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The relationship between perceivedcompensation, organizational commitmentand job satisfaction: the case of Mexicanworkers in the Korean Maquiladoras

Yongsun Paik, K. Praveen Parboteeah and Wonshul Shim

Abstract Expatriate literature has generally favoured home country factors tounderstand expatriate success. In this paper, we contribute to the field by shifting ourfocus to the host country workforce (HCW). We use equity theory to examine the effectsof perception gaps in compensation between HCW and expatriates on organizationalcommitment and its impact on job satisfaction and job performance. Based on field surveysand in-depth interviews of Korean expatriates as well as Mexican workers, results providesupport for our hypothesis that significant perception gaps exist in compensation. Thefinding that compensation gap was significantly related to affective commitment only is ofcrucial importance. Our results also suggest that only affective commitment is positivelyrelated to job satisfaction and performance. We discuss research as well as managerialimplications.

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).

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

Yongsun Paik, Department of Management, One LMU Drive, Los Angeles, CA 90045, USA (tel:

10-338-7402; fax: 310-338-3000; e-mail: [email protected]); K. Praveen Parboteeah, Management

Department, University of Wisconsin Whitewater, Whitewater, WI 53190, USA (tel: (262)

472-3971; fax: (262) 472-4863; e-mail: [email protected]); Wonshul Shim, Department of

Management, Hanyang University, 1271, Sa 1-dong, Ansan, Kyunggi-do, 425-791, Korea (tel: (82-

31)400-5618; fax: (82-31)400-5591; e-mail: [email protected]).

Int. J. of Human Resource Management 18:10 October 2007 1768 1781

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It is crucial to get a better understanding of HCW perspectives, since HCW play a key

role in ensuring that the expatriate experience runs smoothly (Toh and Denisi, 2003).

HCW provide expatriates with important socialization support, assistance and

friendship in an unknown environment (Caligiuri and Cascio, 1998). Additionally,

Jassawalla et al.(2004) argue that one of the most important determinants of expatriate

adjustment is how they deal with cross-cultural conflicts with HCW. Those expatriates

who benefit from such HCW actions are more likely to experience a better adjustment to

their work situation. It is, therefore, critical for expatriates to gain support from the HCW

if they want to perform at the best level.

Although HCW perceive significant unfairness due to compensation gaps (Chenet al.,

2002), no study has yet investigated the effects of the perceived compensation gap on the

MNCs subsidiary and HCW (for a conceptual discussion of this issue, see Toh and

Denisi, 2003). Specifically, our research question addresses whether HCW indeed

perceive a compensation gap, as it has important implications for HCWs awareness ofjustice and fairness (Lemons and Jones, 2001). We also investigate how this perception

gap influences their level of organizational commitment and their job satisfaction and

performance. Extant theories (e.g. equity theory, Adams, 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., 2002), it is likely that the

HCW will compare themselves with the expatriates and perceive lower compensation.

We further argue that HCW will redress such inequity through their affective and

continuance commitment (Allen and Meyer, 1990) to the organization. Furthermore,

consistent with previous literature (Mathieu and Zajac, 1990), we also examine how

these forms of organizational commitment are related to job satisfaction and job

performance.

We believe that the present study makes important contributions to expanding the

literature on both expatriates and HCW. First, we address the relative dearth of HCW

scholarship (Toh and Denisi, 2003) by focusing our attention on such workers. Second,we examine the effects of perception gap in compensation on organizational

commitment, in other words, the relative strength of an individuals identification and

involvement in an organization (Mowday et al., 1979: 226). Considerable research has

been conducted on organizational commitment and job satisfaction as individual or

organizational outcomes mostly in the domestic setting (e.g. Bateman and Strasser,

1984; Mathieu and Zajac, 1990; Riketta, 2002). Few studies, however, have examined

the relationship between compensation gaps and organizational commitment and the

latters impact on job satisfaction and job performance, particularly in the context of

expatriates managing a foreign workforce. Therefore, our research fills this important

void in the literature. Third, the current research helps enhance our understanding of the

influence of perceptions of unfairness and its consequences for the organization, which

are more important predictors of behavioural manifestations (e.g. intent to turnover)

than other core work attitudes (Dailey and Kirk, 1992). Finally, unlike existing studies

that mainly focus on US- or Western-based expatriates, our study is novel in that we

consider the case of South Korean companies operating in Mexico. Our study is based

on in-depth interviews and a survey questionnaire of Korean expatriates and the

Mexican workforce. While South Korean MNCs such as Samsung and Hyundai have

emerged as global competitors, research on their international human resource

management (IHRM) practices is sparse (Paik and Sohn, 1998). The results from this

study will help us better understand the IHRM practices of these new global

competitors.

