National culture and incentives: Are incentive practices always good?

Journal of World Business 55 (2020) 101075

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National culture and incentives: Are incentive practices always good? a,

b

Nicholas R. Prince *, J. Bruce Prince , Rüediger Kabst a b c

T

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University of Wyoming, Business Building 351, 1000 E. University Ave, Laramie, WY 82071, United States Kansas State University, Department of Management, College of Business Administration Business Building 3092 Manhattan, KS 66502 United States Universität Paderborn, Fakultät Für Wirtschaftswissenschaften, Lehrstuhl Für International Business, Warburger Straße 100 33098 Paderborn, Germany

A R T I C LE I N FO

A B S T R A C T

Keywords: Comparative HRM National culture Incentives Profit sharing Team bonus Individual bonus

This study evaluates national culture’s influence on the incentive practice-firm performance relationship. Hofstede’s work (1993) and institutional theory (North, 1990) suggest national culture will moderate incentive effectiveness, while others suggest it has minimal impact (Gerhart & Fang, 2005). We find performance orientation (PO), in-group collectivism (I-GC) and uncertainty avoidance (UA) dimensions explain strength and direction of incentive-performance relationships. Profit-sharing―performance relationships are favorably supported by cultures with high PO, high I-GC, and low UA; however, the individual-bonus―performance relationship is enhanced by the near-opposite culture profile. There was no evidence that the team-bonus―outcome relationship is influenced by national culture.

1. Introduction Is incentive practice effectiveness limited to particular cultures? Understanding the larger context of company practices is important to enhancing both the rigor and relevance of international business (IB) research (Teagarten, Von Glinow, & Mellahi, 2017) and the integration of culture and cross-national comparative studies are important to advancing IB research (Buckley, 2002). The literature on national culture argues culture matters, and it is important to consider the cultural context of organizational practices (Farndale & Sanders, 2016; Hofstede, 1993). Hofstede (1993) argues that “not only practices but also the validity of theories may stop at national borders” (p. 81), and to achieve best results, “management practices should fit the local culture” (p. 441). Through the national culture and institutional theory lenses, practices that do not fit national culture will violate expectations and lead to employees being less motivated to perform (Newman & Nollen, 1996). The culture literature predominately uses a culture-practice fit perspective where culture is a contingency (or moderator) to be managed around (Minbaeva, Robiosi, & Stahl, 2018; Miska, Szocs, & Schiffinger, 2018). Research has largely focused on culture’s effect on individual incentive practice adoption, and these results are mixed. Two main gaps exist in this research stream. First, research on incentives has not focused on the influence of culture beyond individual-level incentives, such as team and profit-sharing incentives in spite of their growing importance (Nyberg, Maltarich, Abdulsalam, Essman, & Cragun, 2018;

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Rajan & Wulf, 2006). Second, while the focus on culture-related practice adoption is important, there has not been a corresponding emphasis on empirically evaluating the effectiveness of different incentive practices in different cultures. Using a large multi-country sample of private-sector firms and using firm turnover and perceived performance effectiveness as our dependent measures, we find that levels of the four most-theorized culture dimensions, performance orientation (PO), power distance (PD), ingroup collectivism (I-GC), and uncertainty avoidance (UA), often moderate the effectiveness of individual bonus and profit-sharing schemes, but not the team bonus-firm outcome relationship. Specifically, we find that individual bonuses are increasingly associated with lower firm turnover in cultural environments of lower PO and PD and higher I-GC and UA. Profit sharing is increasingly associated with higher firm performance and lower turnover in cultures characterized by higher PO and lower I-GC and UA. 2. Theory and hypotheses 2.1. National culture It is widely accepted that human resource (HR) practices are constrained by the institutional environment in which organizations are embedded (Gooderham, Nordhaug, & Ringdal, 2006; Aycan, 2005; Gooderham, Nordhaug, & Ringdal, 1999; North, 1990; Prince & Kabst, 2019). This is central to the “structural school” of institutional theory,

Corresponding author. E-mail addresses: [email protected] (N.R. Prince), [email protected] (J. Bruce Prince), [email protected] (R. Kabst).

https://doi.org/10.1016/j.jwb.2020.101075 Received 8 December 2018; Received in revised form 13 January 2020; Accepted 19 January 2020 1090-9516/ Published by Elsevier Inc.

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which asserts that: “populations of organizations tend to become increasingly isomorphic over time as they collectively incorporate templates for organizing from their institutional environments in search of legitimacy” (Heugens & Lander, 2007: 61). As noted by Miska et al. (2018), “culture is frequently considered an informal institutional element specifically addressing the cultural-cognitive pillar of institutions” (p. 266). National culture is the “shared motives, values, beliefs, identities, and interpretations or meanings of significant events that result from common experiences of members of collectives and are transmitted across age generations” (House, Javidan, Hanges, & Dorfman, 2002: 5), and are also referred to as the collective programming of the mind (Hofstede, 1980, 2001). National culture guides the expectations, values, and norms of a country, and this, in turn, encourages or hinders organizational action (North, 1990). Newman and Nollen (1996) refer to national culture as the “central organizing principle of employees’ understanding of work, their approach to it, and how they expect to be treated” (p.755). Rabl, Gerhart, Jayasinghe, and Kuhlmann (2014) build on this by stating that “fit occurs when management practices are ‘consistent’ or ‘congruent’ with employee expectations” (p. 1012). When there is poor fit and violated expectations, employees respond by feeling “distracted, uncomfortable, and uncommitted [and]… less able or willing to perform well” (Newman & Nollen, 1996, p. 755). The view that country differences, including national cultural differences, will create liabilities for the firm pervades the international business (IB) literature (Belderbos, Du, & Slangen, 2020; Lewis & Bozos, 2019; Stahl, Tung, Kostova, & Zellmer-Bruhn, 2016). Generally, cultural distance or differences are seen as problems to be navigated or avoided. The culture-practice fit view has a central place in the management of multinational enterprises (MNE) where the perceived efficiencies of uniform corporate practices collide with competing subsidiary demands and preferences. The liability of foreignness supports this view by citing that failure to understand local conditions, including national culture, will lead to business failure (Hymer, 1976), or at least reduced performance (Weber, Chahabadi, & Maurer, 2020). There are competing arguments that foreignness can be an advantage to MNE performance (Edman, 2016; Magnusson, Shuster, & Tars, 2014), but culture and cultural differences as a problem to be navigated remain central to IB thinking (Lee, Bae, Lee, & Choi, 2019). Slanger (2006) argues that when cultural differences are large, acquiring firms avoid culture clashes by keeping integration low and giving more autonomy to acquired firms. Transferability of practices can become a matter of degree, where uniformity-promoting corporate practices are adapted or dropped. Research on HR divergence versus convergence supports that country location influences the adoption of different HR practices. This is seen in Brewster (2007), the calculative vs. collaborative HR practice bundle distinction (Gooderham et al., 1999), and distinct country and culture-based patterns of incentive bundle adoption (Prince, Prince, Skousen, & Kabst, 2016; Prince, Prince, & Kabst, 2018).

