Research on The Global Compensation Strategy of Transnational Mergers and Acquisitions
of Chinese Enterprises
Jie Zhang1 Shuming Zhao2 Li Min
Jie Zhang: College of Economics and Management, Nanjing University of Aeronautics and
Astronautics, 210016 P. R. China Email: jiezhang@nuaa.edu.cn
Shuming Zhao, School of Business, Nanjing University, 210093, P. R. China
Email:Zhaosm@nju.edu.cn
Li Min, College of Economics and Management, Nanjing University of Aeronautics and
Astronautics, 210016 P. R. China Email: lingxao666@126.com
Abstract: After transnational merging and acquising, how to design a set of golobal compensation
plan to support to the business operation of company in the global context, has become the focus
of multinational company management. The ideal global compensation strategy should have these
features, such as strategic matching, attractive and competitive, easy to personnel deployment,
strategic flexibility and so on. Compared with the compensation system of developed countries,
Chinese compensation system exists the characteristics of low labor costs, disconnection between
compensation system and enterprise strategy, narrow field of compensation investigation, serious
equalitarianism tendency, lack of scientific position evaluation system, opaque payment, lack of
flexibility in the incentive system and so on. For this reason, after implementing M&A, enterprises
can gradually construct the global compensation system through the following steps, carry out due
diligence, establish compensation committee, definite design purpose, fomulate matching
compensation strategy, and then implement it, publicize it, monitor it and assess it.
Keywords: transnational mergers and acquisitions; globalization; compensation strategy; China
enterprise
In the past 30 years, the scope of the transnational business enterprises in the worldwide
increases exponentially, and in recent ten years, most of the foreign investment is realized by
transnational M&A instead of new investment. Since the mid 1980s, the history of transnational
M&A of Chinese enterprises is more than 20 years so far. Meanwhile, the form of transnational
M&A is from nothing, and then grows from small to large. The escalating M&A activity increases
significantly than the past, no matter from the aspect of size, distribution or subject. Some
enterprises, like Haier, Lenovo, Midea, TCL, Bao Steel, The Bank Of China etc., have become the
economic entities with a considerable scale, and they have the certain scale assets in developing
countries , Europe, US and other developed countries1.
After transnational merging and acquising, the enterprise internal human resource
management becomes very important. As a result of the internal staffs of the multinational
corporations becomes diversified increasingly, the difficulty and complexity of the international
human resource management is much higher than that in one country. Therein, no one problem
could be like the wages that cause the attention of the top management(Cascio, 1986 )2. For this
reason, how to design a set of golobal compensation plan to support to the business operation of
company in the global context, has become the focus of multinational company management. For
instance, since the case that the Lenovo merge the IBM’s PC division at the end of 2004, its
compensation system has been aroused people’s great attention. While in fact, with the
accelarating pace of the Chinese enterprises overseas M&A in recent years, these enterprises are
facing the same problem, that is they should design a global compensation strategy combined the
local and international market.
1. The connotation and features of the global compensation strategy
After the transnational M&A, the enterprises can provide the appropriate compensation and
welfare treatment to staffs according to the international standard combined with the domestic
actual situation or not, is very important to effectively encourage the international human resource
and fully mobilize the enthusiasm of overseas resident personnel. This is also the key to enhance
the competitiveness of multinational corporations in the international market.
（1） The connotation of the global compensation strategy
The compensation system of the transnational management is a specially complicated system.
It faces three different kinds of staff groups, which are the home personnel, the host country
personnel and other countries personnel, and need to meet their requirements. However, an
effective compensation plan in one region would not be siutable for all other areas, because of the
different regional cultural and economic standard. The strategic compensation system building by
the multinational corporations should can not only be in accordance with the company’s global
strategy, but also have the flexibility to adapt to the regional differences, so as to take account of
both efficiency and fairness. Actually, this ”global thinking, local execution” mode of thinking is
extremely essential to every aspects of the multinational corporations management.
The globalization of compensation system mainly embodies in its strategic level. Such as, the
global consistency guided by the motivation, which is a principle to attract appropriate staffs in the
limited cost range, the global consistency guided by the external competitiveness or internal
fairness, or the global consistency consisted of compensation, which means that the compensation
grade is same, for example, the level in the headquarters is 15, and it’s also 15 in the world. When
the headquarters send personnel to the developed countries, the less well-off countries or the
undeveloped countries, the compensation grade of the expatriates is the same in whichever
countries.
