Determinants of variable pay for top managers of foreign subsidiaries in Finland

• Published in: International journal of human resource management Vol. 11; no. 4; pp. 698 - 713
• Main Authors: Bjorkman, Ingmar, Furu, Patrick
• Format: Journal Article
• Language: English
• Published: Taylor & Francis 2000
• Subjects: Agency Theory; Earnings; Finland; Income; Institutionalization Theory; International division of labour; Management; Multinational enterprises; Organizations; Statistics; Subsidiary Roles In The Mnc; Variable Pay; Wages
• ISSN: 0958-5192; 1466-4399
• DOI: 10.1080/09585190050075079

There is a large body of research dealing with top management compensation from an agency theory perspective. Difficulties in monitoring top management (the agent) are exacerbated in the multinational corporation, where there are significant information asymmetries between headquarters and foreign subsidiaries. Headquarters may use variable pay for subsidiary top managers to reduce the agency problems. By studying 110 foreign-owned subsidiaries located in Finland, this paper attempts to identify determinants of variable pay to the subsidiary general manager. In line with agency theory, the results suggest that the roles played by the subsidiary influence the compensation strategy used for the subsidiary general manager. However, while agency theory predicts that the cultural distance beween the home country of the multinational corporation and the location of the foreign subsidiary would have an effect on the compensation system, no such effect was found. Instead, in accordance with the institutionalization perspective, we found a significant 'nationality effect' on the use of variable pay.