Compensation practice in China: A configurational analysis of the impact of regional institutions and MNC decentralisation on adaptation

This article poses the question under what conditions do foreign subsidiaries in China locally adapt their compensation practice transferred by MNC headquarters? Earlier work suggests that practice adaptation is primarily due to a decentralized management approach or high institutional pressure. Our configurational Qualitative Comparative Analysis reveals that decentralization needs to be considered in combination with regional regulation for it to explain practice adaptation. Decentralization facilitates adaptation of compensation when it co-exists with lax regional regulatory institutions and low portability of skills in the region. In other words, despite low institutional pressures, subsidiaries still adapt their compensation practice when facilitated by decentralization. On the other hand, subsidiaries also adapt their compensation practice within regional governance systems when faced with tight regional labour regulations and high portability of skills in the region regardless of the management approach. Our findings of Finnish MNCs in China advance the impact of regional institutions on adaptation of compensation practice.