Unlike previous research that has largely focused on the influence of nationalinstitutions on human resource management practices in China, our study tapsinto the role of sub-national institutions. We demonstrate, via a qualitativeconfigurational analysis, that foreign subsidiaries of multinationalcorporations still adapt HQ compensation practice to the local context despitelow regulatory pressure and low mobility of skills at the sub-national level.This adaptation is facilitated by a decentralized structure in the multinationalcorporation. Our study also shows that high regulatory pressure and highportability of skills at the sub-national level alone are sufficient to inducelocal adaptation of compensation practice. Our explanation points to thesignificant role played by sub-national institutions in large and rapidlychanging emerging economies and contributes to research on local adaptation ofHRM practice in China. It offers an insight into forms of institutional agencyby political and economic actors at local levels of governance as they attemptto influence the skills and human resources available for MNCs throughregulatory means.