Y. Paiket al., Perceived compensation, . . . and job satisfaction 1769

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Perception gaps, organizational commitment and job performance

Previous research reports that HCW tend to receive significantly lower compensation

than expatriates (Reynolds, 1997). This is not surprising given the significant

compensation inducements and benefits (i.e. cars, club memberships, etc.) that are given

to encourage expatriates to accept foreign responsibilities (DeLisle and Chin, 1994).

Chenet al.(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. Furthermore, such compensation gaps are viewed as natural and

inevitable because of the many hardships (cultural adjustment, family displacement) that

expatriates face when they decide to take on such foreign assignments.

We argue that HCW workers are likely to perceive lower compensation compared to

expatriates. Equity theory (Adams, 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 fororganizations as well as individuals (e.g. Chen et al., 1998, 2002; Miles et al., 1994;

Scheer et al., 2003).

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.g. pay) to input (e.g. work

effort) (Adams, 1963, 1965).However, an importantfacet of equity theory is the choice of

referent others for comparison (Kulik and Ambrose, 1992). 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. As several

nationalities tend to interact within the MNCs, national identities become naturally more

relevant, often invoking an us versus them mentality among HCW (Toh and Denisi,

2003). Thus, expatriates become a salient referent for HCW. Furthermore, Kulik and

Ambrose (1992) contend that dissimilar others (e.g. expatriates) can be considered as

social referents as long as theyare somewhat relevant and compensation information about

the referent is readily available. Given that compensation and benefits for expatriates areoften publicly known by HCW, and that expatriates often interact with HCW, expatriates

are likely to be considered as social referents. Furthermore, when expatriates are from

more developed countries, they are likelyto getmuch highercompensation andpremiums

(Harvey,1993). Such wide disparities are likely to magnify thepresenceof two subgroups

and encourage HCW to consider expatriates as relevant referents.

Given the above expectations that HCW compare themselves with expatriates, it is

likely that they will perceive lower compensation than expatriates. Therefore, we propose:

Hypothesis 1: HCW perceive lower compensation compared to expatriates.

Perception gaps and organizational commitment

Organizational commitment refers to the relative strength of an individualsidentification and involvement in a particular organization (Steers, 1977). In this

paper, we consider two organizational commitment components that have received

substantial research attention, namely affective and continuance commitment (Glazer

et al., 2004). Affective commitment is the emotional attachment and identification with

ones organization (Allen and Meyer, 1990). Continuance commitment refers

to commitment based on the employees attitude towards leaving the organization.

In general, an employee with high continuance commitment is less likely to leave the

organization because of costs involved with such a move.

1770 The International Journal of Human Resource Management

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We propose that there is a negative relationship between the compensation gap HCW

perceive relative to expatriates and the two components of organizational commitment.

We base our proposition on equity theory (Adams, 1963, 1965) which prescribes that if

people feel that they are receiving less reward relative to their work efforts compared to

others in the organization, they are likely to perceive inequity and unfairness. We argue

that as HCW will compare themselves with expatriates, they will perceive inequity and

unfairness. Equity theory further suggests that if unfairness is perceived, the concerned

individuals will try to find ways to correct the perceived inequity by adjusting the

outcome/input ratio (Adams, 1965).

Several arguments can be advanced to expect the Mexican HCW to use expatriates as

referents for basis of comparison. First of all, Toh and Denisi (2003) suggest that HCW

have a natural tendency to simplify their environment and will categorize expatriates as

out-groups. In such cases, because of differences of nationalities, Mexican HCW are

likely to see South Koreans as us versus them. Second, the high power distance ofMexican culture (Hofstede, 2001) will also accentuate the salience of the out-group. High

power distance suggests that the Mexican HCW tend to expect that their expatriate

supervisors are authoritarians, further emphasizing that they are out-groups. As a result,

Mexican workers are very likely to see these expatriates as their relevant referents.

Additionally, with the emphasis on power distance, it is likely that the expatriates will

isolate themselves from HCW thereby increasing their salience. Finally, distinctiveness

theorists (e.g. McGuire, 1984) also suggest that differences in physical characteristics

and appearance may form the basis for social categorizing. Given that South Koreans are

physically very different in skin tone and other very noticeable features from Mexicans,

they are very likely to be seen as a distinctive out-group. Furthermore, the salience of the

expatriates is also enhanced if they come from a culturally distant country (Toh and

Denisi, 2003).

