Int. J.

of Human Resource Management 18:10 October 2007 1768– 1781

The relationship between perceived compensation, organizational commitment and job satisfaction: the case of Mexican workers in the Korean Maquiladoras

Yongsun Paik, K. Praveen Parboteeah and Wonshul Shim
Abstract Expatriate literature has generally favoured home country factors to understand expatriate success. In this paper, we contribute to the field by shifting our focus to the host country workforce (HCW). We use equity theory to examine the effects of perception gaps in compensation between HCW and expatriates on organizational commitment and its impact on job satisfaction and job performance. Based on field surveys and in-depth interviews of Korean expatriates as well as Mexican workers, results provide support for our hypothesis that significant perception gaps exist in compensation. The finding that compensation gap was significantly related to affective commitment only is of crucial importance. Our results also suggest that only affective commitment is positively related to job satisfaction and performance. We discuss research as well as managerial implications. Keywords Perception gaps; organizational commitment; expatriates.

Introduction International human resource management research continues to focus scholarly attention on expatriates (e.g. Mezias and Scandura, 2005; Toh and Denisi, 2003). Extensive research efforts have yielded important understanding of the expatriate experience and solutions to ensure that these experiences occur as smoothly as possible (Harzing, 2002; Tung, 1987). As such, research on expatriate management has focused mostly on the role of headquarters and the home unit at the expense of understanding the host country workforce (HCW) and the host company (Suutari and Burch, 2001; Vance and Paik, 1995, 2002; Vance and Ring, 1994). However, although much research agrees that expatriate success is heavily dependent on the HCW (e.g. Jassawalla et al., 2004; Toh and Denisi, 2003), there has been a relative neglect of scholarly attention paid to these HCW. This paper answers the call to give greater research attention to the HCW (Aycan and Kanungo, 1997; Toh and Denisi, 2003).
Yongsun Paik, Department of Management, One LMU Drive, Los Angeles, CA 90045, USA (tel: 10-338-7402; fax: 310-338-3000; e-mail: yspaik@lmu.edu); K. Praveen Parboteeah, Management Department, University of Wisconsin – Whitewater, Whitewater, WI 53190, USA (tel: (262) 472-3971; fax: (262) 472-4863; e-mail: parbotek@uww.edu); Wonshul Shim, Department of Management, Hanyang University, 1271, Sa 1-dong, Ansan, Kyunggi-do, 425-791, Korea (tel: (8231)400-5618; fax: (82-31)400-5591; e-mail: wsshim@hanyang.ac.kr).
The International Journal of Human Resource Management ISSN 0958-5192 print/ISSN 1466-4399 online q 2007 Taylor & Francis http://www.tandf.co.uk/journals DOI: 10.1080/09585190701570940

