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«To cite this version: Christelle Tornikoski. The role of perceived employer obligations in the interpretation of and reaction to expatriate ...»

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The role of perceived employer obligations in the

interpretation of and reaction to expatriate

compensation practices

Christelle Tornikoski

To cite this version:

Christelle Tornikoski. The role of perceived employer obligations in the interpretation of and

reaction to expatriate compensation practices. EIASM’s 3rd Reward Management Conference

2011, Dec 2011, Brussels, Belgium. hal-00675160

HAL Id: hal-00675160


Submitted on 29 Feb 2012 HAL is a multi-disciplinary open access L’archive ouverte pluridisciplinaire HAL, est archive for the deposit and dissemination of sci- destin´e au d´pˆt et ` la diffusion de documents e eo a entific research documents, whether they are pub- scientifiques de niveau recherche, publi´s ou non, e lished or not. The documents may come from ´manant des ´tablissements d’enseignement et de e e teaching and research institutions in France or recherche fran¸ais ou ´trangers, des laboratoires c e abroad, or from public or private research centers. publics ou priv´s.

e 3rd Reward Management Conference 2011 The role of perceived employer obligations in the interpretation of - and reaction to - expatriate compensation practices Christelle Tornikoski Grenoble Ecole de Management, France christelle.tornikoski@grenoble-em.com University of Vaasa, Finland Best Paper Award of EIASM’s 3rd Reward Management Conference 2011 (RMC 2011), December 2nd-3rd, 2011, Brussels, Belgium 3rd Reward Management Conference 2011 The role of perceived employer obligations in the interpretation of - and reaction to - expatriate compensation practices Abstract In this paper I examine the relationship between expatriates’ perceptions of their compensation package and their affective commitment. The results of this cross-sectional study amongst 263 Finnish expatriates suggest the mediating role of the employee’s perceptions of fulfillment of their employer obligations. This leads to the consideration that employees systematically assess their total reward package, interpret and give meaning to these compensation signals in terms of fulfillment of perceived employer obligations and simultaneously re-adapt or adjust their attitudes at any moment thorough their exchange relationship. In addition, this study gives empirical support for some of Rousseau and Ho’s (2000) theoretical arguments regarding psychological contract (PC) issues in compensation.

Furthermore it provides evidence that three of the PC feature measures for employer obligations developed by Janssens, Sels and Van den Brande (2003) can be replicated. Finally the implications of these findings for future research are discussed.

Keywords: psychological contract, total reward, affective commitment, meaning, expatriate

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1. INTRODUCTION The role of human resource management (HRM) in supporting the corporate strategy and creating a sustainable competitive advantage has been the focus of much academic research over the past three decades. Researchers have especially examined the mechanisms linking HRM practices to organizational outcomes such as performance. At the same time researchers, such as Guest (1999), have raised the concern of HRM reflecting a management agenda that neglects workers’ concerns and called for psychological approaches to HRM which would take workers’ views and perceptions on HRM. Storey (1989) also stressed that there is a need to understand the impact of employment practices upon people “who are deemed to be the recipients of the array of messages and initiatives” to be able to properly design and implement efficient and effective HR practices to support the corporate strategy.

An individual perspective to HRM seems thus needed. In other words research needs to examine how HRM practices such as recruitment and selection, performance management, training and development as well as compensation and rewards used to induce and direct the work, attitudes and behaviors of employees are actually perceived and interpreted by employees and how they impact of their attitudes and behaviors Compensation and rewards practices may differ from other practices as they seem to be amongst the most distinctive, salient and earliest interpreted practices from the perspective of employees since compensation often constitutes their main source of income (Rousseau and Ho, 2000). As early as the recruitment process for a job or assignment, compensation practices already signals and communicates the terms, the nature and the potential of the employment relationship (Bloom & Milkovich, 1996, Guzzo and Noonan, 1994). The terms of this exchange agreement between the individual and the organization define the psychological contract (PC) (Rousseau, 1995). This construct describes employees’ and employers’ perceptions of the other party’s obligations. From the employee’s perspective, this construct “accounts for the perceived promises that employees believe their organizations have made to them” (Dulac, Coyle-Shapiro, Henderson &, Wayne, 2008: 1079). Thus, based on their understanding of this exchange agreement, employees not only perceive the reciprocal obligations involved in this exchange, but also evaluate the state of their psychological contract (SPC) (Guest, 2004) throughout their employment relationship (Schein, 1978).

3rd Reward Management Conference 2011

Research findings (Robinson, 1996; Tekleab, Takeuchi & Taylor, 2005; Dulac et al.,

2008) suggest that an employee’s cognitive assessment of what they receive relative to what they had understood was promised to them shapes their attitudes and behaviors towards their employers. The negative SPC, i.e. a perceived “breach” (Robinson, 1996; Robinson & Morrison, 2000) of the psychological contract and its link to employees’ behavior and attitudes has been the subject of much research.

In the context of expatriation, organizations spend lots of time and money designing compensation practices aimed at attracting, motivating and retaining their talented employees.

Still, the turnover of expatriates during and after assignments shows the limits of such practices of compensation and benefits. This raises the questions of how expatriates perceive and interpret compensation practices and, react to these perceptions.

Considering the important compensation efforts made by organizations and their outcomes in terms of expatriates’ retention/turnover, the objective of the present paper is thus to examine the link between employees’ SPC related to their total reward package (perceptions of discrepancy between what they had understood they would get and what they actually perceive receiving in terms of compensation and rewards) and their affective commitment.

