CHRISTELLE TORNIKOSKI Expatriate Compensation A Total Reward Perspective ACTA WASAENSIA NO 239 ________________________________ BUSINESS ADMINISTRATION 98 MANAGEMENT AND ORGANIZATION UNIVERSITAS WASAENSIS 2011 Reviewers Professor Jean-Luc Cerdin ESSEC Business School Management Department Av. Bernard Hirsch B.P. 50105 95021 Cergy Pontoise Cedex France Professor Jan Selmer University of Aarhus Aarhus School of Business Department of Management Nordre Ringgade 1 8000 Århus C Denmark III Julkaisija Julkaisupäivämäärä Vaasan yliopisto Maaliskuu 2011 Tekijä(t) Julkaisun tyyppi Christelle Tornikoski Artikkelikokoelma Julkaisusarjan nimi, osan numero Acta Wasaensia, 239 Yhteystiedot ISBN Vaasan yliopisto Johtamisen yksikkö PL 700 65101 Vaasa 978–952–476–341–7 (nid.) 978–952–476–342–4 (pdf) ISSN 0355–2667, 1235–7871 Sivumäärä Kieli 218 Englanti Julkaisun nimike Ekspatriaattien palkitseminen: Kokonaispalkitsemisen näkökulma Tiivistelmä Työntekijät vaikuttavat keskeisesti organisaatioiden tuloksiin. Viime vuosikymmenen aikana on osoitettu, että työntekijöiden näkökulma ja henkilöstöresurssien johtaminen (HRM) tulisi ottaa paremmin huomioon tutkittaessa HRM:n ja toiminnan tuloksellisuu- den välistä suhdetta. Tämän lisäksi tutkimukset ovat osoittaneet taloudellisten palkitse- miskäytänteiden rajalliset mahdollisuudet työntekijöiden sitoutumisen ja organisaatiossa pysymisen suhteen. Aiemmissa tutkimuksissa taloudellinen palkitseminen on nähty keskeisenä kontrolli- ja kannustemekanismina, jonka avulla voidaan joustavasti saavuttaa liiketoiminnalle tulok- sia. Kuitenkin ekspatriaattien palkitsemista on tutkittu vähän. Tämä väitöskirja tarkastelee ekspatriaattien palkitsemista yksilön näkökulmasta. Tutki- mus koostuu neljästä artikkelista, joista yksi on teoreettinen ja kolme on empiiriseen aineistoon perustuvia tutkimuksia. Ensimmäinen, teoreettinen artikkeli tuo esiin ekspatriaattien palkitsemisen olennaise- na osana ulkomailla tapahtuvaa työsuhdetta. Toisessa artikkelissa tutkitaan kvantitatiivi- sen aineiston avulla ekspatriaattien palkitsemista ja affektiivista sitoutumista psykologi- sen sopimuksen näkökulmasta. Kolmas artikkeli syventää toisessa artikkelissa esitettyjä yhteyksiä ja tarkastelee niitä koettujen työnantajavelvoitteiden välittävän roolin kautta. Neljäs artikkeli perustuu laadulliseen haastatteluaineistoon ja tutkii kokonaispalkitsemi- sen näkökulmasta, mitkä tekijät vaikuttavat pitkäkestoisella kansainvälisellä uralla ura- päätöksiin. Tutkimus osoittaa, että ekspatriaattipaketti olisi määriteltävä kokonaispalkkio-ohjelmana, joka pitää sisällään ekspatriaattien eniten arvostamia palkkioita. Toiseksi, ekspatriaatit arvioivat systemaattisesti kokonaispalkkio-ohjelmaansa, tulkitsevat ja antavat merkityk- siä palkitsemiskäytänteille sen mukaisesti kuinka ne täyttävät koetut työnantajavelvoit- teet. Samanaikaisesti he muuttavat tai sopeuttavat jatkuvasti asenteitaan työsuhteensa aikana. Jotta organisaatiot voisivat pitää ekspatriaattejaan palveluksessaan, niiden tulisi kiinnittää enemmän huomiota siihen mitä ekspatriaatit eniten arvostavat työsuhteissaan sen sijaan, että vain maksaisivat enemmän palkkaa. Asiasanat Ekspatriaatti, palkitseminen, kokonaispalkkio, psykologinen sopimus, sitoutumi- nen, sitouttaminen V Publisher Date of publication Vaasan yliopisto March 2011 Author(s) Type of publication Christelle Tornikoski Selection of articles Name and number of series Acta Wasaensia, 239 Contact information ISBN University of Vaasa Department of Management P.O. Box 700 FI-65102 Vaasa, Finland 978–952–476–341–7 (paperback) 978–952–476–342–4 (pdf) ISSN 0355–2667, 1235–7871 Number of pages Language 218 English Title of publication Expatriate Compensation: A Total Reward Perspective Abstract For the past decade it has been pointed out that employee perspectives on and reactions to HRM should be reinstated within the relationship between HRM practices and per- formance, since employees are deemed critical to organizational outcomes. Furthermore, research has shown the limited effect of financial compensation practices on employee commitment and retention. The scarce theoretically grounded studies which have examined expatriate compensa- tion have been guided by the view that financial compensation is a pivotal control and incentive mechanism, a flexible means to achieve corporate outcomes. This dissertation considers expatriate compensation from an individual perspective. It comprises four articles, of which three are based on empirical data. The first theoretical article brings to the fore the necessity of considering expatriate compensation as embed- ded into the employment relationship, which is itself entwined with the international environment of the expatriation. In the second article the relationship between expa- triates’ state of psychological contract related to their compensation package and affec- tive commitment is investigated using quantitative empirical data. The third article ex- amines more closely this previous relationship by considering the mediating role of per- ceived employer obligations. The fourth articles uses qualitative interview data to inves- tigate, from a total reward perspective, what factors influence career decisions of global careerists. The dissertation shows that organizations would do well to encompass rewards most valued by expatriates into their compensation packages. Secondly, it shows that expa- triates systematically assess their total reward package, interpret and give meaning to compensation signals in terms of fulfillment of perceived employer obligations. Simul- taneously they re-adapt or adjust their attitudes at any moment through their employ- ment relationship. Thus to retain expatriates organizations might do well to pay more attention to what expatriates value most in their employment relationship rather than simply paying them more. Keywords Expatriate, compensation, total reward, psychological contract, commitment, retention Acta Wasaensia VII ACKNOWLEDGEMENTS Finishing a Doctoral dissertation often marks the end of a personally challenging period of life. It is challenging in the sense that writing a dissertation is often syn- onymous with loneliness, uncertainty, deep self questioning, searching for recog- nition and legitimacy from the academic world as well as from the “outside” world. During this work perseverance is needed. Henceforth, reaching the ulti- mate completion is really a self-rewarding outcome of all the months and years of hard work; a huge intrinsic reward. This sinuous and lengthy way to complete the defense is the “ritual” process that ensures our knowledge meets the rigors of the academic world’s requirements. During this long process (especially mine since I originally registered myself as a European doctoral student in 1996), the tiniest direct or indirect support and help from individuals and organizations are invalu- able. Therefore and before all, I wish to thank from the bottom of my heart all of those who have helped me in any way during these past 15 years. I wish to sincerely thank the two official pre-examiners of this dissertation, Pro- fessor Jean-Luc Cerdin from ESSEC Business School (France) and Professor Jan Selmer from Aarhus School of Business, Aarhus University (Denmark) for their insightful comments on my manuscript in addition to their expertise in the field of expatriation from which I have benefitted each time we met at academic confe- rences. Furthermore, I wish to thank the several anonymous reviewers for their constructive, even though sometimes demanding, comments on the articles in- cluded in this study. These additional quality control processes have proven to be an invaluable experience and one of the best ways to mature as an academic. My deepest gratitude goes to my Finnish supervisor Professor Vesa Suutari for his incommensurable and positive impact on the process of my dissertation and its final outcome. His decision to welcome me as a member of his research group on expatriation was a determinant for my academic career. As a self-initiated expa- triate and dual-careerist, I moved geographically thirteen times during my doctor- al/PhD studies. I highlight this to stress the importance of the stable and crucial role played by Professor Vesa Suutari throughout my years of study. Indeed, by keeping me updated on the events occurring in my research group or my depart- ment while I was located elsewhere, guiding me without directing me, being pa- tient and acting as my main interlocutor for the University of Vaasa, he has been able to keep my original psychological contract intact and balanced throughout our long-lasting relationship. This, among many other gestures of understanding and support during some very difficult times in my life, has been the most valua- ble support I could ever have wished for. After discussing with other PhD stu- VIII dents and academics, I was made more aware how fortunate I was to be super- vised by such a highly productive and active scholar who always encourages his students to be active in the academic community and in supporting each other. I also would like to thank Professor Françoise Dany who was appointed as my French supervisor at EMLYON Business School during the past three years of my doctoral studies. She welcomed me into her pedagogical team and gave me the opportunity to develop my pedagogical abilities by teaching or producing some new material for her courses. In addition, her contact and the attendance of her classes helped me in becoming more critical with regard to my academic reading. Last but not least, I would like to sincerely thank her for keeping my autonomy intact and letting me progress with my dissertation as I wished to. Furthermore, I would like to express my gratitude to Professor Zied Guedri for accepting to be part of my dissertation supervising committee at EMLYON Busi- ness School. His experience and help with my statistical analyses were invalua- ble. He always made the effort to be available and answer my questions each time I doubted or wished to discuss an issue that bothered me in one of my papers. I also wish to thank the Department of Management, at the University of Vaasa, for their support over the years. The research positions they offered me and their financing of my attendance to academic conferences have enabled me to develop my research abilities, my academic network and ultimately broadened my pers- pective and lead me to this manuscript. In addition, a department is made of people and I wish to thank them deeply for their initial welcome into their Finnish group. Their kindness and their ability to make me feel part of the group each time we met, either in Vaasa or abroad, during conferences or workshops, have been dear to me. In particular, during all these years, my colleagues from my research group in Vaasa have always provided me with collegial feedback, encouragement and friendship. Even though intangible this support was of great value to me especial- ly when living a long way from Finland. They showed me by example and helped me navigate the way out of this doctoral channel! Furthermore when administra- tive issues arose and seemed too difficult to solve from a remote place, Tiina Jo- kinen, despite her very busy schedule, was always ready to assist and help me with translations, practical matters, retrieving academic articles and material, even copying some documents, and solving my problem accessing the intranet. This was invaluable so I really wish to thank her especially. I also would like to thank Liisa Mäkelä who has been a great co-author and also helped me in many ways. I particularly wish to thank Adam Smale who has given constructive and insightful comments as well as proofreading my papers whenever this was needed. Last but Acta Wasaensia IX not least, I also wish to thank Marianne Back, our Department assistant, for her administrative help. Even though I only physically spent two years at EMLYON Business School this was enough time for me to enjoy being part of a PhD student group. During these two very busy years, we developed tight