Based on the above, we argue that the Mexican HCW will see South Korean

expatriates as a salient referent and will compare their compensation to the expatriatesand perceive inequity. Then, in an effort to correct the inequity, it is likely that the HCW

will find ways to either decrease their input or to increase their output. Since both

affective and continuance commitment are considered important components of the

employees input, a possible means for HCW to reduce perceived inequity is to be less

committed to the organization (i.e. reduce the input).

Existing research suggests that affective commitment develops as employees

experience positive treatment by their organizations (Meyer and Allen, 1988; Ogilvie,

1986) and that a positive relationship exists between organizational commitment

and fairness in the organization (Dailey and Kirk, 1992; Greenberg, 1990; Sweeney and

McFarlin, 1993). This means that commitment develops as a result of experiences that

satisfy employees needs and/or are compatible with their values (Steers, 1977).

The positive treatment is often experienced through employees exchange

relationship with their management in the form of compensation. However, 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. Accordingly, if HCW have more negative experiences because

of the perceived gaps, they are less likely to be affectively committed to the

organization. Furthermore, this gap could even be magnified when the two parties are

from distinctive cultural backgrounds and HCW see expatriates as us versus them.

This perceived gap may also reduce the employees desire to stay with the organization.

Therefore, we propose:


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Hypothesis 2a: The compensation gap between HCW and expatriates is negatively

related to affective commitment.Hypothesis 2b: The compensation gap between HCW and expatriates is negatively

related to continuance commitment.

Organizational commitment, job satisfaction and performance

Previous research (e.g. Cullen et al., 2002; Mathieu and Zajac, 1990; Allen and Meyer,

1990) shows that the positive relationship between organizational commitment and job

satisfaction is a key, consistent finding. It is typically assumed that job satisfaction will

lead to organizational commitment (e.g. Bluedorn, 1982; Koch and Steers, 1978). This

assumption is based on the logic that the more satisfied employees are with their jobs, the

more likely they are to develop the necessary attachment to the organization and

develop a stronger commitment.

Mathieu and Zajac (1990), however, argue that the causal order between jobsatisfaction and organizational commitment may not necessarily be as has traditionally

been assumed. In fact, in a longitudinal study, Bateman and Strasser (1984) found that

organizational commitment is possibly an antecedent of job satisfaction. We adopt this

position and also argue that organizational commitment is a precursor to job satisfaction.

An employee may be committed to an organization because he/she identifies with

the organizational values as reflected in the corporate culture. Such attachment to the

organization will result in higher job satisfaction. In contrast, those employees who are

less committed to their organization are less likely to be satisfied with their jobs.

Previous studies suggest that there is a moderate but positive relationship between

organizational commitment and job performance (Mathieu and Zajac, 1990; Randall,

1990). However, Riketta (2002) argued that the low correlations found between

commitment and performance may be due to methodological issues (i.e. researchers did

not consider all three components of commitment; samples are too restricted or too

comprehensive). Her meta-analysis does indeed show that there is a stronger and positive

relationship between affective commitment and job performance (Riketta, 2002). We

also agree that a significant and positive relationship exists between organizational

commitment and job performance. Those HCW who are more attached to the

organization are more likely to work harder and thus achieve stronger performance.

Thus, we propose:

Hypothesis 3a: A positive relationship exists between HCW organizational

commitment and job satisfaction.Hypothesis 3b: A positive relationship exists between HCW organizational

commitment and job performance.

Method

Sample

Ten Korean firms in export-oriented industries (industria maquiladora) in Mexico

participated in the current study. Nine firms are in the consumer electronics industry and

one firm is in the clothing industry. The firms are located in varied areas throughout

Mexico including Tijuana, Mexicali, Mexico City, Colorado SL and Puebla. 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). Inflow of FDI continues to increase since the inception


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of NAFTA in 1994. In turn, Korea has been one of the fastest growing East Asian

investors in Mexico, using the country as both a manufacturing and a marketing platform

to take advantage of the more integrated North American market. With Korean

companies rapidly globalizing, it has become more and more critical for them to manage

effectively the local workforce to achieve the preferred outcome (Paik and Sohn, 1998).

