Analisis Sistesis, Opinion Personal

The effects of cultural orientations on preferred compensation policies

Hamid Yeganeha* and Zhan Sub

aDepartment of Business Administration, College of Business, Winona State University, Winona,MN, USA; bDepartment of Management, Laval University, Quebec City, QC, Canada

This study aims at examining the relationship between cultural orientations andpreferences for compensation policies. The study involves two concepts: cultureand compensation. In the first part of this article, these concepts are framed; and in thesecond part, after direct measurement of both cultural traits and compensationpreferences, their relationships are tested and discussed. Our findings suggest that whileculture represents an important factor in human resource management, its effects oncompensation preferences should be viewed as partial and moderate. Further analysisreveals that the effects of culture on preferred compensations may vary from oneorientation to another. While some cultural orientations are more likely to affect paypolicies, others seem to be of lesser importance. Similarly, it is found thatcompensation policies are not affected equally by cultural orientations. By analyzingthe extent and direction of cultural effects, the study provides some insights intodesigning compensation policies and points out the managerial implications.

Keywords: compensation; culture; human resource management; internationalmanagement; Iran; Middle East

Introduction

Culture has become an important factor in explaining all aspects of organizational

behavior (Laurent 1986; Hampden-Turner and Trompenaars 1993; Whitley 2000; Hickson

and Pugh 2001; Hofstede 2001; Mangaliso 2001). Despite this interest, the majority of

studies on culture have focused on the national level of analysis, in that they have

compared aggregated scales of cultural values across countries (Hofstede 1980; Schwartz

1992; Cohen 2007). Considering that culture is a broad, fuzzy, and multidimensional

concept, a very fundamental question in cultural management research is to look at the

effects of cultural orientations on organizational behavior. This research agenda seems

legitimate, because individuals both within and across societies hold different cultural

values that influence their attitudes and behaviors (Schwartz, Sagiv and Boehnke 2000).

Accordingly, in this study we are not interested in cross-national variations, but we focus

on the cultural values within one society and their implications for compensation policies.

In our view, these cultural values influence how people perceive and interpret a given

situation, and consequently how they behave (Schwartz et al. 2000). More specifically, in

this study, we intend to examine some possible relationships between cultural values and

preferred compensation policies. This objective seems appealing, because among all

human resource management (HRM) functions, compensation is a fundamental one that

may influence all aspects of organizational behavior and ultimately its performance

ISSN 0958-5192 print/ISSN 1466-4399 online

q 2011 Taylor & Francis

DOI: 10.1080/09585192.2011.588036

http://www.informaworld.com

*Corresponding author. Email: [email protected]

The International Journal of Human Resource Management,

Vol. 22, No. 12, July 2011, 26092628

(Bonache and Fernandez 1997). Moreover, compensation has been dominated

traditionally by a microlevel perspective focusing solely on intra-organizational settings

(Gomez-Mejia and Welbourne 1988, 1994). The current study involves direct

measurement of both cultural values and compensation preferences held by Iranian

managers in order to test their possible relationships. While most of the empirical studies

are devoted to developed countries of Western Europe or North America (Hiltrop 1993;

Brewster and Hegewisch 1994; Brewster 1995; Sparrow and Hiltrop 1997; Sparrow and

Wu 1998), testing HRM hypotheses in a developing country such as Iran might have

significant theoretical and managerial implications.

The remainder of this article has been organized into three major parts. First, the

concepts of culture and compensation are framed. Then, by relying on an integrative

conceptual framework, the data are collected and analyzed. At the end, findings are

described, theoretical/managerial implications are discussed, research limitations are

mentioned, and some avenues for future studies are pointed out.

Culture and cultural orientations

Kroeber and Kluckhohn (1952) suggested a very comprehensive definition of culture as

follows: culture consists of patterns, explicit and implicit of and for behavior acquired and

transmitted by symbols, constituting the distinctive achievements of human groups,

including their embodiment in artifacts; the essential core of culture consists of traditional

ideas and especially their attached values . . . . For the purpose of this study, we define

culture as the collective programming of the mind, which distinguishes the members of

one group or category from another (Hofstede 1980). Since culture is a complex concept,

a practical approach would be to identify/study several of its major dimensions (Yeganeh

and Su 2006). The cross-cultural literature provides us with several conceptual

frameworks based on various dimensions along which cultural traits can be analyzed and

compared (Kluckhohn and Strodtbeck 1961; Hall 1976; Hofstede 1980; Schwartz 1992;

Trompenaars 1993; Hampden-Turner and Trompenaars 1994). Among them, Kluckhohn

and Strodtbecks framework (1961) seems to be a very comprehensive and convenient

framework to be applied in organizational research (Maznevski, Gomez, DiStefano,

Noorderhaven and Wu 2002; Yeganeh, Su and Sauers 2009). Kluckhohn and Strodtbeck

(1961) identified six major orientations:

(1) Relationship to Nature: dominance, subjugation, or harmony.

(2) Relationships among People: individualism, collectivism, or hierarchical

structure.

(3) Time Orientation: focus on the present, past, or future.

(4) Human Activity: focus on being, doing, or thinking.

(5) Human Nature: good, bad, or a combination of both.

(6) Conception of Space: private, public, or a mixture of both.