and supportive relationships and became friends. This link to a community was essential for me as I repatriated after years spent abroad. So I thank those of you who shared their time with me, not only in the “Black Box” (Doctoral open space), but also enthusiastically jogging in the woods with me. I would also like to thank the Department of Law, Human Re- sources and Management which kindly welcomed me and especially my HRM and OB colleagues who shared their knowledge and experience with me. Thank you to all the assistants for their patience, kindness and friendship, especially Emmanuelle, Hélène, Alexandra and Danielle for their time and professional as- sistance in many ways. Last but least, I would like to thank Laurie Badel from the Infomédiathèque for her precious help in finding the exact academic articles or information I sometimes needed. I am also grateful to my research partner, the Finnish Association of Graduates in Economics and Business Administration (SEFE): Thanks to their help I was able to survey their expatriate members. In this respect, I wish to thank the respon- dents who answered my long survey questionnaire. Their answers did not only provide me with data for my dissertation but also gave me the opportunity to compare their situation to mine, being a self-initiated expatriate myself. I am also extremely grateful to the Academy of Finland who believed in my re- search from the very beginning and supported me financially when I first came to Finland. As a foreign PhD student studying in Finland, I am also indebted to the Finnish Graduate School of International Business (FIGSIB/KATAJA) and its director Professor Jorma Larimo, for their generous funding during the starting phase of my dissertation. It meant a lot to me. I would also like to thank the following Finnish institutions for their generous founding of my research: the Foundation for Economic and Technology Sciences (KAUTE), the Foundation for Economic Education (Liikesivistysrahasto), the Wallenberg Foundation, The South Ostrobothnia Regional Fund (Etelä Pohjan- maan Kultturirahasto) and the Evald & Hilda Nissi Foundation. Their financial support has been a huge help in enabling me to concentrate on my dissertation. I would like to thank all the people who have opened their arms and hearts to me whenever I arrived and lived abroad during these past years. I especially think of Jen and Brett from USA (who even proofread an early and arduous version of the X theoretical paper of my dissertation! Thank you so much!); Bengt (Sweden); Ma- ria, Maria & Maria (three Finnish Marias) for their kindness and openness; Jenni and the group of young mothers and toddlers who welcomed my children and I as one of them for four years in Finland. There are many other people I could thank here too, such as Mark, Susan and Frank for proofreading part of my manuscript, but this page would not be long enough, so my thankful thoughts are directed to all of you. I now would like to turn to those important to me during those past three years in France. I would like to especially thank Caroline for her friendship. As we shared the challenge of being Doctoral students and mothers at the same time, while be- ing expatriated or repatriated, we found strength in supporting each other. The professional opportunities she offered me helped me to focus, overcome obstacles and, make decisive decisions in my career whilst I completed my Doctoral disser- tation. I also would like to thank Vincent for providing me with a technical solu- tion to an unsolvable obstacle called “absence of SPSS for analyzing my data”! This might have been nothing for him but this was such an enormous relief for me! I also would like to thank Bernadette, the nanny of my children, for being such a wonderful and open hearted person; knowing that my children were in her hands made my working days lighter and easier. Most deepest and heart-felt gratitude goes to my mother and father, Nicole & Jac- ques. Their seemingly limitless supply of love and support continues to reach me wherever I am. Moreover this dissertation would not have been possible without the loving support of my Finnish family. In particular, my mother- and father-in- law, Merja & Keijo, my sisters in law, Mira & Anna-Kreta and their adorable families as well as my two other Finnish “mothers” Leena & Sirpa. They have welcomed me among them, taught me the Finnish language and what the Finnish “sisu” means! My deepest thanks go to my closest ones, my children Eva, Celia & Elian, and my husband, Erno. Eva, without knowing it, you have played a decisive role in my dissertation: your birth brought me back to my research after I spent several years working in the private sector. So I thank you from the bottom of my heart for that. Thank you also for your love and understanding despite my “absence”. Celia, thank you for being a “little mother” calling me back to earth each time you thought that you did not get the attention you deserved and thank you for your patience too. Elian, thank you for your energy, joy and, tenderness! Your smile has kept us all going forward. To the three of you, I wish that you will understand and be proud of your mother’s efforts one day. To my husband, Erno, thank you for pushing me during all these challenging years. The fact that you did not want, Acta Wasaensia XI as a Doctor yourself, to comment or get involved in my research has been really tough to live with but I guess you were right, I can fully enjoy the results of my own hard work now. Thank you for taking such good care of our children and being with us as much as you can! Now it is finally time for the five of us to en- joy life all together! Jonzieux, 21st of March 2011 Acta Wasaensia XIII Contents ACKNOWLEDGEMENTS ................................................................................ VII  ARTICLES .......................................................................................................... XV  1  INTRODUCTION ........................................................................................... 1  1.1   Background ........................................................................................... 1  1.2  Key Concepts ........................................................................................ 3  1.2.1  Expatriates ............................................................................ 3  1.2.2  Compensation....................................................................... 4  1.2.3  Total reward ......................................................................... 4  1.2.4  State of psychological contract ............................................ 5  1.3  Research gaps ....................................................................................... 5  1.4  Objectives of the dissertation ................................................................ 6  1.5  Structure of the dissertation .................................................................. 8  2  LITERATURE REVIEW ................................................................................ 9  2.1  Approaches to managerial compensation ............................................. 9  2.1.1  Managerial compensation research between 1996 and 2002 .................................................................................... 10  2.1.2  Managerial compensation research between 2003 and 2010 .................................................................................... 14  2.2  Expatriate compensation ..................................................................... 20  2.2.1   Traditional approach to expatriate compensation: example of agency theory ................................................................. 20  2.2.2   Outcomes of organizational control theories: expatriate compensation policies ........................................................ 23  2.2.3   Limits of the traditional approach to expatriate compensation ..................................................................... 25  2.2.4  New approach to expatriate compensation package: a total reward approach ................................................................. 26  2.2.5   Psychological contract approach to expatriate compensation ..................................................................... 29  2.2.5.1   Psychological contract .................................. 29  2.2.5.2   Expatriate psychological contract and compensation ................................................ 29  3  METHODOLOGY ......................................................................................... 33  3.1   Research strategy ................................................................................ 34  3.1.1   The philosophical underpinning of this study .................... 34  3.1.2   Background of this research strategy ................................. 36  3.2   Quantitative methodologies ................................................................ 38  3.2.1   Survey via self-administered questionnaire (Articles 2 and 3).................................................................................. 38  3.2.1.1   Methodological justification ......................... 38  XIV 3.2.1.2   Questionnaire development and data collection ....................................................... 39  3.2.1.3   Data analysis ................................................. 43  3.3   Qualitative methodology ..................................................................... 44  3.3.1   Survey through semi-structured interviews ........................ 45  3.3.1.1   Methodological justification ......................... 45  3.3.1.2   Open-ended questions and data collection .... 46  3.3.1.3   Data analysis ................................................. 47  3.4   Validity and reliability ......................................................................... 48  3.4.1  Construct validity ............................................................... 48  3.4.2   Internal validity................................................................... 50  3.4.3   External validity ................................................................. 51  3.4.4   Reliability ........................................................................... 52  4  ARTICLE SUMMARIES ............................................................................... 53  4.1  Expatriate Compensation: A theoretical approach .............................. 53  4.2   Fostering expatriate affective commitment: a total reward perspective ........................................................................................... 55  4.3  Expatriate’s compensation sense-making and affective commitment: A psychological contract and total reward perspective ....................... 56  4.4   Career decision making of Global Careerists: ..................................... 57  A total reward perspective ................................................................... 57  5  CONCLUSION AND DISCUSSION ............................................................ 59  5.1  Theoretical contributions ..................................................................... 59  5.2  Implications for practice ...................................................................... 62  5.3  Limitations of this research ................................................................. 64  5.4  Suggestions for future research ........................................................... 65  REFERENCES ..................................................................................................... 67  ABBREVIATIONS .............................................................................................. 84  List of Figures Figure 1. Themes in compensation research during the period 1996–2002. ... 13  List of Tables Table 1.  Summary of the four articles of this dissertation. ........................ 7  Table 2.   Categorization of Compensation Articles by Topic. .................. 11  Table 3.  Literature review of managerial compensation research between 2002–2010. ................................................................................. 