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Case Study
Is Monetary Compensation the Best Way to Agglomerate Employees in a Transational Hotel Company?
Tong Yin, PhD Candidate1 , Baker Ayoun, PhD1
,
and Furkan Arasli, PhD Student1 Journal of Hospitality & Tourism Cases 1–7 © The Author(s) 2025 Article reuse guidelines: sagepub.com/journals-permissions DOI: 10.1177/21649987251338472 journals.sagepub.com/home/htc
Abstract Assimilating a real-life situation and based on a fictional hotel chain in China, the case study presents a dilemma facing multinational companies that utilize financial incentives as the primary tool to attract and retain employees. When the firm is prosperous and can afford high pay, employees flow to work in the company. However, will these monetarily motivated employees stay with the firm and overcome the difficulties? When the company is in trouble. The case study sheds light on the observation that monetary incentives are not necessarily the only way to retain and attract employees, especially expatriate managers from various countries working for the same global company. Multi-compensation and turnover reduction strategies, including both monetary and spiritual rewards like honors, treating employees as big family members, and tenure systems, etc., could be adopted to agglomerate employees and sustain the business.
Keywords expatriate compensation, expatriate selection, global HR, hotel strategies, and monetary compensation
Introduction
A high turnover rate has been a severe worldwide problem facing the hospitality industry. It is estimated that it costs a hotel 150% of the employee’s annual remuneration to hire and train a new employee (Alight.com, 2022). The hotel industry has the highest employee turnover rate among different industries in China, according to research findings. Data from 51job.com, the major job website, shows that the average turnover rate of employees in 2020 from all industries in China was 14.8%. (Cheng et al., 2021). The turnover rate is even higher in more developed cities or regions like Beijing and Shanghai, reaching 30% to 40% (Qiu et al.,
2014). Lv et al. (2012) state that the turnover rate of Chinese hotel employees is considered acceptable between 10% and 15%. However, more than 15% will cause many negative effects, such as increased costs, customer loss, uneven service quality, etc., which is unfavorable for the development of corporate culture and corporate brand. Therefore, this high turnover rate can result in increased dissatisfaction among employees, further leading to more staff movement and creating more disorder in the industry (Market Logic work for various reasons, not all of which are necessarily monetary in nature. This case study stimulates discussion about how this challenge can be even more intense when a transnational hotel company tries to use its global managers to implement its strategy but fails to set up a compensation system that employees perceive as being fair.
Theoretical Background
Porter’s (1980) classical competitive strategy states that when multinational companies enter foreign markets, they often adopt one of the four generic strategies—multidomestic, international, transnational, and mega-national. The critical difference among these strategic postures is based on the degree of global integration and the importance of local responsiveness. Both transnational corporations (TNCs) and multinational corporations (MNCs) are big businesses that work in many countries, but they have different management styles. TNCs, which are also called multinationals, are spread out and flexible to local demands, and they may split up their production or departments Team, 2022). Many hotels seek effective ways to reduce turnover and retain employees. A primary reason for turnover in the hospitality industry is low wages and limited competitive benefits (NetSuite.com, 2022). Therefore, increasing compensation appears to be the most effective and direct method to tackle the problem. However, people 1Auburn University, AL, USA Corresponding Author: Tong Yin, Auburn University, 205 South College Street, Auburn, AL 36830, USA. Email: [email protected]
Journal of Hospitality & Tourism Cases 00(0) around the world. For example, fast-food chains like McDonald’s and KFC customize some of their products for different markets. MNCs are centralized, and each location operates independently. Traditional MNCs are national companies with foreign branches. For example, Walmart is a US retailer that owns stores in several countries, such as Mexico, Brazil, and Japan, and also has partnerships in China and India (www.google.com). Transnational and multi-national companies require the highest degree of global integration. Irrespective of the strategy chosen, corresponding human resources practices are necessary to support implementation and success. A dilemma facing transnational companies is simultaneously acquiring a high degree of global integration and local responsiveness, as the two goals seem contradictory. A high degree of global integration means the parent firm has tight control over the local subsidiaries, and the local branches have little autonomy. In today’s highly competitive and ever-changing global market, the subsidiaries must attend to the local market changes and take appropriate actions immediately. To resolve the contradiction, a common practice transnational companies use is sending experienced and loyal expatriates who know the parent firm’s corporate culture well to manage the local subsidiaries. In this case, the expatriate manager knows how to adhere to the parent company’s values, rules, and cultures while adapting flexibly to local changes.