（2） The features of the global compensation strategy
The ideal global compensation strategy should have the following features:
1） Strategic Matching
The strategic matching is the core of the global compensation strategy. The global
compensation strategy should be identical with the total strategy of the transnational company and
the requirement of the organization and the enterprise, and finally become the powerful lever to
achieve global strategic goal by improving the employee satisfaction.
2） Attractive and Competitive
The global compensation policy must be able to attract the talents to the places where the
transnational company needed them most, and keep them. Therefore, this policy must be
competitive3. It means that not only the competitiveness of the policy is stronger than the major
competitors’ compensation systems, but also it should realize the function of these factors, which
are the motivation for the overseas staffs, the tax equality and the reimbursement of the reasonable
expenses.
3） Easy to Personnel Deployment
There is a stable relationship in each subsidiary’s compensation system of the global
compensation system. Thus this policy is beneficial to the company to mobilize the overseas
resident personnel in the most economic way, which make the multinational corporation personnel
be very convenient to be transferred between parent and subsidiary company or among the
subsidiaries.
4） Strategic Flexibility
The flexible global compensation strategy can have certain flexibility in the relative stability,
and can take the specific demand of each regional employees into consideration. Many scholars
think the global compensation has need to have strategic flexibility(Milkovich&Bloom4,1998;
Roth and O’Donnell5,1996; Gomez-Mejia&Wiseman6,1997). The strategic flexibility of the global
compensation refers to the reaction and adaptability capacity of the compensation system to grasp
the changes of the competitive environment. The strategic matching and the strategic flexibility
complement each other, which means that the matching is the consistency on one point in time,
but the flexibility is the consisitency in a period of time. In a dynamic and unexpected
environment, the global compensation strategy should integrate the strategic matching and the
strategic flexibility.
2. The challenges faced by the compensation strategy of the Chinese enterprises in the
transnational M&A
The furthering economic globalization makes the gap between Chinese compensation system
and developed countries’ be shrinking. But in general, compared with the developed countires’,
the Chinese compensation system exists the following characteristics:
（1） The Chinese labor costs are low. On one hand, for the supply of the Chinese labor
market falls far short of demand, on the other hand, there is certain gap between China and United
States, Japan, Europe and other developed countries on the aspect of current economic level, thus
the difference between the Chinese domestic compensation level and the developed countries’ is
relatively obvious.
（2） The compensation system is out of line with the enterprise strategy. Most Chinese
enterprises implement the unified compensation strategy, which is disjointed with the operation
strategy to a large degree. For instance, some enterprises put forward that the strategic goal of
enterprise lies in the long-term interests of the shareholders, but they focuses on rewarding the
short-term performance in business, which leads to the dislocation between the compensation
system and the business strategy.
（3） The field of compensation investigation is low. The enterprises in developed countries
are very concerned about the external competitiveness of compensation. They attach importance to
the frequent compensation research, especially the compensation information of the important
competitors for themselves, and then they carry out the integration analysis, based on which they
adjust their compensation strategy. However, the Chinese enterprises did not enough in this aspect.
At present, a lot of Chinese enterprises can only slapdashly observe the total market quotations in
compensation survey, and the information collected lacks the true reliability, which makes the
compensation level decided not science enough.
（4） The equalitarianism tendency is serious. Because deeply influenced by the past
equalitarianism tendency of the planned economic system, the compensation system of Chinese
enterprise often pays attention to “fair”, in which the the structure line of compensation is quite
gentle, and there is larger apart even completely apart between compensation and performance.
This seeming fair is unfair in fact, which makes the enthusiasm of the backbone employees be
greatly contused, thus the Gresham’s rule “bad money drives out good” takes place in the
enterprise staffs, then the backbone employees run off, and those hitchhikers stay instead.
（5） There is short of scientific position evaluation system. The developed coutries
enterprises pay attention to the competence level, that is they assess the position on the basis of the
job duties and the corresponding job requirements, and their fixed compensation is based on the
competence level, and the quantity of compensation increase is linked with the competence level
and the perfomance. Nevertheless, the Chinese enterprises, especially the state-owned enterprises,
lay emphasis on the administrative level. Their payment is linked with the professional titles, and
the more senior, the higher salary. And in actual practice, some enterprises’ supervisors set
positions or file the positions of same level and same class and order them simply, which are not
scientific job evaluation, and unable to implement internal justice.
（6） The payment is opaque. For example, some enterprises take “red envelopes” secret
paid way, which derives fuzzy compensation system. This paid way will only cause the
employees’ curiosity, and lead the mutual suspicion and doubt among the employees, and they will
take the negative emotions into work, which will weaken the salary’s incentive functiont.
