Pay for Payment
The Missouri Computational Company MCC, founded in 1952, is a very successful American company. It develops, produces, and sells medium- and large-size computers. The company currently operates as a multinational corporation in North and South America, Europe, Southeast Asia, Australia, and the Middle East.
Sales activities are regionally structured. The factories are in St. Louis and Newark (NJ); the most important research activities take place in St. Louis. Production, R & D, personnel and finance are coordinated at the American head office.
Business units handle the regional sales responsibilities. This decentralized structure does have to observe certain centralized limitations regarding logs, letter types, types of products, and financial criteria. Standardization of labor conditions, function classification, and personnel planning is coordinated centrally, whereas hiring is done by the regional branches. Each regional branch has its own personnel and finance departments. The management meets every two weeks, and this week is focusing on globalization issues. Internationalization Mr. Johnson paid extra attention in the management meeting.
As vice-president of human resources worldwide he could be facing serious problems. Management recognizes that the spirit of globalization is becoming more active every day. Not only do the clients have more international demands, but production facilities need to be set up in more and more countries. This morning a new logo was introduced to symbolize the worldwide image of the company. The next item on the agenda was a worldwide marketing plan. Mr. Smith, the CEO, saw a chance to bring forward what his MBA taught him to be universally applicable management tools.
In addition to global images and marketing, he saw global production, finance, and human-resources management as supporting the international breakthrough. Johnson’s hair started to rise as he listened to his colleague’s presentation. “The organization worldwide should be flatter. An excellent technique for this would be to follow the project approach that has been so successful in the USA. ” Johnson’s question about the acceptance of this approach in southern Europe and South America was brushed aside with a short reply regarding the extra time that would be allotted to introduce it in hese cultures. The generous allocation of six months would be provided to make even the most unwilling culture understand and appreciate the beauty of shorter lines of communication. Finally, all of this would be supported by a sthrong pay-for-performance system so that, in addition to more effective structures, the employees would also be directed towards the right goals. Johnson’s last try to introduce a more “human” side to the discussion concerning the implementation of the techniques and ppolicy instruments was useless. The finance manager, Mr.
Finley, expressed the opinion of the entire management team: “We know that cultural differences are decreasing with the increasing reach of the media. We should be world leaders and create a future environment that is a microcosm of Missouri. ” Mr. Johnson frowned at the prospect of next week’s international meeting in Europe. (p. 15-16) Background: Missouri Computational Company Since the late 1970s MCC has been operating in more than 20 countries. As its foreign sales have grown, top management has become increasingly concerned about international coordination.
Overseas growth, while robust, has been unpredictable. The company has therefore decided to coordinate the processes of measuring and rewarding achievement worldwide. Greater consistency in managing country operations is also on the agenda. There is not a complete disregard for national differences; the general manager worked in Germany for five years, and the marketing manager spent seven years in the Singapore operation. It has been agreed to introduce a number of ppolicy principles which will permeate MCC plants worldwide.
He CEO envisages a shareable definition of “How we do things in MCC” to let everyone in MCC, wherever they are in the world, know what the company stands for. Within this, there will be centrally coordinated policies for human resources, sales, and marketing. This would benefit customers since they, too, are internationalizing in many cases. They need to know that MCC could provide high levels of service and effectiveness to their businesses, which increasingly cross borders. MCC needs to achieve consistent, recognizable standards regardless of the country in which it is operation.
There is already a history of standardizing policies. The Reward System Two years ago, confronted with heavy competition, the company decided to use a more differentiated reward system for the personnel who sold and serviced mid-size computers. One of the reasons was to see whether the motivation of the American sales force could be increased. In addition, the company became aware that the best sales people often left the firm for better-paying competitors. They decided on a two-year trial with the 15 active sales people in the St. Louis area. Experiment with Pay-for-Performance
The experiment consisted of the following elements: • A bonus was introduced which depended on the turnover figures each quarter for each sales person: 100% over salary for the top sales person; 60% for the second best; 30% for numbers three and four; and no bonus for the remainder. • The basic salary of all sales people of mid-size computers was decreased by 10%. During the first year of the trial period there were continuous discussions among the affected employees. Five sales people left the company because they were convinced the system treated them unjustly. Total sales did not increase as a result of all this.
Despite this disaster, management continued the experiment because they believed that this kind of change was necessary and would take time to be accepted. Pay-for-performance in Sweden: Universalism vs. Particularism MCC has recently acquired a small but successful Swedish software company. Its head founded it three years ago with his son Carl and was joined by his newly graduated daughter Clara and his youngest son Peter 12 months ago. Since the acquisition, MCC has injected considerable capital and also given the company its own computer distribution and servicing in Sweden.
