Reference no: EM133044614

"International human resource management" is important because cultural, political, legal, and economic differences mean that employees in one country often react differently to an HR practice than would employees in other countries.

For example, until January 2006, China basically prohibited publicly listed companies from offering stock incentive plans to their managers. At that point better economic conditions and an evolving political philosophy led to new regulations. Soon 42 Chinese-listed companies were permitting such plans.

A study focused on those 42 companies. It sought to determine how the new incentive plans affected company performance. To understand the findings it's important to know that managing in China still has unique characteristics. For example, prior to becoming publicly listed firms, the big firms were usually owned by the government. Furthermore, the government may well continue to retain certain ownership control rights even after the firms go on the stock market. In such cases, the goals of the owners and the management may diverge. For example, government owners might want to maximize employment, rather than profitability. The question is, given such cultural and political realities, do management stock option plans in China translate into improved company performance, as they often do in the United States?

The researchers compared the performance of the 42 Chinese companies that did adopt management stock-option plans with a control group of firms without such plans. One thing they found was that the stock-option plans did improve firm performance in companies controlled by private shareholders, but not in companies controlled by the government. In the latter, goals such as maximizing employment may have outweighed boosting profits, thus limiting managers' profit-boosting efforts.

The findings highlight why managing globally is challenging. In this case, a stock option plan that might improve financial performance in the United States might fail in China, where the government owners' goals may well differ from the desire of managers to boost profits.

1. Given these findings, would it make sense for managers in government-controlled companies to receive stock options tied to something other than profitability, such as "no employees lose their jobs in this company"? Why?