（7） The incentive system and the benefit plan lack flexibility. For instance, many Chinese
enterprises identify the bonus as the motivator to the short-term performance, but ignore the
employees’ hard process and the investment and the potential output in all aspects. For the current
interests, the staffs may do the short-term behavior of damaging the enterprises’ long-term
interests. Also some enterprises change the bonus to the fixed supllemental wages, which makes
the changeless bonus lack competitiveness and fairness, and then the bonus can’t play incentive
function. It is also like this in the benefit plan. The unified benefit plan overlooks the the
employees’ demands vary from person to person, which increase the cost of enterprise,but can not
increase the employees’ satisfaction.
The aforesaid issues are the problems and challenges faced by many Chinese enterprises in
constructing the global compensation strategy. In this process, we can not copy any of the
management ideas and methods of developed coutries, but should take examples from our actual
conditions.
3. The steps and strategies of implementing the global compenstaion in the transnational M&A
of Chinese enterprise
The Chinese enterprises can act up to the following steps to carry out the global
compensation in transnational M&A:
（1） Carry out the global compensation due diligence
As the compensation environment faced by the transnational companies is diversifying, the
Chinese enterprises must carry out the global compensation due diligence for successfully manage
the compensation in the global range. The global compensation due diligence mainly includes
many factors influencing the global compensation strategy:
1) Cultural background
Eddie lattices·Shane difined it as a kind of implicit assumption not gradually noticed by
members in the process of adapting to the outside world and unifying the internal members.
Hofstede(1982) said that : “The culture is not a kind of individual characteristics, but the common
psychological program owned by the group of same education and life experience.” The staffs of
different cultural background will show different behavioral orientation. For example, people of
different cultural background prefer different welfare, and the staffs of China and Japan more
prefer the employment security, but the staffs of Europe and America more prefer the annual leave
or other welfare.
2) Relevant legislation
The legal environment of each national government is extremely different in the aspects of
staff management and compensation incentive, which mainly relects in the laws related to the
equal employment opportunity, the minimum wage and the employee benefits security. The law
has natural mandatory and universality. In the journey of going out of the country, the Chinese
enterprises must be predicated on the base of local law. From the point of human resource
management, comprehensive understanding the legal environment of the local nation is the basic
premise to operate nomal business.
3) Economic level
The different regions’ level of economic development and the comsumption level decided by
it is different, which directly leads to the salary differences between the different regions. For
instance, in the same transnational company, there often appears a phenomenon called “Unequal
Pay For Equal” between the separate staffs especially managers. Consequently, when devising the
global compensation strategy, the Chinese enterprises must learn about the differences of the
economic level around the world and the corresponding salary informatino of the benchmark
position, thus the compensation project devised can give consideration to competitiveness and
economy.
4) Tax policy
The collection range and the collection level of different countries’ individual income are
completely different. For the staffs, they pay attention to the actually consumable salary amount
after deducting tax, hence a competitive compensation plan should consider the effectiveness of
tax. To take advantage of tax policy to extremely increase the actual income for the staffs in the
legal premise, is the common expectation of the enterprise and the staffs. Therefore, when the
Chinese enterprises manage and operate the compensation system of the overseas countries’ local
staffs, must consider the tax policy and institutions and other legal requirements related to
compensation of all countries when designing compensation. In this way, on one hand it can
guarantee the legality of compensation plan, on the other hand, it can improve the staffs’
disposable income through the appropriate compensation structural design.
5) Trade unions role
In different countries, the difference of the positioning and influence of the trade union is
great. In many developed countries, such as Europe, America, Japan and Korea, the trade union
has a strong power, which has great influence on the local problems like compensation benefit.
For example in Europe, the law provides that the trade union can determine the minimum wages
and welfare system paid by enterprises. However, the American NLRB provides that the
enterprises must take the measure of cellective bargaining, not just as one wishes to establish the
each standard related to compensaton, such as involved work, working hours, pensions and
employee benefits, vacations, profit sharing plan. So, before executing the compensation strategy,
the Chinese enterprises should systemly and comprehensively grasp the host country’s trade union,
and its influence on the staffs’ compensation and other aspects.
（2） Establish the global compensation committee
The compensation committee members include the company’s directors, senior management
and the trade union representatives. The compensation committee will cooperate with the HR '
from the home country and the host country to establish, implement and control the global
compensation strategy.
