Are we paid to be creative? The effect of compensation gap on creativity in an expatriate context

In developing countries, there is a relatively large compensation gap between locals and expatriates, which incurs a wide range of negative reactions from the former. Referring to the equity theory and reflection theory of pay, we proposed a negative association of local employees’ creativity with perceived compensation gap. We adopted a multi-level approach to examine the moderating effects of trust climate directed toward the expatriates on individual-level relationship of compensation gap and creativity. Data were collected from 298 Chinese employees and their supervisors in the service sector. HLM results show that perceived compensation gap was negatively related to employee creativity, more important, we found that climate of trust (cognitive and affective trust) in expatriates can mitigate the negative effect of compensation gap and employee creativity. Research and managerial implications for managers are discussed.