theoretical basis for practice-culture fit; however, the institutional entrepreneurship perspective argues firms have agency or latitude in the practices they implement (Heugens & Lander, 2007; Wright & van de Voorde, 2009) and firms can deviate from larger cultural mandates without necessarily losing legitimacy and suffering negative consequences. This is consistent with Rabl et al. (2014) who state, “it is important to recognize that automatic conformance of HR practices to national culture norms is neither always inevitable nor necessarily always the most effective strategy” (p. 1014). As we broaden our view of incentives beyond individual rewards to organizational performance incentives, we may see in some cultures that not all incentive practices are treated the same. Gooderham, Fenton-O’Creevy, Croucher, and Brookes, 2015: 22) make a similar point: “our findings indicate that firms have more latitude in choosing their management practices than institutional and cultural theory suggests.” Finally, this fits with other scholars who note that culture might impact some HR practices but leave others unaffected (i.e., Sparrow & Wu, 1998). We need greater clarity as to which practices are constrained by national culture. 2.2. Incentive pay practices Consistent with the expectancy theory of motivation, incentive pay practices are used to motivate employees by linking financial rewards to performance (Dulebohn & Werling, 2007) and deal with agency problems by aligning employee and stakeholder interests (Nyberg et al., 2018; Piercy, Low, & Cravens, 2004). Prior studies have shown incentive pay practices are an essential tool to attract, motivate, and retain employees (Diaz-Fernandez, Lopez-Cabrales, & Valle-Cabrera, 2013). Incentive practices supplement base pay and motivate and direct behavior, instilling higher effort, and focus on priority areas, aligning employee and organizational goals. Incentive practices also act as a sorting mechanism where better-fitting employees are attracted to firms that offer incentive practices and are more easily retained (Cadsby, Fei, & Tapon, 2007). Incentive practices have been linked to productivity, profitability (Lazear, 2000), and innovation (Zenger & Lazzarini, 2004). Thus, incentive practices can develop firm resources – through their motivational, directional, and sorting effects – related to value creation and competitive advantage. In the incentive literature, payments are largely based on performance at three different levels (Schuler & MacMillan, 1984). First, individual bonuses use individual-level performance objectives to determine payouts. Second, group or team aggregate performance can be the basis for a bonus (Hollensbe & Guthrie, 2000; Park & Kruse, 2014). Finally, achievement of targeted organizational-level metrics, such as profit level in profit sharing, can also be used to trigger rewards (Kuhn, 2009). 2.3. Culture and incentive practices

2.1.1. The influence of culture questioned In contrast to the culture-practice fit or contingency perspective, the universalistic view of HR argues that larger social and economic forces stemming from globalization, increased international trade and finance, Western business education for managers, and lauded “best practices” place substantial pressure on firms in different countries to converge to global standards (Harbison & Myers, 1959; Kerr, 1983; Locke & Kochan, 1995). Rowley and Benson (2002) found evidence for convergence of specific HR practices, including the increased use of incentive pay, in four Asian countries. A related criticism provided by Gerhart and Fang (2005) questions the extent to which culture influences HR. Their review of the literature on Hofstede’s culture metrics argues that national culture only explains a limited amount of variance in the use of incentive practices, and this limited effect size should discourage focusing on national culture. The culture-practice fit perspective can also be criticized on theoretical grounds. The structural school in institutional theory provides a

Volvo’s acquisition of Samsung’s excavator division (Lee, Kim, & Park, 2015) illustrated how national culture influenced Korean employees’ perceptions of Volvo’s new HR policy, which included performance pay and flatter job structures. Hofstede observes that both Korean and Swedish cultures influenced initial clashes and their eventual resolution (Hofstede, 2015). Other cases where culture caused difficulties include Wal-Mart’s failure in Germany, which was attributed to their unwillingness to embrace egalitarian German wage-setting practices (Knorr & Arndt, 2003), and Lincoln Electric’s initial failure in expanding beyond the USA. Lincoln uses profit sharing, individual piece rate, and individual appraisal based pay schemes, and its CEO acknowledged that they “erred in assuming all cultures were equally receptive to the company’s performance pay system” (Frank, Wertenboch, & Maddux, 2015: 160). Research by Prince et al. (2016) shows firms in different countries adopt different bundles of individual, team, or profit-sharing incentive practices. These range from low use of incentives to broad use of 2

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multiple incentives, as well as different combinations of individual, group, or organizational-based incentive practices. Follow-up research found three GLOBE culture dimensions (in-group collectivism, uncertainty avoidance, and performance orientation) explained incentive bundle adoption patterns (Prince et al., 2018).

opposite direction. The HPWS-firm effectiveness relationship was positive in cultures they hypothesized to be weakest. In interpreting these results, it is important to note that PFP is only one practice in the larger HPWS bundle, and the different forms that PFP take were not distinguished in their meta-analytic study.

2.4. Culture and incentive practice-firm outcome linkages

2.5.2. Culture dimensions that matter Following past research on culture and incentives, four dimensions of the GLOBE framework (House, Hanges, Javidan, Dorfman, & Gupta, 2004)―PO, PD, I-GC, and UA―have the most potential to moderate incentive practice-firm outcome relationships.

Incentive adoption is the main outcome measure seen in the culture and incentive research literature (Gooderham et al., 1999; Prince et al., 2016). The notion that culture dimensions (and countries) are associated with different usage patterns has received consistent support (Brewster & Mayerhofer, 2012; Gooderham et al., 2015). Adoption rate, however, does not address the fundamental strategic HRM question: will adopting incentives in a given cultural context have a positive or negative influence on firm performance? We focus on two firm-level outcomes. First, incentives are motivation-enhancing practices, and we see firm turnover as a proxy for (collective) motivation, which is causally proximal to HR practices such as incentive practices. Second, a clear assumption in the strategic HRM literature is that HR practices influence firm performance, including labor productivity, innovation, service quality, and profitability.

2.5.2.1. Performance orientation (PO). PO is the degree to which performance improvement, innovation, and striving for performance excellence are encouraged and rewarded in society. The use of performance incentives is logically more consistent with high PO cultures than low PO cultures where there is a focus on loyalty, harmony, and belongingness (House et al., 2004). Prior research has found that countries high on PO will have increased use of incentive pay (Gooderham et al., 2015; Prince et al., 2018; Rabl et al., 2014; Schuler & Rogovsky, 1998). Employees from countries high on PO are more sensitive to reward and recognition programs (Javidan, 2004). Increases in PO have also been associated with increases in problemsolving and innovation (Bockerman, Bryson, & Ilmakunnas, 2012). PO will influence each of the three incentive practices investigated in this study. First, individual and team bonuses align well with employees in high PO countries. As such, individual and team bonuses have been shown to increase performance and employee motivation and satisfaction (Yang & Kassekert, 2009). When motivation and satisfaction are high, employees are less likely to turnover (Singh & Loncar, 2010). When PO is high, bonuses are expected to have a stronger impact on performance (Rabl et al., 2014). Several studies have confirmed this logic. For example, in China and Hong Kong, both countries high on PO, bonuses have been found to increase retention and employee motivation (Chiu, Luk, & Tang, 2002). Similarly, in a study in the USA, individual bonuses were found to reduce turnover and increase performance (Joseph & Kalwani, 1998). In the UK, team bonuses are associated with increased job satisfaction (Bryson, Clark, Freeman, & Green, 2016), and group bonuses have also been shown to decrease turnover in the USA (Blasi, Freeman, & Kruse, 2016; Selden, Schimmoeller, & Thompson, 2013). Profit sharing is expected to have a similar impact as individual and team bonuses. A study conducted in England, a country high in PO, found the presence of profit sharing led to greater organizational commitment, which is expected to lead to increased firm performance (Bell & Hanson, 1987). Therefore, PO is expected to moderate the impact of incentive rewards and the organizational outcomes of turnover and firm performance in the following ways:

2.5. Culture and the incentive practice-firm outcome relationship 2.5.1. Culture influences incentive pay Incentives are widely seen as having a positive influence on firm performance (Combs, Yongmei, Hall, & Ketchen, 2006; Gerhart & Milkovich, 1990; Jiang, Lepak, Jia, & Baer, 2012); however, support in non-USA countries is mixed. Dowling and Richardson (1997) report that incentive pay in Western countries outside of the USA is a source of dissatisfaction and higher turnover intentions. Other IB researchers have argued incentives may induce negative reactions in emerging economies because compensation practices in these countries are commonly linked to seniority and equality concerns as opposed to performance (Giacobbe-Miller, Miller, Zhang, & Victorov, 2003; Zhu, Cooper, & De Cieri, 2005). In a study of Mexican workers, Miller, Hom and Gomez-Mejia (2001) found productivity bonuses were related to higher turnover. They conclude these bonuses conflicted with workers’ collectivist values. Du and Choi’s (2010) study of architectural firms in China found pay-for-performance (PFP) was helpful only when employees were satisfied with the appraisal system and saw high levels of procedural justice. Otherwise, there was a negative relationship between PFP and commitment at the individual-level. They conclude that “foreign firms in emerging markets should be very careful in implementing PFP” (p. 686). Frank et al. (2015) hypothesized that four culture dimensions—Hofstede’s power distance, individualism, masculinity and uncertainty avoidance―are related to the formation of just-world beliefs that support performance-based versus egalitarian pay practices. Drawing on national culture research, Gooderham et al. (2015) hypothesized low UA and high PO supports the adoption of individual PFP. Their analysis found PO is related to adoption of this practice and country-level labor employment regulation and union influence mediate this relationship. They conclude that culture and national institutions contribute to adoption of individual performance pay, but managers retain some latitude in introducing practices that are contrary to the culture. Research on high performance work systems (HPWS) and firm performance in multiple countries offer related insights (Combs et al., 2006; Rabl et al., 2014). HPWS represent a bundle of HR practices, which include generally unspecified “PFP” incentives. The Rabl et al. (2014) meta-analytic study hypothesized the best fitting national culture for HPWS success “is one low on PD, low on I-GC, and high on PO” (p. 1013). They found support for these culture moderators in tight (versus loose) country cultures, but, in general, their results were in the

H1a. The negative individual bonus pay – turnover relationship will be diminished by PO, such that individual bonuses will lead to lower turnover as PO increases. H1b. The positive individual bonus pay – performance relationship will be amplified by PO, such that individual bonuses will lead to higher performance as PO increases. H1c. The negative team bonus – turnover relationship will be diminished by PO, such that team bonuses will lead to lower turnover as PO increases. H1d. The positive team bonus pay – performance relationship will be amplified by PO, such that team bonuses will lead to higher performance as PO increases. H1e. The negative profit sharing - turnover relationship will be diminished by PO, such that profit sharing will lead to lower turnover as PO increases. 3

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H2e. The negative profit sharing - turnover relationship will be amplified by PD, such that profit sharing will lead to higher turnover as PD increases.

H1f. The positive profit sharing - performance relationship will be amplified by PO, such that profit sharing will lead to higher performance as PO increases.

H2f. The positive profit sharing - performance relationship will be diminished by PD, such that profit sharing will lead to lower performance as PD increases.

2.5.2.2. Power distance (PD). PD indicates the extent to which organizational members in a society agree power should be stratified and concentrated in upper hierarchical echelons (House et al., 2004). Managers in high PD countries are inclined to maintain their discretion where “reward allocation is based on criteria other than performance” where “the performance-reward contingency is low” (Aycan, 2005: 1106). In high PD cultures, there are expectations of more arbitrary managerial action and less power by HR departments to ensure fair treatment (Lee, Pilliutla, & Law, 2000). Employees in high PD societies report less confidence in incentive systems, which are generally individual performance based (Wu & Chaturvedi, 2009). There is evidence that increased PD is associated with less incentive use (Rabl et al., 2014; Schuler & Rogovsky, 1998). With high PD, individual and team bonuses will not increase performance because they will be more arbitrary and not based on predefined criteria (Merchant, Van der Stede, Lin, & Yu, 2011). When PD is high, reward use will not be associated with adequate instrumentality (i.e., the belief that high performance leads to rewards) as prescribed by expectancy theory. As a result, bonuses will not be as motivating because it is less clear how they are attained. However, in high PD cultures there is higher deference towards leadership. High PD culture employees expect less fairness from their managers (Farh, Hackett, & Liang, 2007). Therefore, employees are less likely to get frustrated when they feel their work is not rewarded compared to employees in societies low on PD. For this reason, PD will not influence the individual and team bonus relationship to turnover but will have an influence on their relationship to firm performance. Profit sharing generally increases firm performance (Kruse, 1997; Kruse, Freeman, & Blasi, 2010). Profit sharing has been shown to lead to increases in employee productivity, organizational citizenship behaviors, and other pro-organizational behaviors (for exceptions see Chiu & Tsai, 2007). The underlying mechanism is that profit sharing provides a quid pro quo for employees to help increase profits (Hambly, Kumar, Harcourt, Lam, & Wood, 2017). Profit sharing tends to be more successful in environments where employees are empowered with discretion to make decisions (Long, 2000), and this is more likely to happen in low PD cultures. When PD is high, employee participation, or involvement plans, are less effective (Triandis et al., 1994). Employees in high PD societies prefer work environments where managers give them direction. Profit sharing works in part by improving innovation (Aerts, Kraft, & Lang, 2015). When PD is high, employees are more likely to follow established routines and innovate less. This undermines the mechanisms through which profit sharing improves performance (Khatri, 2009). Therefore, it is expected that PD will diminish the increases in performance that are expected to come from implementing profit sharing. Asking employees to participate in tasks (i.e., employee participation programs, innovation) they are not traditionally asked to perform in high PD cultures will lead to discomfort and lead to increased turnover. Therefore, the following hypotheses are expected:

2.5.2.3. In-group collectivism (I-GC). I-GC is the degree that loyalty and cohesiveness in smaller groups, including families and organizations, is central. Low I-GC cultures form looser relationships in groups and are more individualistic (House et al., 2004). High I-GC cultures avoid social anxiety and disruptions associated with performance-based incentives and favor equality-focused reward allocation. Low I-GC (individualistic) cultures place more value on individual achievement (Gelfand, Bhawuk, Nishii, & Bechtold, 2004). Collectivistic cultures emphasize belonging, community, and harmony (Gelfand et al., 2004), even at the expense of individual self-interest (Sinha & Verma, 1994) placing greater weight on group versus individual awards. High I-GC cultures are more likely to avoid criticizing peers to maintain group harmony, potentially leading to more free-riding (shirking) with groupbased incentives (Earley & Gibson, 1998). As a result, I-GC is expected to impact the incentive pay – turnover and performance relationships in the following ways. First, individual incentives are expected to work best (i.e., increasing performance and reducing turnover) in countries low in I-GC (Rabl et al., 2014). When IGC is high, it has been found that employees prefer awards to be distributed equitably across all parties (Leung & Bond, 1984), which is more the case with profit sharing and team bonuses. This explains the finding that focusing less on individual contributions in high I-GC leads to greater performance improvements (Newman & Nollen, 1996). In high I-GC Mexico, profit-sharing has been found to decrease turnover (Miller et al., 2001). Profit sharing should help strengthen the extent to which employees see the larger organization as their in-group, as opposed to solely their work group. This would make them more likely to participate in prosocial work behaviors that will benefit firm performance. H3a. The negative individual bonus – turnover relationship will be amplified by I-GC, such that individual bonuses will lead to higher turnover as I-GC increases. H3b. The positive individual bonus – performance relationship will be diminished by I-GC, such that individual bonuses will lead to lower performance as I-GC increases. H3c. The negative team bonus – turnover relationship will be diminished by I-GC, such that team bonuses will lead to lower turnover as I-GC increases. H3b. The positive team bonus – performance relationship will be amplified by I-GC, such that team bonuses will lead to higher performance as I-GC increases. H3e. The negative profit sharing - turnover relationship will be diminished by I-GC, such that profit sharing will lead to lower turnover as I-GC increases.