The cultural orientations as proposed by Kluckhohn and Strodtbeck (1961) are

straightforward and meaningful constructs and are presumed to be found in all societies

(Maznevski et al. 2002; Yeganeh et al. 2009). In contrast to some frameworks such as

Hofstedes (1980), Kluckhohn and Strodtbecks model is based on cultural orientations

that are not necessarily dichotomous. That is, a high preference for one orientation does

not necessarily mean a low preference for the other orientation. This characteristic may

allow a better understanding of cultural phenomena in the area of organizational

research (Maznevski et al. 2002). Another major advantage in applying this framework

H. Yeganeh and Z. Su2610

is that it distinguishes between individual and aggregate levels. In that way, researchers

can make hypotheses and test them at the individual level or aggregate measures

to examine variances both within and between cultures (Maznevski et al. 2002). Thus,

we argue that the Kluckhohn and Strodtbecks framework is most applicable to the

current study.

Compensation policies

Among all HRM functions, compensation is perhaps the most fascinating because it is

related directly to money. Money is the rationale behind any business activity and the

impetus for every transaction in the society. As a matter of fact, compensation affects not

only the performance of the organization but also its very existence. For the purpose of this

research, the terms compensation, rewards, and remuneration are used interchangeably.

Geringer and Frayne (1990) have defined compensation as what includes those rewards

monetary and non-monetary, direct or indirect that an organization exchanges for the

contributions of its employees, both job performance and personal contributions.

According to the definition of American Compensation Association (1995), compensation

can be defined as cash and non cash remuneration provided by an employer for services

rendered. Compensation can include anything an employee may value and desire that an

employer is able or willing to offer in exchange for employees contribution (Henderson

1989, p. 2). Compensation can be both tangible and intangible. Tangible compensation is

financial and may be direct or indirect. The most basic forms of direct compensation are

pay and incentives. Pay takes usually the form of a wage or salary. An incentive, on the

other hand, is a kind of compensation that rewards an employee for efforts beyond normal

performance expectation. Bonuses, commissions, and profit-sharing plans are examples of

incentives. Indirect compensation is a tangible reward, which is not received in cash.

Examples of indirect rewards are benefits such as health insurance, vacation pay, or

retirement pensions given to an employee.

Compensation policies cover a wide range of issues related to reward philosophies,

pay basis, form of reward packages, design of the pay system, and administrative

frameworks. Through an extensive review of literature, Gomez-Mejia and Balkin (1992)

suggested 17 different categories of the compensation systems. These categories are

grouped in pairs of opposite and distinct choices as depicted in Table 1. Left-hand

compensation policies are labeled mechanistic as they reflect formalized procedures that

are applied uniformly across organizations. By contrast, the right-hand policies are

branded organic because they are more responsive to varying conditions, contingencies,

and individual situations (Gomez-Mejia and Welbourne 1988). All these choices may be

grouped based on three main criteria: (A) basis for pay, (B) pay design, and (C)

administrative frameworks used to deliver the reward (Gomez-Mejia and Balkin 1992).

The basis for pay may include nine important policies which are used to determine

rewards: Job vs. Skills, Performance vs. Seniority, Individual vs. Group Performance,

Short- vs. Long-Term Orientation, Risk Aversion vs. Risk Taking, Corporate vs. Division

Performance, Internal vs. External Equity, Hierarchical vs. Egalitarian, and Quantitative

vs. Qualitative Measures of Performance. The design of a compensation system is related

to four major policies: Higher than Market Pay Level vs. Lower than Market Pay Level,

Fixed Pay vs. Incentives, Monetary vs. Non-monetary Rewards, and Intrinsic vs. Extrinsic

Rewards. Finally, the administrative framework of compensation may include four other

choices: Centralized vs. Decentralized Pay Policies, Open vs. Secret Pay, Participation vs.

Non-participation of Employees, and Bureaucratic vs. Flexible Pay Policies.

The International Journal of Human Resource Management 2611

Research framework

The objective of this research is to investigate the effects of cultural orientations on

preferred compensation policies. Therefore, an appropriate framework should encompass

both culture and compensation. This framework is presented in Figure 1.

The theory of Kluckhohn and Strodtbeck (1961) has been regarded as one of the most

comprehensive models for analyzing culture in organizational disciplines (Maznevski et al.

2002; Yeganeh et al. 2009). While the original cultural model consists of six orientations,

due to measurement limitations, we choose for a model of five orientations. The sixth

orientation as proposed by Kluckhohn and Strodtbeck (1961) is related to the conception

of space. Indeed, the Cultural Perspectives Questionnaire (developed by Maznevski et al.

2002) measures only five cultural orientations and does not include the sixth orientation.

Therefore, we include these five orientations: Human Nature Orientation, Activity

Orientation, Relational Orientation, Man-to-Nature Orientation, and Time Orientation.

As discussed earlier, the compensation policies represent a wide range of options,

however; for the purpose of this research and in the environment of Iranian organizations,

it is necessary to choose only the policies which are contextually and practically

meaningful. The concept of HRM is essentially Western (Brewster 1995). Therefore, in

any investigation in non-Western countries, a good deal of attention should be paid to

cultural relativity of HRM (Sparrow and Wu 1998). For increasing the conceptual

equivalency, in this research we used a combination of emicetic approaches (Berry

1990). It means that we did not impose some Western concepts to a different sociocultural

context such as Iran. Rather, first, through observation and participation, we attained emic

knowledge, and then we adopted 10 culturally meaningful etic compensation policies.

On the one hand, these compensation policies are emic constructs, because they correspond

to the local context of investigation (Iran). On the other hand, they are etic, because they

have been adopted from the Western HRM practices. Therefore, we argue that these 10

policies represent the most important compensation issues which are supposed to matter in

Table 1. Typologies of compensation policies.