. Mathieu and Zajac. 1965) suggest that people have a natural tendency to compare themselves with other social referents. Recognizing that expatriates are also important social referents (Chen et al.g. unlike existing studies that mainly focus on US. 1998). our research question addresses whether HCW indeed perceive a compensation gap. 1990. We believe that the present study makes important contributions to expanding the literature on both expatriates and HCW. in other words. Finally. Riketta. intent to turnover) than other core work attitudes (Dailey and Kirk. 1992). We also investigate how this perception gap influences their level of organizational commitment and their job satisfaction and performance. 2003).g. (2004) argue that one of the most important determinants of expatriate adjustment is how they deal with cross-cultural conflicts with HCW. HCW provide expatriates with important socialization support. 2002). consistent with previous literature (Mathieu and Zajac. however... no study has yet investigated the effects of the perceived compensation gap on the MNC’s subsidiary and HCW (for a conceptual discussion of this issue.Y. 1998). see Toh and Denisi. our research fills this important void in the literature. . Our study is based on in-depth interviews and a survey questionnaire of Korean expatriates and the Mexican workforce. Considerable research has been conducted on organizational commitment and job satisfaction as individual or organizational outcomes mostly in the domestic setting (e. therefore. Those expatriates who benefit from such HCW actions are more likely to experience a better adjustment to their work situation. the relative strength of an individual’s identification and involvement in an organization (Mowday et al. we address the relative dearth of HCW scholarship (Toh and Denisi. as it has important implications for HCW’s awareness of justice and fairness (Lemons and Jones. since HCW play a key role in ensuring that the expatriate experience runs smoothly (Toh and Denisi. Furthermore. Third.. Second. the current research helps enhance our understanding of the influence of perceptions of unfairness and its consequences for the organization.or Western-based expatriates. 2002). have examined the relationship between compensation gaps and organizational commitment and the latter’s impact on job satisfaction and job performance. It is. which are more important predictors of behavioural manifestations (e. 1990). 1979: 226). critical for expatriates to gain support from the HCW if they want to perform at the best level. 1990) to the organization. we also examine how these forms of organizational commitment are related to job satisfaction and job performance. We further argue that HCW will redress such inequity through their affective and continuance commitment (Allen and Meyer. The results from this study will help us better understand the IHRM practices of these new global competitors. research on their international human resource management (IHRM) practices is sparse (Paik and Sohn. it is likely that the HCW will compare themselves with the expatriates and perceive lower compensation. Additionally. we examine the effects of perception gap in compensation on organizational commitment. 2003) by focusing our attention on such workers. 2003). particularly in the context of expatriates managing a foreign workforce. assistance and friendship in an unknown environment (Caligiuri and Cascio. 2002). While South Korean MNCs such as Samsung and Hyundai have emerged as global competitors. Adams. and job satisfaction 1769 It is crucial to get a better understanding of HCW perspectives. Few studies. equity theory. . . Therefore. our study is novel in that we consider the case of South Korean companies operating in Mexico. 1984. Jassawalla et al. Bateman and Strasser.. 2001). First. Extant theories (e. Perceived compensation.g. Although HCW perceive significant unfairness due to compensation gaps (Chen et al. Specifically. Paik et al.

) that are given to encourage expatriates to accept foreign responsibilities (DeLisle and Chin. Miles et al. an important facet of equity theory is the choice of referent others for comparison (Kulik and Ambrose. 1994). 1990). 1977). etc. Therefore. we consider two organizational commitment components that have received substantial research attention. Kulik and Ambrose (1992) contend that dissimilar others (e. Given the above expectations that HCW compare themselves with expatriates. Equity theory (Adams. Continuance commitment refers to commitment based on the employee’s attitude towards leaving the organization. In this paper. 1997). Perception gaps and organizational commitment Organizational commitment refers to the relative strength of an individual’s identification and involvement in a particular organization (Steers. 2003).g. 1998.. often invoking an ‘us versus them’ mentality among HCW (Toh and Denisi. pay) to input (e. expatriates) can be considered as social referents as long as they are somewhat relevant and compensation information about the referent is readily available. This is not surprising given the significant compensation inducements and benefits (i. 1992). expatriates are likely to be considered as social referents. family displacement) that expatriates face when they decide to take on such foreign assignments. it is likely that they will perceive lower compensation than expatriates. Furthermore. Furthermore. Affective commitment is the emotional attachment and identification with one’s organization (Allen and Meyer. Chen et al. Such wide disparities are likely to magnify the presence of two subgroups and encourage HCW to consider expatriates as relevant referents. We argue that HCW workers are likely to perceive lower compensation compared to expatriates. Thus. A basic premise of equity theory is that individuals have a natural tendency to compare themselves with others based on the ratio of their outcome (e. 1965). .g. such compensation gaps are viewed as natural and inevitable because of the many hardships (cultural adjustment.g.g. Scheer et al. Chen et al. expatriates become a salient referent for HCW. 1994.e. 1965) provides the theoretical basis for our proposition – it has received widespread support in both domestic and international contexts as an intellectual foundation for perceived unfairness and consequences for organizations as well as individuals (e. an employee with high continuance commitment is less likely to leave the organization because of costs involved with such a move. 2004). we propose: Hypothesis 1: HCW perceive lower compensation compared to expatriates. work effort) (Adams. (2002) argue that compensation packages for US expatriates tend to be two to five times more than what the home country counterparts are receiving and much higher than the HCW. organizational commitment and job performance Previous research reports that HCW tend to receive significantly lower compensation than expatriates (Reynolds.. As several nationalities tend to interact within the MNCs. However. and that expatriates often interact with HCW. club memberships. cars. namely affective and continuance commitment (Glazer et al.1770 The International Journal of Human Resource Management Perception gaps... when expatriates are from more developed countries. In general. national identities become naturally more relevant. Furthermore. Toh and Denisi (2003) argue that HCW are likely to view expatriates as social referents because expatriates tend to be viewed as a salient outgroup category on the basis of national identity. 2003). 2002. 1993). 1963. they are likely to get much higher compensation and premiums (Harvey. Given that compensation and benefits for expatriates are often publicly known by HCW.

