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 eld 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 eld surveys and in-depth interviews of Korean expatriates as well as Mexican workers, results provide support for our hypothesis that signicant perception gaps exist in compensation. The nding that compensation gap was signicantly 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

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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 conicts with HCW. Those expatriates who benet 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 signicant unfairness due to compensation gaps (Chen et 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). Specically, our research question addresses whether HCW indeed perceive a compensation gap, as it has important implications for HCWs awareness of justice and fairness (Lemons and Jones, 2001). We also investigate how this perception gap inuences 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 identication 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 lls this important void in the literature. Third, the current research helps enhance our understanding of the inuence 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.

1770 The International Journal of Human Resource Management Perception gaps, organizational commitment and job performance Previous research reports that HCW tend to receive signicantly lower compensation than expatriates (Reynolds, 1997). This is not surprising given the signicant compensation inducements and benets (i.e. cars, club memberships, etc.) that are given to encourage expatriates to accept foreign responsibilities (DeLisle and Chin, 1994). Chen et al. (2002) argue that compensation packages for US expatriates tend to be two to ve 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 for organizations 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 important facet 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 they are somewhat relevant and compensation information about the referent is readily available. Given that compensation and benets for expatriates are often 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 likely to get much higher compensation and premiums (Harvey, 1993). Such wide disparities are likely to magnify the presence of 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 individuals identication 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 identication 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.

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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 nd 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 of Mexican 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 expatriates and perceive inequity. Then, in an effort to correct the inequity, it is likely that the HCW will nd 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 signicant 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 magnied 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:

1772 The International Journal of Human Resource Management 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 nding. 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 satised 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 job satisfaction 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 identies with the organizational values as reected 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 satised 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 signicant 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 rms in export-oriented industries (industria maquiladora) in Mexico participated in the current study. Nine rms are in the consumer electronics industry and one rm is in the clothing industry. The rms 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). Inow 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 ve Korean expatriate managers as well as two to three Mexican managers per rm to collect qualitative data. Each interview lasted two hours on average. The other group conducted eld 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 ndings of the eld survey. Respondents Forty-ve Korean expatriates voluntarily agreed to participate in the survey and all of them returned the questionnaire. Five hundred and fty-one local Mexican employees participated in the survey. The unusually high return rate was possible because the participating rms announced the survey opportunity and promised volunteering employees with a full hourly wage paid for the time they spent to ll out 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 rst asked the local Mexican employees to evaluate how they thought their companies treated them as compared to the Korean expatriates. Our intention was to nd 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 ve-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 ndings 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.

1774 The International Journal of Human Resource Management 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 organizational commitment refers to the employees emotional attachment to, identication 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 ve-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 ve-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 vepoint 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 coefcient of .78, indicating very high instrument reliability. First, to test Hypothesis 1, one-way ANOVA was used to detect any signicant differences between Mexican HCW and Korean expatriates in terms of compensation. Signicant 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 Mexican HCW Korean expatriates
**p , .01

Mean 2.52 3.84

F value 49.068**

514 45

Y. Paik et al., Perceived compensation, . . . and job satisfaction

Table 2 Factor analysis on organizational commitment items Factors Continuance commitment Serious loss of opportunity and nancial 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 .775 .755 .742 .568 .086 .373 .390 .076 2.349 29.4

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Affective commitment 2 .223 2 .216 2 .075 2 .282 .727 .697 .499 .451 1.649 20.6

demonstrated that compensation gap was signicantly 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 signicantly related with continuance commitment. Our results only support Hypothesis 2a. Hypothesis 3a proposed that there is a positive relationship between organizational commitment 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 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 , .01, *p , .05.

T value 2 3.270** 2 .408 .102 2 .210 1.214

2 .286 2 .033 .008 2 .019 .108 2.612* .08

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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 , .01, *p , .05.

T value .219 2 3.778** 10.144** .145

.010 2 .190 .458 .007 30.026** .239

related to job satisfaction. Continuance commitment was not signicantly 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 signicantly positive correlation with job performance while continuance commitment had a signicantly negative association with job performance. These ndings 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 signicant gaps in their compensation relative to expatriates (Chen et 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 identied to the respondents. However, of greater interest to multinationals are our ndings that such compensation gaps are inversely related to affective commitment. This research thus helps us understand the critical factors that inuence HCW affective commitment. As expected, our ndings suggest that compensation gaps were negatively related to one form of organizational commitment affective commitment. Such ndings 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 5 The effect of affective and continuance commitment on job performance Standardized beta Organizational tenure Education Affective commitment Continuance commitment F R2
Notes: **p , .01, *p , .05.

T value 1.816 1.705 4.808** 2 2.237*

.092 .096 .243 2 .125 10.341** .103

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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 ndings 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 nd 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 signicant compensation gap, they may not be able to nd other job alternatives and thus see no recourse but to stay with their current employer. Such reasoning potentially explains our inability to nd 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 difculty of explaining nonsignicant 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 (Cullen et al., 2002; Mathieu and Zajac, 1990) and job performance (Riketta, 2002). In contrast to past research, however, our ndings indicate that continuance commitment is not related to job satisfaction and that it has a negative relationship to job performance. Albeit surprising at rst glance, such ndings are consistent with the conceptualizations of affective and continuance commitment. While affective commitment pertains to the emotional attachment and identication with the organization (Allen and Meyer, 1990), continuance commitment reects employees sunk costs and investments (e.g. benets) that prevent them from leaving the organization. Thus, while affective commitment implies that employees want to stay with the organization, continuance commitment suggests that they stay with the organization because they dont have many options elsewhere (Lemons and Jones, 2001). It is, therefore, not surprising 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 (Shore et al., 1995). Our ndings 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 and Teagarden, 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.

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 signicant 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 ndings 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 signicantly 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 signicant cultural knowledge of the host country. If expatriates have a clear understanding of HCW expectations, they can provide appropriate rewards including compensation that exactly fulls 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 ndings 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 input contributing 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 benet 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 specic host country to enhance organizational commitment and work performance for a given HCW. Despite the intriguing ndings, 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 replicate our study in wider populations. Furthermore, our study ignored cultural aspects and we hope that future studies will consider how national culture may inuence perceptions regarding 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 et al., 2002), we hope that future research will use more sophisticated multiple 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 rather than 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 are condent that the current results are more robust as we still found that the compensation gap was related to organizational commitment. References
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