MGTO 630C Staffing and Managing Human Resources Dr. Christina Sue-Chan Reward and Compensation Systems Introduction: Chapters Saturday, February 22, 2003

2 By the end of today class, you should be able to Understand how compensation systems depend on corporate strategy Appreciate the difficulty in practice of establishing a system that links pay to performance (Eurocap case) Develop insight on whether compensation policies and practices used to motivate and retain employees in the West are applicable in the Chinese context (video)

3 Recall Relationships / trust are key to staffing successfully in China Why?

4 Confucianism: Groups rather than individuals =  Harmony: Individuals defined through their group belongings Should Adapt to the collectivity, especially the family Conflict and emotions should be avoided Harmony, high power distance (and communist values): efforts to maintain harmony but in reality decision making is highly centralized Clear distinction between in-groups (family & friends)and out-groups: harmony versus the law of the jungle No clear distinction between work, family, and friends  Group rather than individual responsibility  Conflict management:  with in-groups: pressure to conform or the use of mediators  With out-groups: ignored or escalate

5 Guanxi: Personal relationships, connections China = relationship society Why? A tradition of “rule by man, not law”- whom can you trust? How to obtain scarce resources, approval?  “Pull relationships”  “use the back-door”  Basis: clan, village, region, education, or built up over time  Introduction, preferably by persons knowing both  Gradual build-up of relationships and trust through interaction, favors  Favors & reciprocation (also to third parties)- the balance important!  Exchanges may favor the weaker partner- gives the stronger- ”face”

6 The Chinese culture in flux Traditional Values Communist Values Emerging Values “Egalitarian” Country orientation Party Class background Hero: farmer/worker “Future” Secrecy Hierarchy Group orientation Societal order: Relationship Ascribed Status Hero: Scholar Past Oriented Indirect (face Saving) communication Less hierarchical, Individualist-materialist, Towards ‘rule by law’, Achievements, Hero: Entrepreneur, Current oriented, More direct communication

7 Is there a 3 rd Way? Some selection tests used in the West  Work sample  Structured situational interview  Assessment centres  Cognitive ability tests  Personality tests Are / would these be effective in HK / China?

8 Comparison of Use in West and China Selection tests used by Dow Chemical Selection tool or practiceBrazilSLABLXGEULEUNA CHINA 1 Face-to-face interview Application form Selection tests Assessment center Work sample / physical ability Employer references Physical check-up 61.5 Own test of trade knowledge/ Skill Data from survey of Hong Kong based and other multinational companies operating in China, Data from studies conducted primarily in North America indicate that, of the above selection tests, work sample tests followed by structured, situational and behavioral interview are the most accurate in predicting job performance.

9 A final word on recruitment: What are the main channels of employees in China? Channels  Government  Market  Social Networks Firm types (defined by ownership)  State-owned enterprises  Collectives (Town-Village Enterprises)  Hybrid firms  Foreign firms  Private firms

10 Compensation Many different options Which is the best for motivating AND retaining employees? Let’s see what insights we can gain from the Eurocap case... and see whether what applies in an MNC would also apply in the Chinese context (video)

11 Compensation: The theory behind the practice Effort Performance Performance Outcome Value of Outcome Does employee have ability to perform? Does employee believe they can perform? Does the employee believe that recognition / rewards promised will be delivered? Is recognition / reward promised valued by the employee? Expectancy x Instrumentality x Valence = Effort

12 Factors to consider when designing the pay structure Competitive pay policy decision (lag, lead, match, etc.) Job evaluation results Labour market and product market pay surveys

13 Consequences of pay policy decisions Efficiency Equity Compliance Competitiveness of Pay Level Contain operating expenses (labour costs) Increase pool of qualified applicants Increase quality and experience Reduce voluntary turnover Increase probability of union-free status Reduce pay-related work stoppages

14 How do you determine the relative worth of a job? Job evaluations are systematic procedures to determine the relative worth of jobs. The purpose of job evaluation is to identify which jobs should be paid more than others. Most common form is points system; however, all methods compare jobs in some way, either by ratings or rankings, on a number of dimensions

15 More about compensation in Greater China Video

16 Pay Preferences: Hong Kong Versus China Hong Kong  base salary  merit pay  year-end bonus (double-pay)  annual leave  mortgage loan  profit sharing China  base salary  merit pay  year-end bonus  housing provision  cash allowance  overtime allowance 1  individual bonus 1 Pay for overtime work performed during the week must be at least 150 percent of the regular salary. On weekends, pay should be at least 200 percent of the normal wage. And for a worker to come in on a holiday, the employer must pay 300 percent of the worker's usual salary. (Ministry of Labor and Social Security, 2000)

17 Top of wage scale for selected positions of state administrative staff (in Yuan) Wage Ratio between highest and lowest rank  1956, 22.8 : 11985, 10.2 : 11993, 6.1 : 1

18 Summary What works in the West will work in Greater China, given time.  However, egalitarian norm still prevails in Greater China

19 Additional resources Anthony B. L. Cheung & Kitty K. Poon. (2000). The paradox of China’s wage system reforms: Balancing stakeholders’ rationalities. Public Administration Quarterly, Winter, Randy K. Chiu, Vivienne Wai-Mei Luk, Thomas Li- Ping Tang. (2002). Retaining and motivating employees: Compensation preferences in Hong Kong and China. Personnel Review, 31, Rebecca McComb. (1999). 2009: China’s Human Resources Odyssey. The China Business Review, September – October, Sheila Melvin. (2001). Retaining Chinese employees. The China Business Review, November - December,