A Theory Based Framework for the Expatriate Manager's Total Rewards in Times of Economic Uncertainty

Expatriate research has largely focused on selection, acculturation, performance appraisal, and turnover. By contrast, research on expatriate compensation is sparse and poorly understood (Gupta and Shaw, 2014). A case in... [ view full abstract ]

Expatriate research has largely focused on selection, acculturation, performance appraisal, and turnover. By contrast, research on expatriate compensation is sparse and poorly understood (Gupta and Shaw, 2014). A case in point, is the influence of macro-dynamics on expatriate compensation strategy (Driouchi and Bennet, 2012). For example, economic uncertainty typically produces a pervasive reflex reaction to cost cutting in MNCs (Bloom, 2014) and expatriates, given their higher overall cost relative to national staff are an obvious target in the quest to reduce costs (McNulty, 2015). Typically, their salary and cash benefits are modified in economic uncertainty (Tornikoski, 2011). This is hardly surprising, since, three-quarter of MNCs continue to spend two to three times the costs of a standard headquarter manager’s salary on an expatriate manager (The Economist, 2015).

Part of the problem with expatriate remuneration is that many MNCs have a short-term profit-driven focus (McNulty, 2014), particularly in an economic crisis (Maley and Kramar, 2014). Certainly, economic uncertainty appears to intensify the complexity and tensions that exist around the expatriate’s compensation (McNulty and De Cieri, 2011; Tornikoski, 2011; Perkins and Daste, 2007). Moreover, little is known of the unintentional impact of economic uncertainty on the expatriates’ total rewards for work. Consequently, we inquire: “How does economic uncertainty impact the expatriate manager’s total rewards for work? 

In particular, we consider the effect on perceived trust between the expatriate manager and her/his supervisor and the expatriate manager and the MNC.  Trust has been found to be essential for the global managers’ innovativeness (Chua, Morris and Mor, 2012), commitment and loyalty (Harvey, Reiche and Moeller, 2011), and knowledge sharing (Levin and Cross, 2004), all of which are fundamental to effective expatriate performance (Harvey, et al., 2011).

In order to respond to the research question, we develop a framework using real options theory (Trigeorgis, 1996). Real options theory stems from the concepts of financial theories and maintains that advantages need to be created due to uncertainties about future returns from investments (Sanchez, 2003). The basic argument of real options theory is that MNCs can make investment decisions in ways that can reduce downside risk and/or enhance the scope to capitalize on opportunities that the uncertainty creates. Thus, we advance a series of propositions in relation to expatriate total rewards in an uncertain economic landscape and uncover ways that MNCs can meet their bottom-line expectations and reduce the risk of broken trust between the expatriate manager her/his supervisor and the MNC.  Our viewpoint is that if expatriates are among an organization’s most expensive employees, then there ought to be an improved way to manage their total rewards in a crisis.

Thus, the purpose of this paper is to provide a theoretical framework to help see that management has choices when making expatriate compensations decisions in an economic crisis. This framework provides a means of understanding how decisions can be made that focus on profit-maximization for the MNC, fairly manage the expatriate total rewards, whilst, minimizing any breakdown in trust between the expatriate and the MNC.