(A) Basis for pay1 Job vs. Skills2 Seniority vs. Performance3 Group vs. Individual Performance4 Short- vs. Long-Term Orientation5 Risk Aversion vs. Risk Taking6 Corporate vs. Division Performance7 Internal vs. External Equity8 Hierarchical vs. Egalitarian9 Quantitative vs. Qualitative Measures of Performance(B) Design10 Higher than Market Pay Level vs. Lower than Market Pay Level11 Fixed Pay vs. Incentives12 Monetary vs. Non-monetary Rewards13 Intrinsic vs. Extrinsic Rewards(C) Administrative framework14 Centralized vs. Decentralized Pay Policies15 Secret vs. Open Pay16 Low Participation of Employees vs. High Participation17 Bureaucratic vs. Flexible Pay Policies

Adopted from Gomez-Mejia and Balkin (1992).


the context of our investigation. The 10 pairs of compensation policies are described

in Table 2.

Hypotheses

I. Activity orientation

The Activity Orientation has three subdivisions: Doing, Being, and Thinking. The Doing

Orientation involves that people are continually engaged in activity to accomplish

tangible tasks. According to Maznevski and DiStefano (1995), this orientation

corresponds to the masculinity dimension as described by Hofstede (1980). Masculine

or Doing cultures cherish assertiveness, achievement, and material success, whereas

Being/Thinking cultures emphasize human relationships and the quality of life. Hence,

Culture Compensation

Human natureorientation

Activityorientation

Man-to-natureorientation

Relationalorientation

Good-Evil

Mastery

Subjugation

Harmony

Individual

Hierarchical

Collateral

Being

Doing

Thinking

Hierarchical /Egalitarian

Fixed/Variable Pay

Time/Production

Short/long-term Pay Orientation

Seniority/Performance

Monetary /Non-monetary

Secret/Open Pay

Low/High Participation Employees

Job/Skill

Time orientation

Future

Present

Past

Individual/Group Performance

Figure 1. Research framework incorporating personal cultural orientations and compensationpolicies.


a compensation system that links reward to results and personal achievement should be

preferred by Doing cultures (Johnsona and Droegeb 2004). By the same logic, it is argued

that employees in Doing cultures are more likely to accept the increased risk inherent in

outcome-based contracts due to the emphasis they place on achievement and desire for

material rewards (Newman and Nollen 1996; Johnsona and Droegeb 2004). In other

words, Doing cultures operate more consistently with the assumptions of agency theory

and outcomes. On the contrary, Thinking/Being cultures emphasize interdependence,

relationships, service, and above all harmony (French and Weis 2000), and consequently

are more likely to prefer behavior-based compensation policies (Newman and Nollen

1996; French and Weis 2000).

In line with these arguments, it is possible to propose that:

Hypothesis 1a: Doing cultural orientation is associated with preference for Variable

Pay, Skill-based, Individual-based, Production-based, and Monetary

compensation policies.

Table 2. Description of 10 pairs of compensation policies used in the study.

1 Job-based Skill-basedThe factors within the job are keydeterminants of the amount of pay.

Workers are rewarded based on theirmastery and skill.

2 Group Performance Individual PerformanceGroup appraisal affects rewards. Individual appraisals affect rewards.

3 Fixed Pay Variable PayCompensation is based on membership inthe organization and employees arerewarded the same amount on apredictable basis.

Compensation is based on paying asubstantial portion of an employeesincome on a variable basis.

4 Time-based Productivity-basedEmployees are paid for the amount oftime spent on the job.

Employees are paid for the amount ofwork produced.

5 Short-Term Orientation Long-Term OrientationThe compensation is based on satisfyingcurrent needs of employees.

The compensation has a long-termhorizon and focuses on future goals.

6 Nonmonetary MonetaryRewards are noncash and often intangiblebenefits such as employment security,recognition, employee involvement indecision making, etc.

Rewards involve a tangible cash paymentto employees in order to satisfy theirextrinsic needs.

7 Hierarchical Reward Structure Egalitarian Reward StructureWage gaps between top management andfrontline workers are huge.

Wage gap between top management andfrontline workers are not huge.

8 Seniority PerformanceReward and pay increase are based ontenure and seniority of employees.

Reward and pay increase are based onperformance and results.

9 Secret Pay Open PayFirms keep pay information secret fromemployees.

Firms have policies to disclose payinformation.

10 Low Participation of Employees High Participation of EmployeesPay decisions are made on an authoritar-ian basis. Employees do not participate indesigning pay, and their feelings are notvalued.

Employees participate in designing pay,and their feelings are considered.


Hypothesis 1b: Being and Thinking cultural orientations are associated with preference

for Fixed Pay, Job-based, Seniority-based, Non-monetary, and

Time-based compensation policies.

II. Relationships among people

Relationships among People are about Individualism, Collectivism, and Hierarchy.

Hofstede (1980) views an individualistic society as one in which beliefs and behaviors are

determined by the individual; whereas in a collectivist society, loyalty toward ones

family, job, and country tends to determine the attitudes. People in collectivistic cultures

expect members of their particular in-groups to look after their members and give them

security (Adler 1997). Individualists involvement with an organization is largely

contractual, whereas collectivists are connected to their organizations through moral

commitment. Therefore, the use of financial incentives should be favored more in

individualistic cultures (Gomez-Mejia and Welbourne 1994). Individualism also involves

a tendency toward individual performance. Thus, individual-based performance incentives

might be more appropriate for individualist cultures (Gomez-Mejia and Welbourne 1994;

Chiang and Birtch 2006). In contrast, collectivism orientation emphasizes compensation

policies that support group harmony and cohesion (Cable and Judge 1994). Hence,

collectivists may prefer behavior-oriented reward systems that are non-competitive in

nature.

