incentive systems

Multinational companies operate under the dual imperative of global integration and local responsiveness. This tension results in control problems that can be effectively mitigated by corporate governance. The aim of the paper is to discuss these issues and to offer potential solutions in the form of governance mechanisms at the headquarters’ disposal. These include direct control by boards of directors and indirect control by means of incentive systems. The main argument is that the choice between these mechanisms is largely determined by a subsidiary’s level of autonomy and its strategic role within the corporate network.

Growing competition, new technologies and global markets force companies to act in an increasingly fast and market-oriented way, leading inevitably to changes in organization and company culture. Rigid and function-oriented organizational structures will be substituted by flexible, project-oriented or even virtual organizations. Collaboration will change quickly according to the new requirements. Different people, whole enterprises or only parts of a company will be able to temporarily build virtual teams or companies, locally or within networks. Against the background of this fundamentally changing work environment, companies’ requirements regarding employees and the mechanisms of collaboration will substantially change. This paper gives a closer look at these new requirements and will highlight some possible future solution ideas.