Ogilvie. 1988. 1965). We argue that as HCW will compare themselves with expatriates. Greenberg. further emphasizing that they are out-groups. because of differences of nationalities.Y. 1984) also suggest that differences in physical characteristics and appearance may form the basis for social categorizing. Accordingly. in an effort to correct the inequity. Since both affective and continuance commitment are considered important components of the employee’s input. Perceived compensation. Second. Therefore. if a significant perception gap exists between the employees who receive experiences and the expatriates who provide them. it is unlikely that HCW regard their work environment positively. First of all..g. High power distance suggests that the Mexican HCW tend to expect that their expatriate supervisors are authoritarians. we propose: . Paik et al. the concerned individuals will try to find ways to correct the perceived inequity by adjusting the outcome/input ratio (Adams. they are less likely to be affectively committed to the organization. We base our proposition on equity theory (Adams. Several arguments can be advanced to expect the Mexican HCW to use expatriates as referents for basis of comparison. if HCW have more negative experiences because of the perceived gaps. Given that South Koreans are physically very different in skin tone and other very noticeable features from Mexicans.e. 2001) will also accentuate the salience of the out-group. it is likely that the expatriates will isolate themselves from HCW thereby increasing their salience. McGuire. Mexican workers are very likely to see these expatriates as their relevant referents. . The positive treatment is often experienced through employees’ exchange relationship with their management in the form of compensation. 1986) and that a positive relationship exists between organizational commitment and fairness in the organization (Dailey and Kirk. a possible means for HCW to reduce perceived inequity is to be less committed to the organization (i. it is likely that the HCW will find ways to either decrease their input or to increase their output. the high power distance of Mexican culture (Hofstede. Equity theory further suggests that if unfairness is perceived. they are likely to perceive inequity and unfairness. This means that commitment develops as a result of experiences that satisfy employees’ needs and/or are compatible with their values (Steers. Mexican HCW are likely to see South Koreans as ‘us versus them’. reduce the input). 1977). Sweeney and McFarlin. 1965) which prescribes that if people feel that they are receiving less reward relative to their work efforts compared to others in the organization. Furthermore. 2003). they will perceive inequity and unfairness. 1992. we argue that the Mexican HCW will see South Korean expatriates as a salient referent and will compare their compensation to the expatriates and perceive inequity. As a result. . Then. with the emphasis on power distance. . 1993). and job satisfaction 1771 We propose that there is a negative relationship between the compensation gap HCW perceive relative to expatriates and the two components of organizational commitment. This perceived gap may also reduce the employees’ desire to stay with the organization. 1990. However. distinctiveness theorists (e. Furthermore. Based on the above. the salience of the expatriates is also enhanced if they come from a culturally distant country (Toh and Denisi. Toh and Denisi (2003) suggest that HCW have a natural tendency to simplify their environment and will categorize expatriates as out-groups. 1963. Existing research suggests that affective commitment develops as employees experience positive treatment by their organizations (Meyer and Allen. Additionally. they are very likely to be seen as a distinctive out-group. Finally. In such cases. this gap could even be magnified when the two parties are from distinctive cultural backgrounds and HCW see expatriates as ‘us versus them’.