15  Table 4.  Literature review of expatriate compensation research. ............. 21  Table 5.   Literature review of expatriate psychological contract. ............. 30  Acta Wasaensia XV ARTICLES [1] Tornikoski, C. (forthcoming). Expatriate Compensation: A theoretical ap- proach. In Antoni, C. H., Baeten, X., Lucas, R., Perkins, S. & Vartiainen, M. (Eds). Pay and Reward Systems in Organizations – Theoretical Approaches and Empirical Outcomes. Lengerich: Pabst Science Publishers. An earlier version of the paper was presented at the Academy of Management Conference 2005, Hono- lulu, USA and another one presented at the EURAM Conference 2007, Ljubljana, Slovenia. [2] Tornikoski, C. (2011). Fostering expatriate affective commitment: a total re- ward perspective. In Cross Cultural Management: An International Journal 18:2, entitled: Expatriate Management: New Issues and New Insights. An earlier ver- sion of the paper was presented at the EURAM conference 2010, Rome, Italy. [3] Tornikoski, C. (2010). Expatriates’ Compensation Information Processing and Affective Commitment: A Psychological Contract and Total Reward Perspective. EIBA Conference Proceedings 2010. Competitive Paper, Porto, Portugal. [4] Suutari, V., Tornikoski, C. & Mäkelä, L. (accepted for revisions). Career De- cision Making of Global Careerists: A Total Reward Perspective. International Journal of Human Resource Management. An earlier version was published in the conference proceedings of the 10th Vaasa Conference on International Business, Vaasa, Finland in 2009, Vaasa, Finland. 1 INTRODUCTION 1.1 Background Since mid 90’s organizations and employees have had to face an increasing speed of activities and career internationalization. Expatriation, either assigned or self- initiated, has become a normal part of business career advancement (Schell & Solomon 1997) but also an essential prerequisite step to some managerial posi- tions either in the home country or abroad. Organizations look for employees able, for instance, to transfer technical, administrative or management know-how, improve communication between headquarters (HQ) and a subsidiary, to ensure that HQ’s policies are carried out locally, coordinate subsidiary’s activities with overall activity of corporation, gain experience and acquire skills for future posi- tions with foreign operations (Stahl & Cerdin 2004). While the number of expa- triates has and is expected to steadily increase, organizations have had to face fierce international business competition as well as challenges linked to the eco- nomic crisis. They consequently have had to adapt their strategies in order to re- duce and control their costs. This has led them to downsize, restructure, merge or, relocate to remain competitive and to modify their approach to the way of com- pensating expatriates. Expatriate compensation is often considered extremely costly and time consum- ing for the organizations involved (Bonache & Pla-Barber 2005). Thus it has two inherent handicaps when it comes to the management of contemporary employ- ment relationships (Rousseau, 2001). This perception pressures companies to ei- ther decrease their investment in international experience and knowledge, (Bo- nache & Pla-Barber 2005; Pate & Scullion 2010, Schell & Solomon 1997) or to look for alternate international employee populations, such as self-initiated expa- triates (Meyskens, Von Glivow, Wether & Clarke 2009; Thite, Srinivasan, Har- vey & Valk 2009) or to decrease the coverage and amount of their expatriate compensation packages (Perkins & Daste 2007). However, compensation practices and strategy are one of the most powerful and salient means in the employment relationship to send clear messages to members of the organization, informing them about expected attitudes and behaviors (Schell & Solomon 1997, Rousseau & Ho 2000). There is a danger that the pres- sures that organizations feel to reduce compensation costs may lead to an altera- tion in the expatriates’ perceptions not only of their compensation package, but also of their whole employment relationship prompting expatriates to change their attitude toward their employer or simply change their employer. 2 Acta Wasaensia Research has already noted that employees have lost their job security and there- fore severed their socio-emotional attachment to their employer. There has been a shift in the psychological contract between employees and employers for the past decade (Rousseau 1995; Altman & Post 1996). Henceforth, the exchange rela- tionship has become much more transactional and calculative nowadays (Pate & Scullion, 2010). This trend concerns national employment relationships (Rous- seau 1995; Millward & Brewerton 1999) as well as international ones (Pate & Scullion 2010). This means that “parties involved in the employment relationship are directed by multiple motives, or “a mix of selfish and social interests” (Mac- neil 1980). The parties pursue their self-interests (opportunism) and strive to keep their commitment (thus remaining as legitimate players) simultaneously (Yan et al. 2002: 377).” The standard today for what employees consider acceptable in their exchange relationship may have shifted such that getting more than they deserve is more satisfying than what they actually deserve according to Shore (2004). A consequence of this spiral of changes is that organizations increasingly face tremendous challenges in attracting, motivating and retaining these valuable people for sustaining their strategic development abroad. They have to overcome the challenge of designing compensation programs that not only span the world and support the organization’s strategic goals and objectives, but also guarantee consistency, equity and transferability throughout the entire working life of the new mobile work force (Bailey 1995). Key challenges for organizations are whether they have means of modifying the content of expatriate compensation packages to increase their costly and valuable employees’ affective commitment (antecedent to job satisfaction and turnover attitudes) so as to retain them without inferring incremental costs. Prior to this understanding, organizations needs to learn how their expatriates perceive and react to their compensation practices sig- naled by their package, what types of rewards their employees value most and how these affect their decisions regarding their stay in or leave from their em- ploying organizations. In other words organizations look for information about how to commit their cost- ly employees to the organization from the beginning of the international assign- ment until the success of their repatriation. Understanding what kind of compen- sation elements and rewards motivate expatriates most during their international assignment might provide this information. Indeed Cerdin & Le Pargneux (2009) suggest a fit between what motivates expatriates and the success of the interna- tional assignment (from pre-expatriation until repatriation success). Previous re- search on financial rewards has focused on the strength of the link between pay and performance, and the impact of corporate governance characteristics like Acta Wasaensia 3 board composition and ownership structure on CEO’s or executive pay. The present research examines the relationship between expatriate compensation package (defined as a “bundle of total rewards) and expatriates’ affective com- mitment and global careerists’ career decisions. The following paragraphs present the key concepts used in this research. 1.2 Key Concepts 1.2.1 Expatriates “Expatriates” have traditionally represented employees sent by their employing organization on international assignment abroad for a certain period of time, usually from two to five years (Edström and Galbraith 1977; Stroh, Gregersen & Black 2000). This population of “assigned expatriates” (AES) has been most stu- died by previous IHRM literature. However since a decade or so IHRM research- ers have turned their interest in parallel to a fast growing population of employees who secure a job abroad on their own initiative without necessarily having a pre- defined return scheduled. This other population of mobile employees across bor- ders are called “self-initiated expatriates” (SIEs) (Inkson, Arthur, Pringle, and Barry 1997; Suutari and Brewster 2000; Inkson and Myers 2003; Lee, 2005, Myers and Pringle, 2005; Vance 2005; Doherty & Dickman 2008; Peltokorpi 2008; Le Pargneux 2009; Peltokorpi & Froese 2009; Bieman & Andresen 2010; Cerdin & Le Pargneux 2010). Even though SIES have been around for as long as AEs, if not even longer time, researchers might have overlooked them as they do not belong to the traditional samples or data sets obtained from organizations. Researchers (e.g. Inkson et al. 1997) have described the differentiating characte- ristics between SIE and AE populations: individual background variables, em- ployer and task variables, compensation & repatriation issues as well as career - anchors (Le Pargneux 2009; Cerdin & Le Pargneux 2010), - capital development (e.g. Jokinen, Brewster & Suutari 2008) and -types (Biemann & Andresen 2010) among other themes. This research refers to both populations when using the term “expatriate” and specifies one or the other population whenever it is needed. Moreover the sample of Article 4 consists of global careerists. Those are expa- triates whose career encompasses a succession or collection of multiple interna- tional assignments (e.g. Suutari 2003; Cappellen& Janssens 2005; Stahl and Cer- din 2004; Thomas, Lazarova & Inkson 2005; Mäkelä & Suutari 2009; Herman & Tetrick 2009; Mäkelä & Suutari 2010). Very valuable to organizations from a 4 Acta Wasaensia global knowledge perspective they are nevertheless difficult to retain (Suutari 2003, Suutari & Mäkelä 2007). 1.2.2 Compensation In this study I adopt the definition provided by Milkovich & Newman’s (2002). According to them compensation represents “all forms of financial returns and tangible services and benefits employees receive as part of an employment rela- tionship” (in Werner & Ward 2002: 202). In this study “tangible services” are understood as synonyms with “tangible returns” from the organizations to the employee in exchange of a contribution. They refer to any return which is either visible symbolically and physically, or easily computable and comparable be- tween them or with those of other employees. Compensation is a core and defining feature of any exchange relationship (Bloom & Milkovich 1996; Rousseau & Ho 2000). “Adam Smith was among the first to propose a formal theory of the relationship between compensation and work. He characterized pay in terms of “the net advantage” resulting from an exchange of multiple returns which, when added and subtracted, determine what the worker will provide to the employer” (Bloom & Milkovich 1996:26 referring to the work by Mahoney 1979; Smith 1776/1976). According to Bloom & Milkovich (1996), pay or compensation is fundamental to the value and meaning that the different parts of an employment relationship (employee, employer, third part) ascribe to it. Reviews of compensation research generally stay within one of the above pers- pectives and focus on specific aspects of compensation (Milkovich 1988; Hene- man 1990; Welbourne & Gomez-Mejia 1995Lazear 1999; Gerhart 2000; Rynes & Gerhart 2000), namely salary, performance-related pay, insurances, benefits and allowances in the case of expatriate compensation (Werner & Ward 2004). 