It is possible to find a similarity between Kluckhohn and Strodtbecks Hierarchy and

Hofstedes Power Distance (Maznevski et al. 2002). Hierarchy and Power Distance are

related to the inequality that exists within the society. In high Power Distance cultures,

organizations are marked by centralization, concentration of authority, and tall pyramids

(Hofstede 1980). In high Power Distance cultures, wage and salary are based on the

subjective and behavior-oriented evaluations of managers who reserve the right to assign

differential salaries to employees recruited for the same job (Aycan 2005). As a result of their

respect for authority and loyalty, reward systems that are based on seniority are more

appreciated in high Power Distance cultures (Child and Markoczy 1993; Hui and Luk 1997).

Consequently, it is possible to assume that

Hypothesis 2a: Collectivism cultural orientation is associated with preference for

Job-based, Group Performance, Fixed Pay, Hierarchical, Time, and

Seniority-based compensation policies.

Hypothesis 2b: Individualism cultural orientation is associated with preference for

Skill-based, Individual Performance, Variable Pay, Production-based,

Egalitarian, and Performance-based compensation policies.

Hypothesis 2c: Hierarchy cultural orientation is associated with preference for

Job-based, Fixed Pay, Hierarchical, Seniority-based, and Low

participation compensation policies.

III. Relationship to nature

Relationship to Nature has three subdivisions: Mastery, Harmony, and Subjugation.

Mastery implies that people try to control, change, or exploit the environment. By contrast,

a harmonious relationship with nature involves maintaining balance and status quo

(Maznevski and DiStefano 1995). Subjugation to nature is the opposite of Mastery and


means that people are passive toward the environment and its forces. Mastery Orientation

is reflected in the goal-setting and motivational practices characterized by high degrees of

individuals internal locus of control (Locke, Latham and Erez 1988). Individuals with a

strong internal locus of control are more likely to pursue their goals and may be inclined to

outcome-oriented rewards like pay for performance and variable pays. In contrast,

Harmony and Subjugation orientations involve a predisposition toward an external locus

of control (Gopalan and Stahl 1998), which can be related to behavior-oriented

compensations such as fixed-pay and ascription-based rewards.

Therefore, it is plausible to propose the following hypotheses:

Hypothesis 3a: Mastery cultural orientation is associated with preference for

Skill-based, Individual Performance, Variable Pay, Production-based,

Egalitarian, and Performance-based compensation policies.

Hypothesis 3b: Harmony and Subjugation cultural orientation are associated with

preference for Job-based, Group Performance, Fixed Pay, Time-based,

Hierarchical, and Seniority-based compensation policies.

IV. Time orientation

According to Kluckhohn and Strodtbeck (1961), people can take a past-, present-, or future

orientation toward time. For example, it has been suggested that Americans are oriented

toward the future and consequently are not inclined to uphold the status quo (Gopalan and

Stahl 1998). By contrast, most of the traditional cultures are past-oriented and attach

importance to maintaining their traditions. These traditional cultures are characterized by

social order, respect for tradition, family security, and wisdom (Schwartz 1992). In such

cultures, the person is viewed as embedded in a group, and emphasis is put on the maintenance

of the status quo, modesty, and restraint of actions or inclinations that might disrupt the

solidarity or the traditional order (Schwartz 1992). Accordingly, it seems plausible to put

forward that Past cultural orientation embraces behavior-oriented compensations which favor

the status quo and harmony. By the same logic, Present and Future cultural orientations may

be associated with result-oriented compensations. Therefore, it is possible to hypothesize that:

Hypothesis 4a: Past cultural orientation is associated with preference for Job-based,

Group Performance, Fixed Pay, Time-based, Hierarchical, and

Seniority-based compensation policies.

Hypothesis 4b: Future and Present cultural orientations are associated with preference

for Skill-based, Individual Performance, Incentives, Egalitarian, and

Performance-based compensation policies.

V. Human nature

On the basis of Kluckhohn and Strodtbeck model (1961), people may perceive human

nature as good, bad, or a mixture of both. Good Orientation entails that people are

trustworthy. By contrast, Evil Orientation implies that individuals cannot be trusted to do

the right thing. Taking human nature as bad implies mistrust in the workplace and tighter

control mechanisms (McGregor 1960). In the same way, thinking that human beings are

good may lead to flat organizations with more participation and less formal control

mechanisms (McGregor 1960). Therefore, the following hypothesis is suggested:


Hypothesis 5: Good and Evil cultural orientations are, respectively, associated with

preference for High and Low participation of employees in designing

compensation system.

Instrumentation

Cultural orientations

For measuring cultural orientations, we used CPQ developed by Maznevski et al. (2002).

This instrument measures 13 subdivisions of five cultural orientations and has shown an

acceptable degree of psychometric equivalence and reliability (Maznevski et al. 2002).

The CPQ consists of 89 Likert-type questions, scaled from 1 to 7, which are randomly

distributed in the questionnaire to minimize the errors due to acquiescence. The average

priorities attributed to different values by societal members reflect their shared culture

(Schwartz 1994). Hence, the average scores point to the underlying, common cultural

values (Schwartz 1992). Building on this logic, first the scores for every individual were

calculated, and then these scores were aggregated to obtain shared cultural values. Internal

reliabilities of cultural orientations were verified by calculating Cronbachs alphas.

Preferred compensation policies

In order to measure preferred compensation policies, an instrument was designed based

on 10 pairs of classifications presented in the research framework (see Figure 1).

