Concept of variation– Variation is manifested in the degree of heterogeneity in contextual factors. For example, in some nations pay-related laws may vary greatly from region to region. In other nations a single set of laws is applied uniform throughout the sovereign territory. Greater variation in the number, provisions, or enforcement of applicable laws within a local host-context provides MNCs with more response options and greater latitude in how they can respond in their international compensation package design decisions. For example, laws related to the ownership of organizations in the U.S. permit a wide range of options including sole proprietorships, full and limited partnerships, and variety in corporate governance. Laws in China permit fewer forms.
The greater heterogeneity of corporate governance forms in the U.S. creates a less constraining environment, and allows MNCs more latitude in how they structure themselves, including how they design their international compensation package. Information about the most common or median form of ownership in a nation may be less useful than understanding the variability in it. Variation in the social norms followed by the population of a local host is another example. MNCs are likely to be less constrained by social norms where diversity is greater, in part because there is no dominant set: focusing solely on the population average on social values could be misleading. Greater heterogeneity in important contextual factors is one way that variation is manifested in local host contexts.
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