H2a. The negative individual bonus – turnover relationship will not be affected by PD.

H3f. The positive profit sharing - performance relationship will be amplified by I-GC, such that profit sharing will lead to higher performance as I-GC increases.

H2b. The positive individual bonus – performance relationship will be diminished by PD, such that individual bonuses will lead to lower performance as PD increases.

2.5.2.4. Uncertainty avoidance (UA). UA is the degree country members strive to avoid uncertainty through reliance on established social norms, rituals, and bureaucratic practices. Countries high on uncertainty avoidance prefer having specific rules, structured activities, and explicit behavioral guidelines (Hofstede, 2001) and the use of individual incentive plans increases ambiguity compared to

H2c. The negative team bonus – turnover relationship will not be affected by PD. H2b. The positive team bonus pay – performance relationship will be diminished by PD, such that individual bonuses will lead to lower performance as PD increases. 4

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heavy reliance on fixed salary compensation. There is support for the satisfaction – performance connection being stronger when UA is low (Ng, Sorensen, & Yim, 2009). This likely takes place because UA leads to less risk taking (Gaganis, Hasan, Papadimitri, & Tasiou, 2019) and has been shown to decrease innovative behavior (Shane, 1995). High UA is related to decreased use of individual and team bonuses and increased use of profit sharing (Prince et al., 2018). This suggests that profit sharing will be impacted differently by UA than individual and team bonuses. Several studies shed light on this possible relationship. In a study of maquiladoras in Mexico, a country high on UA, the use of productivity bonuses were found to increase turnover, while profit sharing led to decreased turnover (Miller et al., 2001). In high UA Korea, profit-sharing plans are slow to be implemented, but once implemented, they have been shown to increase firm productivity (Kato, Lee, & Ryu, 2010). One of the struggles with individual and team bonuses in high UA cultures is that employees in these countries prefer more stability and security (Debus, Probst, Konig, & Kleinmann, 2012). If individual or team bonuses are large relative to total compensation, the increased pay uncertainty will create more discomfort, and higher turnover. Therefore, UA is likely to influence the incentive pay – organizational outcome relationships in the following ways:

3. Methods 3.1. Sample and data collection Incentive pay practice data are drawn from the 2009 CRANET database (Parry, Stavrou-Costea, & Morley, 2011), which is the largest source of comparative firm-level HR data, covering countries from all over the globe and providing a wealth of data on all major areas of HRM. The CRANET survey was first administered in 1989 to provide information on HR practices used across Europe. In subsequent administrations, it has grown in scope and now covers more world regions. It is designed to draw representative samples from each country (Steinmetz, Schwens, Wehner, & Kabst, 2011). Senior HR officers in sampled firms are respondents. The subsample (n = 2719) for this study is private sector firms from the 19 countries with available GLOBE culture metrics. 3.2. Independent and dependent variables Each incentive practice scale (individual bonus, team bonus, or profit sharing) is composed of four binary (1 = yes, 0 = no) items. Respondents indicate if there is a formal incentive practice for each of four employee groups: managers, professional/technical, clerical, and manual employees. Similar to the Guthrie (2001) related scale, this scale measures usage in all employee groups. For each practice, these responses are summed and divided by four to measure the extent the incentive practice is broadly used. A high score (1.0) indicates the specified practice is formally used in all four employee groups (broad usage) while a low score (.0) indicates no group uses that incentive. This follows the Blasi et al. (2016) approach to measuring group-based incentives, where usage in multiple employee groups results in a higher “shared capitalism” mode of compensation. The use of an HR practice across all groups is a stronger indication of a company’s intensity and dedication of use than its use in one group. Turnover was measured using a single item base-e logarithmic transformation of the firm’s annual turnover rate. The firm performance scale includes four items where respondents compared their firm’s relative performance to others in their sector (1= Poor or on the low end of the industry, 3= Average or equal to the competition, 5= Superior) with respect to service quality, productivity, profitability and rate of innovation. The Wall et al. (2004) review finds subjective performance measures, such as this measure, as valid and notes the advantages of focusing on overall performance relative to competitors compared to objective measures, which are a narrower aspect of firm performance. Similar performance measures have been successfully used in many other studies (Glaister, Karacay, Demirbag, & Tatoglu, 2018; Gooderham, Parry, & Ringdal, 2008; Nikandrou, Apospori, Panayotopoulou, Stavrou, & Papalexandris,

H4a. The negative individual bonus pay – turnover relationship will be amplified by UA, such individual bonuses will lead to higher turnover as UA increases. H4b. The positive individual bonus – performance relationship will be diminished by UA, such that individual bonuses will lead to lower performance as UA increases. H4c. The negative team bonus – turnover relationship will be amplified by UA, such that team bonuses will lead to higher turnover as UA increases. H4d. The positive team bonus pay – performance relationship will be diminished by UA, such that team bonuses will lead to lower performance as UA increases. H4e. The negative profit sharing - turnover relationship will be diminished as UA increases, such that profit sharing will lead to lower turnover as UA increases. H4f. The positive profit sharing-performance relationship will be amplified by UA, such that profit sharing will lead to higher performance as UA increases.

Table 1 Descriptive Statistics & Intercorrelation Matrix.

1. 2. 3. 4. 5. 6. 7. 8. 9.

Log of Turnover Firm Performance Individual Bonus Team Bonus Profit Sharing Performance Orientation Power Distance In-Group Collectivism Uncertainty Avoidance

Sample Size

Mean

SD

1

2

3

4

5

6

7

8

2,262 2,652 2,374 2,324 2,341 19 19 19 19

2.33 3.63 .45 .42 .33 4.15 5.12 4.57 4.48

1.08 .67 .50 .49 .47 .39 .39 .66 .71

— −.14 .16 .04 −.16 .13 −.15 −.03 −.12

(.76) .03 .06 .10 .00 −.01 .01 .01

(.81) .25 .06 −.02 .10 .25 −.22

(.84) .00 −.03 −.01 .02 −.06

(.92) .25 .16 .08 .12

— −.27 −.39 .59

— .49 −.35

— −.82

Notes: 1. Standardized Cronbach’s Alpha coefficients are noted in parentheses down the diagonal. 2. The culture measures (#6 to #9) are from 19 (level 2) countries. The sample size for other variables (#1 to #5) are private sector firms (Level 1). 3. The incentive practices scales (#3 to #5) are mean-split with a 0 and 1 coding. 4. Intercorrelations of .05 and .06 are significant at the p < .05 level, those between .07 to .10 are significant at p < .01, and those over .11 are significant at the p < .001. 5

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2008). Confirmatory factor analysis (CFA) of the three formal incentive practices (individual bonus, team bonus, and profit sharing) and firm performance provided acceptable model fit indices (TLI = .88, CFI = .90, and RMSEA = .09). Each indicator loads on the appropriate latent variable. Table 1 presents descriptive information as well as reliability coefficients for the multi-item incentive and performance measures. Given that independent and dependent measures come from the same source, common method bias (CMB) was evaluated. First, in the survey, firm performance items are presented four pages after the incentive items and are separated by descriptive items ascertaining the sector and industry of the firm. As a way to further lessen CMB, CRANET respondents are pre-qualified as having relevant knowledge and responses are anonymous (Glaister et al., 2018) Second, empirical checks were also performed. The Harmon test for CMB forces all

dependent and independent variable items into a one-factor EFA solution (Podsakoff, MacKenzie, Lee, & Podsakoff, 2003). This resulted in 21.8 % of variance being explained by one factor and is well below the suggested 50 % cutoff. As a further check, a CFA forcing all dependent and independent variable items to load on a single latent variable was performed. This produced unacceptable goodness of fit indices (TLI = .31, CFI = .41, and RMSEA = .21). We conclude that CMB is not a problem. Data checks for incentive scales noted bimodal scale distributions of many firms with high and low usage and far fewer firms in the midpoint of the scale. This necessitated a mean-split transformation (used in all analyses). Firms below the scale mean are coded zero (indicating the formal incentive is used in two or less groups) and those above the mean are coded 1 (indicating the incentive is used in three or four employee groups).