Mexico was selected as a host country because the conclusion of the North American Free Trade Agreement (NAFTA) has made Mexico increasingly attractive as a viable location for foreign direct investments (FDI). 2002).1772 The International Journal of Human Resource Management Hypothesis 2a: The compensation gap between HCW and expatriates is negatively related to affective commitment. Method Sample Ten Korean firms in export-oriented industries (industria maquiladora) in Mexico participated in the current study. 1982. job satisfaction and performance Previous research (e. Colorado SL and Puebla. 2002. in a longitudinal study.g. 1990).g. It is typically assumed that job satisfaction will lead to organizational commitment (e. however. consistent finding. In contrast.. Koch and Steers. However. Hypothesis 3b: A positive relationship exists between HCW organizational commitment and job performance. 1978). Cullen et al. Inflow of FDI continues to increase since the inception . 1990. samples are too restricted or too comprehensive). Mathieu and Zajac. Bateman and Strasser (1984) found that organizational commitment is possibly an antecedent of job satisfaction. Mathieu and Zajac (1990). Such attachment to the organization will result in higher job satisfaction. researchers did not consider all three components of commitment. Previous studies suggest that there is a moderate but positive relationship between organizational commitment and job performance (Mathieu and Zajac. 1990) shows that the positive relationship between organizational commitment and job satisfaction is a key. Hypothesis 2b: The compensation gap between HCW and expatriates is negatively related to continuance commitment. The firms are located in varied areas throughout Mexico including Tijuana. An employee may be committed to an organization because he/she identifies with the organizational values as reflected in the corporate culture. the more likely they are to develop the necessary attachment to the organization and develop a stronger commitment. those employees who are less committed to their organization are less likely to be satisfied with their jobs. Mexicali. Mexico City. we propose: Hypothesis 3a: A positive relationship exists between HCW organizational commitment and job satisfaction. Bluedorn.e. Organizational commitment. Allen and Meyer. 1990. Randall. We also agree that a significant and positive relationship exists between organizational commitment and job performance. Riketta (2002) argued that the low correlations found between commitment and performance may be due to methodological issues (i. argue that the causal order between job satisfaction and organizational commitment may not necessarily be as has traditionally been assumed. Her meta-analysis does indeed show that there is a stronger and positive relationship between affective commitment and job performance (Riketta. Those HCW who are more attached to the organization are more likely to work harder and thus achieve stronger performance. This assumption is based on the logic that the more satisfied employees are with their jobs. Nine firms are in the consumer electronics industry and one firm is in the clothing industry. In fact. Thus. We adopt this position and also argue that organizational commitment is a precursor to job satisfaction.

Measures Similar to Chen et al. using the country as both a manufacturing and a marketing platform to take advantage of the more integrated North American market. 1996). Delery and Doty.8 per cent were workers and 22. To achieve the compatibility between the two groups of respondents. They were included as control variables to avoid any spurious relationships with organizational commitment. The unusually high return rate was possible because the participating firms announced the survey opportunity and promised volunteering employees with a full hourly wage paid for the time they spent to fill out the questionnaire. By asking the HCW to rate their compensation independently of expatriates without identifying the social referent in the survey.3 per cent were educated for less than 12 years. the same set of questions was asked of the Korean expatriates. For example. Our intention was to compare the perception of the Mexican managers’ compensation between themselves and the Korean expatriates.g. In turn.8 per cent were female. we believed that we would be able to control the response bias more effectively. ‘How do you perceive your compensation?’ and the employees were asked to check one from among a five-point scale of answers such as ‘much better than average’. ‘average’. Among the participating employees. . Paik et al. Korea has been one of the fastest growing East Asian investors in Mexico. Perceived compensation. . 45. ‘better than average’. ‘promotability’ and ‘technical skills acquisition’. With Korean companies rapidly globalizing. The other group conducted field survey studies with Mexican employees to collect quantitative data.’ Questions were also asked for ratings of ‘education opportunities’. and job satisfaction 1773 of NAFTA in 1994. One group conducted in-depth interviews with four to five Korean expatriate managers as well as two to three Mexican managers per firm to collect qualitative data. ‘below average’ and ‘poor. 62. The research team combined two different methods to collect data. the question read. In other words. We note that we did not explicitly ask the Mexican workers to compare themselves with the South Korean expatriates as they rate compensation and other elements of the work environment.7 per cent completed regular education for 12 years or more and 54. We reasoned that there would be obvious gaps if the Mexican workers were asked questions comparatively. we first asked the local Mexican employees to evaluate how they thought their companies treated them as compared to the Korean expatriates. Our intention for conducting the interviews was to use the results as complementary data to corroborate our findings of the field survey. we only used the responses from Mexican managers and supervisors in our statistical analyses. 1998). Then.2 per cent were male and 37. . Five hundred and fifty-one local Mexican employees participated in the survey. . 77. Korean managers also participated in this survey..Y. it has become more and more critical for them to manage effectively the local workforce to achieve the preferred outcome (Paik and Sohn. if the HCW were asked to rate their compensation relative to expatriates. Respondents Forty-five Korean expatriates voluntarily agreed to participate in the survey and all of them returned the questionnaire. Our intention was to find out the employees’ perception about their rewards system relative to that of Korean expatriate managers. These independent variables were selected through interviews with Korean repatriates and from the findings of the existing literature (e.2 per cent were supervisors. Each interview lasted two hours on average. they would likely rate those as lower. (2002).