1.2.3 Total reward As previously written compensation refers to financial and tangible returns. How- ever, authors such as Blau (1964), Herzberg (1966), Deci (1975), Guest (1999), Bloom & Milkovich (1996), Rousseau & Ho (2000) support that pay and finan- cial returns are not the only motivators for employees and that other returns or rewards are as important within the wider context of the work experience. Hence- forth, adopting a total reward approach consists in considering all kind of returns or rewards perceived by the individuals within the context of their employment relationship as part of this “bundle” (Bloom and Milkovich 1996) of total re- wards. It includes financial, tangible as well as intangible, non financial rewards. Acta Wasaensia 5 1.2.4 State of psychological contract The state of the psychological contract (SPC) describes employees’ subjective perceptions (accurate or not) of the actual HRM practices of their employer in comparison to their psychological contract (Guest 1998, 2004a, 2004b; Guest & Conway 2002; Conway and Briner 2005). This state is directly related to, and yet distinct from their “psychological contract”. A psychological contract refers to individuals’ beliefs regarding the terms and conditions of an exchange relation- ship between themselves and their employer (Rousseau 1989). Each employee holds beliefs regarding the returns their employer has agreed (either implicitly or explicitly) to provide him/her in exchange for his/her contribution. The SPC (e.g. Guest 1998; Guest 2004a, 2004; Guest and Conway 2002) is thus operationalized as the employee’s perceived discrepancy between this “ideal” return and the “ac- tual” one they perceive as receiving from the organization (HRM practices such as compensation and rewards in this case). As in Robinson’s study (1996), the focus of this study is not the accuracy of the perception, but the employee’s sub- jective perception of this discrepancy. This SPC is considered to be either positive or negative. The three following paragraphs summarize the research gaps identified in the lite- rature and present the related objectives and the structure of this dissertation. 1.3 Research gaps In an in-depth review of the extant literature on expatriate compensation initially (Suutari & Tornikoski 2000a, 2000b, 2001) it appeared that this literature was extremely scarce (Bonache & Fernández 1997; Bonache 2006) in comparison to other issues such assignment acceptance, concerns and expectations of dual career expatriates (Harvery 1997), adjustment (Caligiuri, Hyland, Joshi & Bross 1998; Shaffer, Harrison & Gilley 1999), psychological withdrawal (Shaffer & Harrison 1998), pre-departure concerns (Garonzik, Brockner & Siegel 2000), and commit- ment (Gregersen & Black 1996). This scarcity was even more striking when con- sidering the abundant literature on managerial compensation in domestic settings. The previous research had focused on the strength of the link between pay and performance, and the impact of corporate governance characteristics like board composition and ownership structure on CEO’s or executive pay. So an organiza- tional perspective had guided previous research as prescribed by organizational control theories, such as agency theory. Consequently little was known about how employees and especially expatriates perceived their compensation package 6 Acta Wasaensia (Guest, 1999) or how their perceptions of their compensation were linked to their attitudes (Bloom & Milkovich 1996) (Articles 2 and 3). Furthermore, previous research on compensation has been almost exclusively concentrated on financial or monetary compensation (Werner & Ward 2004). Even though financial rewards seem to be effective in attracting employees, these rewards alone have been pointed at as not enough to bind the employee to the organization (Herzberg 1966; Barringer & Milkovich 1995; Malhotra, Budhwar & Prowse 2009). Henceforth, the lack of consideration of other rewards or “va- lued returns” as understood and perceived by international employees was strik- ing when considering how critical and decisive these last components seem to the employee’s decision in staying in a company (Stahl, Miller & Tung 2002; Dew- hurst, Guthridge & Mohr 2009) (Article 4). Finally, another gap issue identified in the literature on expatriate compensation was that it has been descriptive and practice oriented (exceptions include, Guzzo et al., 1996; Bonache & Fernández 1997; Gregersen, Hite & Black 1996). This reflects the concerns of professionals (Bonache 2006). The lack of theoretical underpinning of compensation studies such as expatriate compensation is ad- dressed by the first paper of this dissertation. Multiple calls for research on the link between perceptions of HRM practices and more specifically compensation and employees’ attitudes and behaviors (Bloom & Milkovich 1996; Guest 1999; Rousseau & Ho 2000) draw further attention to the research gaps that exist in this area. 1.4 Objectives of the dissertation In reference to the research gaps outlined above, the research questions of the dissertation follow the work of Guest (1999) on the employees’ perceptions of HRM practices (expatriate compensation), Bloom & Milkovich (1996) on issues in managerial compensation, and Rousseau & Ho (2000) on psychological con- tract issues in compensation. They tackle the following concern of multinational organizations: how to increase the affective commitment of our expatriates to- ward our organization and ultimately retain them in the long run through the design of their compensation package? (i) Can organizations encourage the loyalty of their international employees through the composition of their compensation packages? Acta Wasaensia 7 (ii) How do expatriates create meaning regarding their exchange relationship based on their compensation package? (iii) How does this meaning creation impact on their affective commitment? (iv) What do global careerists value most in their careers? (v) What influences their career decisions from a total reward perspective? The three empirical articles comprising this dissertation address one or more of the above research questions. These research questions find their theoretical roots into the general theoretical framework developed in Article 1. However it is im- portant to stress that this theoretical framework has evolved tremendously throughout this dissertation period. Even though presented as the first article of this dissertation, Article 1 could be equally presented as the last. Articles 2, 3 and 4 are empirical examples of the theoretical progress of this dissertation since they focus on expatriates’ perceptions. Indeed the original framework, which consi- dered expatriate compensation from four separated theoretical perspectives (among which the one deemed to be the one used by organizations and the one used by the expatriate), now combines them. It is argued that to fully understand the complex managerial issue of expatriate compensation, the expatriate package has to be considered as being embedded into the employee-organization relation- ship which is itself entwined with the international context of the expatriation. A summary of the four articles, including which research questions they address is given in Table 1. Then the respective roles of each author of Article 4 are de- scribed. Table 1. Summary of the four articles of this dissertation. Article 1 Article 2 Article 3 Article 4 Type of paper Theoretical Empirical Empirical Empirical Methodology Quantitative Quantitative Qualitative Research ques- tions addressed (i) (ii) & (iii) (iv) & (v) Tornikoski is the single author of Articles 1, 2, and 3. Article 4 is co-authored with Vesa Suutari and Liisa Mäkelä. For that article Tornikoski provided a list of expatriates from her sample which could be identified as global expatriates. Based on her previous results on the relationship between intangible rewards and expa- 8 Acta Wasaensia triate’s affective commitment it was commonly decided with the co-authors that a qualitative study examining the relationship between the same rewards and global careerists’ career decisions would be very valuable. Tornikoski’s main responsi- bilities, beside providing access to the sample, was (1) the elaboration of the question of the semi-structured interview (2) two later rounds of data analysis together with the co-authors, (3) the redaction of the theoretical sections, as well as (4) the results and conclusion together with Suutari. As joint author of this pa- per Suutari’s responsibilities were the management and supervision of the content of the paper, data analysis and redaction of the paper. Mäkelä’s main co-authoring responsibilities were to design the interview, collect and analyze the data, as well as to participate in the redaction. 1.5 Structure of the dissertation The dissertation is organized into five chapters that precede the presentation of the four individual articles. The current chapter introduces the background to the dissertation and presents the thesis’s main research objectives. The second chap- ter reviews the previous literature that is pertinent to the individual articles; name- ly compensation in the field of management, expatriate compensation and total reward in particular, as well as issues of psychological contract in compensation. The chapter positions the dissertation in terms of the current knowledge in these areas. This chapter is also designed to complement the theoretical article of this thesis (Article 1). The third chapter of this dissertation describes the research strategy and metho- dologies adopted in this dissertation. Due to the different methodologies applied in the four empirical papers, the chapter is divided in four sections. Within each sub-section the specific methodology’s justification, the method of data collection and analysis as well as the relevant issues of validity and reliability are presented. The fourth chapter goes on to provide summaries of the four individual articles. The fifth and final chapter seeks to draw together all the individual articles in or- der to arrive at some conclusions for the dissertation as a whole. More specifical- ly, the final chapter discusses the main findings, their managerial implications and the theoretical contributions to the literature. In closing, the limitations of the dis- sertation are outlined and some avenues for future research are suggested. Acta Wasaensia 9 2 LITERATURE REVIEW The purpose behind the review of previous research is to position the present dis- sertation in terms of existing knowledge in the field. The review begins by pre- senting the traditional approaches to managerial compensation. Then it focuses on compensation psychology and expatriate compensation. The review also looks at the salient issues in the previous research so to logically explain how the theme of this dissertation was reached. 2.1 Approaches to managerial compensation Compensation theories encompass a multitude of theories which have traditional- ly been classified according to the questions they address (Gomez-Mejia & Bal- kin 1992). The first category treats compensation and pay systems as dependent variables (as outcomes). It aims at answering questions regarding factors explain- ing differences in managerial compensation (Bloom & Milkovich 1996). These theories have largely focused on the impact of corporate governance characteris- tics like board compensation and ownership structure on the content of financial compensation package (especially variable pay) of top executives and CEOs (e.g. Tosi & Gomez-Mejia 1989; Balkin & Gomez-Mejia 1990; Gerhart & Milkovich 1990; Beatty & Zajac 1994; Björkman & Furu 2000; Balkin, Markman & Gomez- Mejia 2000). Agency theory or human capital theory, for instance, can be found among the theories of this first category (see Figure 2.1. in Bloom & Milkovich 1996: 24). The second category of theories treats managerial compensation and pay systems as an independent variable (as causes) and aims at answering questions regarding the link between compensation decisions or practices/policies and managers’ atti- tudes and behaviors, as well as organizational performance (Bloom & Milkovich 1996). This research has largely focused on the strength of the link between fi- nancial compensation and performance. Equity theory, expectancy theory and, psychological contract theory can be found among these theories. Werner & Ward (2004) followed the same previous categorization logic to classi- fy their findings. They reviewed the literature of compensation and compensa- tion-related issues within the field of management between 1996 and 2002. Their findings are presented in the following section. Then, their own more detailed categorizations is used to present three themes that are most important to this 10 Acta Wasaensia study, as well as to classify the extant literature considered for this thesis for the period between 2003 and 2010. 