Cross Cultural Management Contracting and Accounting Order Instructions: Cross-Cultural Management Incentive Contracting and Managerial Accounting
One implication of transaction-cost economics and principal-agent theory should be clear: for a multinational organization to retain a reasonable expectation that it will achieve its organizational goals, it is necessary for it to establish and maintain substantial alignment between organizational design and management incentive contracts. Otherwise, it is unlikely that managers will have the proper incentives to act in the best interests of the enterprise.
Since managers in foreign countries often have unique cultural orientations, the management incentive contracts necessary to motivate them to act in the interest of the enterprise necessarily differ from country to country. This in turn, forces managerial accounting systems to be adapted to the local environments of their foreign subsidiaries, in order to adequately capture and report information on both organizational and management performance. This week’s Discussion focuses on the cross-cultural factors that influence management incentive contract design, and the ways incentive contract information is typically captured and reported by cross-border managerial accounting systems.
Discussion Week 6 (D-W6)
Participants:
By Day 5 of Week 6, post answers to both of the following questions:
•Compare and contrast incentive contract design in two different countries, either of one multinational enterprise, or two different ones.
•How should managerial accounting systems of multinational enterprises be adapted in consideration of cross-border differences in management incentive contracts?
Cross Cultural Management Contracting and Accounting Sample Answer
Different institutional multinational frameworks generate varying levels of satisfaction for managerial incentive contracts. In some cases, a motivator in one country is a non-motivator in another country. Diminishing marginal utility is generated over rewards. It is therefore not advisable for multinationals to transfer incentive designs from one country to the other without having enough information regarding the relative values of preference, satisfaction, and organizational framework. Employees in different countries prefer different management styles, and it is for the multinationals to adopt management accounting systems that fit the demands of specific countries.
German multinational incentive framework provides managers with comparatively high paid vacation days such that the employees in U.S expressed their interest in having the same incentive as their German counterparts. US multinationals have a tendency to homogenization concerning the best expertise skills. The trend of compensation managers according to the skill set works against the multinationals goal of profit maximization (Edward 2011). Also, German multinationals do not prefer mentor management style while US multinationals have a preference for mentor management style.
The increasing globalization of multinationals creates a greater need to understand how and whether to adapt management systems that fit salient features of the local country. Some of the management practices are universal, and managers are supposed to understand them. Mostly, management systems are adopted as per local culture and situation. Social, political and economical factors that vary across countries shape measurement of incentive management contracts and their factors Kennedy (2011). These factors should be considered in adapting management accounting systems. Culture has an effect on employee understanding of their organization purpose, the way that they should be treated, and their job description. Management accounting systems that are adopted should be consistent with employee values so as to be effective.
Cross Cultural Management Contracting and Accounting References
Edward Lust (2011). Country compatible incentive design. Retrieved from http://www.sbr-online.de/pdfarchive/einzelne_pdf/sbr_2009_july_290-309.pdf
Kennedy Merchant (2011). Performance measurement of incentive compensation. Retrieved from https://research.mbs.ac.uk/accounting-finance/Portals/0/docs/2008/ChinaPaper_2.pdf