This has given a real boost to the business. MCC is now convinced that rewards for sales people must reflect the increasing competition in the market. It has decreed that at least 30% of remuneration must depend on individual performance. At the beginning of this year Carl married a very rich wife. The mmarriage is happy and this has had an effect on his sales record. He will easily earn the 30% bonus, though this will be small in relation to his total income, supplemented by his wife’s and by his share of the acquisition payment. Peter has a less happy mmarriage and much less money.
His only average sales figures will mean that his income will be reduced when he can ill afford it. Clara, who married while still in school, has two children and this year lost her husband in an air crash. This tragic event caused her to have a weak sales year. At the international sales conference, national MCC managers present their salary and bonus ranges. The head of the Swedish company believes that performance should be rewarded and that favoritism should be avoided; he has many non-family members in his company. Yet he knows that unusual circumstances in the lives of his children have made this contest anything but fair.
The rewards withheld will hurt more deeply than the rewards bestowed will motivate. He tries to explain the situation to the American HR chief and the British representative, who both look skeptical and talk about excuses. He accedes to their demands. His colleagues from France, Italy, and the Middle East, who all know the situation, stare in disbelief. They would have backed him on the issue. Members of his family later say they feel let down. This was not what they joined the company for. (pp. 30-32) Meeting in Milan: Individualism vs. Communitarianism During a meeting in Milan, Mr.
Johnson presented ideas for the payment scheme to motivate the sales force. He became annoyed at the way these meetings were always run and decided to introduce guidelines on how all future meetings should be conducted. He did not like the Singaporean and African representatives always turning up in groups. They should, he said, confine themselves to one representative only, please. And could Mr. Sin from Singapore make sure that his boss was always represented by the same person and not different people on each occasion? These suggestions were not very popular among some of the managers. Mr.
Sin, Mr. Nuere from Nigeria and Mr. Calamier from France wanted to know the reasons for these comments. Mr. Sin asked why, since different issues were on the agenda, they should not have different representatives knowledgeable on the various items. The discussion was going nowhere and, after an hour had passed, Mr. Johnson suggested it be put to a vote, confident that most of his European managers would back him But this, too, proved controversial. Mr. Calamier threw up his hands and said he was “shocked that on such a sensitive and important issue you seek to impose this decision upon a minority. He said there really should be a consensus on this even if it took another hour. Mr. Sin agreed that “voting should be saved for trivial questions. ” Johnson looked to the German and Scandinavian representatives for support, but to his surprise, they agreed that consensus should be given more of a chance. He was too frustrated to respond to the Dutch manager’s suggestion that they should vote on whether to vote. Finally, the Nigerians recommended that, at the very least, discussion and/or voting should be postponed until the next meeting.
How else were those present supposed to solicit the views of their colleagues in their home offices? Wearily, Mr. Johnson agreed. Further discussions about the reward system would have to wait too. (pp. 60-61) Mr. Johnson finally managed to compromise on the representation issue by allowing each national office to send up to three people, if they wished, but no more. This decision had not been voted on. Everyone agreed. Now he could start to tackle the introduction of pay-for-performance, bonuses, and merit pay for next year. He started, as usual, with an overview of the situation in the USA.
It had been three years since the system was first introduced. In general, he explained, they could detect a link between the use of this system and computer sales, although it had to be mentioned that a ssimilar system had failed miserably in the manufacturing department. A different type of achievement-based reward system was currently being tested. No problems were anticipated with this revised system. “In summary,” Johnson said, “we are sthrongly convinced that we need to introduce this system worldwide. ” The northwest European representatives voiced their carefully considered, but positive, comments.
Then the Italian representative, Mr. Gialli, began describing his experience with the system. In his country, the pay-for-performance experiment did much better than he had expected during the first three months. But the following three months were disastrous. Sales were dramatically lower for the salesperson who had performed the best during the previous period. “After many discussions,” he continued, “I finally discovered what was happening. The salesperson who received the bonus for the previous period felt guilty in front of the others and tried extremely hard the next quarter not to earn a bonus. The Italian manager coincluded that, for the next year of this experiment, the Italian market should be divided into nine regions. All sales representatives within one region should be allowed to allocate the bonus earned in their region either to individual performers or to share it equally. The blunt Dutch manager’s reaction was: “I have never heard such a crazy idea. ” (P. 63) The Italians’ Reaction: Affective versus Emotion-Neutral Cultures Raising his voice, Mr. Pauli, Gialli’s colleague, asked: “What do you mean, a crazy idea? We have carefully considered the pros and cons, and consider that it would greatly benefit the buyer. “Please, don’t get over-excited,” pleaded Mr. Johnson. “We need to provide solid arguments and should not get side-tracked by emotional irrelevancies. ” Before Bergman had a chance to explain why he thought it was a crazy idea, the two Italian colleagues left the room for a time-out. “This is what I call a typical Italian reaction,” Mr. Bergman remarked to his colleagues. “Before I even had a chance to give my arguments as to why I think the idea is crazy, they walk out. ” The other managers were squirming uncomfortably in their chairs. They did not know what to think.
