This paper evaluates the case of ISI and its reward system policies currently in use in its United States operations. This review considers the impact of the policies on the company’s operations in India. The sections below bring out various factors to consider when thinking about performance-based pay and work incentives in the Indian context, with references to cases from around the world.
According to The Hofstede Center (2015), India has a high score of power distance, masculinity, and long-term orientation respectively. On the other hand, it scores very low on the indulgence and shows medium characteristics of individualism and uncertainty avoidance. These cultural characteristics lend support to the discussion section above about incorporating a performance-based pay system in India. They also help to inform the modifications to the reward system by ISI for its subsidiary in India.
This part explains how power distance ends up affecting employee behavior and the perception of authority. Power distance characteristics of a country will affect group cohesion, preferences for teamwork and preferred forms of compensation. The supervisors in a company have to use a system of rating performance that considers their authority and the potential reactions from the rated employees. Indian employees who observe religious beliefs strictly depend on divine inspiration to succeed. Therefore, they will dedicate prayer, and unselfish work or spiritual reading tasks to gain inspiration.
Employees can prefer a different form of performance-based compensation compared to their employers. Matching expectations and reality are essential for the employer to reap rewards of using compensation as a work motivation tool. A reward system, such as a performance-based approach must be in line with other management systems in the organization for it to work. For example, there must be an adequate appraisal system and a well-developed communications system. These systems enhance the integration of the reward system into an overall organization tradition (Wu, Chen & Leung 2011).
The social ethos of a country has to follow the competition and meritocracy for performance-based compensation initiatives to work (Wu, Chen & Leung 2011). When employees believe that the entire market or sector is going to embrace market reforms and embrace competitiveness, they will display a high degree of hope for future internal reforms in a company. Therefore, they are likely to adopt current initiatives in the promise that future efforts will be corrections and will best match their input. However, if the firm external environment is not supporting the respective competitive ethos, it is unlikely that employees will favor such performance-based initiatives. The above point implies that changes in the organization can go either way. They can disrupt productivity and introduce mistrust, or they can enhance productivity and internal employee competition (Wu, Chen & Leung 2011).
The ability to change to reflect the social ethos of a country depends on the current practices of the parent company of a local firm. If a parent company desires that all subsidiaries follow the same rules, then it will take the time to change practices to reflect local demands. The Indian ethos on work states that every work is a chance for a person to do well in the world. In doing well, everyone benefits materially and spiritually. Also, the religious nature of the country ensures that most workers are aware of religious teaching. Essential teaching is that people should work in a calm and even mind, and this informs a tendency to avoid unnecessary conflict at work.
Efficient wage theory
The effective wage theory or the tournament theory calls for the use of a dispersed wage structure. A large spread in disparity is importing in boosting employee motivation to perform. With so many options to alter productivity and earn rewards, employees develop a mindset of improvement, and this is what any compensation program should be sought. A condensed wage structure makes employees resign to their fate, giving up any improvement motivation (Ding, Akhtar & Ge 2009).
Risks of a blatant performance-based pay
A case study in India by Prabhu and Hegde (2008) revealed that the adoption of performance-based pay led to a loss of work morale and employee distrust. For an organization that had jovial and trusting employees, performance-based pay introduced employee tension and competition that reduced tendencies for collaboration. Such competition destroys the cohesion and may cause overall company performance to improve, but only on traditional measurements, with limited innovativeness. For a system to succeed the employees working with external factors and those working with the internal factors of the organization must be able to associate their work with the performance indicator used to vet their productivity; otherwise, they will feel subjected to an unfair compensation criterion.
Demotivation of employees usually arises because there is no fair compensation system, and fairness is relative to different societies. For example, when a society honors senior workers, and experienced workers, subjective to similar performance pay compensation as junior employees without an equivalent work experience could qualify as unfair according to workers (Lee, Lijima & Reade 2011).
