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Individual performance related pay and its link to motivation
Individual performance-related pay has grown significantly in the recent years more so in the manufacturing sector in a bid to improve the performance of employees. It is a monetary reward of employees whose performance has reached or surpassed a required standard. It is generally used in circumstances where employee performance management cannot be reliably measured using other standards such as sales achieved (Kvaløy & Olsen 2012). Employees are regularly reviewed against set standards and grouped into various performance categories which determine their level of compensation. IPRP is different from other incentive methods that are company or team based as it is performance and formula driven and payments are once off. This essay analyses the extent to which Individual performance related pay stimulates higher job performance among employees, the circumstances under which it works well and the ones in which it does not. In doing so, it takes into account various the contextual issues such as the standard income, individual differences, type of occupation among others.
The extent to which performance related pay motivates employees for higher performance.
Motivation involves activating or inducing job performance that is goal-oriented among employees. The management Is often faced with the challenge of satisfying employees as it has a significant impact on efficiency and productivity, it impacts on employees attitudes, behaviors and their willingness to perform tasks and attend to their responsibility, the extra effort they apply, and their efficiency in performing duties (Rathore & Chadha, 2013). Motivation towards work can be classified into intrinsic and extrinsic motivation. Intrinsic motivation revolves around the value obtained from the work itself while extrinsic motivation, is about the additional value not derived from the work. Intrinsic values are such as increased responsibility, recognition, advancement, excellent interpersonal relationship while bonuses and salaries are good examples of extrinsic values. If employees are satisfied with the reward system then the extrinsic variables may be different and independent of intrinsic variables. Motivating employees is significant in achieving the overall objectives of the organization. Motivation may be viewed as psychological factors that determine an individual’s behavior in his/her organization, the amount of effort applied and the persistence level of an employee (Bruce and Pepitone, 2012). The effort is a clear reflection of the amount of hard work put in by an employee. Persistence is achieved where employees work in tough conditions continuously without giving up (Trout, 2017). Employees view their salary as compensation for services rendered to the employer. They consider it as the value placed on them in their workplaces and in terms of their expertise and the level of training or education they have achieved. Managers, on the other hand, view salaries and wages from two angles: being significant expenses and as a way to impact on employees' performance through reward-based motivational schemes. This ability to influence employees' behavior and attitudes as well as the efficiency and productivity of the organization, is the main reason leading many people to appreciate the motivational effect of performance-related pay on employees.
Designing and Implementation of a reward strategy is among the significant investments made by an organization. Although an appropriate salary is the basis of the implied and contractual agreement between the employer and the employees, the general assumption is that money has the ability to influence attitudes and behavior. Majority of employers and company directors believe an increase in the employee's salary increases their motivation, productivity, and loyalty (Lauby, 2009). The impact of compensation strategy is a significant factor in every organization and that job performance is a vital issue for many organizations because they need to attract, motivate and retain the most appropriate talent pool for the organization to achieve its objectives. Individual performance-related pay that is well-designed can pull employees together and motivate them to move in the direction management wants them to perform. It has the ability to improve the decisions and choices made by individuals and hence enhances employee performance (Anon, (2016). A research of 84 subjects by Stone showed that performance-related pay resulted in changes in attitudes, behavior and improved as well as informed decision making.
Individual performance related pay may work but only for some time and to some extent. In the early stages, employees are tempted to work towards the set standards so as to improve their pay but then once they realize that their performance and application of skills is being completely controlled by the management, their enthusiasm drops (East, 2008). The reason behind this is that people hate being controlled thus performance-related pay is only successful in ensuring temporary compliance. Moreover, offering rewards to individuals who are already intrinsically motivated undermines their intrinsic motivation. Employees are basically interested in their jobs and employ a certain level of expertise thus recognizing this expertise through including them in the decision making process is a better motivation tool. Performance related pay also reminds workers of the power gap in the organization. They are reminded that the management takes home a huge amount of salaries compared to them hence a demotivating factor.
