Academic journal article Management Revue

Incentive Preferences of Employees in Germany and the USA: An Empirical Investigation**

Academic journal article Management Revue

Incentive Preferences of Employees in Germany and the USA: An Empirical Investigation**

Article excerpt

This study investigates performance reward preferences of employees in Germany and the USA. The investigation uses the following three constructs: The Institutional Framework and its formal and informal implications for incentive compensation, Diminishing Marginal Utility of individuals related to performance rewards, and Incentive Schemes as motivational devices in organizations. Our empirical investigation is based upon survey data collected from employees of a MNC in Germany and the USA using an enriched form of Hofstede's cross-cultural questionnaire. Our results show that employees from these countries have different preferences on incentives and further that incentive plans designed for one country might have non-motivating consequences in the other. We also find that the logic of diminishing marginal utility applies to certain rewards. Referencing these results, we suggest a method for organizations to develop effective and efficient incentive systems.

Key words: Institutional Framework, Incentive Compensation, USA, Germany, Performance Rewards

1. Introduction

As multinational corporations [MNC] enter foreign markets, the question of how to motivate and compensate the foreign employees arises. Merely transplanting performance incentive systems from the home country to the host country might not motivate the foreign employees as they motivate the employees in the home country. Such transplanted incentive plans might even create disincentives that work in opposition to the overall goal of incentives. In our analysis, we focus on rewards themselves, not on the performance measures, and especially on which rewards are motivating to the employees in Germany and the USA.

The Analytic Context

As the theoretical basis of our analysis, we have selected the New Institutional Economics [NIE] framework, because it combines the elements of law, economics and organization, all of which are relevant to employee motivation through incentive compensation (Williamson 1996). In the NIE fashion, we consider both the formal and informal institutional framework. The formal framework is the legal body of rules and the informal framework is more implicit, composed of social, cultural and religious values (North 1990). Economics also plays a pivotal role in the incentive analysis in that both employees and employers desire to find "satisfying regions" in terms of benefit/cost trade-offs. Because different institutional frameworks provide different compensation settings, it might, for instance, be more beneficial for tax reasons for employees to receive part of their compensation as benefits rather than as monetary compensation. Also, it might be less costly for the employer to provide a non-cash reward such as health benefits to employees because the organization often can negotiate group discounts, for instance, on health care plans (Lazear 1998). We focus our study on the organization. This is where employees and employers act, put forth effort, and give and receive rewards. As Barnard (1938: 139) notes "the subject of incentives is fundamental in formal organizations and in conscious efforts to organize". Put simply: employers want to motivate their employees to work towards the organization's goals.

2. Employee Motivation

Motivation, coming from the Latin word movere meaning "to move", has been defined in various ways. For employee motivation our preferred definition is offered by Robbins (1996: 212): "the willingness to exert high levels of effort toward organizational goals, conditioned by the effort's ability to satisfy some individual need." We prefer this definition of motivation since it is conditioned, that is, it must be placed in a temporal organizational context. Although the process of motivation is universal, in that individuals seek to maximize their utility by pursuing goals they value, the conditioning of that behavior is the design challenge that our research addresses. It can be said that motivation results from the psychological drive to satisfy needs that remained to that point unsatisfied (see Figure 1a). …

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