The instrument consisted of Likert-type questions scaled from 1 to 7. We asked

respondents to rate their preference on this scale from 1 to 7, where number 1 showed the

strongest degree of preference for the left-hand orientation and number seven pointed to

the strongest preference for the right-hand orientation of the item. Number 4 was

interpreted as an equal degree of preference for both orientations.

Sampling and data

The samples consisted of three levels of managers (supervisor, middle, and top

management) working in large Iranian organizations operating in the service sector (see

Appendix 1 for an overview of the Iranian context). As a result of their size and structure,

these organizations seem more appropriate for conducting a study on compensation policies.

Due to lack of the reliable lists and other operational difficulties, the researchers had to rely

on opportunistic samples (Sekaran 1983). It is of paramount importance to mention that this

study is a one-country analysis that intends to examine the relationship between cultural

orientations and compensation policies. To this end, the research design seems appropriate,

as the study is not concerned with samples representativeness or cross-national variations.

Regulations for collecting data in Iranian organizations are very tight; therefore, the

researchers had to rely on a network of influential people to overcome hurdles and obtain

approval. Every questionnaire was accompanied by a cover letter written by managing

directors and explaining the purpose of the investigation. All semantic questionnaires

were translated into Persian (Farsi) through back-translation. In addition to cultural

orientations and preferred compensation policies, another questionnaire was designed to

investigate the respondents profiles. In this questionnaire, issues such as age, sex, and

educational/professional background were investigated. The anonymous auto-administered

questionnaires and supporting instructions were mailed and after follow-up (2 months), 153

usable questionnaires were received, representing 46% rate of response. The results are


shown in three tables: respondents profiles (Table 3), cultural orientations (Table 4), and

preferences for compensation policies (Table 5).

Cultural orientations and the Iranian culture

Table 4 depicts means, internal reliability, and standard deviation for 13 cultural

orientations. The scores of cultural orientations seem appealing as they shed light on some

facets of Iranian culture.

Collectivism

As shown in Table 4, the means for two relational orientations, Individualism and

Collectivism, are (X 4.30) and (X 6.02), respectively, suggesting that Iranianrespondents are characterized by a high degree of collectivistic orientation. These results

are very similar to those of Hofstede (1980) that ranked Iran as a highly collectivistic

country. In collectivistic societies, private life is invaded by groups interests, and the society

tends to operate on the basis of inter-personal relationships among individuals, rather than on

the basis of impersonal institutions. The antecedents and manifestations of collectivism may

be found in many aspects of Iranian society such as history, literature, economic and political

systems, family structure, language, communication patterns, and management practices.

For instance, inter-personal connections and informal channels seem more practical,

whereas formal systems, official institutions, and procedures are considered less efficient.

Table 3. Respondents profile.

Characteristic Value Frequency %

Country of birth Iran 153 100Other 0 0Missing 0 0

Have you always lived in the country of birth? Yes 147 96No 6 4Missing 0

Sex Male 127 83Female 16 10Missing 10 7

Age group 3034 18 11.83539 27 17.64044 48 31.44549 41 26.85054 8 5.25055 4 2.6Missing 7 4.58

Education Bachelor 72 47Master 67 44Doctor 3 2Missing 11 7.1

Job level Supervisor 51 33.3Middle manager 70 45.8Top manager 13 8.5Missing 19 12.4

Which factor is more important in shaping your culture Country of birth 72 47Religion 66 43Missing 15 9.8


Hierarchy

Hierarchy Orientation has a big mean (X 5.83) reflecting the high degree of hierarchicaldistance among Iranian managers (see Table 4). This result is in accord with previous

investigations in Iranian organizations such as Hofstedes study (1980). The antecedents

of high hierarchical distance are deeply rooted in many aspects of Iranian mythology,

history, politics, religion, and family structure.

Past orientation

For the temporal orientation, Present got a small alpha coefficient (a 0.24) indicating avery low level of internal reliability of the scale. The data for two other orientations

suggest that, with a mean (X 6.10) for Past, Iranian managers tend to be past-orientedrather than future-oriented. These results are consistent with the GLOBE project that

found future orientation receives very low emphasis in Iran.

Activity orientation: thinking, being, and doing

As shown in Table 4, as of Activity Orientation, respondents get a high score for Thinking

(X 6.22), a moderate score for Being (X 4.78), and a relatively low score for Doing

Table 4. Cultural orientations.

Cultural orientations Alpha Mean Standard deviation

Activity 1 Thinking 0.75 6.22 0.542 Being 0.55 4.78 0.653 Doing 0.70 4.30 0.83

Time 4 Future 0.55 4.69 1.035 Present 0.24 3.45 1.006 Past 0.69 6.10 0.55

Relation with others 7 Hierarchy 0.56 5.83 0.508 Individualism 0.60 4.30 0.789 Collectivism 0.61 6.02 0.51

Relation with environment 10 Harmony 0.68 5.60 0.6211 Subjugation 0.65 3.90 0.7012 Mastery 0.65 5.53 0.68

Human nature 13 Evil 0.60 4.56 0.74

Table 5. Preferences for compensation policies.

Compensation policies Mean Standard deviation

1 Job/Skill 4.02 0.852 Individual/Group 4.21 1.143 Fixed/Variable Pay 3.75 1.024 Time/Production 4.40 1.145 Short-/Long-term Pay 3.54 1.486 Monetary/Non-monetary 4.52 0.787 Hierarchical/Egalitarian 3.47 0.618 Seniority/Performance 4.58 1.749 Secret/Open Pay 4.18 1.04

10 Low/High Participation 4.76 0.80


(X 4.30). Thinking cultures are supposed to be oriented toward analysis, calculation,and planning. Therefore, a very high score of Thinking Orientation might be interpreted as

willingness of Iranian managers for planning and anticipation; however, it seems that these

results are not in conformity with previous studies (Yeganeh and Su 2008). In Doing

cultures, people tend to view work activities as core to their existence and they attach

much importance to achievement and hard work. By contrast, in Being cultures, peace of

mind is cherished and emphasis is placed on immediate gratification. The results of our

survey suggest that Iranian managers have a weak tendency toward Being Orientation.