The research team combined two different methods to collect data. 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. Each

interview lasted two hours on average. The other group conducted field survey studies

with Mexican employees to collect quantitative data. Korean managers also participated

in this survey. Our intention for conducting the interviews was to use the results as

complementary data to corroborate our findings of the field survey.

Respondents

Forty-five Korean expatriates voluntarily agreed to participate in the survey and all of

them returned the questionnaire. Five hundred and fifty-one local Mexican employees

participated in the survey. The unusually high return rate was possible because

the participating firms announced the survey opportunity and promised volunteering

employees with a full hourlywage paid forthe time they spent to fillout the questionnaire.

Among the participating employees, 62.2 per cent were male and 37.8 per cent were

female; 77.8 per cent were workers and 22.2 per cent were supervisors; 45.7 per cent

completed regular education for 12 years or more and 54.3 per cent were educated for less

than 12 years. To achieve the compatibility between the two groups of respondents, we

only used the responses from Mexican managers and supervisors in our statistical

analyses.

Measures

Similar to Chen et al.(2002), we first asked the local Mexican employees to evaluate how

they thought their companies treated them as compared to the Korean expatriates. Our

intention was to find out the employees perception about their rewards system relative

to that of Korean expatriate managers. For example, the question read, 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, better than average,

average, below average and poor. Questions were also asked for ratings of

education opportunities, promotability and technical skills acquisition. These

independent variables were selected through interviews with Korean repatriates and from

the findings of the existing literature (e.g. Delery and Doty, 1996). They were included as

control variables to avoid any spurious relationships with organizational commitment.

Then, the same set of questions was asked of the Korean expatriates. Our intention was to

compare the perception of the Mexican managers compensation between themselves

and the Korean expatriates.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. We reasoned that there would be obvious gaps if the Mexican

workers were asked questions comparatively. In other words, if the HCW were asked to

rate their compensation relative to expatriates, they would likely rate those as lower. By

asking the HCW to rate their compensation independently of expatriates without

identifying the social referent in the survey, we believed that we would be able to control

the response bias more effectively.


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Sixteen items were used to assess the level of organizational commitment of Mexican

employees, which were used as both independent and dependent variables. In the

current study, we decided to use an organizational commitment instrument that

Allen and Meyer (1990) developed. Different from Mowday et al.s (1979) widely

used organizational commitment questionnaire (OCQ), Allen and Meyer conceptualized

organizational commitment into three components: affective, continuance and

normative organizational commitment (Meyer and Allen, 1991). Affective organiz-

ational commitment refers to the employees emotional attachment to, identification with

and involvement in the organization. It basically captures the desire to

keep membership in the organization. Meanwhile, continuance commitment refers to

an awareness of the costs associated with leaving the organization. In other words,

employees with strong continuance commitment remain in the organization because they

need to do so. 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, 1993). Using a five-point scale, eight items were prepared to

measure affective commitment and eight items were also developed to measure

continuance commitment.

We also measured performance as another dependent variable (quality, quantity,

speed, accuracy, performance by company standard and performance relative to peers),

on a five-point scale: well above average, above average, average, below average

and well below average. We also used job satisfaction as a dependent variable on a five-

point scale. Job satisfaction represents the most widely studied behavioural correlate of

organizational commitment in the existing literature (Mathieu and Zajac, 1990).

Results

A test of reliability on the entire 16-item survey revealed a Cronbach alpha coefficient

of .78, indicating very high instrument reliability. First, to test Hypothesis 1, one-wayANOVA was used to detect any significant differences between Mexican HCW and

Korean expatriates in terms of compensation. 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.

Next, using varimax rotation, a factor analysis was conducted to identify the latent

dimensions of organizational commitment. As Table 2 shows, it produced two distinctive

organizational commitment factors, i.e. affective and continuance commitment that were

loaded with four items on each factor.

To test Hypothesis 2, we investigated the impact of the perception gap between local

Mexican employees and Korean expatriates regarding compensation on affective and

continuance commitment. For this purpose, we took the absolute value of the mean

difference between the two groups of respondents in compensation, and calculated the

t-value of each item on the two organizational commitment constructs. The results

Table 1 Perceived difference in compensation between Mexican HCW and Korean expatriates

Sample size Mean F value

Mexican HCW 514 2.52 49.068**Korean expatriates 45 3.84

**p , .01


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demonstrated that compensation gap was significantly related to affective commitment

only (see Table 3). That is, the wider the perception gap about compensation between

Mexican employees and Korean expatriates, the lower the affective commitment

of Mexican workers. However, the perceived compensation gap was not significantly

related with continuance commitment. Our results only support Hypothesis 2a.

