a justifiable compensations plan. The researcher gathered their views regarding the need for improvement. In addition, the current process of implementing ways to improve the factors related to compensation will be analyzed. Organization theorists have long argued that economic models are too constrained and that non-economic factors critically affect managerial compensation processes (Baron and Cook, 1992). These researchers have developed a rich set of alternative models to explain compensation and promotion practices focusing on sociological phenomena, like the relationship between internal labor markets and social stratification (Baron, 1984), the effect of ownership and monitoring by external parties on compensation practices (Finkelstein and Hambrick, 1989), social influence and managerial power (Allen, 1981), and social comparison theory (O'Reilly, Main, and Crystal, 1988). With the exception of innovative tests developed by O'Reilly, Main, and Crystal (1988) and Finkelstein and Hambrick (1988), however, prior research has not attempted to test the applicability of economic and non-economic models of organizational incentives simultaneously.
Significance of the Study
The study shall be a welcome addition to the vast field of resources based on personnel administration, particularly in the field of compensation. The study shall point out the need of innovative strategies in order to motivate international managers into upgrading their level of competency as well as to permeate organizational commitment among them. Moreover, the study would be able to help prospective administrative departments of multinational corporations by providing them a concrete study regarding the potential of a compensation system to boost up the performance of the corporations as a whole.
Methodology of the Study
The study shall be using the descriptive research method. It uses observation. In this method, it is possible that the study would be cheap and quick. It could also suggest unanticipated hypotheses. Nonetheless, it would be very hard to rule out alternative explanations and especially infer causations. This descriptive type of research will utilize observations in the study. To illustrate the descriptive type of research, Creswell (1994) will guide the researcher when he stated: Descriptive method of research is to gather information about the present existing condition. The purpose of employing this method is to describe the nature of a situation, as it exists at the time of the study and to explore the cause/s of particular phenomena. The researcher opted to use this kind of research considering the desire of the researcher to obtain first hand data from the respondents so as to formulate rational and sound conclusions and recommendations for the study.
The research described in this document is based solely on qualitative research methods. This permits a flexible and iterative approach. During data gathering the choice and design of methods are constantly modified, based on ongoing analysis. This allows investigation of important new issues and questions as they arise, and allows the investigators to drop unproductive areas of research from the original research plan.
The primary source of data will come from published articles from social science journals, theses and related studies on international businesses in connection to the compensation of their employees. For this research design, the researcher will gather data, collate published studies from different local and foreign universities and articles from social science journals; and make a content analysis of the collected documentary and verbal material. Afterwards, the researcher will summarize all the information, make a conclusion based on the null hypotheses posited and provide insightful recommendations on the dealing with the international business in terms of managers compensation plans.
Limitations of the Study
A greater understanding of the need for innovative compensation schemes among firms is a fundamental thrust of this paper. The study shall be acquiring information from the international managers themselves as well as from administrative and personnel offices of the respondent firms. Moreover, the study will only be limited to the international managers based in the United States as well as those in Germany. Similarly, only those firms that operate in the USA and Germany shall be considered in the study. This way the findings as well as the conclusion of this research could be considered as competent to formulate recommendations for the improvement of compensation strategies in the United States as well as in Germany.
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