Good and evil

According to the instrument used in this study, Good Orientation supposes that people are

by nature good and can be trusted. By contrast, Evil Orientation holds that individuals

are basically wicked and cannot be trusted to do the right thing. As shown in Table 4, the

mean for human nature orientation corresponding to Good/Evil is relatively moderate

(X 4.56), suggesting that respondents view human beings as slightly wicked.

Subjugation, harmony, and mastery

According to Table 4, the score for Subjugation is relatively low (X 3.90), but the scoresfor both Harmony (X 5.60) and Mastery (X 5.53) are high, indicating that Iranianrespondents do not seem to be subjugated. Since Iranian culture is dominated by religion

and God, we might suppose that it has a tendency toward subjugation and fatalism.

However, our results do not confirm this proposition. High levels of Mastery and Harmony

can be interpreted as an interaction between two orientations. In other words, while

Mastery Orientation implies a proactive culture, Harmony tries to keep the action in

concord with the context.

Compensation policies

Table 5 presents the means and standard deviations for 10 pairs of compensation policies.

As shown, the means for Job-/Skill-based (X 4.02), Individual/Group (X 4.21), andSecret/Open compensation (X 4.18) are close to 4, suggesting that the respondentsprefer balanced policies between mechanic and organic approaches. As of Hierarchical/

Egalitarian (X 3.47), Short-/Long-term (X 3.54), and Fixed/Variable Pay (X 3.75),there is a tendency toward left-hand choices. For other policies, Time/Production

(X 4.40), Monetary/Non-monetary (X 4.52), and Seniority/Performance (X 4.58),there is a slight preference for organic pay policies.

Data analysis

First of all, coefficients between non-cultural variables such as sex, age, education, job

level, and preferences for compensation policies were calculated. The results did not

reveal any significant relationships between age, sex, education level, and preferred

compensation policies. This issue may be explained by the fact that the respondents

consisted of a predominantly male workforce (83%) and they were very similar in terms of

age and education background (see Table 3). The results, however, showed a slight

association between job level and some preferred compensation policies. For instance, it

seems that job level is moderately related to preference for Job-based (r 0.151) andHierarchical Pay (r 0.173) policies.


Subsequently, Pearson correlation coefficients between cultural orientations and

preferred compensation policies were computed in order to verify research hypotheses.

Also, multiple regression analysis technique was used to determine to what extent every

compensation policy is linked to all the cultural orientations. This is permitted to make

sense of the overall effects of cultural orientations on every particular compensation

policy. As presented in Table 6, among Activity orientations, Thinking does not have a

significant correlation with any preferred compensation policies, but Being has significant

correlations with Job-based compensation (r 20.222 or a negative correlation withSkill-based compensation), Fixed Pay (r 20.160), Short-Term (r 20.181), andNon-monetary Reward (r 0.165). Doing orientation is related only to EgalitarianReward (r 0.216). Present Orientation was not taken into consideration because of thelow Cronbachs alpha (see Table 4). As of Future Orientation, we do not find out any

significant correlation, but Past is related to preferences for Non-monetary Reward and

Seniority-based Pay (r 0.162 and r 20.158).Relational Orientation is concerned with Individualism, Collectivism, and Hierarchy.

According to Table 6, Individualism and Collectivism are related only to Low

Participation of Employees (r 20.185) and Fixed Pay (r 20.234). Another culturalorientation, Hierarchy is related to Job-based compensation (r 20.205) and Fixed Pay(r 20.159). Concerning Man-to-Nature Orientation, we do not distinguish anysignificant correlation for Subjugation, but Mastery is correlated to three compensation

policies: Skill-based (r 0.168), Fixed Pay (r 20.162), and Productivity-basedcompensation (r 0.165). In the same way, Harmony is correlated with Fixed Pay(r 20.205). Finally, Evil is related only to Monetary Reward (r 20.171). Theseresults support Hypothesis 1b, Hypothesis 2c, and Hypothesis 3a.

Table 7 presents R, R 2, Adjusted R 2, Standard error of the estimate, and F value for

each of the compensation policies which are taken as dependent variables. Based on these

results, it is understood that among all compensation policies, a Job-/Skill-based policy is

more susceptible to be affected by culture (R 2 0.196). This means that about 20% of thevariance in preference for this policy may be explained by cultural orientations. Also,

about 13% of variability in Fixed/Variable Pay, Monetary/Non-monetary Reward, and

Hierarchical/Egalitarian policies may be attributed to cultural orientations (R 2 0.125,0.126, and 0.128). As to Short-/Long-Term Pay, Low/High Participation of Employees,

and Seniority-/Performance-based policies, about 79% of the variation may be linked to

culture. Time/Production, Secret/Open Pay, and Individual/Group-based Pay are those

policies which have the smallest R 2 and which are less susceptible to be affected by

cultural orientations (see Table 7).