Hypothesis 3a proposed that there is a positive relationship between organizationalcommitment and job satisfaction. To test Hypothesis 3a, we analysed the

relationship between affective as well as continuance commitment and job satisfaction

using organizational tenure and education level as control variables. The literature on

organizational commitment suggests that both education and tenure are important

antecedents of commitment and need to be controlled (Cullen et al., 2002; Mathieu and

Zajac, 1990). According to results in Table 4, only affective commitment was positively

Table 2 Factor analysis on organizational commitment items

Factors

Continuance

commitment

Affective

commitment

Serious loss of opportunity and financial

pressure if quit the current job

.775 2 .223

Not considering to quit the job

because of no alternative

.755 2 .216

Reason to continue the job being

considerable personal loss with turnover

.742 2 .075

Staying with the job by personal need .568 2 .282

Company problems being mine .086 .727

Company being meaningful to me .373 .697

Enjoying talking about my company outside

the company

.390 .499

Happy if spend the rest of

my career with the company

.076 .451

Eigen value 2.349 1.649

% of variance 29.4 20.6

Table 3 The impact of perception gap between Mexican employees and Korean expatriates on

affective commitment

Standardized beta T value

Compensation 2 .286 23.270**Work environment 2 .033 2 .408

Control variables

Education opportunity .008 .102

Promotability 2 .019 2 .210

Technical skills acquisition .108 1.214

F 2.612*R 2 .08

Notes:**p , .01,*p , .05.


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related to job satisfaction. Continuance commitment was not significantly related to job

satisfaction.Finally, we tested Hypothesis 3b that organizational commitment is positively related

to job performance. As demonstrated in Table 5, affective commitment was found to

have a significantly positive correlation with job performance while continuance

commitment had a significantly negative association with job performance. These

findings are consistent with arguments by Meyer and Allen (1991).

Discussion

Using Korean companies as a sample, the present study represents a pioneering research

that investigates the relationship between perceived compensation gap, organizational

commitment, job satisfaction and job performance in managing MNCs overseas

operations. Our results are consistent with past research and suggest that HCW perceive

significant gaps in their compensation relative to expatriates (Chenet al., 2002). Yet, 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.

However, of greater interest to multinationals are our findings that such compensation

gaps are inversely related to affective commitment. This research thus helps us

understand the critical factors that influence HCW affective commitment. As expected,

our findings suggest that compensation gaps were negatively related to one form of

organizational commitment affective commitment. Such findings are consistent with

past empirical research (Chen et al., 2002; Toh and Denisi, 2003) and the premises of

equity theory (Adams, 1963). Relative to other reward components, compensation gaps

tend to be more salient for HCW as they compare themselves with expatriates. This is not

surprising because compensation tends to be a major focus of comparison for most

Table 4 The effect of affective commitment and continuance commitment on job satisfaction


Organizational tenure .010 .219

Education 2 .190 23.778**Affective commitment .458 10.144**Continuance commitment .007 .145

F 30.026**R 2 .239

Notes:**p , .01,*p , .05.

Table 5 The effect of affective and continuance commitment on job performance


Organizational tenure .092 1.816

Education .096 1.705

Affective commitment .243 4.808**Continuance commitment 2 .125 22.237*F 10.341**R 2 .103

Notes:**p , .01,*p , .05.


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people (Kulik and Ambrose, 1992). As such, in an effort to reduce the inequity perceived

with respect to South Korean expatriates, the HCW tend to be less attached to the

organization. Our findings suggest that MNCs should be careful in managing

compensation gaps between HCW and expatriates, as they are very discernable and

obvious to the HCW.

We were nevertheless surprised to find that there was no relationship between the

compensation gap and continuance commitment. Perhaps, consistent with most

maquiladoras, the HCW have few other options with regards to work. As such, although

they perceive a significant compensation gap, they may not be able to find other job

alternatives and thus see no recourse but to stay with their current employer. Such

reasoning potentially explains our inability to find a relationship between the

compensation gap and continuance commitment. In fact, these results are consistent

with the continued decline in turnover rate in the maquiladora industry. Compared to the

growing stage of the maquiladora industry in the 1970s and 1980s, 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, 2003). However, given the difficulty of explaining non-

significant results, we note the speculative nature of our explanation hoping that future

research can address this issue in more depth.