For this purpose.e. using varimax rotation. and calculated the t-value of each item on the two organizational commitment constructs. Affective organizational commitment refers to the employee’s emotional attachment to. we decided to use an organizational commitment instrument that Allen and Meyer (1990) developed.01 Mean 2. Next. It basically captures the desire to keep membership in the organization. Only affective and continuance commitments were used in this study since the notion of normative commitment has either not been stable or has been consistently measured (Morrow. ‘above average’.1774 The International Journal of Human Resource Management Sixteen items were used to assess the level of organizational commitment of Mexican employees. speed. performance by company standard and performance relative to peers). indicating very high instrument reliability.’s (1979) widely used organizational commitment questionnaire (OCQ). We also used job satisfaction as a dependent variable on a fivepoint scale. 1993). Meanwhile.52 3. i. 1990). To test Hypothesis 2. which were used as both independent and dependent variables. In other words.78. affective and continuance commitment that were loaded with four items on each factor. We also measured performance as another dependent variable (quality. Job satisfaction represents the most widely studied behavioural correlate of organizational commitment in the existing literature (Mathieu and Zajac. a factor analysis was conducted to identify the latent dimensions of organizational commitment. ‘below average’ and ‘well below average’. . one-way ANOVA was used to detect any significant differences between Mexican HCW and Korean expatriates in terms of compensation. on a five-point scale: ‘well above average’. Using a five-point scale. Different from Mowday et al. we investigated the impact of the perception gap between local Mexican employees and Korean expatriates regarding compensation on affective and continuance commitment. 1991). employees with strong continuance commitment remain in the organization because they need to do so. we took the absolute value of the mean difference between the two groups of respondents in compensation. quantity. eight items were prepared to measure affective commitment and eight items were also developed to measure continuance commitment. Significant differences of perception were found in compensation as Korean management rated compensation as ‘above average’ while Mexican employees rated them as ‘below average’ (See Table 1). These results provide support for Hypothesis 1. As Table 2 shows. accuracy.068** 514 45 . ‘average’. continuance commitment refers to an awareness of the costs associated with leaving the organization. In the current study. continuance and normative organizational commitment (Meyer and Allen. to test Hypothesis 1.84 F value 49. it produced two distinctive organizational commitment factors. Allen and Meyer conceptualized organizational commitment into three components: affective. identification with and involvement in the organization. First. Results A test of reliability on the entire 16-item survey revealed a Cronbach alpha coefficient of . The results Table 1 Perceived difference in compensation between Mexican HCW and Korean expatriates Sample size Mexican HCW Korean expatriates **p .

108 2.649 20.216 2 . .033 .223 2 . .373 . To test Hypothesis 3a.270** 2 .568 .01. the wider the perception gap about compensation between Mexican employees and Korean expatriates.775 .390 . . 1990). Mathieu and Zajac.697 . 2002.05.214 2 . the perceived compensation gap was not significantly related with continuance commitment. Hypothesis 3a proposed that there is a positive relationship between organizational commitment and job satisfaction. Our results only support Hypothesis 2a. *p .4 1775 Affective commitment 2 .408 . .. According to results in Table 4.. the lower the affective commitment of Mexican workers.Y.612* . T value 2 3. .282 .210 1.008 2 . only affective commitment was positively Table 3 The impact of perception gap between Mexican employees and Korean expatriates on affective commitment Standardized beta Compensation Work environment Control variables Education opportunity Promotability Technical skills acquisition F R2 Notes: **p . we analysed the relationship between affective as well as continuance commitment and job satisfaction using organizational tenure and education level as control variables.451 1. Paik et al.08 . Perceived compensation.075 2 .086 .6 demonstrated that compensation gap was significantly related to affective commitment only (see Table 3).076 2.755 .742 .499 . and job satisfaction Table 2 Factor analysis on organizational commitment items Factors Continuance commitment Serious loss of opportunity and financial pressure if quit the current job Not considering to quit the job because of no alternative Reason to continue the job being considerable personal loss with turnover Staying with the job by personal need Company problems being mine Company being meaningful to me Enjoying talking about my company outside the company Happy if spend the rest of my career with the company Eigen value % of variance .349 29. However.727 .102 2 .019 . That is.286 2 . The literature on organizational commitment suggests that both education and tenure are important antecedents of commitment and need to be controlled (Cullen et al.