To encourage expatriate managers to relocate to a foreign country, transnational companies typically offer a salary that is several times their domestic pay and perks such as housing and children’s allowances, relocation assistance, airfares, healthcare, etc.
Expatriate Selection and Compensation
The success of an organization’s global strategic goals relies on managers who possess a deep understanding of the business and are highly motivated to excel. However, available statistics show that a notable number of American managers who are sent abroad for assignments end up returning prematurely, resulting in a potential loss of up to $1 million each (Wentland, 2003). Previous studies have determined that international relocations leading up to the new millennium had a failure rate ranging from 25% to 40%, resulting in premature returns, especially in developing nations. These failure rates have been linked to various factors, including the spouse’s inability to adjust to the host culture, the expatriate’s inability to adapt, and familyrelated issues associated with foreign assignments. The higher failure rate in developing countries is concerning, considering that this region is home to some of the most “attractive” and “growing” countries in the world (Halim et al., 2020). The failure of expatriates to adapt to the cultural aspects of their host country can result in challenging experiences and affect their work performance. This can have detrimental effects on both the expatriate and the multinational corporation. The process of cultural adjustment and interaction is widely recognized as crucial in determining the outcomes of expatriate assignments. Expatriate adjustment refers to the process of adapting to the lifestyle and work environment in their host country. It involves managing stress levels and overcoming any negative attitudes toward the host culture while developing new behaviors. Therefore, for expatriates to successfully adjust, they must understand the socio-cultural norms, thoughts, and emotions of the host culture (Sokro et al., 2021). The assistance provided by organizations to expatriates is crucial in ensuring successful adjustment, task completion, and job satisfaction, considering the high costs associated with expatriate failure. Generally, perceived organizational support refers to employees’ perceptions of their employer’s recognition of their contributions and willingness to aid them in work performance and handling stressful situations. Expatriates usually receive different kinds of support, such as career, adjustment, and financial help, such as housing allowance, displacement allowance for living in a foreign and potentially challenging location, relocation costs, and cross-cultural training allowances. The incentives or premiums have traditionally been 25% of the base salary of an expatriate. Therefore, the availability of organizational support plays a significant role in expatriates’ ability to adapt to their new surroundings in the host country, especially since they are often separated from their social support system back home (Chan et al., 2019). According to research (Sokro et al., 2021), the perception of support from an organization has been linked to beneficial employee results, including satisfaction with their job, a positive emotional state, commitment to the organization, job performance, engagement in organizational citizenship behavior, and a reduction in withdrawal behavior. In addition to an appropriate compensation strategy, it is crucial to have an effective selection process in place, one that evaluates a manager’s compatibility and willingness to work overseas, as well as their family’s receptiveness. As presented in the work of Wentland (2003), Ingo Theuerkauf’s model outlines the stages of a comprehensive selection process, including worldwide recruitment, company-wide screening, providing opportunities for international experience, and promoting expatriates to senior positions upon completion of their assignment. Studies reveal that Western firms tend to focus more on an expatriate’s past performance, abilities, and adaptability, while East Asian companies tend to prioritize professional knowledge and skills, willingness, determination, and patience (Tsai, 1998; L. C. Wu, 1995b; W. Y. Wu & Tarn, 1999; W. Y. Wu et al., 2000). That may be attributed to the fact that Asian companies expect their expatriates to be immediately productive upon beginning their international assignments, leaving little
Yin et al. time for them to learn on the job. Li (2003) specifically highlights the importance of willingness, which is considered the second most important selection criterion after work experience. Additionally, with limited resources and weaker organizational support, Asian expatriates often face role overload and longer working hours (Li, 2003). This further emphasizes the value placed on determination and patience, as demonstrated by their diligence and willingness to work long hours. One potential explanation for these differences is that Western companies tend to have more established systems and standards for international assignments, while Asian companies often operate in developing countries with less favorable living and economic conditions, which may impact the willingness of expatriates, especially those with school-age children (L. C. Wu, 1995a; P. E. Wu, 2000; W. Y. Wu & Tarn, 1999; W. Y. Wu et al., 2000; Yu et al., 2005). After World War II, American corporations became interested in expatriates and their compensation. However, in the early 1950s, very few international personnel positions were available, resulting in inadequate compensation systems for the increasing number of expatriates. Dickover (1964) proposed the concept of a balance sheet approach to compensate expatriates. This method links an expatriate’s pay to their home country’s pay and aims to balance the purchasing power between expatriates and executives in their home country. Today, there are six generic categories into which most expatriate compensation strategies fall under negotiation, balance sheet, localization, lump sum, cafeteria, and regional systems. The