In addition, employees are well aware of the basis of their merit pay hence forget about all the other non-measurable aspects of the job such as innovation and creativity and focus all their energy on the measurable aspects on which their pay is based on. They work with a reward set mind and shift their focus from the task to the reward (Mcnabb, 2018). They also may conceal any challenges they encounter in their work so as to prove their expertise to the supervisor. They also become averse to risk and resist from exploring new possibilities as they prefer simplicity and predictability hence creativity is significantly hindered. If employees are paid more than they deserve in terms of salaries, they will not have contributed to the attainment of objectives and competitive advantage will be negatively impacted. There are often minimal variances in the set standards and actual performances (Kragl, 2015). This trend of overrating employees is rampant in parts of Africa where it has negative impacts on motivation and efficiency. People will often be unwilling to assess others negatively in their workplaces more so in relation to compensation matters because they do not want to be accused as the reason behind low levels of wages in their divisions as opposed to other divisions where fellow employees might be earning huge salaries. The situation may lead to rivalry among divisions and conflicts among supervisors and employees.
Individual performance pay may not also impact motivation if it is not directed to the appropriate people. This kind of reward system may not motivate managers as such as it may motivate junior employees. This is in accordance to Milkovich and Wigdor’s research, which found out that, among other factors, that performance-related pay schemes work best under jobs in which the responsibilities can be reliably measured and are concrete. Differentials in efficiency, however, should not be overstated. These findings are in contrary to existing beliefs that performance-related pay strategies are more motivational and effective at higher levels of the organization.Nevertheless, employees ultimately consider the unfairness of the reward systems.The reason why employees have this perception is not clear but may include low trust levels among departments and individuals, lack of transparency in the reward system, lack of trust in the integrity of management and lack of trust in the appraisal systems.
Finally, irrespective of management or work level, improving measurement of job performance and other appropriate actions that are not related to pay incentives may lead to improved performance through improvement in the setting of goals (The Economist, 2009). The benefits accrued from performance-based pay seem not to originate from the pay itself but from the improvement in set standards. Performance standards are the most significant benefit accrued from performance related pay as shown by various studies. In most cases introducing pay into performance measurement leads to adverse changes in the performance of employees.
Circumstances under which IPRP tends to motivate employees
Where equity and efficiency are highly observed. The firm may purchase employee motivation and energy to pursue organization objectives by distributing financial rewards in an equitable and efficient manner. When equity is enhanced the employees feel that they are all valued at the same level by the organization hence they strive to achieve the set standards of performance. The gap between employees which is often a demotivation factor is also eliminated. The reward system must, therefore, be implemented and managed in an efficient manner taking into consideration the employee's needs.
Where the financial rewards are visible. Many companies do not disclose the amount of compensation to employees but those that do have a greater potential in motivating employees through performance-related pay. Disclosing the compensation will actually make the employees see the fairness of the system hence be motivated towards achieving certain standards because they are aware that a certain reward awaits them. Research shows that employees in companies where the rewards are not visible feel to be in a worse situation than the actual one hence demotivation. The non-monetary rewards should also be publicized so that they can be visible to all employees and increase on the fairness of the reward system.
Where compensation decisions are reversible. Reward systems should be structured in such a way that a reward decision can be reversed so as it does not have to be that the same person is rewarded in a specific way severally . For example, bonuses that are offered to a specific employee in a particular year could be offered to another employee the following year, performance being the basis. These changes will surely strike motivation in employees and encourage them to put in extra effort as it is not obvious that they receive a certain amount of salary.
Where the workforce is mainly made up of the young generation. The young people have a lot of needs hence they are sensitive to monetary issues and minimal increases in salary are easily noticeable. They are likely to work extra hard so as they can receive better compensation packages and thus reaching and surpassing the set standards. They are also energetic and any effort in motivation will surely have a great impact on productivity. Therefore individual performance-related pay is likely to have a significant impact on motivation and overall productivity.
Circumstances under which IPRP does not work so well.
Where companies or organizations have small salary increase pools. Such organizations may consume a lot of time and resources in rating and ranking of employees which often leads to high expectations by employees hence disappointments eventually. In such a case performance related pay may be important but then it becomes insufficient such that it is inefficient (performance related pay 2018). The reward size to be effected on employees is a major factor to consider before introducing a performance-related pay system. Employees who put in a lot of effort but receive very minimal increases in pay may become demotivated and even quit in extreme circumstances.