Table 2a Multilevel Random-Effects GLS Regression Analysis Predicting Log of Turnover.

3.3. Culture moderator variables

Model 1

Model 2

Model 3

Parameter Intercept

B (SE) 2.00 (.15)***

B (SE) 1.98 (.13)***

B (SE) 1.60 (.12)***

Controls: Log Size International Market Focus Manufacturing Focus Union Intensity

.12 (.02)*** −.12 (.05)* −.14 (.05)** −.12 (.01)***

.12 (.02)*** −.12 (.05)* −.14 (.05)** −.11 (.01)***

.17 (.02)*** −.23 (06)*** .20 (.06)** −.02 (.02)

Incentive Practices: Individual Bonus Team Bonus Profit Sharing

.07 (.05) .06 (.04) −.09 (.05)

.08 (.05) .05 (.05) −.10 (.05)t

.21 (06)*** −.02 (.05) −.27 (.06)***

The GLOBE (House et al., 2004) measures of national culture are used as level 2 variables in multilevel models. The four dimensions are used: performance orientation (PO), power distance (PD), in-group collectivism (I-GC), and uncertainty avoidance (UA). Response biascorrected “as is” culture practice metrics are used. This is consistent with related research using GLOBE measures (Farndale & Sanders, 2016; Prince et al., 2018; Stephan & Uhlander, 2010). The “as is” measures are closer to Hofstede’s measures, which has guided past research. These capture potential institutional pressures or constraints on incentives compared to the “should be” GLOBE value measures.

3.4. Control variables Culture Predictors: Performance Orientation Power Distance In-Group Collectivism Uncertainty Avoidance

— — — —

.16 (.10) −.09 (.11) −.22 (.14) −.31 (.16)*

.40 (.05)*** −.11 (.05)* −.40 (.09)*** −.69 (.09)***

Performance Orientation (PO) Interactions: Individual Bonus*PO Team Bonus* PO Profit Sharing *PO

— — —

— — —

.16 (.07)* −.09 (.07) −.23 (.07)**

Power Distance (PD) Interactions: Individual Bonus*PD Team Bonus* PD Profit Sharing *PD

— — —

— — —

.21 (.06)** −.06 (06) −.05 (.07)

Single-item measures of (1) firm size (the base-e logarithmic transformation of total employees), (2) international market focus [indicating whether the main market is either the firm’s home country (coded 0) or other countries (coded 1)], (3) manufacturing focus (coded 1) versus whether the main market sector is service-oriented (coded 0), and (4) union density (measured on a 6-point scale ranging from 0 % union members to 76–100 % unionized) are used. These control variables are often employed (Gooderham et al., 2015; Prince et al., 2016). The incentive practice usage is expected to be related to these variables and controlling this variance reduces the likelihood of finding spurious independent-dependent variable relationships.

3.5. Analysis

In-Group Collectivism (I-GC) Interactions: Individual Bonus* I-GC Team Bonus* I-GC Profit Sharing* I-GC

— — —

— — —

−.29 (.11)** .07 (.10) .24 (.10)*

Uncertainty Avoidance (UA) Interactions: Individual Bonus* UA Team Bonus* UA Profit Sharing* UA R2(within) R2(between) R2(overall) Wald χ2 Statistic N (#firms)/k (#countries)

— — — .10 .13 .10 157.09*** 1414/19

— — — .10 .28 .21 165.02*** 1414/19

−.37 (.11)** .11 (.11) .27 (.11)* .10 .48 .30 597.50*** 1,414/19

Given that incentive practice slope values are hypothesized to vary at different levels of culture moderators and the nested nature of the data, random-effects GLS regressions are used. In multi-step multi-level regressions for each dependent variable, control variables and three incentive practice variables are entered, followed by the (level 2) culture dimensions. In the final step, the culture dimensions and incentive practice cross-product terms are entered.1

1 Other researchers have noted the substantial intercorrelation between GLOBE culture measures (Stephan & Uhlander, 2010; Tung & Verbeke, 2010). Multicollinearity checks found that the addition of the incentive practices to the controls (model 1) yielded VIFs below 1.27. When the culture main effects are added in model 2, VIF increases for those items (with the highest being 4.67, which is below the traditional cutoff of 10). The cross-product terms included in Model 3 are, by construction, correlated to their main effect components and this increased VIF values. The VIF for these items ranged from 1.64 to 7.20.

Notes: 1. Null model ICC = .29. 2. Unstandardized regression coefficients (with standard errors in parentheses) are reported. 3. Grand mean centered (z-score) values for the culture variables are used. t p < .10 * p < .05 **p < .01 *** p < .001. 6

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4. Results

Table 2b Multilevel Random-Effects Performance.

4.1. Turnover rate regressions Table 2a presents the random-effects GLS regressions for turnover. The ICC = .29 for the null (or intercept-only) model means there are high levels of variance in firm turnover rates at the country-level. In the column 1 model, the four controls are significant, indicating larger, domestic market-focused, service sector, and less-unionized firms have higher turnover. As seen in the column 2 model, we see a trend-level negative relationship between profit sharing and turnover (b=−.10). Broader use of profit sharing in multiple employee groups is associated with reduced turnover. Turnover is higher in countries with lower UA (b=−.31). Column 3 presents evidence of seven moderating effects of culture, and these are discussed in section 4.3. The R2 (overall) value increased from .21 to .30 with the addition of all interaction terms and the between level 2 (countries) R2 increased from .28 to .48. The Wald statistic is always significant and becomes increasingly so in the model with all interaction terms included.

The individual-bonus―turnover relationship, but not the individual-bonus―performance relationship, is moderated by all four culture dimensions. No culture dimensions moderated the team-bonus―outcome relationship. All culture dimensions, except PD, moderate the profit-sharing―turnover relationship. Table 3 provides additional information for all instances where there is a significant interaction effect noted in Tables 2a and 2b. Table 3 presents the contrasting regression slope values for the incentive term at one standard deviation above and below the mean level of each culture variable. Fig. 1 presents the same contrasting regression slope values graphically. In the last column of Table 3, we identify the region of significance, which is where the culture moderated slope of the incentive-practice term moves from insignificant to significant (Dawson, 2014). For example, the first line presents the results for hypothesis 1a at −1 SD, the slope is .05 and increases to .37 at +1 SD. The “z > −.5″ indicates that the slope is significant for all PO values greater than (z-score) −.5. In our sample, that corresponds to 3.96 on the (unstandardized) PO scale. For countries higher than this level of PO, increased use of individual bonus schemes is significantly associated with increases in turnover. For lower PO values, the slope of the individual bonus term is not significantly different from zero.