2.1.1 Managerial compensation research between 1996 and 2002 Werner & Ward (2004) reviewed the research articles included in 20 top journals in the field of management from 1996 to 2002. Less than six percent of these ar- ticles were related to compensation. The authors followed the traditional way of looking at pay, namely whether pay and pay systems is an outcome (dependent variable) or a determinant (independent variable) (Gomez-Mejia & Balkin 1992; Bloom & Milkovich 1996). They separated the corresponding articles into 12 categories labeled as follows; environmental determinants of compensation, firm determinants of compensation, job and group determinants of compensation, gender and race determinants of compensation, other individual determinants of compensation, compensation psychology, organizational justice, individual out- comes of compensation, firm outcomes of compensation, benefits, international compensation, and executive compensation (see Table 2. for the description of these topics). Moreover, they linked the themes which had received little research attention in the top journals during this time period (see Figure 1.). Among other links, they especially related international compensation described as “international compar- isons of compensation and compensation in multinational enterprises” to compen- sation psychology, and individual outcomes. In these following paragraphs the results summarized by Werner’s & Ward’s (2004) which are the most closely related to the research of this dissertation are considered. At the end of each cate- gory an explanation regarding the link between these results and the topic of the current dissertation is given. Compensation psychology (includes; pay satisfaction, motivation, meaning of money, and reactions to compensation). This included a considerable amount of compensation research within the domain of industrial and organizational psycho- logical (compensation psychology, organizational justice, and individual determi- nants and outcomes). This research on that topic has considered pay as a determi- nant and examined the relationships between pay satisfaction and a large number of variables such as turnover intent, professional tenure, commitment and organi- zational citizenship behaviors. Research on motivation and individual incentives has been shown to be positively related to work motivation. However, the same research highlights that organizations tend to rely too much on these individual incentives to motivate their workforce, while ignoring the potential negative im- pact of such incentives on employee’s intrinsic motivation. In addition, some stu- Acta Wasaensia 11 dies examined the relationship between the meaning individuals give to money, and demographic, attitudinal and, behavioral variables. Another large proportion had looked at psychological reactions to compensation such as organizational and applicant attraction, job choice decision making, employee attitudes, commit- ment, perceived organizational and informal support, meaningfulness of pay in- creases. Table 2. Categorization of Compensation Articles by Topic. Category of compensation research Topics included Number of Articles in Top 20 Journals 1. Environmental Determinants of Compensation Legal environment, business environment and industry analysis. 44 2. Firm Determinants of Compensation. Firm practices, unionization, and other firm characteristics. 31 3. Job and Group Determinants of Compensation Job factors, job change, and group factors. 18 4. Gender & Race Determinants of Compensation Gender wage gap analysis, non-North Ameri- can gender gap analysis, gender gap determi- nants, and race wage gap analysis. 47 5. Individual Determinants of Compensation. Behavioral, experiential, and individual cha- racteristic determinants. 39 6. Individual Outcomes of Compensation Outcomes of incentive pay (performance, absenteeism, turnover, stress) and outcomes of pay level (performance, turnover). 27 7. Compensation Psychology Pay satisfaction, motivation, meaning of money, and reactions to compensation. 42 8. Organizational Justice Equity, ethical issues, and procedural justice. 31 9. Firm Outcomes of Compensation Outcomes of pay (performance, costs), out- comes of individual incentives (performance) & outcomes of group incentives (perfor- mance, survival). 26 10. Benefits Usage of benefits, benefit satisfaction, and benefit outcomes. 33 11. International Compensation International comparisons of compensation and compensation in multinational enterpris- es. 18 12. Executive Compensation Determinants of CEO pay level, determinants of CEO pay mix, and CEO pay outcomes. 40 Source: Warner and Ward, 2004:205. Table reproduced with the permission of the authors and Elsevier. 12 Acta Wasaensia Werner & Ward (2004) stressed that it was interesting to note that still no consen- sus seems to exists when comes to the issue of how extrinsic rewards affect in- trinsic motivation and that some researchers still attempt to address this issue. Finally, they stressed that factors which had received little attention in that cate- gory included “employee satisfaction with and reactions to change in compensa- tion plans (Heneman 1990; Heneman & Judge 2000), the effects of psychological contracts regarding pay (Rousseau & Ho 2000), the reactions to different pay bundles or hybrid programs (Rousseau & Ho 2000; Gerhart & Rynes 2003) and reactions and pay risk (Wiseman, Gomez-Mejia & Fugate, 2002) (Ibid: 213)”. The research of this dissertation addresses the second and third of these gaps by looking at the effects of the state of the psychological contract regarding different bundles of expatriate compensation on their’ affective commitment (Essay 2 & 3). Individual outcomes (includes; outcomes of incentive pay (performance, absen- teeism, turnover, and stress) and outcomes of pay level (performance and turno- ver). Werner & Ward (2004) showed that different forms of incentive pay were related to job satisfaction, less turnover for high performers, less willingness to resign, among other outcomes. Higher level of pay was found to be related to lower turnover, greater job acceptances, and greater perceived success of expe- rienced workers. Individual outcomes of pay level were the least researched issue in this category. Furthermore, the authors stressed that the impact of monetary incentives on performance had clearly been established by the research and that future research “should also look at outcomes of pay aspects other than level and incentives, such as the nature of the pay mix, pay dispersion and total compensa- tion (Gerhart & Rynes 2003) (Ibid: 213).” The research of this dissertation an- swers this call by looking at the relationship between different types of compo- nents of the expatriate total reward package as well as the total reward package itself, and expatriates’ affective commitment (Essay 2). Moreover, Essay 4 ex- amines the role played by intangible non-financial rewards in global careerist’s career decisions. International Compensation (includes; international comparisons and compensa- tion in multinational enterprises (MNEs)). Even though the reviewed studies used the American compensation systems as a comparison, Werner and Ward (2004) stressed the complexity of international compensation practices due to important differences between countries in terms of working conditions, laws, cultures but also different mixes of employees (expatriates, locals, and third-country nation- als) and the introduction of exchange rate risk. This area of research has been the least examined among all the compensation themes reviewed and categorized by Werner & Ward (2004). This has been also stressed by Bonache (2006). Acta Wasaensia 13 Arrows indicate linkages receiving little research attention in the top management journals from 1996 to 2002 Source: Warner and Ward 2004: 206. Figure reproduced with the permission of the authors and Elsevier. Figure 1. Themes in compensation research during the period 1996–2002. When relating the three compensation topic areas to each other, Werner & Ward (2004) argue that if many of international studies have made international com- parisons of pay determinants or looked at international factors that affect pay while others look at justice issues or firm outcomes, few have looked at interna- tional aspects of (CEO’s) pay, individual outcomes, and compensation psycholo- 14 Acta Wasaensia gy (Heneman & Judge 2000). Thus, Werner & Ward (2004) believe that these three cross-areas are especially viable areas for research. Although concentrating on expatriate compensation rather than CEOs’, the current dissertation makes the link between their individual outcomes and compensation psychology as pre- viously argued. Thus it also addresses the call by Werner & Ward (2004) for the study of the interconnection between different approaches and topics of compen- sation (see Figure 1). The next paragraphs present the review of literature which examines both mana- gerial compensation or reward issues and employee attitudes and behaviors for the period from 2003 to 2010, as above mentioned. The review of research on expatriate compensation then follows. 2.1.2 Managerial compensation research between 2003 and 2010 The review of the literature on managerial compensation and employee attitudes and behaviors for the period between 2003 and 2010 (see Table 3.) in American and European journals shows that the large majority of this research can be classi- fied in the category of compensation psychology. Amongst these reviewed stu- dies, authors examine the effect of employees’ perceptions, evaluations (Fujimoto & Nakata 2007), and cognitive appraisal (Jolink & Dankbaar 2010) of their com- pensation or of the compensation practices of their employer on their attitudes and behaviors. They do not consider the impact of the use of rewards (e.g. Haar & Spell 2004) on their attitudes (job satisfaction, organizational commitment) and behaviors (quit/withdrawal intent, performance, creativity, knowledge sharing). In the traditional organizational control perspective adapted in HRM research, Guest (1996) was among the first researchers to stress the need to focus on the perceptions of employees. He argued that it was necessary to better understand the effect of organizational HRM practices on employee’ behaviors and attitudes, and the role of the latter in the relationship between HRM practices and the ulti- mate organizational performance (see Katou & Budhwar 2010, Ghebregiorgis & Karsten 2007 for instance). The study by Slåtten (2010) shows the employee emotions play a mediating role between the employees’ appraisal of their manag- ers’ rewarding practices and their behavior. Even though all these studies focus on compensation they are all concerned with different aspects or types of compensation. For instance some consider monetary rewards, social rewards, job design, feedback and manipulatable consumable vis- ual-auditory rewards (Bhattacharya & Mukherjee 2009). Some others like Buch & Tolentino (2006) focus on extrinsic, intrinsic, social and organizational re- Acta Wasaensia 15 wards. Katzenbach (2003) discuss the difference between monetary and intrinsic pride. Shore (2004) considers salary, Fujimoto & Nakata (2007) merit-based pay, Parkes (2008) incentives schemes, while Bakker & Demerouti (2007) focus on effort-related rewards. Hallock, Salazar & Venneman (2004) examine individual performance pay, and so on. This multitude of type or aspects of rewards renders the use and comparison of findings arduous. Furthermore, even though authors might use the same distinction, such as in the case of intrinsic and extrinsic rewards, the components they include in such cate- gories