The People's Republic of China now plays a central role in global economic growth and development, and Chinese state-owned enterprises and private firms are rapidly internationalising their operations in both developed and developing economies. China is a global economic power and yet a country that is still 'developing' rather than 'developed'.

Transition in Chinese domestic reward practices

Under China's old planned economy, Chinese domestic employment practices were based on long-term job security, lifelong social security, pay structures characterised by low dispersion/egalitarianism and group-based rather than individual incentives. The principal pay system was the national wage scales, which were determined by central legislation and regional government agencies and were configured differently for blue- and white-collar employees. Pay differences between low-skilled workers, skilled workers, and managers were minimal, and wage increases were infrequent and primarily took the form of nationwide grade promotions for all employees (Dowling et al., 2008). The combination of egalitarian pay structures and the 'iron rice bowl' model, which addressed workers' basic needs through free housing, schooling, and medical care, gave employees few extrinsic incentives to improve their performance or pur. sue promotion.

Since the 1980s, however, government controls have eased and firms have been given more autonomy to configure their own reward systems, albeit still within government guidelines. Job size has replaced age/seniority as the main determinant of reward level, and rising education levels have begun to influence pay differences. A performance-related reward approach in the form of an efficiency-based bonus has also been introduced to replace the grade-based system. Despite these changes, seniority and egalitarianism remain key characteristics of Chinese domestic reward practice, pay dispersion remains low, and enterprises tend to favour group bonuses over those of an individual nature.

How, then, do Chinese MNCs approach international reward management? Do they seek to export domestic practices or are they more adaptive and innovative in their cross-border approach? Does their approach emulate that of Western MNCs or do they take a different and perhaps uniquely Chinese path?

One of the few studies to date to have examined the reward practices of Chinese MNCs, that by Shen (2004), provides revealing evidence on these and related questions. Shen's study used a semi-structured, interviewbased survey to collect data from ten Chinese MNCs with subsidiaries in the UK. Of these case study companies, seven were state-owned enterprises covering a variety of industries - from banking and technology importing to airlines and shipping - while the remaining three were share-issuing companies in the electronics and health products fields.

Shen's study found that the pattern of reward practice in the case organisations was company-specific rather than simply being a reflection of national or industry factors. An example of this pattern can be found in the technology industries where leading internationally focused Chinese technology firms have been able to attract and retain high quality employees, outbidding leading US rivals such as Google (Gu, 2015). On the basis of the evidence generated, Shen identified four different approaches to international reward management in the companies studied:

host-based;

- home salary plus host-based;

, contract-based;

, diplomat-based.

Rewards for host-country nationals

All ten companies used the host-based approach for non-executive HCNs and a contract-based approach for HCN executives, with pay levels for HCNs commonly set quite high by UK standards. For HCN non-executives, the pay package generally included a fixed salary contract plus an individual merit bonus, typically of two to three months' additional salary based on an individual performance appraisal. The contract-based system applied to HCN executives differed from both home- and host-based practices in that the pay package was negotiated directly between the individual manager and the firm's headquarters, with payment based on a combination of individual capability, project importance, and divisional performance.
\section*{Expatriate rewards}
For Chinese employees expatriated to a UK subsidiary, Shen's study identified three distinct reward approaches. In two firms, expatriates received a host-based salary plus their old home salary. One company adopted a negotiable contact-based approach identical to that applied to HCN executives; this emphasised individual capability how important the project was, and the assignment location.