Discussion

The current study aimed at examining the effects of cultural orientations on preferred

compensation policies. We used an instrument based on the original theory of Kluckhohn

and Strodtbeck (1961) to analyze culture along five major orientations: Relationship to

Nature, Relationships among People, Hierarchical Structure, Time Orientation, and

Human Activity. We argued that these cultural orientations and, their subdivisions are

straightforward constructs which correspond to the hardcore of culture and therefore,

are presumed to be meaningful in the context of our investigation in Iran. Also, keeping in

mind that the very concept of HRM is essentially Western, we used a combined emicetic

approach to identify 10 conceptually and culturally meaningful compensation policies in

the Iranian organizations. Accordingly, we built a conceptual framework (see Figure 1),


Tab

le6

.P

ears

on

corr

elat

ion

s.

Th

ink

Fu

ture

Bei

ng

Do

ing

Pa

stH

iera

rch

yIn

div

idu

ali

smC

oll

ecti

vism

Ha

rmo

ny

Evi

lS

ub

jug

ati

on

Ma

ster

y

Job

/Sk

ill

20

.22

22

0.2

05

0.1

68

Ind

ivid

ual

/Gro

up

Fix

ed/V

aria

ble

Pay

20

.16

20

.15

92

0.2

34

20

.20

52

0.1

62

Tim

e/P

rod

uct

ion

0.1

65

Sh

ort

-/L

on

g-T

erm

Pay

20

.18

1M

on

etar

y/N

on

-mo

net

ary

0.1

65

0.1

62

20

.17

1H

iera

rch

ical

/Eg

alit

aria

n0

.21

6S

enio

rity

/Per

form

ance

20

.15

8S

ecre

t/O

pen

Pay

Lo

w/H

igh

Par

tici

pat

ion

20

.18

5

No

te:

Corr

elat

ion

issi

gn

ifica

nt

atth

e0

.05

lev

el(t

wo

-tai

led

).


developed hypotheses, and, finally, collected/analyzed data. Since this study focused on a

single country, we were not concerned about either the sample representativeness or the

variations of cultural orientations across borders. Rather we were interested in

the variations of each cultural orientation and its possible effects on preferred

compensation policies.

The results of this study support some of our hypotheses and confirm partial

associations between cultural orientations and preferred compensation policies. Among all

cultural orientations, Being and Mastery are found to be more important in shaping

preferences for compensation choices as they are related, respectively, to four and three

policies (see Table 6). Two other cultural orientations that seem to have important

implications are Past Orientation and Hierarchical Relation. For instance, Past Orientation

is related to Non-monetary and Seniority-based compensation policies, and Hierarchical

Relation has a positive association with Job-based, Fixed Pay preferences. According to

Table 6, Individualism, Collectivism, and Doing are not related to many compensation

policies. For instance, Individualism and Collectivism are related to Low Participation of

Employees and Fixed Pay policies, respectively, and Doing is associated only with

Egalitarian compensation preferences. This issue seems counterintuitive, especially

because Individualism and Collectivism are considered as the important cultural

orientations (Greenfield 2000; Oyserman, Coon and Kemmelmeier 2002). Also, it is

possible to consider that three cultural orientations such as Thinking, Future, and

Subjugation are not related to any compensation policies. On the basis of these results, we

may suggest that cultural orientations have dissimilar and uneven implications for

compensation preferences. While some of them are very likely to affect compensation,

others might have moderate and even scant implications. Theoretically, this issue is very

important, because the cross-cultural research usually considers all cultural orientations/

dimensions of the equal importance (Yeganeh and Su 2006).

In the same way, the extent to which compensation polices are affected by culture

may vary from one policy to another. For instance, the regression analysis showed

that a good deal of variation in Job-/Skill-based (about 20%) can be attributed to 12 cultural

orientations. However, in the case of Time-/Production-based pay, the cultural orientations

can explain only 6% of the variation (see Table 7). In the case of Fixed/Variable pay,

Monetary/Non-monetary, and Hierarchical/Egalitarian, the attributed variation to culture is

Table 7. Multiple regression analysis personal cultural orientations (independent variables),preferences for compensation policies (dependent variables).

Dependent variables R R 2 Adjusted R 2Standard errorof the estimate F

1. Job/Skill 0.442(a) 0.196 0.128 0.793 2.8772. Individual/Group Performance 0.266(a) 0.071 20.006 0.141 0.9253. Fixed/Variable Pay 0.354(a) 0.125 0.053 0.988 1.7284. Time/Production 0.250(a) 0.062 20.013 0.152 0.8255. Short-/Long-Term Pay 0.328(a) 0.107 0.034 0.461 1.4546. Monetary/Non-monetary 0.355(a) 0.126 0.054 0.756 1.7587. Hierarchical/Egalitarian 0.357(a) 0.128 0.056 0.533 1.7838. Seniority/Performance 0.293(a) 0.086 0.009 0.669 1.1199. Secret/Open Pay 0.271(a) 0.073 20.002 0.041 0.968

10. Low/High Participation 0.302(a) 0.091 0.017 0.729 1.233

Note: Using enter method, p , 0.001.


around 13%. Thus, it is possible to suggest that pay policies are not affected

equally by culture, but they may be influenced highly, moderately, or scantly by cultural

orientations.

On the basis of our results (Tables 6 and 7), it is possible to suggest that the cultures

characterized by higher degrees of Being Orientation are likely to cherish Job-based, Fixed

Pay, Short-Term, and Non-monetary compensation policies. This result is consistent with

Hypothesis 1b, because Being Orientation implies cultural values such as gratification,

peace of mind, and quality of life (Kluckhohn and Strodtbeck 1961; Maznevski and

DiStefano 1995). Similarly, it is found that Mastery Orientation is associated with Skills,

Fixed Pay, and Productivity-based compensations. This finding partially corroborates

Hypothesis 3a. Since Mastery Orientation involves high degrees of individuals internal

locus of control (Locke et al. 1988), it should correspond to policies such as Skills and

Productivity-based compensations that require employees effort and excellence.