808** 2 2. .01.816 1. Relative to other reward components. organizational commitment.007 30. *p . Toh and Denisi.778** 10.103 .05.243 2 .219 2 3.125 10.05.010 2 .239 related to job satisfaction.01. 2003) and the premises of equity theory (Adams. job satisfaction and job performance in managing MNCs’ overseas operations.705 4. 2002.190 . T value . However.1776 The International Journal of Human Resource Management Table 4 The effect of affective commitment and continuance commitment on job satisfaction Standardized beta Organizational tenure Education Affective commitment Continuance commitment F R2 Notes: **p .458 .145 ..096 . our findings suggest that compensation gaps were negatively related to one form of organizational commitment – affective commitment. . Discussion Using Korean companies as a sample. Finally. . As expected. This is not surprising because compensation tends to be a major focus of comparison for most Table 5 The effect of affective and continuance commitment on job performance Standardized beta Organizational tenure Education Affective commitment Continuance commitment F R2 Notes: **p . .144** ..237* .341** . Such findings are consistent with past empirical research (Chen et al. the present study represents a pioneering research that investigates the relationship between perceived compensation gap. These findings are consistent with arguments by Meyer and Allen (1991). Yet. This research thus helps us understand the critical factors that influence HCW affective commitment. our results should be viewed as more robust as the perceived gaps were detected despite the fact that the social referent was not identified to the respondents. As demonstrated in Table 5. 2002). Our results are consistent with past research and suggest that HCW perceive significant gaps in their compensation relative to expatriates (Chen et al. *p . of greater interest to multinationals are our findings that such compensation gaps are inversely related to affective commitment. T value 1. affective commitment was found to have a significantly positive correlation with job performance while continuance commitment had a significantly negative association with job performance. 1963). we tested Hypothesis 3b that organizational commitment is positively related to job performance.026** .092 . Continuance commitment was not significantly related to job satisfaction. compensation gaps tend to be more salient for HCW as they compare themselves with expatriates.

In contrast to past research. our findings indicate that continuance commitment is not related to job satisfaction and that it has a negative relationship to job performance. but are applicable to all MNCs operating outside their home country. In fact. Thus. As such. 2003).. they may not be able to find other job alternatives and thus see no recourse but to stay with their current employer. Paik et al. Perceived compensation. Previous research (Paik and Teagarden. consistent with most maquiladoras. when considering managers’ preference of affective commitment over continuance commitment (Shore et al. such findings are consistent with the conceptualizations of affective and continuance commitment. and job satisfaction 1777 people (Kulik and Ambrose. Our findings suggest that MNCs should be careful in managing compensation gaps between HCW and expatriates. Our findings provide some useful guidance for Korean companies in enhancing the organizational commitment of local employees by identifying the areas that need improvement in their reward schemes offered to the Mexican workforce. 1990). Most importantly. 1992).. Mathieu and Zajac. almost full implementation of NAFTA provisions has decreased the merits of establishing the maquiladoras and the labour market in the maquiladora industry has been stabilized (Sargent and Matthews. not surprising to see a more positive effect of affective commitment on job satisfaction and performance compared to continuance commitment. as they are very discernable and obvious to the HCW. Korean MNCs should improve these reward schemes to encourage Mexican workers to feel that they are valued by the company. however. Perhaps.g. The contributions of this paper may not be limited only to Korean companies in a Mexican context. Such reasoning potentially explains our inability to find a relationship between the compensation gap and continuance commitment. including general management and specialty courses. It is. . Mexican workers also perceived inequity in terms of their career development such as promotability and technical skills acquisition. 2002. with regard to our control variables. although they perceive a significant compensation gap. the HCW tend to be less attached to the organization. benefits) that prevent them from leaving the organization. 1990) and job performance (Riketta. continuance commitment suggests that they stay with the organization because they don’t have many options elsewhere (Lemons and Jones. . these results are consistent with the continued decline in turnover rate in the maquiladora industry. therefore..Y. 1995). While affective commitment pertains to the emotional attachment and identification with the organization (Allen and Meyer. 1995) found that Korean companies in Mexico were not spending enough money to provide Mexican managers with necessary training. However. in an effort to reduce the inequity perceived with respect to South Korean expatriates. As such. the HCW have few other options with regards to work. Korean companies need to meet the expectations of Mexican employees about their compensation and to adjust the compensation level accordingly to increase the affective commitment of Mexican employees. Compared to the growing stage of the maquiladora industry in the 1970s and 1980s. We were nevertheless surprised to find that there was no relationship between the compensation gap and continuance commitment. Furthemore. Albeit surprising at first glance. Consistent with previous research. continuance commitment reflects employees’ sunk costs and investments (e. given the difficulty of explaining nonsignificant results. results also show that only affective commitment is positively related to job satisfaction (Cullen et al. 2001). . we note the speculative nature of our explanation hoping that future research can address this issue in more depth. 2002). Mexican workers want Korean companies to support their individual careers by providing various training and development programmes. . while affective commitment implies that employees want to stay with the organization.