Predicting

Firm

Model 3

B (SE) 3.37 (.08)***

B (SE) 3.37 (.08)***

B (SE) 3.43 (.08)***

.04 (.01)*** .13 (.04)*** −.10 (.04) ** −.04 (.01)***

.04 (.01)*** .13 (.04)*** −.10 (.04)** −.04 (.01)***

.03 (01)* .15 (.04)*** −.08 (.04)*

Incentive Practices: Individual Bonus Team Bonus Profit Sharing

.09 (.04)** .08 (.03)* .10 (.04)**

.09 (.03)** .06 (.03)t .10 (.04)**

.05 (.04) .08 (03)* .15 (04)***

Culture Predictors: Performance Orientation Power Distance In-Group Collectivism Uncertainty Avoidance

— — — —

−.02 (.05) −.06 (.05) −.01 (.07) .00 (.08)

−.11 (.03)** −.04 (.03) .09 (.05) .18 (.06)**

Performance Orientation (PO) Interactions: Individual Bonus*PO Team Bonus*PO Profit Sharing*PO

— — —

— — —

−.07 (.04)t .04 (.04) .14 (.05)**

Power Distance (PD) Interactions: Individual Bonus*PD Team Bonus*PD Profit Sharing*PD

— — —

— — —

−.03 (.04) −.05 (.04) −.01 (.04)

In-Group Collectivism (I-GC) Interactions: Individual Bonus*I-GC Team Bonus*I-GC Profit Sharing*I-GC

— — —

— — —

.00 (.06) −.02 (.06) −.15 (.06)*

Uncertainty Avoidance (UA) Interactions: Individual Bonus*UA Team Bonus*UA Profit Sharing*UA R2(within) R2(between) R2(overall) Wald χ2 Statistic N (#firms)/k (#countries)

— — — .04 .07 .04 71.73*** 1657/19

— — — .04 .14 .05 73.43*** 1657/19

.02 (.07) −.08 (.07) −.17 (.07)* .04 .28 .08 132.67*** 1657/19

Union Intensity

4.3. Summary of moderation effects

Analysis Model 2

Controls: Log Size International Market Focus Manufacturing Focus

As seen in Table 2b, the null model for firm performance produced an ICC = .05 indicating more limited, but meaningful, (level 2) country-level variance. Column 1 results note positive relationships between improved performance and broader use of all three incentive practices. Noted in column 2, there are not any main effects between culture dimensions and performance. Column 3 presents evidence of three moderating effects of culture and these are discussed in section 4.3. The R2 (overall) value increases from .05 to .08 when interaction terms are added and the between level 2 (countries) R2 increases from .14 to .28. The Wald statistic is always significant and becomes increasingly so in the models with all interaction terms.

Regression Model 1

Parameter Intercept

4.2. Firm performance regressions

GLS

−.06 (.01)***

Notes: 1. Null model ICC = .05. 2. Unstandardized regression coefficients (with standard errors in parentheses) are reported. 3. Grand mean centered (z-score) values for the culture variables are used. t p < .10 * p < .05 **p < .01 *** p < .001.

employee groups is associated with an increase (not a decrease) in turnover when PO is high (+1 SD), the slope =+.37. Lower turnover is associated with decreased use of individual bonuses in high PO cultures. In low PO (−1 SD) cultures, broader use of individual-bonus incentives is associated with a minimal change in turnover (slope = +.05). (Fig. 1a presents these relationships graphically.) The predicted moderating effect of PO on the profit-sharing―turnover relationship (H1e) is significant. The significant b=−.23 profit sharing and PO interaction term (Tables 2a, column 3) means that, as hypothesized, when PO is high more extensive profit sharing use is associated with lower turnover. As noted in Table 3 (and Fig. 1b), the slope value for the profit-sharing term is −.60 in the high PO condition.

4.3.1. Hypothesis 1: performance orientation (PO) Higher levels of PO are predicted to be associated with a stronger positive relationship between each incentive practice and firm performance and an increasingly negative incentive-turnover relationship. The moderating effects of PO on the individual-bonus―turnover relationship (b=+.16 in Tables 2a) is significant and opposite to the hypothesized (H1a) direction. As seen in Table 3, the b=+.16 interaction term shows that broader use of individual bonuses in multiple 7

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Table 3 Contrasting Incentive Practice Slope Values at High vs. Low Culture Values and Significance Region. Hypothesis

Dependent Variable

Incentive Practice

Culture Moderator

Tables 2a&2b p-Values

Slopes at Δ Culture Levels Low (-1SD)

High (+1 SD)

1a

Turnover

Individual Bonus

PO

.022

.05

.37

1e

Turnover

Profit Sharing

PO

.002

−.04

−.60

1f

Firm Performance

Profit Sharing

PO

.004

.01

.29

2a

Turnover

Individual Bonus

PD

.001

.00

.42

3a

Turnover

Individual Bonus

I-GC

.004

.50

−0.08

3e

Turnover

Profit Sharing

I-GC

.017

−.51

−.03

3f

Firm Performance

Profit Sharing

I-GC

.018

.30

.00

4a

Turnover

Individual Bonus

UA

.001

.58

−0.16

4e

Turnover

Profit Sharing

UA

.011

−.54

.00

4f

Firm Performance

Profit Sharing

UA

.013

.32

−.02

Moderator Region of Significance

z > −.5 (> 3.96) z > −.6 (> 3.92) z > −.4 (> 4.00) z > −.5 (> 4.93) z < .3 (< 4.77) z < .5 (< 4.89) z < .4 (< 4.84) z < .3 (< 4.69) z < .5 (< 4.84) z < .5 (< 4.84)

Notes: 1. The low versus high culture conditions slope values are calculated for only significant interaction terms in Tables 2a and 2b regressions (see p-values noted above). 2. The margins command (STATA, version 14) was used to identify the slope values for +/- 1 SD as well as the slope values or regions where the culture moderated slope of the incentive practice variable reaches at least p < .05 significance. This is the same information provided by the Johnson-Neyman technique. The values of the unstandardized culture scale scores that correspond to the critical z-scores values are noted in parentheses.

Hypothesis 3 predicted that at high I-GC greater use of profit sharing would be associated with lower turnover (H3e) and higher performance (H3f). The b=+.24 coefficient for the profit sharing and I-GC interaction term in Tables 2a confirms hypothesis 3e and, as shown in Table 3 (and Fig. 1e), decreases in turnover (b= −.51) are most associated with broader profit sharing use in low I-GC (individualistic) cultures. In high I-GC cultures, there is a near zero relationship (b = −.03) between profit sharing use and turnover. The significant b=−.15 coefficient for the profit sharing―I-GC interaction in the performance regression (Table 2b) is consistent with the hypothesized (H3f) effect. Broader use of profit sharing is associated with performance improvement in low I-GC (individualistic) cultures (b = +.30, Table 3, Fig. 1i). In high I-GC cultures, profit sharing is unrelated to performance (b = .00).

For low PO cultures, there is little change in turnover when profit sharing is used broadly in more employee groups (b=−.04). Finally, the b=+.14 wt for the profit-sharing―PO interaction term in the firm performance regression (Table 2b, column 3) is significant and supports hypothesis H1f. Table 3 (and Fig. 1h) shows that more widespread profit-sharing use is most associated with increased firm performance in high PO cultures (b=+.29). When PO is low, profit sharing use is unrelated to performance (b=+.01). 4.3.2. Hypothesis 2: power distance (PD) The literature on PD suggests low power distance cultures support incentive use. Only one of the six predicted moderation effects are significant (H2a), and that is the individual-bonus―PD interaction term (b=+.21) in turnover analysis (Tables 2a). As seen in Table 3 (and Fig. 1c), we see that, contrary to this hypothesis, broader use of this incentive practice is related to higher turnover in high PD cultures (b = +.42). Lower turnover is associated with less individual-bonus use in a high PD context. When PD is low, there is no relationship between broader individual-bonus use and turnover (b = .00). There is no evidence PD culture differences influence the effectiveness of other incentive practices. For incentive practices, PD is the least influential moderator.