The other seven companies used a post-based approach for their expatriates, with the pay package including a fixed position-based salary, a post-based individual performance bonus, and a range of additional payments. The fixed component was much higher than for home-based employees. Bonuses were linked to divisional or departmental performance or to the status of the managerial post. This post-based approach, which accentuates hierarchy, originally used by the Chinese Foreign Ministry for international postings and now widely used by Chinese MNCs, is also commonly known as the 'diplomat-based' approach. In all cases, a uniform approach was applied to expatriate reward throughout all divisions within the subsidiary.
The Chinese dual model: The best of both worlds?
This heterogeneity is very different from the situation with domestic operations in Chinese enterprises, where companies tend to adopt a uniform approach to reward management. The contract and home-plus-host approaches are negotiable and based chiefly on individual capability and performance, compared with domestic reward practice under which pay is position-based and essentially non-negotiable. On this basis, Shen concluded that 'Chinese [international HRM] is more progressive than domestic HRM in adopting modern Western HRM concepts' (Shen, 2004: 23).
However, Shen's study showed in addition that this process of adaption also had uniquely Chinese characteristics, such that the firms involved could be seen as pursuing a 'dual' approach to international reward management. Even though the approaches taken were noticeably different from home-based reward practices, they also differed from the three standard approaches typically specified in the Western literature - host-based, home-based, and region-based. The firms involved adopted a 'best fit' approach that took account of both firm- and employee-specific factors, with reward practices tailored to employees' nationalities and their position in the organisational hierarchy. Under the dual model, HCN reward was either host-based or contract-based, whereas expatriate reward varied substantially from firm to firm. According to Shen (2004), the dual model reflected the 'dilemma' of Chinese MNCs wanting both to embrace international practices, in order to encourage an international transfer of talent, while at the same time maintaining close control over reward practices in their subsidiaries so as to limit the discrepancy between domestic practices and expatriate experience.
Factors influencing reward strategy and practice in Chinese MNCs
The study also showed that the reward strategies and practices adopted were influenced more strongly by some firm-level and contextual factors than by others. Reward strategies were shaped chiefly by the firm's international competitive strategy, its degree of reliance on international markets, and senior management's perception of the efficacy and appropriateness of the Chinese domestic reward system. However, inter-firm differences in actual reward practices, including reward structures and levels, were determined by a combination of three main contextual factors - legal, economic, and sociocultural - and by several firm-specific factors, most notably the industry in which the firm is involved.
Turning first to contextual factors, pay levels were generous by both Chinese and UK standards in order to attract high-quality home and host country managers and professionals. The firms studied also placed much weight on conformity to host country mandatory requirements, including minimum pay rates and paid leave entitlements. In a significant departure from home country practice, all companies also offered expatriates paid holiday leave, although, as Shen suggests (2004), the relatively high levels of base pay and benefits for HNCs need to be weighed against the fact that the firms studied offered HCNs almost no opportunity for development, promotion or transfer to the parent entity.
The dual approach to host- and home-sourced employees also reflected the cultural differences between China and the UK. Chinese practice is that the salary is non-negotiable, set according to position, level, seniority and the firm's overall performance, and not specified in the employment contract. However, with UK HNCs, the need to negotiate pay packages that would attract, retain and motivate local talent meant that this dual approach was embraced uniformly by all of the case companies, as was the use of individual performance bonuses. This hostbased approach was also applied selectively to some expatriates, although egalitarianism remained the dominant consideration in relation to this group.
The study also highlighted the influence of a number of firm-specific factors. Regarding the impact of international HRM strategy generally, while two companies embraced a universal host-based approach to rewarding both HCN and expatriate employees, the majority of companies sought to retain control over expatriate reward expectations by means of diplomat- and contract-based approaches. Companies pursuing a polycentric approach to staffing were more likely to favour host-based reward practices, whereas those favouring ethnocentric staffing tended to adopt the diplomat-based approach.
The attitudes of senior management to home and host reward models were also influential. All firms judged the Chinese model to be unsuitable for \(\mathrm{HCN}\) employees. However, there were differences in perceptions of the transferability of the Chinese model to expatriates, with some companies opting for a host-plus-home-based approach, and others preferring a more cautious contract-based solution. The nature of the industry itself also had an impact, with individual performance pay more likely to be applied to employees in trading enterprises anc sales offices than elsewhere. In addition, reliance on and exposure to international markets was an important factor: firms with a relatively low reliance on international markets were more likely to prioritise egalitarianism over pay competitiveness, chiefly via the diplomat-based approach. Conversely, firms with a high reliance on international markets were more inclined to favour host-based standards.
Interestingly, Shen's study suggests that a range of firm-specific factors commonly assumed to influence reward practices - factors such as organisational structure, organisational culture, international experience and the size of international operations - appeared to have little impact in this sample of firms.
In sum, Shen's ten-firm case study highlights the dual approach to international reward management taken by these Chinese firms, the characteristically Chinese approach to the adaptor or 'host' strategy, the tension. between the objectives of egalitarianism and competitiveness in reward practice, and the complex array of home country, host country and firm-specific factors that serve to shape strategies and practices related to international rewards. Although it remains to be seen whether further internationalisation will weaken the preference of Chinese MNC for a dual approach to international reward management, it is very likely that China's rapidly rising importance in the global economy will mean that Chinese firms will exercise far greater influence over global rewards in the decades to come.
Questions
1 Do you think that the 'dual' approach to international reward management preferred by Chinese MNCs is sustainable over the longer term as Chinese firms become progressively more integrated into the global economy?
2 If Chinese MNCs are to make greater use of HCNs in their staffing, how might they best modify their reward practices to support this change?
3 As China consolidates its position as an economic superpower, how might the reward practices preferred by Chinese MNCs influence trends in international reward management?