For a country that has a low score on individualism characteristic in its culture, people are likely to avoid interpersonal conflicts (Aycan 2005). On the other hand, performance-based measurements and compensation programs encourage individual-level completion. In this case, the result for a company existing in India, which has a love individualism score, will be weak. An example is the case study in India that shows that after the introduction of various key performance indicators and performance-based pay, departments moved on to accuse each other of sabotage. The system divided the company into teams fighting for their member survival against other teams. In the case study, the company eventually opted to remove the performance-based compensation programs for its non-sales departments as a way to restore organization spirit and improve productivity (Prabhu & Hegde 2008).
A case study by Haerdle, Quensel, and Spohn (2011) indicates that societal gender roles and traditional treatments affect employee perception of performance-based pay and workplace incentives. In India, women appeared to prefer no monetary incentives such as gifts, exposure trips arranged by a company, flowers, and being elected the employee of the month. Male employees also appreciate the incentives, but the study shows that their appreciation was lower than that of women employees.
The nature of work also affects the perception of incentives by male and female employees. In cases where employees work with clients from their rural backgrounds in India, women appear keen to take up the opportunity, and social skills become more important than education qualification. These job demands end up affecting the perception of performance-based pay that also regards education qualifications as conditions for job promotion (Haerdle, Quensel & Spohn 2011). Based on this fact, recruitment in India firms that have to work with a majority of the Indian population as clients and employees have to opt for qualitative skills as a criterion for employee selection. Here, interpersonal skills, trustworthiness, friendliness, will be more important that diploma qualifications because they can break or cement relationships within the firm and support the appropriate reward system used by the organization.
Predictors of preferences for performance-based pay
Before opting for performance-based pay, any firm should consider individual characteristics such as an age group. Older workers will likely oppose any changes to an existing compensation program. The tenure of workers also affects the reception of performance-based pay. Employees with the shortest service years will show the highest level of receptiveness of performance-based compensation programs when they are introduced in an organization. As the number of employee service years increases, ownership of the traditional payment system also increases. Competitiveness is also a predictor that a company will use to gauge the possibilities of moving towards performance-based pay. The potential for interpersonal competition is low when employee motivation is intrinsic. However, for extrinsic motivation cases, employees will prefer to focus on performance and exhibit their mastery of goals, and this can aid pay based on performance (Lee, Lijima & Reade 2011). Work-related attitudes could also be predictors of employees’ choice of the compensation system. Occupational commitment increases the tendency for an employee to favor performance-based pay (Lee, Lijima & Reade 2011).
Firms usually use expatriate workers because they do not have the local capacity for the same positions. Replacement of workers is costly and before opting to consider performance-based pay, the firm’s management must first consider the task of worker turnover. It must evaluate its competitive environment to identify whether there is a high tendency for employee turnover in the industry (Sitskin & Bowen 2013).
Summary of response to ISI policy issues
This case study has been about the incorporation of ISI reward system policies that are currently used in its US facilities. The discussion below evaluates their validity in the Indian context and reflects the rationale introduced in the previous section about prior research and theoretical or cultural considerations for organizations adopting performance-based compensation systems.
Overall, the subsidiary in India is detached from the head operations in the United States; therefore, the policies used in the U.S. should not be applied to the Indian case without questioning their relevance. Workers in India have a different living standard, the legal system, cultural system and social system as compared to those in the United States. They will also interact with company policies from the U.S. as foreign, which affects their ability to follow through and support the policies.
In India, top quality leadership and management may not always agree with material compensation as there can be spiritual values motivating personal productivity. From the outlook of India’s ethos, it is apparent that managers and human resource departments must develop a capability to use vision, insight, foresight, and thought relating to the inner resource as much as they rely on tangible objects (Pawar 2013). In this regard, ideal compensation can be based on work done, and incentives can come in the form of opportunities to exercise one’s divine objectives. Corporate programs for worker volunteering and free time for worship can work as good incentives, in addition to monetary and materialistic benefits (Moran, Braaten & Walsh 2011).
The argument for the modification of ISI reward system policies
The first policy was to have job-based pay for various positions arrived rationally through market-based data and job evaluation, which would work in the Indian case. The Indian employment situation will support a pay per job position, as the society is largely hierarchical in all its spheres.