if possible. Instead. an expatriate’s pre-departure training programme should include knowledge of the proper reward schemes to be emphasized for the specific host country to enhance organizational commitment and work performance for a given HCW. If expatriates have a clear understanding of HCW expectations. the HCW can make valuable contributions in designing appropriate rewards systems for their own benefit as well as for MNCs. This will in turn increase the organizational commitment of the host country workforce.. Furthermore. this paper does suffer from several limitations. it would make more sense to hire local managers whose compensation is not significantly different from other local HCW. we measured the perceived gaps based on only one item. Second. our study ignored cultural aspects and we hope that future studies will consider how national culture may influence perceptions regarding compensation and organizational commitment. Paik and Sohn (2004) contend that expatriates can be an effective means of control only if they have significant cultural knowledge of the host country. To reduce any resentment from HCW. With an almost exclusive focus in the international management literature upon the preparation and training of expatriates for international assignment success. Then the HCW may feel obligated to reciprocate and may become more committed to the organization. thereby raising reliability issues. it is plausible that workers in high power distance cultures such as Mexico are more likely to perceive compensation gap than those in low power distance cultures. MNCs should carefully select those who possess appropriate cultural knowledge about the host country. Therefore. To increase expatriate pre-departure training content validity. Finally. Such neglect hampers the effective management of foreign subsidiaries since expatriates are ignorant of appropriate reward schemes of HCW that will motivate them to work to their maximum potential. organizational commitment as well as job satisfaction and performance is expected to increase. they can provide appropriate rewards including compensation that exactly fulfils those needs.1778 The International Journal of Human Resource Management The research results suggest that expatriates should know how to motivate the host country workforce and how to provide appropriate rewards by possessing significant cultural knowledge of their assigned host country. Third. Several managerial implications can be drawn from this research. when using expatriates is inevitable. First. When managers and employees have a mutual agreement on what is considered to be most important in motivating workers. Local managers would also be more familiar with work-related values. the research findings suggest that Mexican workers are clearly aware of the compensation and other rewards discrepancy between themselves and expatriate managers. Despite the intriguing findings. MNCs would be better off refraining from using expatriates in managing foreign subsidiaries. there has been a major neglect of attention to HCWs’ input contributing to the optimization of foreign subsidiary performance (Vance and Paik. 2002). the study was done with Mexican HCW and Korean expatriates and may not necessarily be readily applicable to all nationalities. They will carry out the job assigned by the expatriate to a degree consistent with the perceived equity in the exchange. we hope that future research will use more sophisticated multiple instruments to measure compensation and other types of reward schemes. the research findings also have useful implications for training expatriate managers more effectively. resulting in improved job performance. Second. For example. First. We nevertheless hope that future research will replicate our study in wider populations. thereby better positioned to offer proper rewards and thus generate higher levels of affective commitment on the part of the host country employees. 2002). Although we followed similar procedures to previously published research using only one item (Chen et al. we also note that the Mexican workers were asked to rate their compensation in absolute terms rather than relative .

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