negotiation approach is simple and allows organizations
to make individual agreements with each expatriate, but it is time-consuming and leads to compensation inconsistencies when there are around 20 expatriates. The goal of the balance sheet approach is to ensure that the expatriate does not suffer financially while on an overseas assignment, and ideally, it should provide an incentive to offset any financial, personal, or professional stress that may come with the assignment. This approach is typically used for senior and mid-level expatriates on temporary assignments lasting 1 to 5 years. It is not suitable for permanent transfers or indefinite assignments. The balance sheet approach consists of base compensation, incentive and equalization adjustments. The incentive component covers housing, relocation, cross-cultural training, and other allowances, which traditionally comprise 25% of the expatriate’s base salary but have been reduced to 15% to 10% in recent years. The equalization adjustments include cost-of-living, tax, and foreign exchange allowances. However, this approach can become overly complex to administer and may lead to expatriates viewing the incentives and adjustments as entitlements that are difficult to change. Some may also find it intrusive due to the personal information required to determine the appropriate standard of living for the expatriate (Reynolds, 1997; Wentland, 2003). The localization method aims to reduce the expensive expenses of expatriate pay by offering a compensation package that aligns with the salaries of local employees. This approach is commonly used for new expatriates who are embarking on a long-term assignment. However, it has been introduced in response to the concern that the balance sheet approach may heavily influence the lifestyle decisions of expatriates. The lump-sum approach combines all allowances and incentives under the balance sheet method into a monthly lump sum payment with the base salary. This allows the expatriate to use the lump sum for various needs such as housing, transportation, travel, and education. The cafeteria compensation approach is gaining popularity for senior-level expatriates with high incomes. This plan allows them to receive benefits like a company car, club membership, insurance, housing, and education without an increase in their taxable income. The regional systems compensation approach is used when an expatriate commits to working in a specific world region. The compensation plan may include any of the previously mentioned approaches. The main objective of this approach is to ensure fairness for the expatriate within their designated region. Despite the development of numerous expatriate compensation strategies, these approaches’ cost and failure rates remain relatively high (Reynolds, 1997; Wentland, 2003). In the early stages of China’s Economic Reform, expatriates from developed countries were widely used as senior and upper-middle hotel managers. They were paid at home country rates and got many benefits, such as free food and housing in the hotel, and various allowances. Nowadays, multinational companies tend to use fewer expatriates in China and hire more local managers, as there are enough skilled people in China, including both Western-educated professionals and locals with a lot of international experience and mindset.
The Giant Hotel Corporation
The Giant Hotel Corporation is the largest hotel chain in China, with global operations in Asia, Africa, South America, North America, and Europe. It has 165 five- and four-star hotels and 210 three- and two-star hotels,1 and its annual revenue is 3 billion dollars. Mr. Mike Yu, the co-founder and CEO, started a humble two-star hotel in 1997 in Shenzhen, China, and grew it into a genuinely multinational hotel chain in less than 30 years. The company is well known for its innovative and entrepreneurial corporate culture and highly competitive employee pay. The hotel chain boasts that it will offer the highest compensation in the local hospitality industry if the company operates successfully and the local economy is in good shape. After a firm standing in China, the Giant expanded into the international market. Mr. Yu is a
Journal of Hospitality & Tourism Cases 00(0)
Figure 1. Revenue composition by regions.
visionary and ambitious leader who wants to grow the Giant into a transnational company. As a retired colonel, he believed in Chairman Mao’s2 strategy and applied it to his business strategy. In the early global expansion stage, he targeted less developed regions in Asia, Africa, and South America, as the competition was less intense and the operational cost was relatively low. The Giant’s success in these markets proved his vision. However, he is more interested in entering European and North American markets, as these are the primary and most profitable markets. In 2000, he initiated his ambition to conquer the North American and European markets. By 2017, more than 70% of the company’s revenue was from overseas markets.