differ. For instance, on one hand Lin (2002) includes expected organiza- tional rewards (i.e. salary incentives, bonuses, promotion incentives or job securi- ty) and reciprocal benefits) in the category of extrinsic rewards and knowledge self-efficacy and enjoyment in helping others in the category of intrinsic rewards. On another hand Buch & Tolentino (2006: 357) define extrinsic rewards as “those that employees receive from their organization or management as a result of their performance or participation. These rewards can take many forms, some direct (…) [e.g.] recognition from management and small tokens of appreciation and acknowledgement) and indirect (…) [e.g.] enhanced job security, new opportuni- ties for promotion, and better performance appraisals.” They also define intrinsic rewards as “those that an individual receives internally as a result of their in- volvement in activities that enhance feelings of self competence, growth, satisfac- tion, responsibility and autonomy” (Ibid: 358). Originally rewards had been di- chotomized into extrinsic and intrinsic rewards on the basis of the functions they served (Guzzo 1979) however this distinction seems blurred in current research. Finally as already stressed by Werner and Ward (2004) the large majority of these studies are quantitative. Nevertheless the study by Rosa, Qualls & Fuentes (2008) was entirely qualitative. Table 3. Literature review of managerial compensation research between 2002 and 2010. Author(s) (year) Type of paper HRM & Re- ward related issues Summary Compensation psychology / Reactions to compensation (to be continued) Jolink & Dankbaar (2010) Theoretical Rewards, recognition, employee perceptions Argue that the use of less conspicuous, visible reward and recog- nition systems will be positively linked to employee perceptions of the costs and benefits associated with their behavior (network- ing) and attitude. Argue it is a good means to signal that organi- zation values employee attitude or behavior while not controlling the process. 16 Acta Wasaensia Compensation psychology / Reactions to compensation (to be continued) Podsakoff, Podsakoff & Kushova (2010) Theoretical Leadership contingent reward, rec- ognition & punishment, employee behaviors Review and discuss the reasons why transactional leadership has been relegated to a lesser role than transformational leadership. Argue that leader contingent reward behavior has stronger posi- tive relationships with all the facets of employee satisfaction than leader non-contingent reward behavior; the same is true for the relationships between leader contingent and non-contingent pu- nishment behavior and these facets of satisfaction. Review ten misconceptions regarding the administration of rewards and punishments. Slåtten (2010) Quantitative Reward and empower- ment, em- ployee emo- tions, beha- viors Shows that the direct relationship between employee’s cognitive appraisal of their managers’ rewarding practices (reward and empowerment) and their behavior (service quality delivery) is mediated by their emotions (joy or frustration). She finds that employees’ feelings explain more of the variance in employee- perceived quality than managerial practices. Bhatta- charya & Mukherjee (2009) Quantitative Reward sys- tems, re- wards, em- ployee en- gagement Investigate the role of reward strategies including monetary re- wards, social rewards, job design, feedback and, manipulatable consumable visual-auditory rewards in inspiring, energizing, motivating and thus “engaging” I.T. employees of three different. They show that employees look for opportunities, which serve their interest to a greater extent, and constantly switch over or- ganizations in this quest. They conclude that along with money and benefits, companies should value the other factors in ‘en- gagement’, which makes employees feel cared about and valued and hence, reduce their interest in leaving. Emery & Barker. (2007) Quantitative Employee perceptions, attitudes & behaviors Examine the impact of employee perceptions of leadership styles on organizational commitment and job satisfaction. They find a higher correlation between transformational leadership and the dependent variables than with transaction leadership and no impact of leader gender on leadership factors used i.e. charisma, intellectual stimulation, and individual consideration. Fujimoto & Nakata (2007) Longitudin- al quantita- tive Merit-based pay, em- ployee moti- vation Use evaluative attitudes toward HRM to consider the impact on worker motivation (perceived job worth & “company” commit- ment). Results suggest that negative effect of worker’s satisfac- tion with HRM on motivation to be stronger once merit-based systems permeated across Japanese firms. They show that varia- bility in occupations affects whether merit-based compensation enhances worker motivation (measured by company commitment and job worth). Ghebre- giorgis & Karsten (2007) Quantitative Employee perceptions, attitudes & behaviors, organizational performance Use employee perceptions of HRM policies and practices. Study shows a positive attitude of employees to HRM practices, and a productivity increase while employee turnover, absenteeism, and grievances are low. Malhotra, Budhwar, & Prowse (2007) Quantitative Perceptions of rewards, organizational commitment Show that intrinsic rewards are more powerful indicators of affective and normative commitment than extrinsic rewards. Among extrinsic rewards, promotional opportunities, satisfaction with fringe benefits and, pay satisfaction emerged as determi- nants to the affective, normative and continuance components of commitment, respectively. Acta Wasaensia 17 Compensation psychology / Reactions to compensation (to be continued) Chang (2006) Quantita- tive Individual per- formance pay, organizational commitment Does not find any significant positive relationship between pay for individual performance (estimated by HR managers) and organizational commitment (perceived by employees). Hallock, Salazar & Venneman (2004) Explorato- ry quantita- tive Employee per- ceptions, satis- faction, pay equity Find that when examined separately, employees’ perceived influ- ence on decision-making, pay equity and influence on stock per- formance significantly correlates with ESOP satisfaction. When combined, only employees’ perceived influence on stock perfor- mance, perceived influence on decision-making and age explained a statistically significant amount of variance in ESOP satisfaction. Shore (2004) Research note, quan- titative experiment Employee per- ception of re- ward (salary), equity sensitivi- ty Examines the relationship between equity sensitivity of three types of individuals i.e., Benevolents, Entitled, and Equity Sensitives and three dependent variables i.e. pay satisfaction, perceived pay fair- ness and turnover intentions. Results support that all individuals do not react in the same way, do not have the same tolerance of pay inequity. The authors question the validity of the traditional equity theory (Adams 1965) since no evidence that people are most satis- fied when their outcomes/inputs ration exceeded that of their refe- rent other. Haar & Spell (2004) Quantita- tive Perceived value of benefits, organizational commitment, social exchange theory Find significant relationship between knowledge that employees have of work-family programs offered by organization and affec- tive commitment. However they show that the value of paid paren- tal leave is positively related to normative commitment, whereas the perceived value of childcare policy is negatively associated with both affective and normative commitment. They state that the consideration of perceived value of practices, rather than use might be best way of exploring a work-family practice-commitment rela- tionship. Compensation psychology (in IHRM) / Meaning of money Parkes (2008) Practical Incentive schemes, Psy- chological contracts, leadership, performance management Argues that organizations need to understand the needs of individ- uals and the rewards/incentives they value to prevent the breach of their psychological contract. She advocates leadership policies which require all supervisors and managers not only to manage employee but also to know them as people. The only condition to know what appropriate monetary and non-monetary rewards to use and how to provide them in a fair way. Compensation psychology / Motivation (to be continued) Bakker & Demerouti (2007) Theoretical Effort-reward imbalance model and demand-control model, motiva- tion Provide an overview of the studies that have been conducted with the Job Demands-Resources model. They describe job resources as “those physical, psychological, social, or organizational aspects of the job that either are functional in achieving work goals, reduce job demands and the associated physiological and psychological costs, or stimulate personal growth, learning, and development. 18 Acta Wasaensia Compensation psychology / Motivation (continued) Buch & Tolentino (2006) Quantitative Employee perception of rewards Investigate how employees perceive rewards, i.e. intrinsic, ex- trinsic, social and organizational rewards, associated with the change program called Six Sigma. They find that employees value these four types of rewards, perceive somewhat a link between their successful participation to the change program and their receipt of intrinsic and social rewards, but not of ex- trinsic rewards. They also find that those involved in this change program perceived much more the link between their program performance and their intrinsic and organizational rewards (meaning improved quality, productivity and profits) than those who did not. Katzenbach (2003) Practical intrinsic orga- nizational pride, mone- tary rewards Explains that monetary compensation cannot motivate people to form the kind of emotional involvements with their work and organization that pride can. “Money by itself is likely to pro- duce mostly self-serving behavior and skin-deep organizational commitment- not the type of institutional-building behavior (Ibid: 34)” which involves intrinsic pride. He argues that intrin- sic pride is the key because it is a lasting and powerful motivat- ing force, which can become an institutional capability prac- ticed by managers at all levels. It can be developed by man- agement attitudes, approaches and disciplines and can build organizational responsiveness, provide strategic advantage, and deliver higher levels of performance. Firm determinants of compensation / Firm practices Rosa, Qualls, Fu- entes (2008) Exploratory qualitative Reward prac- tices, superior behavior, employee autonomy, creativity, idea testing, inno- vation Find that managers who believe they are rewarded for delegat- ing and trusting faired best when creativity and innovation arose, while those who perceived rewards as coming from an- ticipating what employees would uncover became nervous. This delegation implies challenge, autonomy and shared goals. In- trinsic rewards or factors were found to lead to creativity and innovation. They conclude that systems rewarding managers for delegating rather than controlling responsibility for knowledge management, dissemination and testing to employees were those found in companies touted for innovative track records. Firm outcomes of compensation / Outcomes of group incentives Katou& Budhwar (2010) Quantitative Compensation and incentive policies, em- ployee atti- tudes, in- volvement organizational performance Find a strong and positive effect of compensation and incentive policies on employee attitudes and involvement. They also find that HRM outcomes fully mediate the HRM-performance rela- tionship. This implies that this mediation exists. The nature of this mediation is of the one-to one type of relationship i.e., ability is linked to skills, motivation to attitudes, and opportuni- ty to behaviors. The degree of impact of the motivation-attitude relationship on organizational performance is greater than the one of opportunity-behavior then than the one of