Where the reward system is discriminatory based on the level of staff. Companies often have reward systems that are different for managers and other staff. They may also vary according to the level of management where senior managers are evaluated and compensated differently from junior managers. This is done by organizations, and the reasons behind it may seem credible for instance to motivate new and junior employees to aspire to achieve greater heights in the organization so as to gain the attractive reward packages (Honeywell, Dickinson, & Poling, 2012). However, restriction of eligibility may be inefficient and unproductive although it was seen as a good idea in the past years when there were many tiers in companies and individuals could aspire to achieve more, but in the modern world work environments the organizations are flatter in structure and employees are eager to unveil the reward system (PRP, 2018). As described by Kerr it similar to a lottery situation, where the winning chances are minimal yet the tickets are bought by thousands of people.
Where the economic situation is adverse and pay differentials seem huge. During seasons of minimal inflation as pay differences seem smaller, employees are not able to notice the gap in their salaries hence there is no much of an impact. In periods of high inflation however when pay differences seem huge they are able to notice the change in the value of their money and that they have received a significant rise in their salary. It is, however, challenging to create the differentials due to the low budgets on wages hence effective management is substituted for performance related pay. This issue arises when managers assume that the concept of effective management and performance related pay is the same.
Where the reward system is inefficient and does not reward the right people. In most reward systems, the high performers are burdened with more workload while the poor performers may easily get vacations and time off. This may discourage high performance and demotivation and the poor performance will be in a comfort zone as they have no reason or basis for improvement.
Where the duties of several employees are interrelated or tied to one another. The challenge in this situation is the inability to distinguish the specific contributions made by each particular individual. Even if separation is possible, it may not be necessary and may consume a lot of time and resources as found out by some investigators. The reason for this is that employees are not in control of their outcome per se, because what they achieve in terms of output will depend on colleagues. From the aspect of employees, measuring their performance is a major factor for dissatisfaction and thus leading to demotivation. Employees will often perceive favoritism in the appraisal and assessment system. If the dissatisfaction is on a large number of employees it may negatively affect the total motivation of employees and thus inefficiency in the organization.
It is difficult to clearly state whether performance-related pay ultimately affects employee motivation and their performance at large as motivation is only affected to some extent and the overall impact on organization success is not visible. There isn’t a particular reward system that guarantees success. There are several variables that determine the extent of motivation and thus it is hard to state that individual performance-related pay is effective or not. Such factors include the industry type, cultural values, values in the workplace, core competencies, design type of employees, and implementation of the strategy, communications among others. There are drawbacks associated with each reward system and hence finding the most appropriate system that best suits your organization is almost impossible. Individual performance is significant and it should ultimately reflect in the pay cheque.it may not have the ability to fully motivate employees but it surely focuses their energy on the organization's goals and keeps them from being dissatisfied. Appraisal systems used by management are subject to errors which may be a barrier to the motivational effect of individual performance-related pay.
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Human Resource Challenges in a Specific Country
In the recent years, many companies have been engaging in foreign investment and thus the need to send employees on international assignments. However, there is a need to properly train these employees before they can leave the country which is not taken so seriously by the new internationalizing organizations. Multinational companies often send senior managers to subsidiaries that are located abroad so that the managers may understand clearly the global operations of the organization or for the purposes of retaining more control of the subsidiary (Rowley and Warner, 2013). Employees may also be sent to work on projects that are vital for the organization and they may have to take their families with them. Therefore the company has to cater for their needs which is a major expense and for the investment to be worthwhile, proper training has to be conducted to ensure the team succeeds and chances of failure are eliminated. For a training strategy to be effective it has to be thorough, vigorous and prepare the employees adequately for the possible challenges they will encounter. It should also be sensitive to the amount of time the employee relation is to spend in the foreign country, the amount of work and the level of challenge it will present. If the assignment is brief, the employee just needs to attend a few lectures, watch a few videos in the foreign culture and be briefed on the operations in the destination country however if the assignment Is extensive, the employees need to be given much exposure, interact with citizens of the foreign country, training on the foreign language among other programs that should be given to family as well (Petison and Johri, 2008). This paper looks at some of the strategies global companies may use to train employees before sending them on international projects, the various challenges the employees may encounter when working abroad and how the management may deal with such challenges.
