A SHRM Perspective on International Compensation and Reward Systems

We re-examine the efficacy of the SHRM perspective from the vantage point of a specific HRM system, international compensation and rewards, to gain new insights into existing conceptual models. Looking at SHRM from the ground up suggests that, to continue informing our understanding of the HRM-organizational effectiveness (OE) relationship, research will need to adopt richer theory and measures of specific HRM systems and extrapolate important contextual factors that influence relationships between OE and specific HRM systems

Rethinking International Compensation: From Expatriate and National Cultures to Strategic Flexibility

[Excerpt] We are on the verge of a worldwide restructuring of compensation and reward systems. Even long established, seemingly carved-in-granite cultural norms, such as lifetime employment in Japan and industry-wide bargaining in Germany, are weakening in response to the pressures of a global economy. So also are our previously hard-and-fast assumptions about international compensation -- the idea that pay systems should keep expatriates “economically whole” and the notion that local compensation should be tailored to fit national cultures

The Relationship Between Risk, Performance-Based Pay, and Organizational Performance

In this study, we argue that much of the recent agency-based research on performance based pay virtually omits the role of risk. This compensation research has predominantly taken the positive perspective and focused on the incentive properties of performance-based pay, thereby overlooking the important role that risk plays in normative formulations of agency theory (Holmstrom, 1979; Eisenhardt, 1989; Jensen & Meckling; 1976). Building on previous research, such as Beatty and Zajac (1994), we re-introduce risk by investigating its effects on the formation and outcomes of performance-based pay contracts. Specifically, our study examines both the main effects of risk on the structure of compensation contracts and the joint effects of risk and performance-based pay on firm performance. This study is based on data of incumbent managers from 356 companies over the period 1981 to 1988. Financial performance and market data were drawn from the CRSP and COMPUSTAT

A Risk-Return Paradox: Risk, Performance-Based Pay and Performance

[Excerpt] In recent years, strategy researchers have examined the relationship between business risk and performance. The logic underlying this relationship is that organizations facing greater business risk seek to offset it with the prospect of higher financial returns. The research typically involves various financial measures of organization performance regressed on measures of risk. Surprisingly, the findings are contradictory. While some studies report evidence supporting a positive relationship between the risk organizations face and their performance (Aaker & Jacobson, 1987; Fiegenbaum & Thomas, 1988), others reported an inverse relationship (Bowman, 1982, 1984). These different results called into question the basic premise about the form of the risk-return relationship and left a void in understanding why organization decision makers might pursue more risky strategies. Advancing this line of inquiry, Miller and Bromiley (1990) noted that business risk, like financial performance, is multi-dimensional. Several dimensions of business risk emerged from their work including income stream and strategic or financial risk. They suggested that differences reported in the risk-return relationship resulted from different operationalizations of business risk

Issues in Managerial Compensation Research

[Excerpt] Compensation is at the core of any employment exchange (Milkovich & Newman, 1993; Simon, 1951). It is probably the most basic reason people agree to become employees and it serves as a defining characteristic of any employment relationship (March & Simon, 1958). Recently, managers have been bombarded with a profusion of ways to pay employees. There is team-based pay, broad-banding, pay at risk, paying for competencies, paying for skills, and even The New pay. Understanding which of these have the potential to add value and which are relatively more effective is a tough task, like untying the Gordian knot. Rather than simply cutting through the problem (Alexander the Great\u27s tack), managers often seek guidance from research. Yet, researchers have also been bombarded - not just with new practices, but also with new theories. Included in this theoretic barrage is agency theory, tournament models, contingency theory, institutional theory, procedural justice, political influence theory, organizational demography, resource dependency, psychological contracts, and the resource-based view of the firm. The list seems almost endless. If Lord Keynes is correct that theories drive practical peoples\u27 decisions, understanding which of these theories is useful and which is not is important for both compensation researchers and practical decision makers

The Relationship Between Risk, Incentive Pay, and Organizational Performance

In this study we extend agency based research by examining the role of risk in the structure of managerial compensation and its relationship to organization performance. Our results suggest that organizations facing higher risk do not place greater emphasis on short term incentives, they place less emphasis on it. Also, higher risk firms which rely on incentive pay exhibited poorer performance than high risk firms which de-emphasize incentive pay