Performance and reward practices in foreign multinationals in the UK

• Author: Anthony Ferner,Phil Almond
• Published date: 01 July 2013
• Date: 01 July 2013
• DOI: http://doi.org/10.1111/1748-8583.12001

Performance and reward practices in foreign

multinationals in the UK

Anthony Ferner and Phil Almond, Leicester Business School, De Montfort

University

Human Resource Management Journal, Vol 23, no 3, 2013, pages 241–261

This article examines variability in pay and performance management systems (PPMS) across foreign

multinational companies (MNCs) in the UK, using a representative survey. It examines factors shaping

PPMS for two groups, managers and the largest occupational group (LOG). It finds that US MNCs tend

to have more PPMS practices in combination than do non-US firms, but that for individual items

nationality has relatively low influence, particularly for LOG. Other key factors in PPMS vary by

employee group: for managers, international HR structural mechanisms for networking, organisational

learning and the transmission of a global HR philosophy are important. For LOG, collective bargaining

coverage is crucial. The article discusses the implications of the findings for ‘contingency’ approaches to

HR ‘architecture’.

Contact: Anthony Ferner, Department of HRM, Leicester Business School, De Montfort

University, Leicester LE1 9BH, UK. Email: afhum@dmu.ac.ukhrmj_12001241..261

INTRODUCTION

The UK provides a ‘permissive’ institutional context, in that managers can choose a range

of approaches to managing the pay and performance of their workforces, relatively

untrammelled by statutory constraints, and with the influence of collective bargaining in

decline (e.g. Kersley et al., 2006). The literature suggests a move towards unilateral management

determination of pay, and greater emphasis on relating individual remuneration to performance

(Kessler and Purcell, 2003; Rubery and Grimshaw, 2003; Kersley et al., 2006).

While much is known about how firms as a whole manage their pay systems and the

performance of their employees in this changing UK context, much less is known about the

patterns of pay and performance management systems (PPMS) in overseas multinational

companies (MNCs). These companies are significant players in the economy, especially in

key industries such as machinery, electronics, pharmaceuticals, food, information and

communication technology, and business services. US MNCs especially are often seen as a

source of PPMS innovation, for example, in productivity bargaining, profit-sharing and

merit-rating (e.g. Dunning, 1998). Such innovations subsequently diffuse to domestic firms, as

suggested by successive Workplace Employment Relations Surveys (WERS; Kersley et al., 2006).

A first aim is to provide basic descriptive data on patterns of similarity and difference in

PPMS in MNC subsidiaries, not only for specific PPMS practices but also in combinations of

practices. The article addresses four main predictors of patterns of PPMS. First, it looks at the

importance of nationality of MNC ownership in PPMS. The UK is an appropriate site to study

this since the permissive nature of the institutional system allows incoming MNCs considerable

strategic choice as to whether to transfer parent-country practices, adopt UK practice or follow

some global ‘best practice’ model.

Second, given the traditional counterpoising of unions and individualism, the article

explores what difference unions make in the context of a trend towards individualistic

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doi: 10.1111/1748-8583.12001

HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 23 NO 3, 2013 241

© 2012 John Wiley & Sons Ltd.

Please cite this article in press as: Ferner, A. and Almond, P. (2013) ‘Performance and reward practices in foreign multinationals in the UK’. Human

Resource Management Journal 23: 3, 241–261.

approaches to pay (e.g. Kersley et al., 2006: 290–293). To what extent can unions and

individualised approaches to PPMS coexist in MNCs?

Third, it considers the importance in the adoption of PPMS of what we term (borrowing

from Chandler, 1990) MNCs’ ‘HR organisational capabilities’. These comprise cross-national HR

structures, processes and philosophies that provide mechanisms for crafting and disseminating

PPMS strategies. There are grounds for believing that the implementation of management-

driven, individualised employment practices depends on a developed HR ‘infrastructure’ (e.g.

Farndale and Paauwe, 2005).

Fourth, to what extent does employee group make a difference to PPMS? Do MNCs adopt

a unitary approach to managing pay and performance of different employee groups? Writers

such as Lepak and Snell (1999; also Kessler and Purcell, 2003) raise important questions about

the competitive advantage of differentiating approaches according to category of employee.

MNCs in a pliant host environment might form a useful testing ground for exploring the

influence of being multinational on contingent choices regarding PPMS.

The article draws on a unique survey data set, based on a representative sample of MNCs

in the UK. It first considers literature on PPMS in MNCs, making use of broader contingency

approaches to ‘HR architecture’ (Lepak and Snell, 1999), and more UK-centred discussions of

individualism, dualism and collectivism in relation to PPMS. Hypotheses are proposed on

expected patterns of similarity and difference among MNCs. Following a description of

methodology, findings focus on the four factors referred to: national-institutional heritage,

union presence, HR organisational capabilities and the differentiation of employee groups. The

discussion explores the significance of the findings for broader debates on approaches to PPMS.

VARIATIONS IN PAY AND PERFORMANCE MANAGEMENT APPROACHES

MNCs and national distinctiveness of PPMS

Bloom et al. (2003) examined managerial compensation strategy in MNCs in the light of

conflicting pressures for adaptation to local norms and institutions and for congruence with

international corporate strategy – ‘strategic alignment’ (cf. Gomez-Mejia and Welbourne, 1991).

Bloom et al. argue that international managers strongly prefer strategic alignment because it is

a source of international competitive advantage that is not available from local adaptation. They

note that MNCs can export parent-country PPMS, adapt to host practice or act as ‘global

integrators’ that implement common pay systems across all hosts but without drawing on the

home-country system as a model. They suggest (p. 1360) that the greater is host variability, the

more MNCs are able to resist assimilation to local practice. This may be seen to be the case in

the relatively open, loosely regulated UK host context.

There is much evidence of national distinctiveness in PPMS (Rubery and Grimshaw, 2003).

In the US, competition between unionised and non-union sectors is seen as driving high rates

of PPMS innovation, generating new models of performance-related pay, employee share

ownership, performance appraisal, ‘forced rankings’, and so on (e.g. Jacoby, 1997; Grote, 2005).

Overall, the stereotypical US model of PPMS could be typified as predominantly individualist,

focusing on individual employees’ motivation (Appelbaum and Batt, 1994). A much higher

proportion of managerial pay in the US is related to individual performance than in Japan

(Jacoby, 2005: 63–64, 143). In the latter country, appraisal, while widespread, informs decisions

on promotion rather than pay (Shibata, 2002; Rubery and Grimshaw, 2003: 181–184).

Within Europe, considerable institutionally shaped differences exist in PPMS (e.g. EIROnline,

2001). In Germany, where there are sharp distinctions between ‘tariff’ employees covered by

Performance and reward practices in MNCs

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© 2012 John Wiley & Sons Ltd.