Transfer or localize? International reward and compensation practices of South Korean multinational enterprises in China

Abstract

International reward and compensation has received little academic attention, but past research was mainly conducted in advanced Western economies. This study explores the extent to which multinational enterprises (MNEs) from an emerging economy, South Korea, transfer reward and compensation practices from business headquarters to a transitional economy, China and the determining factors for transfer. Using a qualitative approach to analysing 10 South Korean MNEs in China, this study reveals that the sample companies adopt home-oriented focal reward and compensation policies and practices (including base pay and performance-based pay) and an integrative approach to peripheral components (including allowances and benefits) for expatriates. However, the companies adopt an integrative approach to focal components of reward and compensation and a localized approach to peripheral components for host country nationals (HCNs). These findings indicate that Korean MNEs adopt different approaches to reward and compensation for expatriates and HCNs, as well as to focal and peripheral components of reward and compensation practices. The transfer of reward and compensation is due to the dominance effect resulting from the fact that the home economy is relatively more advanced than the host economy. On the one hand, the tendency to localize reward and compensation results from contextual differences between host and home nations, such as economic development, living costs and compensation traditions.