Some of the strategies include:
1. Virtual learning
Many organizations have been global in the recent years than ever before as a result of changing economic variables and strengthened relationships among countries. Virtual technology is definitely an effective tool in training and preparing employees to take on international assignments. Many organizations have recently been trying out and examining virtual learning to see if they can narrow the gap between traditional and modern modes of training so as to merge difference in working hours, business and personal commitments, and other variables which may bar the traditional training methods from being effective. In most cases, organizations rely on the existing training systems to train employees which will often to translate to huge problems for the organization and the employees thus the project will often fail. Virtual training has proven to be effective contrary to physical training conducted in a classroom solely, and it is not affected by time as well. Therefore, many organizations have adopted virtual learning which has been noted to be efficient and successful over the years (Enderwick, 2011). They go ahead to provide virtual foreign management teams and develop virtual assignments for their employees to carry out so as to prepare them adequately for their actual assignment and challenges that may be encountered ahead.
2. Documentary training
It involves learning in a classroom setup and using textbooks, to carefully analyze the differences in culture, work values and even language between the local country and the destination nation. Differences are carefully examined since they can be potential points of friction that must be taken care of or misunderstanding and conflict may occur which will be a barrier to the success of the team. Differences in culture may range from how humans relate to how different genders relate and what is considered respectful. For instance contrary to Western countries, in Asia, it is considered disrespectful to correct the boss in public or say something that is embarrassing for the managers in public. In some countries also, it is courteous to serve food while hot and serve cold food may be considered disrespectful. Disease and sickness are perceived differently in foreign countries; for example IN Britain, it is considered rude to ask to inquire from another employee about his recent illness and how he or she is responding to treatment. On the other hand, Americans freely share any troubles or diseases they are going through either currently or in the past. Information on various cultures and values in different nations may be found in various sources including books and journals although many global organizations hire professionals in cross-cultural training to provide classroom lectures and workshops. This method is effective as it provides the employees with adequate knowledge on how to blend in the different culture although it does not provide the practical aspect.
3. Cultural simulation training
After the documentary training, employees are now aware of the various values in the foreign culture and where they have to adjust. Therefore the organization engages them in cultural simulation programs where they can role-play situations in the foreign culture and respond to them sensitively. For this strategy to be effective, the organization may have to hire some people from the host country so that it can be more practical (Hemmasi and Downes, 2013). The objective is to create situations very similar to the ones the employees may encounter such as Interacting or approaching a native employee face to face, correcting a senior manager or sharing thoughts and ideas with him, or approaching an individual of the opposite sex when it is absolutely necessary to do so. The aim of this training is to provide the employees with adequate exposure to the cultural norms of the host country and prepare them for any challenges that might occur as a result of cultural differences.
4. Field simulation training
This involves giving the employees an assignment and replicating conditions similar to the ones in the destination country. The organization may take the employees on a trip to the destination country and offer them a simple task such as interviewing the local citizens or spending a whole day with the locals and interacting with them (Harvey et al 2012). They may also be left at an unfamiliar location and required to find their way to the office so as to try and help them familiarize with the new location. Employees are expected to explore the destination country, meet new people, try local food and joints and even get engaged in some of the activities being done by the locals. A technical task may also be offered to try and see how employees are likely to perform. They then come back to their home country to discuss their experiences and try out what they have learned.
Challenges encountered by employees on overseas assignments
Organizations will often provide huge salaries for employees who take on overseas assignments and the package may include several allowances and benefits. Employees are therefore tempted to take on this assignment without considering the possible challenges such as high cost of living and the fact that they will be required to work extra hard for the high compensation packages. Some of the possible challenges likely to be encountered include the following:
1. Settling into a Routine
A routine is obviously an important factor in achieving productivity and comfort. The employees on international assignment have to adapt to the new environment and familiarize with a new way of getting activities done. In most countries, stores have specific opening hours and they are not allowed to open for particular days which adds on to the challenges that the employees have to deal with at work (Clegg, 2016). Moreover, the employees might be forced to look for residential houses which is not an easy task. The cost of renting an apartment abroad is often way much higher than the costs at home and finding the apartment may be more challenging for an alien (Barends, 2018). The management should consider providing the employees with residential houses instead of just giving a house allowance, those who have to take their families with them should be taken care of as well. Arrangements should also be made to ensure that the employees are comfortable and they are able to perform their duties without having to worry about other issues.
