Path-dependent evolution of compensation systems in Central and Eastern Europe: A case study of multinational corporation subsidiaries in the Czech Republic, Poland and Hungary

SummaryThis article presents the results of an embedded case study of compensation practices in the subsidiaries of a multinational corporation (MNC) in the Czech Republic, Poland and Hungary. We explore the path dependence of compensation systems in Central and Eastern European (CEE) countries prior to transformation and after the fall of state-socialist regimes. The results show that while major complementary institutions such as extensive state-socialist-type social welfare systems, which enhanced the developmental path during the state-socialist period, are non-existent during transformation, several factors on the macro, organisational and individual levels preserve the path. In addition, there are indications that the path dependence of pay practices in the region studied is moderated by a number of exogenous and endogenous sources of change, namely foreign parent companies of international subsidiaries, international management consulting companies, the growing importance and skill levels of HR professionals and generational change.

► A number of factors induce the path dependence of current pay practices in CEE.
► Several mechanisms initially formed the respective developmental paths.
► These mechanisms were related to the central planning and social welfare systems.
► Several endogenous and exogenous factors are potential sources of path dissolution.