As business has become more globalized, managers and business leaders have increasingly recognized that not all pay and compensation systems are equally acceptable around the world. For example, Wal-Mart’s failure in Germany has been attributed in part to its unwillingness to embrace egalitarian German wage-setting practices (Knorr & Arndt, 2003). Similarly, the Lincoln Electric Company, the subject of a best-selling Harvard Business School case study, failed initially when expanding abroad from the U.S. The CEO said that executives erred in assuming that all cultures were equally receptive to the company’s performance pay system (Hastings, 1999). The growing international debate about income inequality (Piketty, 2014; Plender, 2012) calls into question the cultural acceptability of very high levels of executive pay, especially of ‘‘high-powered,’’ individual performance incentives (Lazear, 2000; Williamson, 1985). These concerns have led France, for example, to limit top executive salaries in state-controlled companies (Crumley, 2012). To date, however only limited research exists to guide executives and policy makers in gauging the cultural acceptability of different pay practices, despite many possible reasons for cross-national variations in pay systems (e.g., Hundley & Kim, 1997, on demographic and performance factors; Siegel & Larson, 2009, on the role of egalitarian value systems; Tosi & Greckhamer, 2004, on the role of Hofstede’s (1980) power-distance and individualism).

In this paper, we are interested in whether and why the acceptability of compensation systems may vary when implemented across individuals from different national cultures. We identify a distinct individual-level cognitive mechanism—the operation of fundamental beliefs about the inherent justness of the world—that we hypothesize underlies cultural variations in preferences for more redistributive (egalitarian) versus less redistributive (performance-based) compensation schemes. Building on economic research on societal attitudes toward fiscal redistribution (e.g., Alesina, Glaeser, & Sacerdote, 2001), we propose that cultural differences in preferences for individual-level compensation schemes are at least partly driven by cultural differences in ‘‘just-world beliefs’’ (JWBs, e.g., Furnham, 1993; Lerner, 1980; Lerner & Miller, 1978). JWBs refer to individuals’ general beliefs about whether the world is a fair place where people largely get what they deserve (Lerner, 1980). In cultures where JWBs are strong and the typical individual is seen to generally get what s/he deserves, employees should see performance-based compensation as fair, motivating, and desirable. Thus, Lincoln Electric’s incentive system in the United States, a country relatively high in JWBs, (e.g., Alesina et al., 2001), reflects James Lincoln’s philosophy that each worker ‘‘must have a reward that he feels is commensurate with his contribution’’ (Lincoln, 1951, p. 33), which is consistent with the country’s dominant cultural ethos. In contrast, in cultures where JWBs are weaker, more redistributive, equal payment schemes should be seen as fairer and thus more preferred. For example, in continental Europe, where JWBs are weaker overall and where Lincoln stumbled, the company’s performance-based compensation system was less successful.

Overall, then, we expected that individual and culture-level differences in JWBs would have a significant impact on individual preferences for compensation schemes—a question of great practical relevance as illustrated at the outset, yet one that has not yet been explored in the literature. Although recent work in economics and psychology has shown a link between JWBs and abstract attitudes towards societal levels of fiscal redistribution in the context of taxation and social spending (e.g., Alesina & Angeletos, 2005; Bryan, Dweck, Ross, Kay, & Mislavsky, 2009; Bénabou & Tirole, 2006), no work has yet examined the impact of JWBs on preferences for more concrete, individual-level compensation schemes and incentive systems. This distinction between abstract attitudes toward fiscal redistribution at the societal level versus preferences for individual compensation schemes is important in light of the large body of work in psychology which documents that general, abstract attitudes are often disconnected from specific behaviors in a given context (e.g., Ajzen, 1991; Ajzen & Fishbein, 1980).