2. Language barrier
Effective communication will obviously be hampered by the differences in the languages of the workers. The employees on international assignment will have difficulties trying to express themselves and understanding their fellow workers who are natives. It gets worse if such employees are supposed to interact directly with customers such as inquiries or offering accommodation services. If the customers are unable to understand whoever is serving them then they may perceive the company negatively and this may have a negative impact on profitability (Dhiman, 2012).Although an employee may be an excellent speaker, working in a new country where he or she is not aware of the native language will surely present great communication challenges. Even if the employee is aware of the native language he or she will have to learn the phrases and slang used in the new country. This barrier has the potential to make even the simplest and routine tasks stressful for the employee and thus it is a significant challenge. The organization should find ways of making the employees conversant with the language by either enrolling them in language classes or hiring a language trainer to take them through the basics of the language.
3. Overcoming a learning curve
Every assignment requires a learning curve whether it is at home or abroad. The challenge is that employees will often improve their efficiency at a lower rate in the foreign country due to the new working environment. The management may sometimes offer huge rewards for employees who take overseas assignments and make them think to work abroad is going to be smooth (CanuckAbroad, 2018). Most of the information provided by individuals who have ever worked abroad is encouraging and does not reveal the challenges such as loneliness and depression (Hailey, 2011). Employees who take on this assignment sometimes do so without considering all the factors and hence have lots of expectations only for them to be turned into disappointments. This could significantly impact on their learning curve thus they take a lot of time to adapt and before they can become effective. Managers can help their employees overcome this by providing adequate support programs and providing all the relevant information to employees before they can make the big decision.
4. Health care and education
Employees who have to take their families with them may be forced to take private health covers and enroll their children in foreign schools. Thus they may have to dig deeper into their pockets as the cost of healthcare abroad is often higher and so is the cost of education (Sussman, 2011). The children may also find it difficult adjusting to the new schooling system and being accepted by the native kids. The management should, therefore, provide the employees with insurance covers and where applicable provide them with family benefits including paying school fees for their children (Fleet, 2009).
5. Cultural Differences
A lot of employees are not aware or even understand the culture of the country they have to work in. Thus they are seldom prepared to incorporate the differences in their lifestyle and culture is often represented in the work values of any organization. For instance, in some countries, morning hours are preferred for working and evening hours for spending time with family while this is not the case in other countries. In some countries such as Japan, it is considered an act of rudeness to leave the office before the boss. This small differences if not accommodated by the employees may have an overall negative impact on the way they are perceived and their productivity. Dress code is also a major problem presented by cultural differences (Lee and Qomariyah, 2016). Employees might be forced to change their whole wardrobe before going to work abroad and getting used to the new style of dressing may take a lot of time. For instance, in some country, it is not allowed to show up for work in jeans as it is the case in most nations. Moreover, the cultural differences make it difficult for the employees to find friends to socialize with thus they feel lonely and isolated and becoming a part of the native community becomes a huge problem. The management may help employees overcome this challenge by offering adequate cross-cultural training before the assignment and defending them in case they get caught up in culturally sensitive situations.
3) Inadequate Support
The support services available at home country to help them overcome their troubles are often not available when working abroad. Family and friends are always close to encouraging employees and social services are reachable at home which is not the case abroad. The employees will often get homesick and miss the times they used to spend with family and friends because the new environment may not be providing the comfort they expected. Even though there is the option of long-distance communication, it is not as effective as face to face communication. Therefore employees have to deal with personal challenges on their own and sometimes tough times may be unbearable without having a shoulder to lean on which is a major cause of failure for employees on international assignments. They become frustrated when things don't work out, they have no one to talk to and hence the possibility of depression which often leads to inefficiency. The management should provide a support center that is efficient and adequate to specifically deal with issues of employees who are sent on international assignments.
Training of employees before sending them on an international assignment is absolutely necessary if the project is to be a success. International companies use various strategies to train their employees, most of which are meant to equip the employee with the necessary skills to relate with locals in the host country. For the strategy to be effective it has to take into account the differences in terms of work values and human relations in the employee's home country and the destination country. It also has to prepare the employee physically and mentally on the challenges he or she is likely to face and the ways in which to respond to such challenges (Naithani and Jha, 2009). Therefore, cultural simulation training and field simulation training work best as they expose the employees to situations similar to the ones they are likely to face. Employees face various challenges when they are working on international assignments mainly due to unfamiliarity with the local language, culture and the place of work (Castro, 2011). The management should, therefore, help their employees overcome these challenges by providing adequate support and proper training to ensure that the project is a success.
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