4.3.4. Hypothesis 4: uncertainty avoidance (UA) Out of six cross-product terms of UA on incentive pay, three are significant. First, hypothesis 4a predicted that broad use of individual bonuses would lead to higher turnover as UA increases. The b = −.37 wt for the individual bonus and UA term in Tables 2a (turnover) does not support this hypothesis. As summarized in Table 3 (and Fig. 1f), in low (not high) UA cultures, widespread use of individual bonuses is associated with increased turnover (b =+.58). In high UA cultures, broader use of this practice is linked to a (non-significant) decline in turnover (b = −.16). Second, at higher levels of UA broader profit sharing use was predicted to be associated with lower turnover (H4e) and higher performance (H4f). This was not supported. For hypothesis 4e, the b= +.27) indicates broader profit sharing use is associated with decreased turnover in low UA cultures (b = −.54, Table 3). In high UA cultures, profit sharing is not related to turnover (b = .00). In the firm performance regressions (H4f) the profit sharing―UA interaction term (b=−.17) is significant, and in Table 3 (and Fig. 1j), we see broader profit sharing use is associated with higher performance when UA is low (b =+.32). In high UA cultures, profit sharing and performance are unrelated (b = −.02).

4.3.3. Hypothesis 3: In-group collectivism (I-GC) There are significant findings for hypotheses 3a, 3e, and 3f. Hypothesis 3a predicted, at high levels of I-GC, broader individualbonus use would be associated with higher turnover. The opposite was found. The significant b=−.29 individual-bonus―I-GC interaction (Table 2a) means that broader use of individual-bonus schemes is associated with (1) higher turnover in low I-GC (more individualistic) cultures (b =+.50, from Table 3, Fig. 1d) and (2) modest decreases in turnover in high I-GC (collectivist) cultures (b =−.08). In low I-GC (individualistic) cultures, broader use of individual bonuses is associated with higher (not lower) turnover. This is counter to the widely hypothesized culture-incentive fit influence of individualistic versus collectivistic cultures. There was not a significant moderation effect observed in the firm performance regression (H3b). 8

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Fig. 1. Interaction Plots. a. Individual Bonus-Turnover Moderated by Performance Orientation (PO). b. Profit Sharing-Turnover Moderated by Performance Orientation (PO). c. Individual Bonus-Turnover Moderated by Power Distance (PD). d. Individual Bonus-Turnover Moderated by In-Group Collectivism (I-GC). e. Profit Sharing-Turnover Moderated by In-Group Collectivism (I-GC). f. Individual Bonus-Turnover Moderated by Uncertainty Avoidance (UA). g. Profit Sharing-Turnover Moderated by Uncertainty Avoidance (UA). h. Profit Sharing-Performance Moderated by Performance Orientation (PO). i. Profit Sharing-Performance Moderated by In-Group Collectivism (I-GC). j. Profit Sharing-Performance Moderated by Uncertainty Avoidance (UA).

9

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5. Discussion

with both theoretical and practical implications. It seems obvious that some HR independent variables will have a non-contingent relationship to important HR dependent variables across most or all cultures; however, this should not be seen as a universal truth that discourages researchers from clarifying important HR practice-outcome relationships where culture does matter.

This research adds to our understanding of the relationships between incentives and firm-level outcomes in differing cultural contexts. We focus on incentive practice effectiveness rather than simple incentive adoption, which has been the dominant focus of related past research. The issues of contingent or culture-HR practice fit and questions about how powerful culture influences are (versus universalistic influences) have been a reoccurring debate in the IB and international human resource management (HRM) literature (Delery & Doty, 1996; Farndale & Sanders, 2016; Wright, Dunford, & Snell, 2001), and this research offers a measure of support for each of these competing views. Our results also have implications for the ongoing structure versus agency debate in the institutional theory literature and the RBV theory extensions to the strategic HRM literature.

5.2. Beyond culture-practice fit contingencies In addition to the culture-practice fit or contingency perspective reviewed in the prior section, these results also have implications for theoretical domains that have argued implied culture-practice fit constraints are negotiable and offered a more universalistic perspective on culture and incentives. These domains include (1) the agency perspective in institutional theory and (2) the RBV of the firm.

5.1. Theoretical implications for culture-practice fit

5.2.1. Structure versus agency debate in institutional theory Institutional theory is a guiding theoretical perspective having central relevance to how country-level contextual factors, including culture, influence the practice-outcome relationships. This theory has proceeded on two paths: (1) structure constrains and enables action, which advocates using a culture-practice fit perspective to understand important contingencies (Minbaeva, Rabbiosi, & Stahl, 2018), and (2) the institutional entrepreneurship perspective, which recognizes firms have latitude (or agency) to challenge constraints and even go against the prevalent country culture (Heugens & Lander, 2007). The observed moderating effects of culture are consistent with both of these contrasting perspectives. The profit-sharing results support the “structure constrains” contingency view and show that fitting culture links to positive outcomes. Profit sharing has its strongest positive relationship to higher firm performance and lower turnover in cultures high in PO, low in I-GC (or high individualism) and low in UA. The contrasting results across all three incentives also provide support for the institutional entrepreneurship perspective. Contrasting moderators for profit-sharing versus individual incentives and the lack of moderation in the case of team incentives means firms have latitude in how to pursue an incentive-focused strategy without conflicting with cultural constraints. The cultures that most constrained profit-sharing effectiveness are more supportive of individual incentives (and vice versa) and team-bonus plans are not culturally constrained. This suggests that using the agency perspective from institutional theory provides a useful complement to the traditional culture-practice fit structural perspective of institutional theory. The institutional entrepreneurship stream of institutional theory is gaining increasing emphasis in other disciplines (Hardy & Maguire, 2008) but has not been widely used in the HRM-culture research and national culture literature. Broadening our theoretical lens to include both perspectives of institutional theory will help both theory and practice to advance. For example, firms with operations in multiple countries can have a uniform HR policy that argues performance is rewarded but grant senior leaders in different settings latitude in how performance-oriented reward practices are designed (Prince & Prince, 2019).

We see three general contributions to the culture and incentive practice literature. First, culture often moderates the incentive practices-outcome relationship. When a moderating effect was found, this relationship generally varies between near zero (where increases or decreases in incentive usage are unrelated to changes in turnover or performance) to far from zero. Accounting for moderating effects substantially increased the explained variance observed and helps move the discussion in the IB/HRM and culture literature beyond simply how culture influences incentive practice adoption to how it influences important performance―related outcomes. Second, the moderated incentive-outcome relationships are not uniform over all incentive practices. Prior related research (GiacobbeMiller et al., 2003, Du & Choi, 2010; Festing, Engle, & Dowling, 2012; Gooderham et al., 2015) has tended to focus exclusively on individual incentives or a more general PFP construct. Organization-level incentives, such as profit sharing, should get greater attention, and researchers should be clear as to what level of performance is being incentivized and which specific incentive practices are implied. The moderating effects of PO, I-GC, and UA culture dimensions on the profit sharing―outcome relationships are consistent with the culture-practice fit contingency perspective seen in the literature. Conversely, individual-bonus practice effectiveness is most apparent in the near-opposite culture profile anticipated by the culture-practice fit thesis. Team-based incentive-outcome relationships are not moderated by the four culture dimensions analyzed. Incentive practices do not have a uniform connection to effectiveness in all cultural settings. This also suggests there may be multiple HPWS variants that include different combinations of HR and incentive practices for different countries and cultures and reinforces the idea that culture will impact some, but not necessarily all, HR variables (Sparrow & Wu, 1998). Third, the relationship of culture and incentive effectiveness is complex, and while many of the literature-based connections are not supported, understanding the effects of culture is substantially important to understanding the effectiveness of incentive practices in different countries. Of six possible PD-related interactions, only the moderated individual-bonus―turnover relationship is significant. In spite of past theorizing, PD is not a strong direct moderator of incentive effectiveness. The research literature reviewed finds UA is often not included as a potential contextual influence on incentive practices. Our results find it to be as strong as PO and I-GC. The results suggest that it may be necessary to simultaneously address multiple culture dimensions to see moderation. Country culture dimensions do not exist in isolation from each other, and future research needs to consider what dimensions should be controlled or simultaneously addressed in identifying the effects of other culture dimensions. Our results show that culture moderators are crucial to understanding the incentive practice-firm outcome relationship. Ignoring the moderating effects of culture will lead us to miss important insights

