"Cash is not king in every country" - The effect of cultures on compensation systems

Abstract

Background and problem: Companies encounter problems when they try to structure reward systems, which is capable to improve both individual and collective efforts. One problem is to be able to create a mixture of monetary and non-monetary rewards that has a positive effect on employees on different levels of the company. There is also a cultural aspect that can have an effect on a reward system. A Swedish employee might not react to a specific reward in the same way as an Englishman or an American. Their independent nationality and culture might create effects that differ greatly. The questions we would like to answer in order to fulfill the purpose of the thesis are: (1) What are the key constitutive elements of a reward system? And (2) What effects does the cultural heritage of employees have on the constitution of the reward system?

Purpose: The purpose of this thesis is to examine and analyze the reward systems of companies from a practical perspective. A special weight will be put on the cultural differences based on the nationality of the employees and how these differences affect the creation of the reward system.

Limitations: The emphasis of the study is the specific cultural influences of USA and Sweden, and in one study the British culture. Any other cultural influences are left outside the study. We have decided to limit our perspective to a system view in interaction with actor views. Any other perspectives are left outside of the thesis. We have limited our cultural conceptions to focus only on collectivism versus individualism, as well as equality versus inequality.

Method: We have gathered information from many different sources in order to conduct the study of this thesis. The information that we use as our theoretical base has been chosen so that we can cover conventional as well as practical theories. Our empirical data consists of articles and data from our questionnaire.

Conclusions: We have in this thesis clearly defined the key elements of a reward system and the possibilities of combinations that can be used. The reward systems’ critical components are the combination of individual and collective base for rewards and the combination of monetary and non-monetary rewards given in order to reduce the employee turnover and create motivation among the employees. Regarding the cultural heritage of an employee, we have found relatively strong correlation between the theories covering cultural aspects, and the empirical data used in this thesis. There is especially a strong correlation between the empirical data and Hofstede’s studies regarding individualism in different cultures.