By examining such a relationship it is aimed at contributing to the psychological contract theory development. To do so the theoretical arguments of Rousseau and Ho (2000) are applied, regarding the process used by employees to interpret HRM practices, i.e.

compensation practices specifically. A total reward perspective is also applied to examine the link between cognition (SPC related to the total reward bundle), meaning (perceived degree of fulfillment of employer’s obligations), and employee attitudes (level of affective commitment) at a given moment (Rousseau and Tijoriwala, 1998) made possible by crosssectional data (Guest, 1999). The theoretical framework of the study is tested on a sample of 263 highly educated Finnish expatriates while abroad since compensation and commitment are two key issues in the management of expatriation and expatriate retention.


The expatriate compensation package, also known as the “total compensation package”, has traditionally been studied from organizational and financial perspectives advocated by organizational control theories such as agency theory (Fama & Jensen, 1983; Jensen & 3rd Reward Management Conference 2011 Meckling, 1976). Authors have thus discussed and described how employing organizations provide their expatriates with packages that include three main component categories: (1) fixed pay and flexible pay, (2) benefits, and (3) allowances (see e.g., Bonache 2005; Briscoe 1995; Dowling et al. 1994; Schell and Solomon, 1997; Suutari and Tornikoski, 2000). The special focus on the content of the compensation package can easily be explained by the complexity of such packages as well as the time and costs required in their design and management.

In this paper, I adopt an individual perspective on compensation by examining the expatriate compensation package from the international employee’s point of view. In addition, I use a total reward approach. This approach implies that “each aspect of reward, namely base pay, contingent pay, employee benefits and non-financial rewards, which include intrinsic rewards from the work itself, are linked together and treated as an integrated and coherent whole” (Armstrong and Stephen, 2005: 13), embracing “everything that employees value in the employment relationship” (O’Neal, 1998). Consequently, this approach provides a much broader and more holistic perspective of the compensation package than the traditional total compensation approach. Furthermore it leads to the consideration of the whole expatriate package as a “bundle” (Bloom and Milkovich, 1996) of total rewards.

Compensation or return is a salient component of any social exchange relationship between two individuals (Blau 1964). In the context of expatriation the compensation package is the most concrete, visible and comparable expression of the exchange relationship between the geographically distant employer (organization anthropomorphized into the HR specialists and expatriate supervisors (Tornikoski 2011)) and the expatriate. Contrary to an employment relationship in a national context, the expatriate compensation package is much broader since it is supposed to cover the financial needs of the expatriates and their family (spouse and children). Its delivery is thus essential to expatriates not only because it represents the main signal of the continuity and state of their exchange relationship but also because many aspects of their live abroad really depends on it (Guzzo et al, 1994) Psychological contract has been argued as a valuable construct to examine the employment relationship (Rousseau, 1995; Guest, 1999; Guest and Conway, 2002). It is essentially concerned with the individuals’ beliefs regarding the terms and conditions of the exchange relationship between themselves and their employer, their perceptions of their reciprocal obligations (Rousseau, 1989). Each employee holds beliefs regarding the returns their employer has agreed (either implicitly or explicitly) to provide him/her in exchange for 3rd Reward Management Conference 2011 his/her contribution. Foa and Foa (1975) calls this “ideal” returns (perceived by the employee here).

In the case of an international exchange relationship, the assignment terms and conditions are usually agreed on prior to the assignment. This agreement represents what Rousseau and Ho (2000:280) call the “cognitive statu quo” of the psychological contract related to the exchange relationship abroad, in other words it represents the negotiation basis on which expatriates rely. It represents the source of their understanding of what is expected from them (their obligations) and what they will get from their employer in return (their employers’ obligations).

Over time, throughout their international employment relationship, expatriates cognitively assess the state of their exchange relationship by comparing their subjective perceptions (accurate or not) of the actual HRM practices (compensation in this study) of their employer in comparison to their initial understanding. Therefore the “cognitive statu quo” becomes expatriates’ comparative referent (Adams, 1965). This assessment of their psychological contract leads to the notion of state of the psychological contract or SPC (Guest, 1998, 2004; Guest and Conway, 2002; Conway and Briner, 2005). This state is thus directly related to, and yet distinct from, their “psychological contract”. This concept is operationalized as employees’ perceived discrepancy between this “ideal” return and the “actual” one they perceive as receiving from the organization (i.e. HRM practices such as compensation and rewards in this paper). As in Robinson’s study (1996), thus the focus of this research is not the accuracy of the perception, but the employee’s subjective perception of this discrepancy.

In this paper, I posit that employees hold a “sub” psychological contract for each particular set of HRM practices after recruitment and selection (e.g. training, career development), and that they automatically and systematically1 assess their discrepancies throughout the duration of their exchange relationship (Eagley and Chaiken, 1993) and not at certain times only as argued by Guzzo and Noonan (1994). Expatriates cognitively assess each of HRM practices during their exchange relationship. The interrelation of all these discrepancies provides the global SPC of the exchange relationship, which can be either relational, transactional transitional or balanced psychological contracts (Rousseau 1995, Rousseau & Ho, 2000).

“systematic assessment” because the challenging international context of their employment relationship keeps expatriates very sensitive to any change that would put their work and family life is at stake.

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