（3） Define the devised purpose of the global compensation strategy: globalization thinking,
localization executing
The compensation strategy is from the company’s core value and business strategic goal. To
establish the global compensation system should be not only a technical work, and firstly it should
be a kind of strategic thinking. For this reason, when designing the compensation system, the
company must firstly make clear its strategic goals and purposes, and should not be limited to
solve the current compensation problem and the professional work of HR department. Otherwise,
even if the current problems are temporarily resolved, and the compensation system is set up,
when the new matters once appear, the compensation system will not be able to adapt, even may
hinder the development of the enterprise.
（4） Formulate the global compensation strategy matching to the global strategy
The global compensation strategy refers to the decisions made by the multinational
corporations to ensure the design, implementation and control of the compensation plan, and they
are directly related to the performance target of the organization, in the compulsive restriction of
the social expectations and related laws and regulations. These decisions are generally used to the
management activities of the company level, which are taken to achieve the business strategy.In
general, the global compensation strategy includes four dimensions:
1) Compensation levels
This dimension is the compensation standard positioning conducted by the multinational
corporations to keep the external competitiveness as compared to the competitors or the market’s
average level. In this regard, the company can depend on its truth to adopt the positioning of
leading, following or belowing the market level.
2) Compensation decision criterions and wage hierarchies
This dimension is mainly to determine which standard be taken to classify the employees’
compensation levels, whether station or skill, performance or qualification, company performance
or department performance, observationally or quantitatively measure performance. In addition, it
will also set the standard for the employees’ compensation upgrade, grasp the gap between the
different grade, and control the fairness of the enterprise internal compensation distribution.
3) Compensation combined form
This dimension will decide the specific form to pay salary. Such as by the proportion between
the fixed incom and the fluctuant income, by the combination of the short-term and long-term
stimulation, by the alternative between the economic compensation and noneconomic
compensation and so on.
4) Compensation system’s management
This dimension means the behavior and the decision criteria of formulating and adjusting the
compensation system, which mainly includes the following content: the compensation system’s
making process is centralized or separated, the staffs are highly engaged or lowly engaged, the
fairness is internal or external, the compensation is narrow band or broad band, the payment is
public or secret, the system itself is partial elasticity or partial rigidity and so on.
The core of the above-mentioned decisions is make the global compensation system of the
multinational corporations be useful to achieve the global strategic goal, have external
competitiveness and internal fairness, reasonablely recognize the employees’ contribution and
improve the effectiveness of the process of the compensation management7.
（5） Transform the global compensation strategy to compensation practice
Apply the finished global compensation strategy to the practice of the home country and each
host countries. In this process, the company can appoint a homeland HR consulting expert for
each branch, who will be mainly responsible to transmit the results, and coordinate each branch’s
operation and provide the suggestions to solve problems for the daily operation of the branches.
This pattern will be beneficial for the information communication and the plan’s consistency
between the parent company and the subcompanies.
（6） Advertise the compensation policy
When the transnaional company is designing and implementing the global compensation
strategy in accordance with the requirements of both local staffs and foreign staffs, the area most
prone to go wrong still lies in the staffs’ disdentification, incomprehension and nonsupport. In the
process of implementing the global compensation strategy, there may be a significant portion of
the employees unilaterally treat some patterns and phenomenons of the enterprise’s compensation
management, and they will not understand the differences between different regions or different
jobs, thus they will feel dissatisfied. If so, the enterprises will not only loss big development costs,
but alse be unable to benefit from it.
Therefore, before designing the global total compensation scheme, it is necessary to do the
communication with employees well, especially with the expatriates. Because they are mostly
directly affected by the internaional compensation plan, and their attitude towards this plan
directly affect wheher they are willing to accept the assignment mission and the difficulty of
conducting the plan. Through the effective communication to make sure every staff of each branch
know the working costs, opportunities and challenges in other countries or regions, and the
necessity to acquire the local knowledge and implementing the competitive compensation plan.
Only in this way, the employees can really understand the thoughts of the enterprise’s global
compensation management, and the working differences in different countries and regions. And
only in this way, the enterprise can get the staffs’ support, and set the good stage for effectively
executing the multinational corporation’s compensation management, consequently it will more
effectively achieve the incentive value of the compensation management.
（7） Supervise and estimate the matching of the global compensation strategy
The designment and execution of the compensation system are not once for all. The
multinational corporation must constantly monitor and timely adjust and update the matching
between itself and the strategy, to make the global compensation strategy be able to adapt the
constantly changing the operational environment and the enterprise strategy.
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