Mr. Johnson got up and left the room to talk to the Italians. (p. 72) Understanding Cultural Differences: Diffuse versus Specific Roles As the representative from head office, Mr. Johnson felt very responsible for the developments at the meeting. The Italians’ behavior seemed strange to him. Mr. Bergman just wanted to discuss an important aspect of the consistency of the reward system, and they had not even given him a chance to explain his position. Moreover the Italians had refused to put any solid arguments on the table themselves. When Johnson entered Mr.
Gialli’s room he said: “Paolo, what’s the problem? You shouldn’t take this too seriously. It’s just a business discussion. ” “Just a business discussion? ” Gialli asked with unconcealed rage. “This has nothing to do with a business discussion. It is typical for that Dutchman to attack us. We have our own ways of being effective, and then he calls us crazy. ” “I didn’t hear that,” Johnson said. “He simply said that he found your group bonus idea crazy. I know Bergman and he didn’t intend that to refer to you. ” “If that’s so, answered Gialli, “why is he behaving so rudely?
Johnson realized how deeply his Italian colleagues had been offended. He went back to Bergman, took him aside, and told him about his conversation with Gialli. “Offended! ” said Berman. “Let them have the self-control to respond to professional arguments. I don’t understand why they are so hot-headed anyway. They know we have done extensive research on this. Let them listen first. You have to remember that these Latins never want to be bothered with facts. ” (p. 86) Mr. Munoz Mediates: How We Accord Status The Italian managers were far from assuaged.
One even referred unpleasantly to “the American cult of youth: mere boys who think they know everything. ” So when the Spanish HR manager, Mr. Munoz, offered to mediate, Johnson readily agreed. It occurred to him that Spanish culture might be closer to Italian culture, apart from the fact that Munoz was some 20 years his senior, so could hardly be accused of inexperience. While hopeful that Munoz might succeed, Johnson was astonished to see him bring the Italians back into the conference room in minutes. Munoz was not, in Johnson’s view, the most professional of HR managers, but he was clearly expert at mending fences.
It was at once apparen’t, however, that Munoz was now backing the Italians’ call for modifications to the pay-for-performance plan. The problem as he saw it, and the Italians agreed, was that under the current plan winning salespeople were going to earn more than their bosses. Subordinates, they believed, should not be allowed to undermine their superiors in this way. Mr. Munoz explained that back in Spain his sales force would probably simply refuse to embarrass a boss like this; or perhaps one or two, lacking in loyalty to the organization, might, in which case they would humiliate their boss into resignation.
Furthermore, since the sales manager was largely responsible for the above-average performance of his team, was it not odd, to say the least, that the company would be rewarding everyone except the leader? The meeting broke for lunch, for which Johnson had little appetite. (p. 106) After Lunch: Attitudes Toward Time At 1:50 p. m. most participants returned to the meeting room. At 2:05 p. m. Johnson started pacing restlessly up and down. Munoz and Gialli were still down the hall making telephone calls. They came in at 2:20 p. m.
Johnson said, “Now, gentlemen, can we finally start the meeting. ” The Singaporean and African representatives looked puzzled. They thought the meeting had already started. The first point on the agenda was the time intervals determining bonuses and merits. All except the American, Dutch, and other northwest European representatives complained that these were far too frequent. To Johnson and his Dutch and Scandinavian colleagues, the frequency was obviously right. “Rewards must closely follow the behavior they are intended to reinforce; otherwise, you lose the connection. The manager from Singapore responded, “Possibly, but this go-for-the-quick-buck philosophy has been losing us customers. They don’t like the pressure we put on at the end of the quarter. They want our representatives to serve them, not to have private agendas. We need to keep our customers long-term, not push them into buying so that one salesperson can beat a rival. ” (pp. 133-4) Facing change: Inner and Outer Directed Mr. Djawa from Indonesia then raised two objections to Mr. Johnson regarding the pay-for-performance approach. “It does not work in our sales territories.
It leads to customers being overloaded with products they never wanted and do not need. Furthermore, when things are not going well for our people, it is a mistake to hurry them or blame them. There are good times and bad times. Paying them for performance does not change inevitable trends” This did not impress Johnson and his Western colleagues. “We want to develop something at HQ that will motivate everyone. Are you saying that linking reward to success has no influence at all? Surely you must agree there is some connection. ” Mr. Djawa replied, “It certainly has effects, but these tend to be swamped by economic booms and busts.
As the flamingo twists its head round to look at Alice, the hoops wander off, and the balls crawl away. The result is chaos. “Other cultures aren’t part of a machine, or the organs of a supra-natural body. They’re different animals, all with logic of their own. If we asked them what game they are playing, and got them to explain the rules, we might discover that we aren’t holding a mallet at all, or we might even get the hedgehog to go in the right direction. ” Trompenaars, F. , ; Hampden Turner, C. (1998). Riding the waves of culture: Understanding cultural diversity in global business. New York: McGraw Hill.