The second policy was to have very wide pay ranges for jobs leading to a significant overlap within pay grades. This will also suffice in the Indian case as the elements of masculinity and individualism will balance to create harmony as long as there are sufficient pay grades available for individual and collective worker expression. However, in regards to the second aspect of the policy, which is to have line managers decide on budgets and freedom on pay decisions, the recommendation is against this policy. There should be a clear exhibition of power distance to elicit employee respect for the reward system and will top management makes major decisions will be the right approach for the company to synchronize practices with the Indian culture.
Raises in salary, which is the third policy should be because of individual merit as stated. The only addition is that merit, in this case, does not only have to consider yearly performance evaluation but must also incorporate qualitative skills that contribute to employee cohesiveness in the workplace and overall group productivity. This will help in making the policies have an aspect of long-term orientation, as employees will not only be incentivized to work on yearly performance, but also on the overall organization’s tradition.
The fourth policy is not acceptable in this case. Not all pay decisions should be based on performance only, the company must change this policy to allow employee personal circumstances to play a part in pay negotiations and determination. India is a highly divided country in terms of economic class, and depending on the nature of the job, different employees will derive their job incentives uniquely.
The fifth policy should also be modified such that only employees who are serving the company for a given minimum period are included in the corporate profit-sharing plan. This will work as an incentive for organizational citizenship behavior and will also conform to the cultural aspect of long-term orientation. The policy on bonuses is okay.
Policy 6, 7 and 8 are appropriate for the Indian context, especially for a multinational company that is keen to retain its identity. Policy 9 that covers equal pay for equal work should be used conditionally. When it is an incentive for performance, it will not work as people from different backgrounds have different motivations. Therefore, ISI should be ready to modify it to accommodate other incentives like paid leaves and exposure trips that appeal to a diverse group of workers. The rest of the policies ten and eleven are appropriate for the Indian context.
The intention to retain the reward system policies is noble, but given the contextual differences in the United States and India, the recommendations, and modifications made to these policies should be considered. They are informed by practices and experience of researchers and companies working globally and specifically in the Indian context.
Aycan, Z 2005, ‘The interplay between cultural and institutional/structural contingencies in human resource management practices’, The International Journal of Human Resource Management, vol 16, no. 7, pp. 1083-1119.
Ding, DZ, Akhtar, S & Ge, GL 2009, ‘Effects of inter- and intra-hierarchy wage dispersions on firm performance in Chinese enterprises’, The International Journal of Human Resource Management, vol 20, no. 11, pp. 2370-2381.
Handle, K, Quensel, V & Spohn, S 2011, Rethinking staff incentives – An experience from India, Technical Note No. 2/2011, Frankfurt School of Finance Management – International Advisory Services.
Lee, H-J, Lijima, Y & Reade, C 2011, ‘Employee preference for performance-related pay: Predictors and consequences for organizational citizenship behaviour in a Japanese firm’, The International Journal of Human Resource Management, vol 22, no. 10, pp. 2086-2109.
Moran, RT, Braaten, DO & Walsh, J 2011, International business case studies for the multicultural marketplace, 2nd edn, Routledge, New York, NY.
Pawar, S 2013, Business and Indian culture, Comet Content Providers, New Delhi.
Prabhu, D & Hegde, S 2008, ‘Design and implementation of performance management systems, KPIs and responsibility centers: A case study’, South Asian Journal of Management, vol 19, no. 2, pp. 122-133.
Sitskin, A & Bowen, N 2013, International business: Challenges and choices, 2nd edn, Oxford University Press, Oxford.
The Hofstede Centre 2015, India, viewed 30 June 2015, <http://geert-hofstede.com/india.html>.
Wu, P, Chen, T & Leung, K 2011, ‘Toward performance based compensation: A study of the gaps between organizational practices and employee preferences with regard to compensation criteria in the state-owned sector in China’, The International Journal of Human Resource Management, vol 22, no. 9, pp. 1986-2010.