18 Performance measurement issues, incentive application, and globalization
18.1 Performance Measurement in a Globalized Context
Globalization introduces significant complexity to how companies measure employee performance. What works in one country may be ineffective or even counterproductive in another.
Key Issues:
Cultural Differences in Communication: Direct, explicit feedback, common in Western cultures, may be considered confrontational or disrespectful in many Asian or Latin American cultures. In these “high-context” cultures, feedback is often indirect and nuanced, which can be misinterpreted by managers from “low-context” cultures.
Individual vs. Group Orientation: In individualistic societies like the United States, performance metrics are often focused on individual achievements. However, in collectivist cultures, such as those in East Asia, team performance and harmony are more highly valued. Imposing individualistic metrics in a collectivist culture can demotivate employees and disrupt team cohesion.
Power Distance: In cultures with high power distance (where hierarchical structures are readily accepted), employees may be less likely to challenge their superiors or provide upward feedback, which can skew performance reviews. In contrast, employees in low power-distance cultures may expect a more collaborative and participatory performance evaluation process.
Defining and Standardizing Metrics: It can be challenging to create standardized performance metrics that are relevant and fair across different markets. For example, sales targets that are achievable in a developed market may be unrealistic in an emerging one due to differences in economic conditions and infrastructure.
18.2 Application of Incentives Across Borders
Designing and implementing effective incentive programs is a critical component of performance management, but globalization adds several layers of complexity.
Challenges in Application:
Varying Motivators: What motivates an employee in one culture may not be the same in another. While financial rewards are a universal motivator to some extent, their importance relative to other factors like job security, work-life balance, and public recognition can vary significantly. For instance, in some cultures, public recognition may be a more powerful motivator than a cash bonus.
Risk Aversion: In cultures with high uncertainty avoidance, employees may prefer a stable salary and predictable bonuses over variable, performance-based pay that carries more risk. Conversely, in cultures with a higher tolerance for risk, commission-based or stock-option-heavy compensation plans may be more appealing.
Local Regulations and Tax Laws: The feasibility and attractiveness of different incentive schemes are often constrained by local labor laws and tax regulations. For example, stock options are a popular incentive in the U.S. but can be subject to complex and less favorable tax treatment in other countries.
Ensuring Equity: When a company operates globally, it’s crucial to ensure that its incentive programs are perceived as fair and equitable. This doesn’t necessarily mean that everyone receives the same incentives, but rather that the process for determining them is transparent and consistent.
18.3 Globalization’s Broader Impact
The increasing interconnectedness of the global economy has a profound impact on how businesses approach performance and incentives.
Key Considerations:
The Rise of the Global Manager: Companies need leaders who are not only technically proficient but also culturally intelligent. These managers must be able to adapt their leadership and motivational styles to suit the diverse teams they lead.
Virtual and Cross-Cultural Teams: The prevalence of virtual teams, with members spread across different time zones and cultures, presents unique challenges for performance management. It can be more difficult to monitor performance, foster team cohesion, and ensure that all team members feel equally valued and recognized.
Strategic Alignment: A company’s performance management and incentive systems must be aligned with its overall global strategy. If a company’s goal is to expand into new markets, its incentive programs should reward employees for behaviors that support this goal, such as cross-cultural collaboration and market development.