ability-skills on the dependent variable. Acta Wasaensia 19 Individual determinants of compensation / Individual characteristics determinants, Behavioral characteristic determinants Gahan & Abeysekera (2009) Quantitative Extrinsic & intrinsic re- wards, work values, self- construal, cultural adap- tation, national cultures Aim at understanding factors influencing employee’s value orientation. They consider both extrinsic work values i.e. job outcomes which yield material benefits, such as pay, promotion and comfortable working conditions, and intrinsic work values i.e. rewards derived from job itself, such as self actualization, sense of achievement, self-determination and competence. They find that both national culture and self-construal are significant predictors of intrinsic rewards and, that the relationship be- tween national culture and intrinsic rewards is mediated by individual self-construal and moderated by cultural adaptation. Their results show no significant relationship between individu- al national culture, self construal and extrinsic rewards. Lin (2007) Quantitative Extrinsic and intrinsic moti- vators, know- ledge sharing Examines the role of both extrinsic (expected organizational rewards such as salary incentives, bonuses, promotion incen- tives, or job security) and reciprocal benefits) and intrinsic (knowledge self-efficacy and enjoyment in helping others) mo- tivators in explaining employee knowledge sharing attitudes and intentions. The author shows that employee attitudes toward knowledge sharing significantly impacts behavioral intentions and, that reciprocal benefits, knowledge self-efficacy, and en- joyment in helping others significantly associate with employee knowledge sharing attitudes and intentions. In addition expected organizational rewards do not significantly influence employee attitudes and behavior intentions. Individual outcomes of compensation / Outcomes of incentive pay (performance, absenteeism, turnover, stress) Deckop, Merriman & Blau (2004) Quantitative Pay for per- formance, employee attitudes and behaviors Investigate whether employee risk preference interferes with organizational control mechanism on attitudinal and behavioral outcomes. They find that the degree of consistency between risk preference and control by pay affects withdrawal intentions, satisfaction and organizational citizenship. They also suggest that use of pay for performance should take into account em- ployee risk preference broadly in the organization. The research on compensation in the field of management has been largely domi- nated by a North American perspective at least in international academic journals. The literature review by Werner & Ward (2004) is an illustration of this state of the research on compensation (although this can be explained by their selection of 20 top American journals to make their literature review). This situation can also be explained by the general domination of the American discourse in the man- agement field (Guest 1999; Willmott 1993). 20 Acta Wasaensia 2.2 Expatriate compensation The focus of the scarce previous compensation studies in the context of expatria- tion has been on how to control subsidiaries (Roth & O’Donnell 1996; Bonache & Fernández 1997) through the adequate compensation of CEOs or top managers (Sanders & Carpenter 1998, Björkman & Furu 2000), namely variable pay, for instance. There has thus been a lack of consideration of other compensation issues despite the strategic role of expatriates in organizations. However since the be- ginning of 2000 research has turned to issues which are central to this internation- al context (see Table 4.). The issue of equity and justice in compensation between expatriates and locals (Chen, Choi & Chi 2002; Toh & Denisi 2003; Bonache, Sanchez & Zárraga-Oberty 2010) has received most attention. The other research has examined expatriate satisfaction with their compensation packages (Suutari & Tornikoski 2001) and the content of expatriate compensation package (Suutari & Tornikoski 2000; Baruch, Steele & Quantrill 2002). No study could be found that addressed the relationship between expatriate compensation package and their attitudes and behaviors. However the recent qualitative of Pate and Scullion (2010) shows the need for such research. Indeed they stress how higher financial compensation packages do not ensure organizations of the loyalty of their expa- triates since they seek to ensure their employability. The little research focused on expatriate compensation has been guided by the prescription of organizational control theories. Thus these empirically and theo- retically based expatriate studies (e.g. Roth & O’Donnell 1996; Björkman & Furu 2000) have mainly used agency theory (e.g. Eisenhardt 1989a) as theoretical grounding. The approach of such theories is important to apprehend the design and content of expatriate compensation package. For this reason the following paragraphs first describe the agency and its implications in approaches to expa- triate compensation. 2.2.1 Traditional approach to expatriate compensation: example of agency theory Rooted in Adam Smith’s (1937) observation that corporate directors use “other people’s money” to pursue their own interests, agency theory has evolved to ex- amine the employment relationship at the individual level (Jensen & Meckling 1976; Fama & Jensen 1983; Eisenhardt 1989a). It thus describes that a “principal” hires an “agent” for his/her specialized knowledge, skills and, his expected capa- bilities to fulfill the principal’s objectives and goals. This employment relation- ship is symbolized and directed by a contract. This contract or agreement de- Acta Wasaensia 21 scribes rights of each party, rules according to which agents’ base salary will be determined, and performance evaluated and then paid. Table 4. Literature review of expatriate compensation research. Author(s) (year) Type of paper Expatriate compensation & HRM re- lated issues Summary (to be continued) Bonache, Sanchez & Zárraga- Oberty (2010) Quantitative Expatriate pay differential, HCN’s per- ceived pay unfairness Examine the issue of pay unfairness perceived by host country nationals (HCN) regarding pay differential with expatriates. They identify four factors which may attenuate the negative influence of this perceived pay differential: awareness of expa- triate contributions and special needs, expatriate interpersonal sensitivity, HCN pay advantage over other locals, and HCN contact with expatriates. Sims & Schraeder (2005) Conceptual Organizational perspective Identify a list of possible salient contextual factors and common practices which can directly affect expatriate compensation. Phillips & Fox (2003) Conceptual Expatriate balance sheet, compensation package Suggest that transnational corporations need to engage in a para- digm shift from the notion of expatriate compensation to transpa- triate compensation due to globalization of markets and opera- tions. Toh & Denisi (2003) Theoretical Expatriate pay policies Examine HCNs’ reactions to expatriate pay policies. They thus consider the referent selection process of HCN and outline the conditions when they are likely to select their expatriate peers as comparative referents and the negative effect it has on their per- ceived deprivation. They also discuss the role of national culture in this process and propose a model. Chen, Choi & Chi (2002) Quantitative Expatriate pay differential. HCN’s per- ceived pay unfairness Examine the issue of pay unfairness perceived by HCNs regard- ing pay disparity with expatriates’ compensation. They find that the unfairness perceived by HCNs was lower when they consi- dered the pay of other locals than when they compared it with expatriates. They also find that expatriates’ interpersonal sensi- tivity toward locals reduced the effect of disparity on perceived fairness and that perceived compensation fairness positively related to compensation satisfaction and negatively to turnover intentions. Baruch, Steele & Quantrill (2002) Qualitative Components of compensa- tion package, retention after repatriation Describe the different HRM practices, such as selection and compensation, in terms of expatriation and repatriation manage- ment. They stress the crucial potential role of expatriation in the development of a psychological contract between the employee and the organization. They find that up to 50 percent of former expatriates had left their organization within a few years after repatriation. Reynolds (1997) Historical review Historical perspective to Expatriate compensation Discusses the reasons behind the costs of expatriate compensa- tion, and traces the development of the most common compensa- tion methodologies and, assesses the state of the field. 22 Acta Wasaensia Author(s) (year) Type of paper Expatriate compensation & HRM re- lated issues Summary (continued) Klaus (1995) Practical Expatriate program de- sign, ax- effective com- pensation Describe how to establish an effective expatriate program. He reviews the best practices to ensure successful American interna- tional assignment, such as development of an expatriate compen- sation policy, employee selection, immigration, tax-effective compensation, orientation and training, relocation, assessment and repatriation, and program administration. Central to the agency relationship is the conflict between the parties’ self-interest that guide their behaviors and the low availability of information from the agent to the principal (also referred to as “information asymmetries”). The more auton- omy and independence the agent enjoys as well as the greater the specialized knowledge required to perform the task (Gomez-Mejia & Balkin 1992; Holmstrom 1979), the higher “information asymmetries” are the more the signi- ficance of this problematic situation, called “moral hazard” (Eisenhardt 1988) increases. The principal who fears the rational, self-interest motivated and risk- adverse agent to shirk or not to provide the work efforts he engaged himself for (Stroh, Brett, Bauman, & Reilly 1996) looks then for ways of dealing with this agency problem. The principal has basically two options (Demski & Feltham 1978; Eisenhardt 1988). He can either (1) invest in information gathering to en- sure that the agent acts according to the principal’s interests and objectives (Ouchi 1977; Jensen 1983; Eisenhardt 1988, 1989a) or, (2) design a reward system to motivate the agent and monitor his/her actions according to objectives/goals to be performed to the satisfaction of the principal (Jensen 1983; Gomez-Mejia & Bal- kin 1992). When seeking to align the agent’s behavior, the principal designs and develops compensation systems including fixed pay (behavior-based pay) and variable pay (outcome-based pay). Thus, from the perspective of agency theory, researchers have discussed and de- scribed the content of expatriate compensation package as including three main component categories; (1) fixed pay and variable pay, (2) benefits, and (3) allow- ances (see e.g. Gomez-Mejia & Welbourne 1988; Dowling, Schuler & Welch 1994; Harvey 1993a, 1993b; Briscoe 1995; Schell & Solomon 1997; Suutari & Tornikoski 2000¸ Bonache 2006). Acta Wasaensia 23 2.2.2 Outcomes of organizational control theories: expatriate compensation policies Following the financial prescription of organizational control theories such as agency theory, organizations have developed several approaches to expatriate compensation package. These approaches, namely home-country-, host-country approaches as well as hybrid and regionally based pay systems, are briefly pre- sented here to understand organizations’ positioning..Some length of Suutari & Tornikoski (2001: 4-6) is quoted below for that purpose.. “The home-country policy, which links the expatriates’ basic salary to the salary structure of their home country, is the most common compensation approach (Crandall & Phepls 1991; Dowling et al. 1994; Bonache 2006). By using this pay system, (basic home salary plus allowances) organizations tend to enable expa- triates to maintain a