Thought Leadership on Strategic Human Resources Solutions presented by Sibson Consulting.
For companies doing business abroad, understanding how each country’s culture influences sales compensation can be the difference between designing an effective motivational program, and one that confuses or even alienates the overseas sales force.
Take the case of a small but aggressive U.S. company that, after years of preparation, was finally able to expand into Japan. Unfortunately, none of the groundwork involved examining that country’s culture. Instead of a smooth and successful launch, management spent much of the first year trying to repair a sales compensation plan that was not working and was distracting the sales team because it emphasized individuals over team-based rewards, and featured a loose organizational structure.
A framework for understanding how a country’s culture influences sales compensation can be drawn from the work of Geert Hofstede, a Dutch researcher who studied how culture influences values in the workplace.1 Hofstede’s study of more than 70 countries revealed six dimensions of national culture, four of which have a direct influence on sales compensation. They are “power distance,” “collectivism versus individualism,” “masculinity versus femininity” and “uncertainty avoidance.”2 (See the sidebar “Hofstede’s Dimensions of National Culture” below.) This article outlines how Hofstede’s cultural dimensions can/should influence sales compensation plans from country to country, and discusses what organizations need to know to adapt their rewards programs to suit the local environment.
How do Hofstede’s cultural dimensions influence sales compensation?
The following summarizes how the six key elements of sales compensation — job roles and design; target pay levels; mix and upside; measures, weights and mechanics; quota setting and allocation; and implementation and administration — are influenced by Hofstede’s cultural dimensions.
- “Power distance” has a significant impact on job roles and design. Sales organizations in cultures with low “power distance” favor expanded roles with opportunities for decision making in the sales process and a flatter sales organization with fewer titles. Expertise is valued above tenure and status.Sales organizations in cultures with high “power distance” favor narrowly focused roles with less opportunity to make decisions in the sales process. The culture values organizational hierarchy that is clearly differentiated based on titles and tenure more than expertise. Reps have little input into quota setting because accounts are “owned” by the company, not the individual. High “power distance” requires active administration and management oversight.