As understood from Table 6, Past Orientation is associated with Non-monetary and

Seniority-based compensations. This finding partially supports Hypothesis 4a.

Past-oriented cultures cherish traditional values such as family, respect for elderly

people, and the status quo (Kluckhohn and Strodtbeck 1961; Maznevski and DiStefano

1995). Accordingly, their preference for Non-monetary and Seniority-based compensation

can be justified. Another important finding is that Hierarchical Orientation is

associated with Job-based and Fixed-Pay compensation policies. This finding provides

partial support to Hypothesis 2c. Thus, in societies marked by higher degrees of

hierarchical distance, there might be a tendency toward ascription rather than productivity

and competition.

The findings of this study may have some significant implications at the theoretical and

managerial levels. At the theoretical level, the effects of culture divert attention from

classical perspectives such as equity paradigm and labor market theory and give way to a

new strategic perspective of compensation. This strategic perspective implies that

compensation should be adapted to external factors such as culture to enhance

organizational effectiveness (Gomez-Mejia and Welbourne 1994; Bloom and Mitra 2003).

Compensation function is at the heart of the organization and aims to attract, retain, and

motivate employees to achieve targeted objectives. Arguably, the alignment between

compensation policies and employees cultural values leads to organizational

effectiveness. On the contrary, pay polices that do not match employees values may

lead to ineffectiveness. This entails that multinational enterprises (MNEs) having

operations in different parts of the world should tailor their reward systems to the local and

cultural factors (Tregaskis and Brewster 2006). For instance, as found in this research,

Being Orientation tends to be incompatible with variable pay and, therefore, employees in

traditional cultures marked by Being Orientation may not embrace reward policies such as

pay for performance.

Another finding of this research is that while culture has important implications, it

should not be viewed as the main variable. This issue deserves particular attention because

many cross-cultural studies simply compare HRM practices across borders and attribute

their variations to culture (Yeganeh and Su 2006). In other words, the effects of cultural

factors should be interpreted in combination with other external variables such as

political, economic, and social systems surrounding the firm and also by considering the

intra-organizational settings. This finding seems in conformity with Gerhart and Fang

(2005) who emphasized the importance of organizational factors in shaping HRM

practices.


Conclusion

Through this study, we aimed to examine the effects of cultural orientations on preferred

compensation policies. Our findings suggested that while culture may be held responsible

for affecting compensation, its effects should be considered partial and moderate. Further

analysis revealed that the effects of culture on compensation can vary from one orientation

to another. Some cultural orientations such as Mastery and Being are more likely to be

related to pay policies; however, some others such as Subjugation and Thinking seem less

significant. In the same way, the extent to which compensation polices are affected by

culture may vary. In other words, some pay policies seem more culture bound than others.

For that reason, it is concluded that by understanding the effects of cultural orientations,

firms can design compensation systems which are in accordance with employees cultural

values and consequently increase organizational performance.

While this study provides valuable insights, it should be interpreted cautiously and by

considering the conceptual and methodological limitations. First of all, the findings are

limited to a few cultural orientations and compensation typologies. Moreover, the study

has a narrow scope as it deals with preferred compensation policies which are different

from those implemented in the organization (Khilji and Wang 2006). At the

methodological level, it should be pointed out that both Pearsons coefficient and multiple

regressions are measures of linear relationships. Therefore, to have a coefficient close or

equal to zero does not mean that there is no relationship between cultural orientations and

compensation policies. In fact, the relationship may exist but it might be nonlinear. Even

when there are significant coefficients, attention should be paid to the fact that correlation

does not imply causation. However, since culture encompasses basic values, it is plausible

to take it as an independent variable. Application of broader frameworks to incorporate

culture and compensation, designing a multiple country study, differentiating the gap

between preferred and implemented compensation policies, and verifying nonlinear

relationships are among issues that might be addressed in future studies.

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Appendix 1. An overview of the Iranian context

Iran is located in southwest Asia. It shares borders with Armenia, Azerbaijan, Turkmenistan,Turkey, Iraq, Afghanistan, and Pakistan. It has coastlines along the Persian Gulf and the Sea ofOman in south, and the Caspian Sea in north. It has an area of 636,296 mile2 (1.6 million squarekilometers) making it the 16th largest country in the world. The country is highly diverse fromevery point of view, especially in topography and climate. The population of Iran is estimated atsome 70 million, 12 million of which live in the capital Tehran and its suburbs. The officiallanguage of Iran is Persian (Farsi), which is an Indo-European language and is taught andpracticed in all schools from the first grade across the country. Other local languages that arespoken include mainly Turkish and Kurdish. The country has one of the worlds most diverseethnic groups ever assembled in one country: Persian (56%), Turk (Azari) (24%), Gilaki (8%),Kurd (8%), Lur, Baluch, Arab, and Turkaman. The religious groups are Shiite Muslim, SunniMuslim, Zoroastrian, Jewish, Christian, and Bahaii. The 1979 revolution transformed Iran byabolishing the monarchy and establishing a new political system. At the present, Iran is anIslamic republic, ruled according to a constitution providing for executive, legislative, andjudicial branches. The political system comprises both elected and unelected institutions. With arelatively large population and the worlds largest oil and gas reserves, Iran is considered animportant regional economy. It is OPECs second largest oil producer and it has the secondlargest reserves of natural gas in the world. It also possesses enormous mineral resources,including coal, copper, iron, zinc, and gold, much of which has to be developed. Its economy is amixture of central planning, state ownership of oil, large enterprises, village agriculture, small-scale private trading, and service ventures.


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