The Dilemma
Mr. Yu believes that talent is the most critical resource to his hotel chain, and recruiting and retaining the best talents in the industry will lay a solid foundation for the success of his global expansion strategy. While emphasizing the importance of an innovative and entrepreneurial corporate culture, a comprehensive and scientific management system, and efficient process management, he thinks that the effective way to attract and retain the best talents is to reward them with the most competitive compensation package in the region and industry. The company’s working environment is highly stressful, characterized by long hours, high pressure, demanding tasks and requirements, and an unhealthy balance of life and work. Despite these disadvantages, fresh graduates and experienced professionals still flowed to the company due to a highly competitive compensation package consisting of lucrative base pay, generous performance-based bonuses, profit sharing, and other attractive fringe benefits. The HR strategy successfully supported the company’s global Figure 2. Five-year sales, profit, cash flow.
Figure 3. New hires (persons).
expansion strategy. Nevertheless, the company later encountered unprecedented trouble due to the pandemic and China’s issues with major Western countries, and the revenue from overseas markets shrank sharply. The company could not afford the high pay, and many employees left. Figures 1 to 3 below reflect how the financial and talent situation trended during the period from 2016 to 2020 (Figure 4).
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Figure 4. Five-year average salary (USD).
HR Practices Supporting the Giant’s Global
Strategy
Mr. Mike Yu’s vision is to build a transnational corporation instead of an international company. He also wants Giant to be present in every corner of the world. Beginning in 2000, he started to merge and acquire hotels globally. However, the problem evolved to be the lack of sufficient talents with a global vision and management experience. The Giant’s corporate structure is highly centralized, with all significant decisions being made and resources being allocated at the headquarters in China. With a presence in such geographically and culturally diverse regions, the Giant found it challenging to cope with ever-changing local markets. The company believes the best solution to the contradiction between centralization and local responsiveness is sending committed and experienced expatriate managers to overseas markets while maintaining a solid and consistent corporate culture that emphasizes innovation and entrepreneurship across different business units and countries. In the early stage of global expansion, the Giant targets less developed markets like South America, Africa, and Asia for the sake of less competition and low operational costs. Because it is less attractive to live in these countries far from home, few expatriate managers are willing to be sent to these countries. The Giant provides generous and attractive remuneration and benefits packages to encourage more experienced managers to work in these areas. For instance, expatriate managers’ bonuses can be 3 to 5 times that of their domestic colleagues, and the per diem ranges from $50 to $2,000. In addition, the company reimburses round-trip airfare three times per year. The company rents luxury apartments or houses in good neighborhoods to ensure expatriate managers live a safe and comfortable life far away from home. Because of these favorable policies, many experienced managers are attracted to work abroad. The frontline employees are locally hired and paid above average by local industry standards. Due to the use of this country-based compensation system, the consequent compensation gap between expatriate and local employees, and the diversity of cultural backgrounds, local employees become sensitive to trust, equity, and fair treatment from the organization and expatriates. In Argentina, the company rented luxury apartments located in affluent and secure residential areas. While these high-end properties were well-known, most local employees never had the opportunity to visit them. Expatriate managers received a monthly salary of $6,000, along with additional benefits such as free housing, transportation, and various allowances. Altogether, their total monthly compensation was approximately $8,000, plus an annual performance-based bonus. In contrast, local managers earned about $1,000 per month, while front-line employees made around $300, which was $100 higher than the national average salary in Argentina. The inequities and unfairness among expatriates, local management, and frontline employees are exacerbated in several ways. First, although expatriates and local management perform similar roles, the pay disparity can diminish the morale and loyalty of local management to the company. Second, while frontline employees recognize that expatriate managers represent the parent company and not only oversee operations but also hire them, these expatriates enjoy higher pay, which is based on their home country’s rate, along with additional perks. The significant pay gap between local management and frontline employees is often viewed as unfair and unreasonable. Witnessing the luxurious lifestyle and numerous perks enjoyed by the expatriate managers, both local managers and frontline employees began to feel undervalued and exploited by the parent company. This sense of inequity resulted in diminished morale, lower job satisfaction, and reduced motivation among the local staff. The reflection theory on pay states that employees interpret compensation in various ways, such as a source of motivation and a measure of their status within the organization (Kang & Shen, 2018; Thierry, 2001). This perception of unfairness due to differences in compensation can lead to negative effects on job performance among employees in the local hospitality industry. Studies have shown that this perceived inequality in compensation can lead to deviant behavior in the workplace, reduced creativity, poor job performance, and a desire to quit one’s job (Hon & Gamor, 2021). Based on Adam’s equity theory, employees who perceive a compensation gap as an injustice tend to consider it unacceptable. The perceived unacceptable disparity in pay among employees has negative effects on the work environment, such as reduced levels of motivation and job satisfaction. Consequently, a disparity in compensation is viewed as unfair treatment and, therefore, positively related to counterproductive work outcomes, including organizational deviance and interpersonal deviance among local employees, job dissatisfaction, and non-commitment to the job or firm (Vahter & Masso, 2019), while MNCs very much require positive attitudes of their local employees. Employees who have confidence in their supervisors tend to believe that
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their supervisors have their best interests in mind and, therefore, go above and beyond their expected duties. Studies have shown that trust in leaders, as demonstrated by citizenship behavior, can lead to positive results in the workplace (Wang & Huang, 2019). Recent research has also suggested that trust can have a positive impact on job performance, organizational citizenship behavior, and other productive outcomes. These findings indicate that high levels of trust can result in increased productivity, as concluded by Dirks and Ferrin (2002) in their 2002 meta-analysis of trust in leadership. Conversely, low levels of trust may have negative consequences for both the organization and its employees, resulting in counterproductive work outcomes. However, because most Chinese people are atheists and don’t speak other languages, and expatriate managers have many perks, they have difficulty integrating into local life successfully.3 While the company tries to localize its operations in overseas markets and provides high pay, it adopts rigorous and demanding standards in its home country to manage the local employees and evaluate their performance. The performance appraisal and evaluation are entirely based on performance and linked to the payment without considering tenure, experience, rank, age, and qualifications. Otherwise, they will be demoted or ineligible for bonuses. Because of the highly competitive pay, local employees still currently flow to work in the hotel and undergo rigorous and demanding schedules, but will this last?
Conclusion and Discussion Questions
The Giant used the monetary incentive as the primary tool of its HRM strategy to support its global expansion strategy, but realized that this HRM strategy would not work when it was in trouble. While most people work to earn a living, there are more essential goals in life than making money. Money is not the only way to unite and motivate employees to work hard and stay longer. Whereas profit is the goal of for-profit companies, employees are members of the big family and should be treated with more dignity and warmth. Some employees of the Giant Hotel Corporation were laid off due to low performance; they could not accept the cruel truth and chose to jump from the high buildings. In an interview with the press, the journalists asked why the founder and CEO of the company did this to his employees. His answer is: The Giant is not home. If this is the case, isn’t it reasonable and fair for employees to leave the Giant Hotel Corporation when it is in trouble?
Discussion Questions
• In addition to money, what are other possible ways to
motivate and unite employees of a global company such as The Giant?
• What would characterize the best and most fair way
to appraise and evaluate the performance of employees working for a global company such as The Giant?
• Should factors other than performance be included
and considered in managers’ performance appraisal and evaluation?
• What are the pros and cons of The Giant’s HR com-
pensation strategy and practices?
• What is the best organizational structure for a trans-
national company like the Giant?
Declaration of Conflicting Interests The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article. Funding The author(s) received no financial support for the research, authorship, and/or publication of this article. ORCID iDs Tong Yin https://orcid.org/0009-0007-6810-9888 Baker Ayoun https://orcid.org/0000-0001-6746-4780 Notes
1.
In China, hotels are rated using a standard 1-to-5-star system overseen by the China National Tourism Administration (CNTA). This system aligns with international standards, with higher star ratings indicating greater luxury and amenities. However, the CNTA applies specific criteria to determine a hotel’s star rating, considering factors such as service quality and physical features.
2.
Chairman Mao, the founder and first president of the People’s Republic of China, adopted a military strategy that began in remote rural areas when his forces were weaker. As the strength of his forces grew, they transitioned to targeting more developed cities to confront and overcome the enemy.
3.
The World Population Review 2023 reports that 91% of China’s population has no religious affiliation, making it formally an atheist state. Although Chinese schools have taught English for a long time, few Chinese are proficient in English. Many people in China are learning English, but less than 1% of people from mainland China can speak it well (www.google.com).
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