lifestyle equivalent to that which they would have in their home country (Dowling et al. 1994¸ Helms & Crowder 1994). Typical allowances include the expatriate allowance, the cost-of-living allowance, housing allowance, education allowance, hardship allowance, car allowance, and home-leave allow- ance (for a more specific description, see Black et al. 1999). In addition to allow- ances, one has to consider inevitable incidental benefits due to the fact that social policies vary widely across countries. Still, the aim is to protect the benefits pro- vided by the policies to the person in the home country (see Dowling et al. 1994; Allard 1996). The compensation package can also include bonuses such as a per- formance-based bonus and a seniority bonus (see Dowling et al., 1994). Protec- tion against exchange risk and taxation differences (see Helms & Crowder 1994; Schell & Solomon 1997) which has been found to be very complex for both par- ties (Suutari & Tornikoski 2001). The popularity of the home-country policy can be justified by the fact that it pro- vides clear and explainable differences between the salaries of expatriates who hold equivalent positions in different countries (Logger & Vinke 1995). However, this turns out to be a serious drawback to the approach because it results in lack of equity as there are salary differentials between expatriates and local managers as well as between expatriates of different nationalities (Chadwick 1995; Logger & Vinke 1995; Schell & Solomon 1997; Bonache, Sanchez & Zárraga-Oberty 2010; Chen 2010). As the number of nationalities in the workforce expands, the home- country policy becomes the most expensive plan to maintain with regard to pur- chased data and administration costs. It has also been stated that this method works better when all or most of the expatriates come from the same country (Black, Gregersen, Mendenhall & Stroh 1999). 24 Acta Wasaensia The other approach is the so-called host-country policy. The main difference from the previous approach is that it considers expatriates as local nationals and links their basic salary to the salary structure of the host country (Crandall & Phelps 1991; Dowling et al. 1994; Logger & Vinke 1995). It compensates them accord- ing to the policies and program of the assigned country (Chadwick 1995), which makes this approach fairly simple and straightforward (Black et al. 1999). How- ever, the significant international additional payments (such as cost-of-living ad- justments, housing, schooling, travelling and other premiums) are usually con- nected with the terms of the home-country salary structure (Dowling et al. 1994). Crandall and Phelps (1991) specify that under this host-country pay system expa- triates are expected to live under the conditions of the local economy, so the no- tion of equity with the home country is not an issue. This approach aims not only at reducing the salary inequalities perceived by the employees of the same subsid- iary but also at reducing the high costs of expatriate treatment to their minimum for the company. This policy is popular (Briscoe 1995; Allard, 1996; Bonache et al. 2010). According to Black et al. (1999) it operates best with a relatively small number of expatriates or with a cadre of international expatriates. As a result of this approach, obtaining host-country salary data can be a problem. Secondly, it complicates the compensation issue of the repatriation situation (Schell & Solo- mon 1997). According to Schell and Solomon (1997), companies have also introduced so- called hybrid systems that blend appropriate features from both home- and host- based approaches to respond to specific business challenges. These systems are very diverse and thus complicated to administer. The purpose of these systems is to end up with an international expatriate workforce that, while not coming from one location, is paid as though it were. On the other hand, the compensation is also unrelated to local markets so they provide no equality with local staff. A so-called regionally based pay system has also been introduced (Dowling et al. 1994; Chadwick 1995; Black et al. 1999). It allows companies to compensate expatriates working in their home regions at somewhat lower levels than those who are working in regions far from their home. Some companies are also explor- ing the lump sum approach (Dowling et al. 1994; Schell & Solomon 1997). The idea of this approach is to pay a total salary to the expatriate, who will determine how to spend it (Briscoe 1995). This is done in order to control costs, eliminate discussion about inadequacies of allowances, ease the administration, and em- power expatriates to make decisions on their own (Schell & Solomon 1997).” Thus organizations have designed and used financial expatriate packages to con- trol, motivate and retain their employees, as advocated by organizational control Acta Wasaensia 25 theories such as agency theory. However, the issue of expatriate compensation remains extremely complex and organizations fail in retaining a large amount of their valuable and talented employees especially in modern relationships which involve geographical distance and a based on electronic or “virtual” communica- tion (Deckop & Merriman 2004: 64; Wiesenfeld, Raghuram & Garud 1999). 2.2.3 Limits of the traditional approach to expatriate compensation The previous paragraphs describe how the prescription of organizational control theories has led organizations to design financial expatriate compensation pack- age. Research on the link between pay and employee attitudes and behaviors have described salary as “a side bet which thereby increases calculative commitment” (Mathieu & Zajac 1990: 179) and financial rewards alone as not enough to bind the employee to the organization (Malhotra, Budhwar & Prowse 2009). The qua- litative study by Pate and Scullion (2010: 66) brings support to these previous findings. They show that despite the highly competitive total compensation pack- age provided by employers, expatriates in the banking sector case were the most dissatisfied expatriates (…) and also the most inclined towards more robust bar- gaining with an individualistic and calculating interpretation of the employment relationship1”. Furthermore the results of the study by De Vos and Meganck (2007) highlight that there is a discrepancy between HR managers and employees’ views regarding financial rewards: the formers develop retention policies relating financial re- wards while employees attach most importance to inducements related to the so- cial atmosphere, career development and job content. Dickmann, Doherty, Mills & Brewster (2008) as well as Pate & Scullion (2010) indicate that HR managers seem to overestimate the weight of financial compensation over other motivators expressed by expatriates. As an illustration Stahl, Miller & Tung (2002), Stahl and Cerdin (2004) show that among French and German expatriates financial considerations came either at the fifth or sixth position after non-financial motiva- tors. The respective studies by Stahl, Chua, Caligiuri, Cerdin and, Taniguchi (2009) and by Suutari, Mäkelä & Tornikoski (2009) show that expatriates and global careerists give importance to the ongoing developmental opportunities linked to their international jobs, the meaningfulness and importance of the jobs, 1 See Herzberg’s concept of escalation of needs (1966) which means that “once a person has experienced a new level of a given hygiene factor, the new level becomes the minimal accep- table level” (Sachau 2007: 386). 26 Acta Wasaensia as well as their high levels of autonomy. All these criteria have previously been reported to be typical characteristics of international jobs (Boies & Rothstein 2002; Bossard & Peterson 2005). Managers also valued the international aspect of their career environment (Segers et al. 2009) as was reported in earlier research among global careerists (Suutari & Mäkelä 2007) or expatriates (Cerdin & Le Pargneux 2010). The financial aspects of compensation were seen as important too. However, they were more often considered as prerequisite and implicit con- ditions of the job offer rather than a motivation. Organizational control theories, such as agency theory, seem to reach their limits when comes to explaining contemporary employment relationship (Rousseau 2001) of expatriates. Moreover, despite the efforts of HR managers in designing very effective total compensation packages the marginal to non-significant rela- tionship between financial rewards and employee outcomes, such as affective commitment (Malhotra et al. 2007) and loyalty (De Vos & Megank 2007) tends to question the consideration of expatriates’ traditional total compensation package from the sole financial perspective advocated by agency theory. Thus it is asserted here that researchers and HR managers need to identify what expatriate value most to commit them affectively to the organizations. This is in line with Guest (1999) who advocates that is necessary to consider a worker’s perception of HRM practices to satisfy them. It is especially the case for expa- triates who are generally far from the organizational context they used to work into and whose employment relationship is now embedded into a destabilizing international environment. Adopting a total reward perspective seems appropriate. 2.2.4 New approach to expatriate compensation package: a total reward approach Adopting a total reward perspective of expatriate compensation package means considering their perceptions related to the content of their work as it “embraces everything that employees value in the employment relationship” (O’Neal 1998: 6). Indeed adopting a total reward 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 & Stephens 2005: 13). Consequently, this approach provides a much broader perspective of the tradi- tional compensation package and leads to the consideration of the whole expa- triate package as a “bundle” (Bloom & Milkovich 1996) of total rewards. Acta Wasaensia 27 The theoretical underpinning of this total reward approach can be found in moti- vation theories such as the two factor theory by Herzberg (1966). His model makes the distinction between hygiene factors which prevent employees from dissatisfaction and motivator factors which, as their names indicate it, motivate and satisfy employees. Among the first category can be found the working envi- ronment, interpersonal relationship status and pay while in the second one re- wards such as achievement, recognition, responsibility are included. Other au- thors such as Armstrong and Stephens (2005) also make the distinction between relational and transactional rewards. They define the first ones as “tangible re- wards arising from transactions between the employer and employees concerning pay and benefits” whereas the second ones as “intangible rewards concerned with learning and development and the work experience” (Ibid: 14). Total reward can be considered as including financial rewards and non-financial rewards if reference is made to the traditional organizational control approach to compensation. Moreover as described by Guzzo (1979) rewards have also been distinguished between intrinsic and extrinsic rewards. The former are obtained when activities are “engaged in for their own sake” (De Charms 1968: 74) and “induce cognitions of personal causality of one’s behavior” (Guzzo 1979: 81). When it comes to extrinsic rewards, these are rewards for which “there is no in- herent connection between the activity and the reward” (De Charms 1979: 74) and “which induce cognition of external causality of behavior” (Guzzo 1979: 81). This distinction made it very difficult to categorize rewards, so building on this earlier work Deci (1975) added that rewards which induce cognitions of personal causation are intrinsic whereas those which produce perceptions of external cau- sation are extrinsic. Even though these definitions may help in grasping the defining differences be- tween rewards as well as the content of the “total reward” bundle from different angles and prov