Consistent with previous research, results also show that only affective commitment is

positively related to job satisfaction (Cullenet al., 2002; Mathieu and Zajac, 1990) and job

performance (Riketta,2002).In contrast to past research, however, our findingsindicate that

continuance commitment is not related to job satisfaction and that it has a negative

relationship to job performance.Albeitsurprising at first glance, suchfindings areconsistent

with the conceptualizations of affective and continuance commitment. While affective

commitment pertains to the emotional attachment and identification with the organization

(Allen and Meyer, 1990), continuance commitment reflects employees sunk costs and

investments (e.g. benefits) that prevent them from leaving the organization. Thus, whileaffective commitment implies that employees want to stay with the organization,

continuance commitment suggests that they stay with the organization because they dont

havemany optionselsewhere (Lemons andJones,2001). It is,therefore, notsurprising to see

a more positive effect of affective commitment on job satisfaction and performance

compared to continuance commitment,when considering managers preference of affective

commitment over continuance commitment (Shoreet al., 1995).

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. Most

importantly, 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. Furthemore, with regard to our control

variables, Mexican workers also perceived inequity in terms of their career development

such as promotability and technical skills acquisition. Previous research (Paik andTeagarden, 1995) found that Korean companies in Mexico were not spending enough

money to provide Mexican managers with necessary training, including general

management and specialty courses. Mexican workers want Korean companies to support

their individual careers by providing various training and development programmes.

Korean MNCs should improve these reward schemes to encourage Mexican workers to

feel that they are valued by the company.

The contributions of this paper may not be limited only to Korean companies in

a Mexican context, but are applicable to all MNCs operating outside their home country.


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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. This will in turn increase the organizational

commitment of the host country workforce, resulting in improved job performance.

Several managerial implications can be drawn from this research. First, the research

findings suggest that Mexican workers are clearly aware of the compensation and other

rewards discrepancy between themselves and expatriate managers. To reduce any

resentment from HCW, if possible, MNCs would be better off refraining from using

expatriates in managing foreign subsidiaries. Instead, it would make more sense to hire

local managers whose compensation is not significantly different from other local HCW.

Local managers would also be more familiar with work-related values, thereby better

positioned to offer proper rewards and thus generate higher levels of affective

commitment on the part of the host country employees.

Second, when using expatriates is inevitable, MNCs should carefully select those who

possess appropriate cultural knowledge about the host country. 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. If expatriates have a clear understanding of HCW

expectations, they can provide appropriate rewards including compensation that exactly

fulfils those needs. Then the HCW may feel obligated to reciprocate and may become

more committed to the organization. They will carry out the job assigned by the

expatriate to a degree consistent with the perceived equity in the exchange. When

managers and employees have a mutual agreement on what is considered to be most

important in motivating workers, organizational commitment as well as job satisfaction

and performance is expected to increase.

Third, the research findings also have useful implications for training expatriate

managers more effectively. With an almost exclusive focus in the international

management literature upon the preparation and training of expatriates for international

assignment success, there has been a major neglect of attention to HCWs inputcontributing to the optimization of foreign subsidiary performance (Vance and Paik,

2002). 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. To increase expatriate pre-departure training content

validity, the HCW can make valuable contributions in designing appropriate rewards

systems for their own benefit as well as for MNCs. Therefore, an expatriates

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.

Despite the intriguing findings, this paper does suffer from several limitations. First, the

study was done with Mexican HCW and Korean expatriates and may not necessarily be

readily applicable to all nationalities. We nevertheless hope that future research will

replicateour study in wider populations. Furthermore, ourstudy ignoredcultural aspects and

we hope that future studies will consider how national culture may influence perceptionsregarding compensation and organizational commitment. For example, 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. Second, we measured the

perceived gaps based on only one item, thereby raising reliability issues. Although we

followed similar procedures to previously published research using only one item (Chen

etal., 2002),we hopethat futureresearch will usemore sophisticatedmultiple instruments to

measure compensation and other types of reward schemes. Finally, we also note that the

Mexican workers were asked to rate their compensation in absolute terms ratherthan relative


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to the Korean expatriates. However, we reasoned that compensation gaps would be obvious

if the Mexican workers were asked to rate their compensation relative to the South Korean

expatriates. We areconfidentthat thecurrent results aremore robust as we still found that the

compensation gap was related to organizational commitment.

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