5.2.2. RBV theory implications The results also have implications for RBV theory and its use in HR (Barney & Wright, 1998; Prince, 2019; Wright et al., 2001). Using individual incentives in what has been seen as non-supportive cultures (low PO, high I-GC or low individualism, and high UA) is most associated with success in retaining talent. Individual performance-based incentive practice use in such contexts may help attract and retain a workforce that is distinct, uniquely talented, and hard for labor market competitors to copy. This is consistent with the strategic HRM views that emphasize using HR practices to support the development of the workforce as a competitive resource. Using HRM practices, such as individual-bonus incentives, which has broader usage and may be more recognized as a universal “best practice” even in non-supportive 10

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cultures, may help firms gain a sustainable competitive advantage. While the RBV literature has typically focused on product/service market competition, the same logic applies to competing in labor markets. Most countries do not have homogeneous populations and, with globalization, many nations are becoming increasingly heterogeneous. This offers latitude to fashion a unique workforce by employing a practice that may be at odds with national culture mandates.

source, a sole respondent, from each company (Gerhart, Wright, McMahan, & Snell, 2000). While this may inflate the independent and dependent variable relationships, the zero-order correlations noted in Table 1 are not particularly high, and it is the addition of the culture dimension moderators (which are country-level and come from a different source) that helped identify the cultural conditions in which the independent-dependent variable relationships were actually strong. The empirical tests noted in the methods section also suggested that CMB was not a problem. The firm performance dependent variable used in this study is also a potential limitation. The CRANET approach to measuring firm performance uses subjective assessments of the respondent of operational and financial performance compared to “other organizations in your sector.” The challenge with using objective performance measures is differences in country-based accounting systems and standards make it difficult to objectively sum up such performance metrics across multiple countries. This would also require non-anonymous collection of firm data and may contribute to response rate declines. The number of countries used in the multilevel analysis is also a concern. Nineteen is a minimal number of (level 2) countries for this analysis and raises the possibility of statistical power problems and an increased likelihood of mistakenly rejecting a true hypothesis. While this study is notable for its firm (level 1) sample size and global reach, research with more countries will help address this issue and enable the inclusion of additional country-level institutional factors, such as labor regulation (Gooderham et al., 2015), cultural looseness-tightness (Gelfand, Nishii, & Raver, 2006; Rabl et al., 2014) or additional culture dimensions, such as future orientation and institutional collectivism, in more exploratory analysis. Those additions have merit, but our n = 19 sample size precludes their inclusion. Finally, there are likely to be extraneous variables that were not investigated in this study that will effect firm performance and turnover. For example, Demirbag, Glaister and Sengupta (2020) found that economic growth of a region will impact performance. Additionally, Carney, Estrin, Liang and Shapiro (2019) in contrasting domestic and foreign-owned firms found evidence that institutional similarities beyond culture has an impact on firm performance.

5.3. Managerial relevance The moderating effect of cultures differs for each incentive practice. Firms should not assume all incentive strategies are constrained or supported by the same culture contingencies and have the same employee retention and firm performance benefits. While individual-bonus and profit-sharing schemes have positive links to performance outcomes, they are affected by contrasting culture contingencies. Profit sharing has its most positive connection to higher firm performance and lower firm turnover in high PO, low I-GC, and low UA cultures. For individual bonus-practices, the results support a near-opposite conclusion, indicating this incentive practice is associated with lower turnover (better retention) in low PO, high PD, high I-GC, and high UA cultures. This has striking implications for firms in multiple locations attempting to introduce a corporate incentive strategy. While strategic and other contingencies certainly matter, culture contingencies suggest different incentive practices are available for different cultures in formulating a corporate incentive strategy. In one cultural context, profit sharing may be a preferred alternative to an individual-bonus scheme, which may be the better choice in different cultural contexts. Team-based incentive effectiveness is not constrained by culture-fit concerns, and its selection should be based on considerations other than culture, such as strategy or workflow interdependence. The theoretical RBV implications noted above also have practical implications. The MNC literature on foreignness is beginning to appreciate that using different HRM practices in an MNC subsidiary versus the HRM practices typically seen in local firms may have the advantage (versus the liability) of foreignness (Edman, 2016). For example, Ono (2007) observed that in Japan’s financial industry, foreign firms could attract female professionals by offering merit-based pay schemes not available from domestic firms. In summarizing several studies, Edman (2016): 683) notes “country-level dissimilarity provides MNE subsidiaries an opportunity to appeal to particular segments of the host country’s human capital base dissatisfied with the country’s dominant HRM system.” Regression analyses indicate the average firm engaging in broad profit-sharing or individual-bonus practices (depending on contrasting culture profiles) will have lower or higher retention and performance. This provides a useful map for firms to negotiate incentive practice choices. From the institutional entrepreneurship or agency perspective of institutional theory, that map not only provides guidance on where a given incentive will more easily work, it also provides guidance on where proceeding to implement incentives inconsistent with culture mandates, if done, must be done with extra caution and analysis. In a sense, firms in such situations need to ask themselves how they should proceed with their desired counter to the culture incentive strategy and avoid negative outcomes associated with the average firm depicted in the regression results. Many countries are going to have culture profiles that only partially match up to supporting vs. non-supportive profiles identified in this research. In such settings, firms need to proceed with caution but may have more latitude than in countries that exactly match the non-supportive cultural context depicted in our results.

6. Conclusion Country culture has important practical and theoretical implications when it comes to incentive system design, and further research will add to our understanding of incentive practices over the globe. Contrary to some voices in the HRM literature, cultural contingencies can have a substantial effect on the incentive-outcome relationship and paying attention to culture makes significant gains in explained variance in two important dependent variables, firm turnover, and performance. Additionally, this research underscores that different incentives have different cultural contingencies and it is inadequate for researchers to speak vaguely about a PFP incentive strategy without specifying the particular incentive practices of interest. Acknowledgement We thank the Cranet Network, its members and sponsors for providing funding for survey development and data collection. References Aerts, K., Kraft, K., & Lang, J. (2015). Profit sharing and innovation. Industrial and Corporate Change, 24(6), 1377–1392. Aycan, Z. (2005). The interplay between cultural and institutional/structural contingencies in human resource management practices. International Journal of Human Resource Management, 16(7), 1083–1119. Barney, J. B., & Wright, P. M. (1998). On becoming a strategic partner: The role of human resources in gaining competitive advantage. Human Resource Management, 37(1), 31. Belderbos, R., Du, H. S., & Slangen, A. (2020). When do firms choose global cities as

5.4. Limitations This study is not without limitations. The widely appreciated limitation inherent in the CRANET survey process is the potential bias of having independent and dependent measures provided by a single 11

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